Arm Holdings, in a dramatic escalation to their legal problems, has terminated a large licensing agreement with Qualcomm after 60 days notice. This termination notice will have far-reaching implications for Qualcomm, as well as smartphone and semiconductor markets.
This issue is significant because the majority of Android smartphones that are used today use Qualcomm’s technologies.
Most of the Qualcomm products used in smartphones are based on ARM IP.
Qualcomm is one of ARM’s biggest revenue sources.
Both companies depend heavily on one another for their respective business.
What happens next if the situation continues to deteriorate?
Both companies suffer a direct revenue hit
Qualcomm generates $39 billion in revenue. The majority of the revenue comes from smartphones that use ARM-based processors. Snapdragon processors, for example, are used in many modern smartphones.
Qualcomm’s entry into the ‘AI PC’ market is a growth area.
Snapdragon is sold by the company to PC giants like HP and Microsoft. QCOM’s inability to sell these processors is also a problem for personal computer companies.
ARM also needs to have a good relationship with a large semiconductor company.
In the past fiscal year, this company has generated revenues of $3.2 billion. Royalties accounted for $1.8 billion, while licensing agreements accounted for $1.4 billion.
If the company decides to stop working with Qualcomm, both of these revenue streams are at risk.
Nuvia and the dispute
Nuvia is the small company at the heart of it all. Nuvia is the company that designed and built processors for QCOM, which are sold to DELL and Microsoft.
Nuvia was purchased by QCOM 2021. Nuvia, like QCOM licensed ARM technologies to develop its processor designs.
QCOM announced at the beginning of this week that they were bringing an older Nuvia design, called Oryon, to their most recent Snapdragon processors.
Nuvia had not been purchased by QCOM at the time this design was developed, so ARM feels that QCOM should license this technology directly from ARM and not Nuvia.
Many see this move as an opportunistic effort to take QCOM’s market share, since ARM sells their own chips.
Qualcomm’s spokesperson said the following about ARM:
It appears that it is an attempt at disrupting the legal process and its termination claim is totally baseless. Qualcomm is confident in its rights as a result of the agreement it has with Arm.
The stock of Qualcomm is down more than 3% since the announcement.
The carnage caused by a termination would be far worse. The market seems to be favoring settlements for now.
This would be an effort by ARM to get QCOM to the negotiating table to renegotiate Nuvia licensing terms.
This could be just the start of a major shift for the industry.
The post ARM vs Qualcomm – Why their licensing dispute goes beyond a simple contract could be updated as new information becomes available
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