A mind-boggling story is unfolding of how one of the world's leading semiconductor design and IP (intellectual property) firms set up a Chinese subsidiary, only to have the boss of the subsidiary "go rogue", take it over, and run it as a Chinese company for his own and that country's benefit, without so much as a "by your leave".
Arm is widely regarded as the most important semiconductor IP firm. Their IP ships in billions of new chips every year from phones, cars, microcontrollers, Amazon servers, and even Intel's latest IPU. Originally it was a British owned and headquartered company, but SoftBank acquired the firm in 2016. They proceeded to plow money into Arm Limited to develop deep pushes into the internet of things, automotive, and server. Part of their push was also to go hard into China and become the dominant CPU supplier in all segments of the market.
As part of the emphasis on the Chinese market, SoftBank succumbed to pressure and formed a joint venture. In the new joint venture, Arm Limited, the SoftBank subsidiary sold a 51% stake of the company to a consortium of Chinese investors for paltry $775M. This venture has the exclusive right to distribute Arm’s IP within China. Within 2 years, the venture went rogue. Technically it has always been legally independent, but Arm still maintained control. Recently, Arm China gave a presentation to the industry about rebranding their own IP, extending it by developing more, and emphasizing that they are striking their own independently operated path.
This firm is called “安谋科技”, but it is not part of Arm Limited.
This is the tech heist of the century.
. . .
Despite formally being fired, Allen Wu has remained in power. He ousted executives that were loyal to Arm. He has even hired security paid for by Arm China that reports to him. This security has kept Arm out of the Arm China offices. Allen Wu has aggressively taken over the firm and is operating it how he sees fit. One interesting tidbit is that Allen Wu sued Arm China in order to declare his dismissal illegal. He essentially sued himself as he represented both sides in that specific court case.
. . .
Arm has been shaken to its core with the 2nd largest market snatched from underneath it. According to Arm, no IP has been stolen, but Arm cannot license directly license to any firm in China. They must go through 安谋科技.
Only the rogue Arm China entity controlled by Allen Wu can create agreements for licensing Arm IP in china. While Arm is the largest individual owner in this firm, they have no control or power over the operations.
There's more at the link.
Tell me again . . . why would any Western company subject itself to this sort of risk in order to do business in or with China? I know many will say that if you want to have access to what's rapidly becoming the world's biggest market, you don't have any choice: but if you know the risk of being robbed blind like this is far from paltry, you'd better figure out whether such access is worth it.
It might also be worth asking whether it's in any nation's interest to allow Chinese firms to buy local companies and strip-mine them of their intellectual property - their designs, technical knowledge and everything that makes them attractive to investors in the first place. Once that's gone, all that will be left is an empty shell, which the new Chinese owners can choose to run into the ground if they wish. The innovation and technical superiority that made the company what it is will have disappeared.
Fundamental dishonesty on open display. That says it all.
Peter
17 comments:
"why would any Western company subject itself to this sort of risk in order to do business in or with China?" Indeed, given that this kind of thing has been going on for at least a decade.
And the USA consumer continues to clamor for more and more products with "connectivity to the interwebs".
Seems to me that could/will/should be a problem for the good old USA.
China basically owns most of our manufacturing. The shit's gonna get really close to the fan when they invade Taiwan and the steady stream of computer chips dries up like a California resevoir.
SOP. You put your ideas in their hands, you have to have a Chinese partner to do business in China, they take your idea and open up their own factory as soon as it is proven to be profitable. Well known problem with doing business in China but I assume that the flip side is that you can potentially make millions by entering the Chinese market and by taking advantage of the Chinese costs of manufacturing. My brother worked for a startup which created really cool and high quality collapsible water bottles. He spent a good portion of his time monitoring Amazon for Chinese knockoffs and filing complaints.
Closer to home, Amazon is doing the same thing with their Amazon Basics line. Find a popular product, reverse engineer it using Chinese factories, sell it on Amazon, often as a "customers who looked at this often bought...". The original can't compete on price.
It will stop when people stop buying things that are made in China and when our rulers start cracking down on the Chinese takeover of whole industries. I am a free trader, but am coming to believe that this only works between relatively free countries.
Any business in China is with a wholly-owned subsidiary of the PLA and the ChiCom Central Party, since 1948.
How many times must some fools' blistered fingers go wabbling back to that fire...?!?
Just imagine Xi Jinping as John Galt and maybe understand China's sociopathic economic philosophy.
It's not just their economic philosophy.
There is a very strong social push to win at all costs. Be the first. Doesn't matter who you knock aside or step on. They make the so-called 'robber barons' look like gentle lambs by comparison.
Years ago Motorola's bean counters
conned management into producing
components in China.
It went downhill from there.
Now China OWNS Motorola.
Sux to be them!
Twisting the truth into dishonesty and claiming it is still true is a modus operandi which is infectious and spreads throughout a system rotting it from within. Short term gains may be realized, but the long term consequences of the lack of a substantial foundation will ultimately have to be reckoned with.
The question must be rhetorical. None but the wilful blind cannot see the answer is greed.
Greed owes no allegiance but to itself. O ye provincials wisking for sovereignty.
China is at war with the US. Big ocean in the way and they don't really want the land (I don't think) so the easiest form of war is economic, and we are paying for it. When China invades Taiwan, say goodbye to IC's until we can produce our own (Our Government will fight that tooth and nail, China has been buying politicians wisely). China has our centers of IP thoroughly penetrated, even if we were to cut them off I doubt it would impede the flow very much.
This may be a cold war without shooting but it is no less effective for all of that. I would say quit buying Chinese products but too much of our manufacturing relies on precursors from China. Still, do the best you can to buy something that has never seen the insides of a ship. We need to create a drive to manufacture in America. Any blue collar worker is a hero and a front line fighter in this economic war. Our unions were one of the first organizations to be subverted. I remember listening to old guys talk about how the unions used to enforce quality and productivity via back room beatings. When it became about protecting the worker and not the product, quality went down and cost went up. Easy to justify outsourcing. Bottom line, think about what happens if China just says no to shipping product to the US.
One other thought, we now spend 10-15 oil calories getting 1 food calorie to the table. Corporate farms own the FDA the way big Pharma owns the CDC and NIH.
we need an economic revolution, one that emphasizes nationalism and pride (American quality should be outstanding). We've fooled generations into believing consumerism is good, but we've financed it via debt. Today's 20 somethings are into a minimalistic lifestyle, but I think it is as much a reaction to school debt as anything else. But it is a potential seed to a very necessary change.
"Tell me again . . . why would any Western company subject itself to this sort of risk in order to do business in or with China?"
Because the company is run by human beings, which is to say, insane fools. Some clown or con man will paint a picture of all the money to be made, selling things in the world's most populous country, employing 'cheap' labor, evading environmental laws, etc. This will make the CEO's dick get very hard. As for the risks, those are unpleasant to think about, and hard to quantify precisely. As a result, they WILL be quantified precisely, at precisely zero. Maybe not explicitly, but emotionally, they will be disregarded.
Also, it would be RACIST to believe that the Chinese Communists might act the way all Communists and all Chinese have always acted in all circumstances, namely, to try to cheat anyone who's a capitalist, a foreign devil, or not a member of their family. When you're all three, you might as well go out to the range, stand in front of the target, and scream "Shoot me!" But again, that will not be contemplated. Your social set would look down on you if you committed such crimethink.
And so it will go, till we have a new species.
For an older example, Schwinn bicycles. They opened a Chinese factory to cut costs, then found that it ran 8 hours making Schwinn bicycles, and 16 hours making the same bikes under Chinese owned brands which undercut Schwinn. Schwinn is only a name now.
John in Indy
At a former (unnamed) employer, I was asked to look at a competitor's model.
I double-taked. There was so much that was IDENTICAL to the product we made, it was clear they'd just reverse-engineered a lot of what we'd done. All the production was in China, of course, and I have ZERO DOUBTS that the Chinese employees were double-dipping to help local competitors.
But that's the mistake so many transnational companies make: thinking that company loyalty will override national loyalty.
Nothing new here. Back in the 1990s I head the story of an Australian engineering firm who had some really cool knowledge and they agreed to go into a joint venture with a Chinese company as there were zillions to be made from the application of their technology. Verily their announcement was touted and celebrated in the trade magazines.
Well, later down the track (once their IP has been handed over), the Chinese company says "sorry, we run out of money" and it's goodbye.
Ah, encountered issues dealing with certain (well known) brands of laptops being denied entry to secure facilities in the DC area while working IT at a large University... Turns out that this particular brand was known to have "security issues", so was replaced with Dells... The Lenovo reps of course denied this, but I trusted the word of the Faculty member who experienced it firsthand and in a few months the FBI quietly announced it as a "known issue". After this and watching so much of the paid for research getting stolen? Nope, glad I am in Texas working at a MUCH different University...
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