【Text/Observer Network Lv Dong】
Macro headwinds and sluggish consumer end markets are bringing more difficulties to the upstream chip industry chain, and many companies choose to lay off employees to reduce expenses.
On February 11, Reuters, citing three people familiar with the matter, reported that ChinaArm China, the joint venture of SoftBank Group's chip company Arm, in China, laid off 90-95 jobs last week to cope with this year's challenging business outlook.
The Observer contacted Arm's Shanghai office in China about the matter, but the phone went unanswered over the weekend.
Reuters also did not receive comment from Arm China.
Screenshot of the Reuters report
The layoffs come as SoftBank tries to take Arm public this year. The Chinese market has been a major source of Arm's growth, but Arm's two-year "power war" led to the ouster of the former CEO, causing problems for the company.
Two sources quoted by Reuters said that most of the employees laid off by Arm China were R&D engineers. Before the layoffs, Arm China had about 700 employees. Another source said that last year, Arm laid off employees around the world, affecting up to 15% of employees, and 1,000 jobs may have been affected, but it did not affect Arm China at that time.
Founded in 1990 in Cambridge, England, Arm does not manufacture chips, but focuses on developing low-power chip IP and licensing it to chip design companies. Based on this business model, Arm's main revenue streams include IP licensing fees and chip royalties.
The financial report disclosed that in 2021, Arm's revenue was 2.7 billion US dollars (about 18.4 billion yuan), a year-on-year increase of 35%. Among them, the Arm China joint venture accounts for about 20% of the total revenue, or about $540 million. In the same year, the entire Arm chip licensing business generated revenue of $1.13 billion, and shipments of chips based on the Arm architecture reached 29.2 billion.
In 2016, Japan's SoftBank Group wholly acquired Arm for $32 billion. At present, Qualcomm, MediaTek, Apple, Huawei and UNISOC are all using Arm-related technologies to develop chips, and downstream applications are mainly smartphones, but also include the Internet of Things, PCs and data centers. In 2019, Arm held a 90% share of the global mobile processor and IoT processor market.
In the past two years, US chip giant Nvidia has tried to buy Arm from SoftBank for up to $66 billion, but eventually abandoned it because it could not pass antitrust investigations in various countries, and then SoftBank opened Arm's IPO plan.
The predecessor of Arm China is Arm's subsidiary in China, which has a history of more than 20 years. In April 2018, Arm's China business was spun off and a joint venture was established with Chinese capital. The official website disclosed that Arm China's current office locations include Shenzhen, Shanghai, Beijing and Chengdu, with 900+ employees and 85%+ R&D personnel.
Although the enterprise investigation currently shows that Arm's shareholding in Arm China is 47.3%, it is the actual controller of the latter. However, according to the agreement at the time of the establishment of the joint venture, Arm China is a Chinese-owned holding company with 51% owned by Chinese capital and 49% owned by Arm, although the equity of Chinese capital is more diversified, with HOPU Fund holding 36% and Anchuang Investment holding 15%.
Arm China has also been emphasizing its "independence", the official website says that the company is an independently operated, Chinese-controlled joint venture, and is also China's largest chip IP design and service provider. According to disclosure, Arm China currently has more than 300 authorized customers in China, 95% of domestic SoCs are based on Arm processor technology, and the cumulative chip shipment has exceeded 25 billion.
Screenshot of Arm's official website
While ostensibly thriving, Arm China has seen shocking high-level turmoil over the past two years: former CEO Wu Xiongang has refused to be removed from the board and accused SoftBank of seizing control of Arm China, turning independent joint ventures into fully controlled subsidiaries that serve its own financial interests.
Although Wu Xionggang's continuous voice caused an uproar in the industry, with Arm China completing the industrial and commercial changes in April last year, Wu Xiongang finally fell out. Soon after, Arm China officially announced that the new co-CEOs Liu Renchen and Chen Xun have fully taken over the commercial operations of Arm China, the former graduated from Tsinghua University and has management experience in a number of R&D and investment institutions; The latter is the managing partner and head of China at SoftBank's Vision Fund.
In fact, the most concerned thing from the outside world is not Wu Xionggang's stay, but whether Arm China's management will actively deploy self-developed IP as before. The official website disclosed that since its independent operation, Arm China has been investing heavily in self-research business, and has launched self-research results such as "Zhouyi" NPU, "Xingchen" CPU, "Shanhai" SPU and "Linglong" ISP & VPU.
Before going out, Wu Xiongang once claimed that Arm China's biggest contribution is to truly put Arm technology in China, and through vigorous development of independent research and development, improve the safety and autonomy of the industrial chain, "perhaps because Arm China has done too well and is guilty."
In response to external concerns about independent research and development, Liu Renchen, co-CEO of Arm China, said in a visit to ZTE Microelectronics in June last year that while Arm China insists on investing heavily in self-developed IP, it will also work closely with Arm to promote technology landing.
Renchen Liu and Heng Chen, the new co-CEOs of Arm China
While Arm's battle for control of China is over, Arm's challenge is not over. In 2022, global smartphone shipments declined for four consecutive quarters, and the overall market fell by 12%, which also hit Arm's downstream mobile phone processor customers.
Sanyam Chaurasia, an analyst at market research agency Canalys, said that at the end of 2022, mobile phone shipments in major markets fell sharply, and Samsung and Apple were hit hard. Despite some signs of stabilisation in Q3, Asia Pacific and Europe performed their worst ever in Q4 2022, with significant inventory backlogs in the head markets.
In the fourth quarter of 2022, the revenue of Qualcomm, a US mobile phone chip giant, was US$9.463 billion (about 64.5 billion yuan), down 12% year-on-year; Net income was US$2,235 million, down 34% year-over-year. During the same period, Taiwanese mobile phone processor manufacturer MediaTek's revenue was NT$108.194 billion (about RMB24.4 billion), down 15.9% year-on-year, hitting a two-year low; Net profit after tax was NT$18.514 billion, down 38.6% year-on-year.
Looking forward to 2023, the road to recovery of the consumer electronics market represented by smartphones is still difficult. On February 10, Canalys analyst Liu Yixuan said that 2023 will be a difficult year. Recent macroeconomic trends indicate that the risk of a global recession is increasing, and the recovery path of the smartphone market is uncertain. Manufacturers and channels will closely monitor the market dynamics and maintain a cautious attitude.
In this context, the income of Arm and Arm China will inevitably be affected, which may be a major incentive for Arm China's layoffs. In an interview last year, Arm CEO Rene Haas said the IPO process would be more cautious about increasing administrative expenses.
In fact, in order to cut back spending in the macroeconomic downturn, layoffs have become the norm in recent months for European and American technology companies such as Intel, Google, Microsoft, Amazon, Dell, and HP. On February 7, data tracking website layoffs.fyi said it had recorded at least 94,838 layoffs at world-renowned tech companies since 2023.
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