In a move that could profoundly affect the smartphone and personal computing markets, Arm Holdings Plc has announced the cancellation of a key architectural license that allowed longtime partner Qualcomm Inc. to use its intellectual property for designing chips. This development marks a significant escalation in the ongoing legal dispute between the two tech giants over the control and use of vital smartphone technology.
According to a document seen by Bloomberg, Arm has issued a 60-day notice to Qualcomm, informing the San Diego-based company that their architectural license agreement is being terminated. This agreement has been pivotal in allowing Qualcomm to design its own chips using Arm’s instruction set, a foundational technology for mobile devices. The stakes in this legal confrontation are immense, as Qualcomm’s chips power the majority of Android smartphones worldwide, generating substantial revenue for the company.
As news of the license termination spread, shares of both companies dropped. Qualcomm’s stock fell by as much as 3% in early trading in New York on Wednesday, while Arm’s shares plummeted by as much as 6.4%, signaling investor concern about the far-reaching implications for both companies.
The latest development in this legal skirmish follows a lawsuit filed by Arm in 2022, accusing Qualcomm of breach of contract and trademark infringement. At the heart of the dispute is Qualcomm’s acquisition of Nuvia, a chip-design startup that had a license with Arm, and the subsequent use of Nuvia’s work in Qualcomm’s broader chip development plans. Qualcomm’s position is that its existing agreements with Arm cover Nuvia’s designs, while Arm maintains that the transfer of Nuvia’s designs required a renegotiation of licensing terms — something Qualcomm allegedly failed to do.
The two companies are now headed to trial in December 2024, a showdown that could shape the future of chip design and smartphone innovation. Arm has stated that it is “fully prepared” for the trial and remains confident that the court will rule in its favor. The cancellation of the architectural license, however, adds new urgency to the dispute, forcing Qualcomm to either resolve the issue in the next two months or risk severe disruptions to its operations.
Qualcomm’s 2021 acquisition of Nuvia, a startup focused on designing energy-efficient microprocessors, has been central to the dispute. Qualcomm has been using Nuvia’s designs in its Snapdragon chips, which are essential components for mobile devices and personal computers. Snapdragon processors are widely used by companies like HP and Microsoft in their efforts to create artificial intelligence-powered laptops, known as AI PCs.
Nuvia’s designs, now part of Qualcomm’s technological arsenal, are seen as critical to Qualcomm’s future growth, particularly in personal computing, an area where Qualcomm has been expanding its footprint. However, Arm contends that Qualcomm is using Nuvia’s technology without proper authorization, and it has demanded that Qualcomm destroy any designs created by Nuvia before the acquisition. Arm’s original lawsuit, filed in the U.S. District Court in Delaware, asserts that Nuvia’s licenses were terminated in February 2023 after negotiations to resolve the licensing issue failed.
By canceling Qualcomm’s architectural license, Arm appears to be increasing its leverage ahead of the upcoming December trial. Bloomberg Intelligence analysts Tamlin Bason and Kunjan Sobhani have suggested that the cancellation is a strategic move designed to push Qualcomm into negotiating a new license agreement on terms more favorable to Arm. Such an agreement, they believe, would likely include a higher royalty rate than what Nuvia had previously paid.
The potential termination of the architectural license threatens Qualcomm’s ability to continue designing its own chips using Arm’s instruction set — the foundational code that enables chips to run software such as operating systems. Although Qualcomm could still license Arm’s pre-designed blueprints through a different agreement, the switch would delay product development and could render much of Qualcomm’s ongoing work useless, an outcome that would seriously impact the company’s $39 billion in annual revenue.
The two companies, once close partners, have taken divergent paths in recent years. Under CEO Rene Haas, Arm has shifted its business model to provide more complete chip designs, aiming to capture a larger share of the profits from its technology. This strategy has encroached on the territory of companies like Qualcomm, which historically relied on Arm’s instruction sets to develop their own custom chips. Qualcomm, under CEO Cristiano Amon, has been moving toward creating more of its own designs, reducing its reliance on Arm. However, Qualcomm remains deeply embedded in Arm’s ecosystem, and breaking away completely would be a complex and time-consuming process.
The ripple effects of this dispute could be felt across the entire semiconductor industry, with particularly severe consequences for the smartphone and personal computer markets. Qualcomm’s processors are used in the vast majority of Android smartphones, making any disruption to its chip production a potentially catastrophic event for device manufacturers.
If Qualcomm loses access to Arm’s instruction set, it may be forced to delay the development and release of new products, including the Snapdragon processors that power flagship devices from companies like Samsung and Google. In the worst-case scenario, Qualcomm could be forced to stop selling chips that account for a substantial portion of its annual revenue or face enormous legal liabilities for breach of contract.
The legal dispute also comes at a time when Qualcomm is attempting to push into new markets, particularly in AI-driven personal computers. The company has positioned its Oryon microprocessors, based on Nuvia’s designs, as the foundation for a new generation of AI PCs, which it believes could revolutionize personal computing by enabling devices to process complex tasks locally, without needing to rely on cloud services. If the dispute with Arm forces Qualcomm to abandon or delay its plans for Oryon, it could cede valuable ground to competitors like Intel and AMD.
For Arm, the financial and reputational stakes are equally high. Arm’s business model depends on licensing its intellectual property to a wide range of companies, and Qualcomm has been one of its biggest and most important customers. Losing Qualcomm, or damaging the relationship to the point where Qualcomm develops its own competing technologies, would deal a significant blow to Arm’s revenue and long-term prospects. The company, which is still majority-owned by Japan’s SoftBank Group, also has to consider how the legal dispute will affect its relationship with other customers, some of whom may be concerned about Arm’s willingness to take aggressive legal action.
Arm’s influence on the global chip industry cannot be overstated. The company, based in Cambridge, UK, is the world’s leading provider of instruction set architectures (ISAs), the fundamental technology that underpins modern microprocessors. Nearly all smartphones, tablets, and many personal computers rely on Arm’s technology, making the company a critical player in the global electronics supply chain.
In recent years, Arm has expanded its reach beyond mobile devices, pushing into areas like automotive and IoT (Internet of Things) devices, as well as cloud computing. Arm’s designs have become increasingly important as companies like Apple and Amazon develop custom chips for their own products and services. The company’s decision to go public in 2023, with SoftBank retaining a majority stake, was seen as a vote of confidence in its future growth potential, particularly as demand for AI and machine learning capabilities continues to rise.
However, the legal battle with Qualcomm could complicate Arm’s efforts to expand into new markets. Qualcomm is one of the few companies with the financial resources and technical expertise to develop its own competing instruction sets, and if the dispute forces Qualcomm to accelerate its plans to break away from Arm, it could spur other companies to follow suit. Such a shift could weaken Arm’s dominance in the chip design space and open the door for rival architectures like RISC-V, an open-source instruction set that has been gaining traction in recent years.
As the December 2024 trial date approaches, both companies are likely to intensify their efforts to resolve the dispute on favorable terms. For Arm, the goal is clear: secure a new license agreement with Qualcomm that includes higher royalties and stronger protections for its intellectual property. For Qualcomm, the stakes are even higher — maintaining its ability to design its own chips and continue driving innovation in the smartphone and personal computing markets.
The outcome of the trial will not only determine the future of the relationship between these two industry giants but could also have profound implications for the broader semiconductor industry. As the demand for AI and advanced computing technologies grows, the companies that control the underlying architecture of these systems will play a critical role in shaping the future of technology. The stakes in this legal battle extend far beyond Qualcomm and Arm, potentially affecting the entire ecosystem of tech companies that rely on their innovations to bring new products to market.
