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SoftBank’s China Chip Venture Rejects Accusations Against CEO

(Bloomberg) -- Arm Ltd.’s Chinese joint venture rejected allegations against its top executive and accused a prospective replacement of “major violations,” escalating a dispute with the semiconductor industry linchpin owned by SoftBank Group Corp.

The tit-for-tat duel began Wednesday when SoftBank’s Arm Ltd. said the board of Arm China voted to oust Chief Executive Officer Allen Wu, and appointed Ken Phua and Phil Tang the venture’s interim co-CEOs. But the Chinese firm then said Wu remained in charge and the board’s decision carried no legal weight. Arm China is jointly owned by Arm and investors, including China’s sovereign wealth fund, an unwieldy group that has left unclear who ultimately makes leadership decisions.

After Wu refused to step aside, Arm Ltd. disclosed to Bloomberg News it had conducted an investigation of the CEO that uncovered conflicts of interest and violations of employee rules. On Thursday, the Chinese venture responded by calling the allegations against Wu groundless. And in a new twist to the dispute, it said Tang himself had been dismissed May 26 for unspecified “major violations,” and no longer held any position within the company.

“Arm’s public announcements are groundless and caused significant damage to the company and Allen Wu’s reputation,” according to a statement posted to its WeChat social media account. “We’ve engaged lawyers to explore our legal options.”

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Read more: SoftBank’s Arm Says China CEO Fired for Major Irregularities

Arm Ltd. spokesman Phil Hughes said Thursday the British company stood by previous statements on the matter. Tang wasn’t immediately available for comment. And Wu himself hasn’t responded since Wednesday to multiple emails and messages seeking comment. “The Arm China board investigated and found no evidence to support the allegations made by Mr. Wu against Phil Tang. Phil Tang was therefore reinstated by the Board of Arm China,” Hughes said in an emailed statement.

SoftBank Group shares slid 3.2% in Tokyo trading.

Control over the Arm China business is complicated because of its convoluted ownership structure. SoftBank’s acquisition of Arm in 2016 originally gave it full control over the Chinese subsidiary, but SoftBank ceded a majority stake in 2018 and now owns 49% through Arm Ltd. The consortium that bought 51% includes China Investment Corp., the Silk Road Fund and Singaporean state investment firm Temasek Holdings Pte.

The spat comes at a sensitive time, when Western companies are struggling to navigate an escalating clash between Washington and Beijing over technology leadership. Any prolonged conflict could also have ramifications for Arm, whose semiconductor architecture underpins the majority of the world’s mobile devices. The British firm relies on Chinese names like Huawei Technologies Co. for a large portion of its global revenue, and leans on Arm China to help it conduct business in the world’s biggest smartphone market.

Arm typically maintains a low profile, licensing its designs and collecting royalties via consumer brand corporations from Apple Inc. to Samsung Electronics Co. The dispute over Wu’s status, however, thrust it uncharacteristically into the spotlight, igniting a plethora of stories online about how the U.S.-educated executive was still Arm China’s legal head honcho. Wu himself was cited several times in local media pledging to work with Huawei last year, when Washington first banned the sale of American software and circuitry to the Chinese tech champion.

Read more: Arm Offers Faster, Customizable Design to Help Android Phones

SoftBank acquired Arm for $32 billion in one of its largest acquisitions, a deal intended to further Masayoshi Son’s ambition of creating a global Internet of Things ecosystem. The company licenses the fundamentals of chips for companies that make their own semiconductors, and also sells processor designs. Most of the world’s smartphones depend on Arm’s technology, and it is trying to expand into servers and PCs.

It’s unclear how the public dispute would affect Arm’s relationships in the world’s No. 2 economy. Arm China now operates offices in Shenzhen, Beijing and Shanghai and acts as an intermediary between Arm in the U.K. and clients like Huawei.

The company has been ensnared in Washington’s campaign against Huawei because of its central role in semiconductor architecture. The U.S., home to many of the world’s chipmakers and a chunk of Arm’s operations, wants to block Huawei’s access to key chip technology after labeling the company a national security threat -- something the Chinese firm has consistently denied.

The British company has said it will comply with the so-called U.S. Entity List restrictions. It continues to supply technology to Huawei’s HiSilicon, but it’s unclear if it can license future designs to the Chinese company.

Read more: Silicon Valley’s Next Revolution Is Open Source Semiconductors

(Updates with SoftBank shares in sixth paragraph)

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