Senior members of Arm Holdings PLC (NASDAQ:ARM)’s Chinese entity have split off to form their own semiconductor venture, which is going by the name Borui Jingxin.
According to anonymous sources speaking to Bloomberg, Arm China’s former head of research and development left for the new company, as did a former government relations employee who now acts as chief executive of the breakaway firm.
Sources say Borui Jingxin has direct backing from the government of Shenzhen, a city regarded as China’s main technology hub.
The firm is over two years old and is said to be seeking to recruit engineers from Arm China.
At face value, Borui Jingxin will not be in direct competition with Arm given that Arm creates the IP which chipmakers like Borui Jingxin build upon.
In fact, Borui Jingxin has become a major new licensee of Arm’s microchip blueprints, according to reports.
However, investors have expressed concerns that the new venture still poses a threat to Arm US’s China-derived revenues.
At Arm’s length in China
Arm’s position in China is a complex one.
When SoftBank acquired the British semiconductor big cap in 2016, the Japanese conglomerate quickly divested the majority of its China interest to domestic players.
However, Arm China acts as Arm US’s single largest customer, responsible for around 24% of revenues for the US-listed corporation.
This China exposure was regarded as one of the primary headwinds in anticipation of Arm US’s $50 billion-plus IPO in September.
“We depend on our commercial relationship with Arm China to access the PRC market,” Arm wrote in its IPO prospectus. “If that commercial relationship no longer existed or deteriorates, our ability to compete in the PRC market could be materially and adversely affected.”
The relationship between Arm US and Arm China has remained steady so far, but with geopolitical tensions increasing, and Arm US admitting it has no control over Arm China, the relationship is not set in stone.
It is questionable to what extent Arm China could operate without a commercial partnership with Arm US, but anxieties over the mutual relationship remain nonetheless.
As for Borui Jingxin, it said it was not in direct competition with Arm China, despite being on a major headhunting drive.
Furthermore, Borui Jingxin is targeting the cloud computing and edge controllers markets, whereas Arm operates almost exclusively in the smartphone space where it has an effective global monopoly.
Monopolies, however, don’t always last, and a domestic Chinese competitor with sufficient PRC backing could prove to be a disruptor in Arm’s largest global market.