ARM flags Neoverse risk of China technology restrictions
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The latest ARM Neoverse processor cores are too powerful for customers to export to China says the company in its filing ahead of a public share offering.
US and UK trade and national security policies regarding exports to the People’s Republic of China (PRC) of technology with potential military uses would require ARM to obtain export licenses for certain processors such as Neoverse, which can be difficult to obtain, it says.
“The highest performance processor in the Neoverse series of processors meets or exceeds performance thresholds under US and UK export control regimes and thereby triggers export license requirements prior to export and delivery to customers in the PRC,” it said. “Given that national security concerns are higher for HPC technologies destined for the PRC and government response timelines are not defined, it can be challenging and unpredictable to obtain such export licenses.”
ARM has been getting around this by licensing other CPU cores that do not exceed the HPC performance export control thresholds. But this could be a challenge with higher performance cores set to be announced later this month at the HotChips Conference.
“Although our inability to sell such Neoverse processor into the PRC has not had a material impact on our business to date, future restrictions on sales of our products into the PRC could have a material adverse impact on our business,” it said.
This could also have an impact on Qualcomm which is currently in a legal battle over the processor technology it acquired with Nuvia in 2020. This claims to have higher performance than the ARM Neoverse cores and so would also be restricted for export to China.
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This comes as the US-China trade war and global economic challenges and could impact on other companies using the Neoverse class cores, such as Nvidia, Marvell and even Intel. Ampere and Amazon also use the cores for high performance data centre chips.
“In the past decade, the PRC has been a significant source of semiconductor industry revenues and growth. However, the near-term growth prospects of the PRC semiconductor industry and related industries are unclear due to the uncertain effects of ongoing economic stress caused by policies to contain the COVID-19 pandemic, trade and national security policies, and the elevated levels of private and public indebtedness,” said the company.
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Failure to maintain PRC-sourced revenues, access new and existing markets in the PRC or gain traction for new business areas in the PRC, or loss of market share to competition in the PRC, could materially and adversely affect results of operations and competitive position it says.
Royalty payments from China are falling as a result of economic issues in the PRC and factors related to export control and national security matters and the company expects to continue to see declining royalty revenues.
Political actions, including trade and national security policies of the US and PRC governments, such as tariffs, placing companies on restricted lists, export controls or new end-use controls, have in the past, currently do and could in the future limit or prevent ARM from working with certain PRC customers or suppliers.
“We depend on our commercial relationship with ARM China to access the PRC market. If that commercial relationship no longer existed or deteriorates, our ability to compete in the PRC market could be materially and adversely affected,” said the company.
“Substantially all of our PRC-related revenue is earned through the IPLA [IP Licensing Agreement] [were] we granted ARM China certain exclusive rights to sublicense our IP to PRC customers. We expect that our licensing relationship with ARM China will continue to account for substantially all of our total revenues from the PRC and represent a significant portion of our revenues for the foreseeable future. It would be difficult for us to replace any lost PRC-sourced revenue in the event that our commercial relationship with ARM China.”
