The long history of litigation in the semiconductor industry gained a new entry a couple of weeks ago. Ahead of meeting Qualcomm in court in mid-December to pursue its breach-of-license suit, Arm issued a 60-day notice informing Qualcomm that Arm would cancel its license to use Arm’s chip architecture, as Bloomberg reported.
In case it needs to be said, if Arm follows through with the threatened cancelation—thereby preventing Qualcomm from shipping many of its chips—it could have major repercussions not only for Qualcomm (for obvious reasons) and for Arm (which would assert its IP rights while denting its own revenue), but also for many and various OEMs across the PC, mobile phone and automotive markets. There are even scenarios where Arm might prevail on the ITC to enforce a blockade on any of Qualcomm’s products that have Arm IP in them. I find those scenarios unlikely, but they’re out there, and would be devastating.
Not one to be cowed, Qualcomm responded to Arm’s 60-day notice with a statement which read, in part, “This is more of the same from Arm—more unfounded threats designed to strongarm a longtime partner . . . Arm’s anticompetitive conduct will not be tolerated.” Arm’s corresponding statement said, “Following Qualcomm’s repeated material breaches of Arm’s license agreement, Arm is left with no choice but to take formal action requiring Qualcomm to remedy its breach or face termination of the agreement.”
To no one’s surprise, each company has also expressed its confidence that it will win in court.
Why Are Arm And Qualcomm Fighting?
Qualcomm and Arm have a symbiotic relationship. As touched on above, Arm’s IP is in most of Qualcomm’s chips. Conversely, Qualcomm is likely Arm’s largest customer, which makes the importance of Arm’s lawsuit against it even more pronounced.
The legal and financial issue at stake goes back many years. Qualcomm used to have an architecture license from Arm under which Qualcomm could develop and design its own chips using Arm IP—very similar to what Apple has with Arm today. Then there was a period when Qualcomm licensed Arm designs on a royalty basis. (Arm gets about half of its revenue from licensing and half from royalties.) So far, so good.
But then in 2021, Qualcomm bought a chip-design company called Nuvia, which had its own license agreement with Arm. A key issue at stake in the upcoming court case is whether Qualcomm thus automatically acquired the rights to use Nuvia CPU designs that incorporate Arm IP. Qualcomm believes so and has acted on that basis. Conversely, Arm’s position is that the Arm architecture license with Nuvia was not transferable without Arm’s permission—something it could use to trigger a renegotiation of the license on financial terms more favorable to Arm.
This has led to a massive debate between Qualcomm and Arm about which license provisions apply today, and how much Qualcomm should pay. You will not be surprised to find out that Arm favors an interpretation that would make Qualcomm pay more, while Qualcomm wants to keep on operating as it has been—and avoid paying more.
Arm sued Qualcomm in 2022 for breach in an effort to force it to pay the higher amount. If Arm wins, Qualcomm would have to pay up, or else face the prospect of seeing its chips that contain Nuvia designs pulled off the market—with potentially disastrous financial implications for Qualcomm.
What Happens Now?
It’s no coincidence that Arm has synced its threat to cancel Qualcomm’s license with the two companies’ December 16 date to meet in court. That said, I believe that the companies will find a happy ending to this disagreement, presumably out of court. As in most negotiations, the final terms will probably land somewhere in the middle between what Arm is asking for and what Qualcomm wants.
I do understand the positions each company has taken so far. Arm is highly motivated to pursue the issue because there are billions of dollars at stake over the coming years, especially at a time when Qualcomm is looking to redefine the PC processor segment—starting with Copilot+ PCs—using designs that include Arm IP. (I have written about Qualcomm’s big wins in this vein, and my colleague Anshel Sag has covered Qualcomm’s role in Copilot+ PCs extensively.) Qualcomm has nowhere to go but up in the PC market, and I think it can gain market share with the chips it has in its pipeline. Right now it might have 1% or a little less of PC processor market share, but I believe its goals are deep into the double digits. So on a revenue basis, I can understand Arm wanting a bigger reward for its part in Qualcomm’s success.
However, Qualcomm is far from a pushover when it comes to litigation, and it employs an army of lawyers. In fact, Qualcomm came out on top after a multiyear legal battle with Apple, and it is one of the few companies that Apple has lost to in a licensing dispute. One more anecdotal observation: I spent a lot of time around Qualcomm’s top executives at their Snapdragon Summit a couple of weeks ago, and Arm’s threat to cancel their license did not seem to faze them at all. I never had a conversation with any of the Qualcomm executives on it—I didn’t ask and they didn’t bring it up.
In the bigger picture, though, this situation is not good for the industry, and the consensus among third parties orbiting the dispute is that Arm and Qualcomm need to get this thing straightened out one way or another. Their customers don’t like it, their ecosystem doesn’t like it and a protracted fight about it—let alone Arm pulling the plug on Qualcomm altogether—could push PC OEMs back toward the x86 makers, AMD and Intel. Qualcomm is also the number-one merchant silicon provider for smartphones; I don’t think its role could be fulfilled by MediaTek, which is a lower-positioned SoC brand.
One more point: Qualcomm doesn’t have a choice but to use Arm technology. I have heard some people talk about Qualcomm switching to the RISC-V chip architecture, but it would take eight to 10 years for a new software ecosystem to be fully built out around that instruction set. So I think it’s in both Arm’s and Qualcomm’s best interests to settle now: negotiate a new license, presumably with a higher royalty rate for Arm that Qualcomm can still stomach, then get on with building market share and making money.
That would be the smart play, anyway. Let’s hope that cooler heads prevail in this case.
