The head of Arm’s China business, Allen Wu, has made a Rmb1.2bn ($179m) gain on a personal investment he made in one of the chip designer’s Chinese clients, after falling out with Arm over alleged conflicts of interest.
Mr Wu has been fighting Arm for control of the Chinese joint venture since June last year, when he disregarded a 7-1 vote by Arm China’s board to remove him. He remains Arm China’s legal representative and holds the company’s official stamp, making it difficult to dislodge him under a centuries-old Chinese system.
He is also in control of the company’s Chinese bank account, which holds $500m to $600m, and has been used to pay his legal fees for a court battle with its majority shareholders, Arm and Chinese partner Hopu Investments, according to two people familiar with the matter.
Arm China’s bank account has been further bolstered by frequent delays in remitting the licensing fees due to UK headquarters, four people close to the situation said.
One person involved in the dispute between the Arm China board and Mr Wu said he had advised the local government in Shenzhen, where the joint venture is registered, to place Mr Wu on a travel blacklist to prevent him from leaving China and to put restrictions on the bank account to prevent large transfers from being made. Mr Wu, 53, was born in China but is a US citizen.
An Arm China spokesperson speaking on behalf of Mr Wu said he had not been put on a blacklist and that the allegation was “completely fabricated”.
The spokesperson added that the operation of Arm China’s bank account was “fully compliant” with the company’s internal controls and Chinese law.
“Payment for legal fees is made in compliance with company policies,” the spokesperson said, adding that licensing fees had been paid according to its obligations under the joint venture agreement.
Mr Wu’s Rmb1.2bn windfall came from a 2019 investment in Bestechnic, which designs audio chips using Arm’s energy efficient blueprints and listed publicly in Shanghai last month. The Rmb127m investment was made by three investment funds under Mr Wu’s control, including the $100m fund he set up, Alphatecture.
Their 3.2 per cent stake in Bestechnic had a market value of about Rmb1.3bn as of Friday. Bestechnic paid Rmb25m in licensing fees to Arm China in 2019.
People close to the Arm China board claimed that Mr Wu did not disclose his investment in the Arm client when it was made. One person added Mr Wu had not brought the investment opportunity to Hopu-Arm Innovation Fund, which had been set up to make investments in Arm’s ecosystem and where Mr Wu was co-chairman.
Mr Wu has previously defended making investments in Arm clients, saying it was “common practice in our industry”. Mr Wu’s spokesperson said the investment in Bestechnic was “fully disclosed”.
SoftBank, Arm’s owner, is leading negotiations with Mr Wu as the battle for the Chinese joint venture delays its plan to sell Arm to US chip company Nvidia for $40bn, which will also need approval from China’s market regulator. SoftBank in 2018 said China contributed a fifth of the chip designer’s overall sales.
Nvidia is in discussions with Chinese regulators, but has not yet made a formal filing for a review of the deal, three people close to the situation said.
A Chinese antitrust lawyer said the submission delay would make it very difficult to close the deal in the 18-month timeframe laid out when Arm and Nvidia announced it in September last year.
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Nvidia said: “The regulatory process is confidential and we won’t be providing comment on milestones along the way,” while reaffirming the 18-month timeline.
SoftBank referred questions to Arm, which said: “Arm remains unwavering in our support of Arm China and its customers.”
Qianer Liu contributed reporting.