By Mayumi Negishi 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 6, 2018).

TOKYO -- SoftBank Group Corp. agreed to sell a majority stake in the China operations of U.K. chip designer Arm Holdings to a China-led group of investors, aligning itself with Beijing's goal of reducing its dependence on Western technology.

SoftBank said Tuesday it would cede 51% of the Chinese business for $775 million, while retaining the remainder. The buyers are led by Hopu Investment Management Co., which is backed by sovereign-wealth fund China Investment Corp. and Beijing-owned Silk Road Fund.

SoftBank, a leading technology investor that controls Sprint Corp. in the U.S., paid $32 billion in 2016 to acquire Arm Holdings. The U.K. firm's chip-design technology, which it licenses to semiconductor makers, is in nearly all smartphones sold globally.

The China deal, which follows more than a year of negotiations, comes amid simmering tensions between the U.S. and China over semiconductor technology. Operations at ZTE Corp., whose smartphones incorporate Arm's technology, have been largely shut down after U.S. government penalties blocked the Chinese telecommunications company from buying American chips and software.

China was the world's largest semiconductor market last year, worth $132 billion, according to the World Semiconductor Trade Statistics, and the lion's share of sales went to chip makers in South Korea, Japan, Taiwan and the U.S., including Intel Corp. and Qualcomm Inc. In response, China has been accelerating development of its own chip industry.

"China wants to have an indigenous and controllable local supply base," Arm Holdings Executive Vice President Rene Haas said in an interview. "Doing a joint venture of this nature would best position us to be able to capitalize on that growth."

China accounted for roughly a fifth of Arm Holdings' $1.83 billion in revenue for its latest fiscal year, with local sales expected to grow further under China's "Made in China 2025" strategy to develop self-driving vehicles, smart appliances and other next-generation technology. Arm Holdings has the right to technology developed by the Chinese joint venture, Mr. Haas said.

He said the deal doesn't require approval from the Committee on Foreign Investment in the U.S. and is expected to be completed by the end of June.

SoftBank Chief Executive Masayoshi Son has likened Arm Holdings to a crystal ball to guide his investments in technology because Arm-designed chips are so widely used. The designer, which has been moving into Intel's territory in laptops, expects its technology to be in more 20 billion chips sold this year.

The deal will make it easier for China to gain access to chip designs it needs to build its own industry, according to Handel Jones, chief executive of technology consultancy International Business Strategies Inc., which tracks China's high-tech sector. An impact on the market won't show up immediately, he said, but "it will be huge over 10 years."

Research firm Pelham Smithers Associates questioned whether the price of the China deal was too low, saying in a note to clients that it values the Chinese business at less than 5% of the price SoftBank paid for all of Arm Holdings. "It does seem a low price given (1) the share of ARM's business currently derived from China and (2) the expected share in the future," he said in the note, which was posted on the Smartkarma platform, an online forum for independent research analysts.

SoftBank didn't immediately have a comment on the price.

--Ted Greenwald contributed to this article.

Write to Mayumi Negishi at mayumi.negishi@wsj.com

(END) Dow Jones Newswires

June 06, 2018 02:47 ET (06:47 GMT)