Row at Arm China deepens as staff allege UK parent interfered with contracts

SHANGHAI (Reuters) - A rift between UK-based chip designer Arm Ltd and its Chinese unit intensified on Tuesday as staff of Arm China alleged its parent company and a key investor had placed pressure on some Arm China customers to cancel contracts.

The allegations, made in an open letter from Arm China staff released on Chinese social media outlet WeChat, escalates a row between the two companies over the future leadership of Arm China, which first unfolded publicly in June.

Arm China is co-owned by Arm Ltd - a unit of Japan's SoftBank Group 9984.T and one of the global chip industry's major suppliers - and Chinese private equity firm Hopu Investments.

In June Arm Ltd and Hopu tried to get Arm China’s CEO Allen Wu replaced after Arm Ltd said it had conducted an investigation after complaints from a whistleblower and some current and former employees and found serious irregularities in Wu’s conduct. Those irregularities have not been disclosed but were rejected by Shanghai-based Arm China, which said in June that Wu would remain as CEO.

In Tuesday’s letter, signed by around 200 Arm China staff, the staff allege that directors of Arm Ltd and Hopu Investments had contacted Arm China’s customers and threatened to modify or cancel existing contracts.

The staff also allege that some executives of Arm Ltd and Hopu Investments placed phone calls with Arm China staff and subjected them to “threats and harassment.”

Arm Ltd and Arm China did not immediately respond to requests for comment. A staff member of Hopu Investments declined to comment on the matter when contacted by phone.

Arm China, which generates revenue by licensing chip architecture to Chinese companies, was established in 2018 when SoftBank sold a 51% stake in Arm Ltd’s Chinese subsidiary, Arm Technology (China) Co Ltd, to a group of Chinese investors. SoftBank had acquired Arm in 2016 for $32 billion.

Reporting by Josh Horwitz; Editing by Susan Fenton