(Yicai) Aug. 23 -- Arm Holding’s exposure to the Chinese market, which its filing for an initial public offering in New York showed accounts for a quarter of the UK chip designer’s revenue, has prompted concerns among potential investors.

Some 24.5 percent of Arm’s USD2.7 billion revenue came from China in the fiscal year 2023, according to the IPO documents the unit of Japanese investment firm SoftBank Group submitted yesterday.

Arm warned that any further tightening of controls on exports of advanced semiconductors to China could impact revenue from the market. The United States and the United Kingdom now require the company to apply for a license to export its Arm Neoverse processor architecture to China, but it is very difficult to get this permit.

Arm’s sales in China plunged 16 percent to USD140 million in the second quarter from a year ago due to a sluggish smartphone market, analysts told Yicai.

Cambridge-based Arm only has a small indirect stake in Arm China, its exclusive distributor in the country, through a firm called Acetone, it said. With only 4.8 percent equity, the relationship between the pair is fragile and Arm lacks any control over major clients in that market.

Arm China also operates independently of Arm and develops its own chips, a source told Yicai. Arm China’s sales of its own chips came to over USD100 million in 2021.

It is only a matter of time before Chinese companies are banned from using Arm’s high-end intellectual property designs altogether, according to another industry insider. Some already have no access to Arm’s latest chips.

The effect of the chip embargoes on Arm will emerge in quarters to come, a further source said. Any chip that uses the Arm architecture must pay a licensing fee to Arm, which is risky in the long run.

Some Chinese semiconductor firms are now opting for the RISC-V architecture rather than the Arm architecture to reduce dependency on the UK firm, said Tan Zhangxi, founder and chief executive of Rivai Technology, adding that this process may take a few years.

Arm is expected to seek a valuation of USD60 billion to USD70 billion in the hotly anticipated IPO, Bloomberg News reported yesterday.

Editor: Kim Taylor