High in a Shenzhen office tower, the new chief executive of Arm’s China unit found a six-man security team barring him from the offices of the British chip designer.
But Liu Renchen, glasses pressed to his nose and khaki to his navel, was determined to go in and resolve a two-year corporate battle. Seizing control of the renegade Chinese unit is crucial to plans by Arm owner Japan’s SoftBank to list the UK’s biggest tech company.
Last week, Shenzhen officials finally agreed to remove Arm China chief Allen Wu, erasing his name from business records and fashioning a new “chop,” or corporate seal, that authorizes official documents and with which Wu held power for nearly two years.
Wu refused to surrender. “Legally we have control, physically the other side doesn’t put it on a silver platter,” a person close to Arm China’s board said. “We have to go in and take it.”
This account of the battle for control of Arm China is based on several people with direct knowledge of the events. Allen Wu, Arm China, Arm and SoftBank did not respond to requests for comment.
The clash ended after police descended on Arm’s offices on the 24th floor and took away two of Wu’s guards. Liu posed for a stiff, unsmiling photo in front of large Chinese figures hanging in the fountain of the office: Anmou Keji or Arm Technology.
But the resumption of the Shenzhen office last Friday was only a partial victory, as Wu’s team warned city workers to work from home until further notice.
In recent days, both sides have bombarded Arm China’s roughly 800 employees with messages. Wu’s team sent instructions to report “requests for information or fulfillment of any order” to their current supervisors “to prevent disclosure of non-public information to the outside.”
Meanwhile, his loyalists controlling the computer system were blocking emails and deleting internal messages from the new Arm-backed leadership team that was asking employees and managers to stop obeying Wu. His team had also retained the bank accounts, the website, social media accounts and the head office in Shanghai.
But on Friday morning, Wu’s grip on the company began to crack. An IT manager ‘betrayed’ him, a person involved said. Liu’s emails began to land in staff inboxes. The Arm China website, used by Wu to propagate attacks on SoftBank as a “big western capital consortium” bent on hobbling China’s chip industry, has been taken down.
When Arm and his Chinese partner Hopu Investments regain full control of the business, it will be a business that Wu has rebuilt in two years of unfettered rule.
He systematically eliminated disloyal employees and encouraged personal loyalty by handing out bonuses and perks while hiring dozens of employees. Recent red Chinese New Year envelopes filled with money were stamped with the character of his surname “Wu” rather than the company name.
He also pushed the idea internally that “Anmou Keji” is an independent company dedicated to developing China’s semiconductor industry, a message that led some core staff to see Liu as an illegitimate successor.
Last week, 430 Arm China employees signed an open letter supporting Wu. working together to make Anmou Keji a great Chinese technology company!” said the letter.
While some employees said they were under pressure to sign, their admiration for Wu and his willingness to continue supplying chip designs to Chinese national champion Huawei in the face of sanctions from Washington is also real.
A similar open letter published two years ago at the start of the dispute was used as a test of loyalty, several employees who did not sign were demoted. Jurgen Hao, who worked in the sales team in Beijing, said he was stripped of 80% of his critical customer accounts because he refused to add his name.
The corporate battle has highlighted the dangers of doing business in China for foreign investors drawn by the lure of the vast market.
At almost every turn, Arm and its owner SoftBank were outmaneuvered by local operators. The Communist Party-controlled courts have never held a formal hearing on the lawsuits related to the standoff. In the end, it took the possibility of losing Arm’s working interest in the local joint venture for the Chinese government to act.
Liu, a government adviser and businessman who has married his career to the interests of the state, replaces Wu as co-CEO and in the critical role of legal representative. For more than a decade, he has worked to facilitate technology transfer to China, with a stint in San Francisco recruiting talent and tech projects in Shenzhen, according to state media. He currently runs a state-backed company called Shenzhen Qingyan Technology Transfer Co.
Those involved said Liu was a compromise candidate chosen to satisfy Chinese officials and pave the way for Arm China to return to its majority shareholders.
From Beijing’s perspective, Arm’s energy-efficient chip plans are a crucial piece of the puzzle in the country’s race to catch up with the United States in semiconductors. Arm’s designs underpin almost every smartphone.
But as with any foreign product essential to China’s tech supply chain, Arm made Beijing uncomfortable. To allay those concerns and further integrate Arm’s designs into China’s booming electronics industry, the British company set up a joint venture in 2018.
Chinese investment firm Hopu took a 36% stake and Wu traveled the country to attract other investors. “Allen spent months planning the structure of the joint venture to maximize his control,” a Wu confidant said. Most of the money Wu raised, $202 million in total, bought a stake of 13.3%, which on paper was ultimately controlled not by Wu, but by a replacement shareholder.
Arm executives in Cambridge appear to have been unaware of the arrangement. It is still unclear what will happen to Wu’s shared interests. He has already asked for up to $200 million to buy it out.
Those involved say that with Shenzhen’s record change, Arm and his partner Hopu will eventually take full control of the business, but note that the stalemate could still drag on because Shanghai, where Wu and its main offices are based, remains under a Covid -19 confinement.
“He has a team of creative lawyers looking for ways to keep him in power,” the person close to the board added. He may not be able to keep paying them from Arm China accounts any longer.
Nian Liu contributed reporting from Beijing