Export controls hit China’s access to Arm’s leading-edge chip designs
Alibaba among groups unable to purchase top designs
Alibaba, the Chinese tech giant, cannot buy some of the most advanced chip designs after Arm determined that the US and UK would not approve licences to export the technology to China.
The British company concluded that the US and UK would not approve the sale of its latest Neoverse V series because the performance was too high, according to people with knowledge of the sales process. The move impacts Alibaba’s T-Head chip unit and other Chinese groups.
It is the first known time that Arm, owned by Japanese tech investor SoftBank, has decided it could not export its most cutting-edge designs to China.
Neoverse V falls under Wassenaar — a multilateral arrangement involving 42 nations designed to stop dual-use technology from being diverted for military use — but Arm would need US and UK export licences to sell the technology.
The outcome comes two months after the US unveiled tough export controls to prevent China from obtaining advanced chips or securing the technology and equipment to make high-end semiconductors domestically.
Paul Triolo, a China and technology expert at the Albright Stonebridge Group consultancy, said the US commerce department’s October 7 export controls also updated restrictions in ways that impacted the kind of technology Arm produces.
“Key companies in the semiconductor supply chain, including IP core players such as Arm . . . must determine whether the capabilities provided in their offerings meet or exceed the technical requirements in the new [October 7] commerce regulations,” said Triolo.
While Arm could apply for licences to sell the technology, the odds of success are very low given the US strategy to deny China technology that could have military applications. When the US introduced the new measures in October, it stressed that there would be a presumption to deny licences to export technology related to advanced chips to China.
Arm, which is headquartered in the UK but has significant operations in the US, is seen as vulnerable to the Biden administration’s use of export controls that target Beijing. Like tech companies around the world, Chinese companies rely heavily on Arm’s designs to build devices from smartphones to servers.
“We feel that the western world sees us as second-class people,” said one engineer from Alibaba’s T-Head. “They won’t sell good products to us even if we have money.”
The engineer said US sanctions were creating a two-tier system, and pointed out that Neoverse V, which was released last year, was already being used by Amazon Web Services in the US for its state of the art cloud computing chip.
Arm’s intellectual property underpins the majority of chips around the world and is used by most companies developing leading-edge technologies.
Ratcheting tensions between China and the US have already compelled some Chinese chip companies to look at using an increasingly sophisticated open-source alternative to Arm’s designs called Risc-V.
Arm sells design architecture for processors — the electronic chips located in a computer that complete logical functions — and for the “cores”, the units within the processor that receive and process information.
Over the past year, Arm has released several new core designs, including Neoverse N2 and Neoverse V1 and V2, the latter of which are the highest- performance cores to date, with designs that are characterised as having originated in the US.
Chinese companies have been blocked from purchasing Neoverse V2 and its previous generation, V1, because of the US and UK export controls that are connected to technologies listed under Wassenaar, according to two people briefed on the reasoning behind the move.
The multilateral export control agreement was formed in 1996 by more than 40 nations, including the UK, US and EU member states to limit the sale of arms and products that could have a dual military purpose.
Arm preemptively determined it could not sell the IP to China because it is “US origin” technology that falls under the remit of Wassenaar and would require an export licence from Washington.
Arm said that as a global company it was “committed to adhering to all applicable export laws and regulations in the jurisdictions in which it operates”.
The UK government said it does not comment on individual licence applications but noted it is “committed to supporting UK businesses and academia to engage with China in a way that reflects the UK’s values and takes account of national security concerns”.
The US did not respond to a request for comment. Alibaba declined to comment.
The US is trying to enlist important European and Asian allies in the chip sector, most notably the Netherlands and Japan, to adopt tough export controls on chip equipment. The US needs the help from its allies to complement severe controls that the Biden administration in October imposed on American semiconductor toolmaking companies.
An executive from another chip design house in Shenzhen said that after the collapse of SoftBank’s $66bn sale of Arm to Nvidia earlier this year, many Chinese chip engineers regained confidence in using Arm’s designs without fear they would later be cut out of the supply chain.
But he said the company realised “how naive” it had been when it was told it could not buy Neoverse V1 for high-end chips it was developing for cloud computing. The executive added it became clear that the decision “wasn’t about money” but due to export controls.
Switching to N2 means the company “will take longer to achieve our goals”, he added, because “V1’s overall performance will kill N2 on all fronts”.
A person close to Arm said the company was working with Alibaba and other Chinese partners to identify solutions that help them meet their performance requirements while being compliant with the latest export controls.
A gauge of Asian stocks eased from its session highs, mirroring moves seen on Wall Street, as investors weighed a slowdown in US inflation ahead of the Federal Reserve’s policy decision. Shares in Japan, South Korea and Australia held advances of less than 1% while those in Hong Kong and mainland China fluctuated. US equity futures rose about 0.2% in Asia after the S&P 500 closed off its intraday peak on Tuesday. Investors are awaiting more clues on the Fed’s interest-rate path from the decision later Wednesday and Chair Jerome Powell’s briefing. The dollar clawed back some of the ground it lost to its Group-of-10 counterparts Tuesday while emerging-market currencies strengthened versus the greenback. The New Zealand dollar fell in a decline that accelerated after the government warned a recession was likely next year. Treasuries were little changed after rallying Tuesday, when data showed Powell’s key measure of services prices excluding energy and rents moderated again in November. While price pressures appear to have peaked, headline CPI remains above 7%, suggestig the Fed has more work to do to rein in inflation. Australian bonds rose, led by the rate-sensitive three-year maturity. A dovish repricing swept across rates markets on Tuesday. With a half-percentage point move by the Fed notched in, wagers leaned toward a quarter-point increase as early as February. Further out, swaps priced the peak Fed policy rate around 4.85% by May, down from almost 5% ahead of Tuesday’s inflation print. The current Fed policy range is 3.75% to 4%. oil fell slightly ahead of the Fed decision and after rallying 6% over the previous two sessions. Gold steadied near its highest level since July.
Nikkei +0,78% Hang Seng +0,69% CSI +0,21% Shanghai +0,13% Shenzen +0,13%
Eur$ 1,0624 CNH 6,9628 CNY 6,9609 JPY 135,48 GBP 1,2358 CHF 0,9288 WTI$ 75,23 -0,20% Gold 1,809,62 -0,06% BTC 17,760 ETH 1318 -0,10%
S&P +0,31% Nasdaq +0,33% EuroStoxx +0,10% FTSE +0,00% Dax -0,01% SMI +0,13%
Macro :
- EU Agrees to Tap Carbon Market for €20 Billion in Energy Pivot
- Binance CEO Zhao Warns Bumpy Road Ahead in Message to His Staff
Keep an eye on :
Keep an eye on :
- AB FP : AB Science Gets Health Canada Deficiency Notice for Masitinib
- ALLN SW : Allreal Says CFO Thomas Wapp Leaving End of June 2023
- COLR BB : Colruyt 1H Net Income Misses Estimates
- DANSKE DC : Danske Bank Revises FY Net Loss Forecast
- DANSKE DC : Danske Bank Pleads Guilty to US Fraud, Will Forfeit $2 Billion
- GRF SM : *GRIFOLS MULLS €2B ASSET SALE TO REDUCE DEBT: CINCO DIAS
- HOLN SW : Holcim Divests Russia Business W/ Sale to Local Management Team
- ITX SM : Inditex 9M Ebit Meets Estimates, Zara Parent Inditex’s Profit, Sales Beat Analysts’ Estimates
- JUP LN : Jupiter Names Kiran Nandra-Koehrer as Head of Equities
- SDF GY : K+S to Redeem Outstanding 2.625% Notes on Jan. 6
- MBG GY : Mercedes Unveils Production Location Plans For Future EVs
- NOKIA FH : Nokia Expands Partnership with BT for Analytics Software
- NOL NO : Northern Ocean Offering of 47m Shares Prices at NOK9.50/Share
- OMV AV : OMV Petrom Holder Fondul Proprietatea Offers 1.78b Shares
- ORA FP : Cerberus Mulls Acquisition of Orange Bank: Les Echos
- SPNO DC : Spar Nord Boosts FY Net Income Forecast, Beats Estimates
- TTE FP : TotalEnergies Gets Contract for Solar Energy System in Cambodia
- TUI1 GY : TUI FY Underlying Ebit Beats Estimates
- TUI1 GY : TUI Agrees on Plan to Repay German Pandemic Bailout Packai$ge
- TUI1 GY : TUI Agrees on Plan to Repay German Pandemic Bailout Packai$ge
- WRT1V FH : Wartsila to Book Provisions of EU40m Related to Nuclear Project
>>> Up
* Barclays Raised to Outperform at Exane; PT 215 pence
* Kone Raised to Buy at Citi; PT 56 euros
* Lemonsoft Raised to Accumulate at Inderes; PT 8.80 euros
* Mapfre Raised to Outperform at Grupo Santander; PT 2.80 euros
* Paccar Raised to Overweight at Morgan Stanley
* Playa Hotels Raised to Buy at Citi; PT $8
* Tenaris ADRs Raised to Outperform at Grupo Santander; PT $43
>>> Down
* Tenaris ADRs Raised to Outperform at Grupo Santander; PT $43
>>> Down
* Hilton Worldwide Cut to Neutral at Citi; PT $148
* Marriott Intl Cut to Neutral at Citi; PT $175
* Martin Marietta Cut to Equal-Weight at Morgan Stanley
* Redrow Cut to Underweight at JPMorgan; PT 390 pence
* SSAB Cut to Underweight at JPMorgan; PT 49 kronor
* SSAB Cut to Underweight at JPMorgan; PT 49 kronor
* Taylor Wimpey Cut to Neutral at JPMorgan; PT 110 pence
* Vinci Cut to Sell at Insight Investment Research; PT 154 euros
>>> Initiation
>>> Initiation
* Airbnb Rated New Outperform at Baptista Research; PT $118
* Danaher Reinstated Buy at Deutsche Bank; PT $310
* Thermo Fisher Reinstated Buy at Deutsche Bank; PT $620
>>> Call
* Thermo Fisher Reinstated Buy at Deutsche Bank; PT $620
>>> Call
* Ahold Delhaize EPS Estimate, PT Raised at Berenberg on Strong 2H
* Morgan Stanley Turns Positive on US Machinery Sector Into 2023
* Redrow, Taylor Wimpey Cut, JPMorgan Says Cautious on UK Builders
* Repsol, Shell Most Preferred Integrateds; Eni, Galp Cut at RBC
* Repsol, Shell Most Preferred Integrateds; Eni, Galp Cut at RBC
Carlyle to miss deadline for $22bn fund as investors cool on private equity
US buyout group has asked for an extension until the end of August
Carlyle is struggling to raise the $22bn it had targeted for what it hopes will be its largest fund, as it grapples with a succession crisis and a market downturn.
The US buyout group has asked investors for an extension until the end of August, three people with knowledge of the matter said, after saying it expected to miss its target to raise $22bn by March 2023.
One of the people said it had so far raised about $17bn for the fund.
Buyout groups have raised new funds at a record pace in recent years as pension funds and other investors ploughed ever-larger sums into the industry, in the hope of higher returns during an era of low interest rates.
But as interest rates rise many of those investors are growing wary of locking up their cash in illiquid private markets, and some have hit or breached their maximum limits for the amount of cash they can commit to buyout funds. Retail investors are also pulling back, with Blackstone suffering heavy withdrawals from its real estate funds for wealthy individuals.
“Managers have been raising more frequently and [raising] much larger funds, and at the same time there is not a lot of liquidity for investors,” said the head of a large California-based investment group. “[Investors] have to find any method at all to free up capital and one of those is cutting allocation.”
One pension fund said it had cut its allocation to Carlyle by half. “The problem [private equity funds] have now is most investors are over-allocated and severely curtailing new investments,” said a senior executive close to the pension fund. “US, Canadian and European investors are allocating less so funds have to go to the Middle East and Asia to find new investors.”
Carlyle declined to comment.
Private equity funds raised a total of $697bn in 2021, the highest figure on record, according to data from Preqin. That has fallen to $537bn this year, the lowest level since 2015.
Apollo Global Management last month said it would take longer to raise its latest buyout fund. The group’s co-president Scott Kleinman said this was because of the “denominator effect”, meaning that the value of pension funds’ publicly traded assets have fallen but their private holdings have not, leaving them with too high a proportion tied up in private markets. Kleinman said he was “confident” Apollo would hit its $25bn target.
Carlyle, once a dominant force in the private equity industry, has fallen behind rivals such as Blackstone, KKR and Apollo which manage larger sums of money and have higher valuations.
Chief executive Kewsong Lee abruptly departed in August, having asked for a $300mn pay package that was rejected by the group’s co-founders.
Co-founder William Conway was made interim leader but has not named Lee’s permanent replacement. Conway last month said “the search continues” and that it was “making good progress finding the right leader”.
Asked on an analyst call last month whether Lee’s departure had hit fundraising, Conway said, “the short answer would be no”. The slowdown was because of “congestion in the markets”, he said.
After Hours Summary: Quiet after hours session; BRZE -4.8%, ABM -4.3% lower on earnings; AMGN +1.1% higher on dataAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: None
Companies trading higher in after hours in reaction to news: ICVX +6.9% (reports durability data for IVX-121), AMGN +1.1% (to present results from E1910 Phase 3 trial, Blincyto significantly improves survival), EGLE +0.9% (CFO to step down; names new CFO), TTC +0.2% (increases dividend), PFE +0.2% (awarded $1.96 bln U.S. Army contract modification), BEN +0.1% (increases dividend)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: BRZE -4.8%, ABM -4.3% (also approves additional $150 mln for share repurchases)
Companies trading lower in after hours in reaction to news: GRND -8.5% (stock offering by selling shareholders), PRTA -6.6% (commences 3 mln share public offering), O -0.4% (increases dividend), AMK -0.1% (reports Nov platform assets)
UK proposes ‘hydrogen ready’ boilers in homes from 2026
Replacing gas-fired appliances a key part of target to achieve net zero emissions by 2050
The UK government has proposed banning the installation of traditional gas boilers in homes from 2026 and replacing them with “hydrogen ready” heating systems.
Under the consultation, published on Tuesday, new boilers installed after that date would continue to use natural gas but would have to be able to switch to hydrogen, which emits only water rather than carbon dioxide when burnt, at a later date.
Replacing gas-fired boilers is a key part of the UK’s target to achieve net zero emissions by 2050 with the housing stock accounting for around a fifth of greenhouse gas emissions.
However, the proposals are likely to reignite a bitter row over the future of home heating. Some academics, climate groups and electricity companies argue that hydrogen is expensive and question its suitability for domestic properties. They insist low carbon alternatives to gas boilers already exist in the form of electric heat pumps.
Operators of the UK’s gas grids and boiler manufacturers argue converting to hydrogen would be less disruptive than replacing existing infrastructure with other green technology in what has become a highly polarised debate.
The government described the requirement to make all new boilers “hydrogen ready” from 2026 as a “low-regrets” action for consumers as long as such models reached price parity with existing natural gas-only equipment “by the time that they are required as standard”.
Former prime minister Boris Johnson was particularly supportive of pursuing hydrogen technology as a way of decarbonising some of the most polluting sectors of the economy before he was forced to resign earlier this year.
His government published a hydrogen strategy in 2021, which set out plans to start trials of hydrogen heating at a neighbourhood level next year and test it in a large village in 2025 before making a decision on whether to convert the gas grid in 2026.
However, residents in some of the locations envisaged for the village trial, including the community of Whitby, near Ellesmere Port in north-west England, have expressed concerns about being human experiments for the technology.
Low carbon hydrogen can be made via the electrolysis of water using renewable power — known as “green” hydrogen — or from a chemical process that converts natural gas and captures and stores the carbon dioxide byproduct — known as “blue” hydrogen.
A number of governments, including in the EU, are pursuing green hydrogen, with particular focus on cutting emissions from heavy industry, although there is a debate whether the gas can be produced at scale allowing it to replace natural gas completely.
Victoria Billings, director of marketing at the boiler manufacturer Worcester Bosch, on Tuesday welcomed the government consultation, which runs until March 21. “For us, it’s about being able to offer the choice to homeowners on the technology they have installed to heat their homes and ultimately helping them to reduce their home’s carbon emissions.”
But climate groups argue hydrogen is being pushed by gas infrastructure companies that would otherwise end up with stranded assets. Alice Harrison, fossil fuels campaign leader at the non-profit Global Witness, said hydrogen heating was “like making dog food with caviar, in that it’s impossibly expensive and in limited supply”.
She added: “We should focus on cleaner and more affordable solutions like heat pumps, instead of trying to keep happy the gas companies, masked as hydrogen suppliers.”
German former tax inspector jailed for 8 years over cum-ex fraud
Court also orders Hanno Berger to repay €13.7mn to the Bonn government
A former senior German tax inspector was convicted and sentenced to eight years in jail on Tuesday over his role in a long-running dividend tax fraud following a landmark trial in Bonn.
Hanno Berger was accused by prosecutors of being one of the masterminds behind a fraud that led the German government to refunding billions of euros of dividend taxes that had never been paid.
Berger, who was extradited from Switzerland earlier this year after spending almost a decade on the run, was also ordered to repay €13.7mn to the German government, a spokesperson for the Bonn court told the Financial Times.
Germany is among the European countries hardest hit by the so-called “cum-ex” scandal. These “cum-ex” transactions cost German taxpayers some €10bn, according to an estimate by Finanzwende, a consumer protection lobby group.
Having reached a senior position in the German tax authority, Berger later became a tax lawyer. Prosecutors accused him of having advertised the fraudulent scheme to clients and being directly involved in transactions that cost German taxpayers €279mn
The 72-year-old has been in police custody since his extradition from Switzerland, where he has a holiday home and where he fled to in 2012 on the day his office in Frankfurt was raided.
While several bankers received jail terms in previous trials relating to the cum-ex scandal, Berger’s sentence is the longest. Investigations by public prosecutors in Cologne and Frankfurt into the scandal are focusing on 1,500 suspects and 100 banks on four continents, including more than 70 Deutsche Bank employees.
Next year, two former partners of magic circle law firm Freshfields, including Ulf Johannemann, once the firm’s head of global tax, will face trial in a Frankfurt court over their alleged role in the fraud. Prosecutors accuse them of abetting the fraud by issuing flawed opinions over the legality of the practice.
Prosecutors had sought a sentence of nine years for Berger, who faces a second trial over different cum-ex transactions at a court in Wiesbaden.
Gerhard Schick, a former Green member of parliament who now heads Finanzwende, said the verdict of the Bonn court was “a reason for great joy” as it showed that justice was stronger than “criminal money”.
A lawyer for Berger did not immediately respond to a request for comment.