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I can't say for sure but I would guess that it's a sign of significant damage like fire or severe drought to an otherwise very healthy or extremely resilient tree. I see it all the time in Manzanita and I think with the Manzanita I see, it's drought that causes part of the bush/tree to die but it must shift its focus to other areas until it gets water again. At that point, the surrounding sapwood isn't totally dead so it probably just grows around itself like anything else in the way.
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