Arm Holdings Plc is ending its architectural license agreement with Qualcomm, a decision that escalates their ongoing legal dispute concerning critical smartphone technology.
The UK-based company has provided Qualcomm with a mandatory 60-day cancellation notice, as reported by Bloomberg. This license permitted Qualcomm to design chips based on Arm’s proprietary standards.
Impact on Smartphone and PC Markets
The cancellation could significantly affect the smartphone and personal computer sectors, disrupting the financial stability of both companies, which are influential in the semiconductor industry.
Qualcomm sells hundreds of millions of processors each year, primarily used in Android smartphones. If the license cancellation is enforced, Qualcomm could face a substantial loss of revenue, potentially jeopardizing its approximately USD 39 billion in annual earnings.
Legal Background
This conflict began when Arm filed a lawsuit against Qualcomm in 2022, accusing the company of breach of contract and trademark infringement. With the recent cancellation notice, Arm has granted Qualcomm an eight-week period to address the dispute.
A Qualcomm spokesperson criticized Arm’s actions, claiming it aims to “strong-arm a longtime partner,” asserting that the termination attempt is “baseless.”. Qualcomm is confident that its rights under the agreement will be upheld.
Nuvia and AI PC Development
Nuvia’s microprocessor designs are crucial for Qualcomm’s new line of AI-focused laptops, which are targeted at major clients like HP and Microsoft Corp. Qualcomm recently announced plans to integrate Nuvia’s design, named Oryon, into its Snapdragon chips.
However, Arm asserts this integration breaches the license, demanding that Qualcomm discard any Nuvia designs created prior to its acquisition, as they cannot be transferred without permission. Nuvia’s licenses were revoked in February 2023 after failed negotiations.
Changing Strategies
The dynamics between the two companies have shifted, with Arm under CEO Rene Haas focusing on providing more complete designs that can be directly manufactured, aiming to receive better compensation for its engineering work.
Meanwhile, Qualcomm, led by CEO Cristiano Amon, is distancing itself from Arm’s designs to focus on its own developments. Despite their growing competition, both companies’ technologies remain closely linked.
Licensing Landscape
Arm serves two main types of customers: those that use its designs to create chips and those that license its instruction set. Qualcomm, which has a history of licensing disputes, generates a significant portion of its profits from licensing its technology, serving major clients like Samsung and Apple.
Upcoming Trial
The legal proceedings are set to commence in December in federal court in Delaware, where Arm will pursue its breach-of-contract claim while Qualcomm counters.
The central issue revolves around Qualcomm’s acquisition of chip-design startup Nuvia in 2021 and whether it necessitated new contract negotiations. Arm contends that Qualcomm’s license does not extend to Nuvia’s operations, while Qualcomm argues its agreement covers all activities associated with the startup.
What’s Next?
The legal battle between Arm and Qualcomm could have profound implications for both companies and their partners. A favorable outcome for Arm could disrupt Qualcomm’s business model and affect its partnerships.
However, some investors believe a settlement may be reached before the trial date, allowing both companies to avoid further conflict.
Speaking about the developments, a Qualcomm spokesperson said in an emailed statement:
This is more of the same from ARM – more unfounded threats designed to strongarm a longtime partner, interfere with our performance-leading CPUs, and increase royalty rates regardless of the broad rights under our architecture license. With a trial fast approaching in December, Arm’s desperate ploy appears to be an attempt to disrupt the legal process, and its claim for termination is completely baseless. We are confident that Qualcomm’s rights under its agreement with Arm will be affirmed. Arm’s anticompetitive conduct will not be tolerated.