Arm Holdings Ends Chip Design License Agreement with Qualcomm

Arm Holdings Terminates Agreement with Qualcomm

Arm Holdings, a UK-based chip architecture giant, is terminating its architectural license agreement with US-based Qualcomm. This move significantly escalates an ongoing legal dispute between the two companies. A document obtained by Bloomberg indicates that Arm has given Qualcomm 60 days to end their architectural license agreement. This agreement has enabled Qualcomm, a longtime partner, to manufacture chips based on standards owned by the UK company.

Impact of License Cancellation

The cancellation of the license will require Qualcomm to cease selling products based on Arm designs by the end of the year. Bloomberg suggests that this could potentially disrupt the smartphone and personal computer markets, as well as the finances and operations of two of the most influential companies in the semiconductor industry. A Qualcomm spokesperson responded to the situation, arguing that the British company was attempting to "strong-arm a longtime partner." The spokesperson expressed confidence that Qualcomm's rights under its agreement with Arm would be upheld.

Roots of the Legal Feud

The legal dispute originated when Qualcomm acquired Nuvia in 2021 to enhance its Arm-based CPU designs. Arm was upset that it had no input in the deal and subsequently cancelled Nuvia's licenses in 2023. Both parties are scheduled to go to court in December. Bloomberg Intelligence analysts Tamlin Bason and Kunjan Sobhani provided commentary on the legal dispute, suggesting that Arm's cancellation of Qualcomm's architectural license appears to be a strategy to gain leverage ahead of the December trial.

Analysts' Perspectives

The analysts further speculated that Arm's lawsuit against Qualcomm would likely result in a negotiated license, granting the chipmaker rights to customize Arm architecture, but at a higher royalty rate than Nuvia had been paying. JPMorgan analyst Samik Chatterjee informed clients that the license cancellation represents a significant escalation between the two firms. He anticipates that a settlement is still the most probable outcome, adding that the cancellation and 60-day notice appear to be a negotiating tactic to pressure Qualcomm into finding a solution more quickly. Bernstein analyst Stacy Rasgon also suggested that the timing of the cancellation notice appears to be an attempt to force a pre-trial settlement. She noted that Qualcomm lawsuits typically settle before reaching the courtroom.

Bottom Line

The termination of the architectural license agreement between Arm Holdings and Qualcomm is a significant development in the tech industry. It not only escalates an ongoing legal dispute but also has the potential to disrupt the smartphone and personal computer markets. What are your thoughts on this matter? Do you think a pre-trial settlement is likely? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.