Arm to Cancel Qualcomm Chip Design License in Escalation of Feud

[XYang2023]

Qualcomm CEO Cristiano Amon, right, with HP Inc. executive Enrique Lores. The company has been working with partners to roll out laptops called AI PCs. (Annabelle Chih/Photographer: Annabelle Chih/Blo)

(Bloomberg) -- Arm Holdings Plc is canceling a license that allowed longtime partner Qualcomm Inc. to use Arm intellectual property to design chips, escalating a legal dispute over vital smartphone technology.

Arm, based in the UK, has given Qualcomm a mandated 60-day notice of the cancellation of their so-called architectural license agreement, according to a document seen by Bloomberg. The contract allows Qualcomm to create its own chips based on standards owned by Arm.
The showdown threatens to roil the smartphone and personal computer markets, as well as disrupt the finances and operations of two of the most influential companies in the semiconductor industry.

Qualcomm shares fell as much as 3% after trading opened in New York on Wednesday. Arm dropped as much as 6.4%, a sign investors are concerned about the fallout hurting both sides.

Qualcomm sells hundreds of millions of processors annually — technology used in the majority of Android smartphones. If the cancellation takes effect, the company might have to stop selling products that account for much of its roughly $39 billion in revenue, or face claims for massive damages.

The move ratchets up a legal fight that began when Arm sued San Diego-based Qualcomm — one of its biggest customers — for breach of contract and trademark infringement in 2022. With the cancellation notice, Arm is giving the US company an eight-week period to remedy the dispute.

Arm confirmed that it sent the notice in a statement Wednesday. The company took the step because it was “necessary to protect the unparalleled ecosystem that Arm and its highly valued partners have built over more than 30 years,” according to the statement.
A Qualcomm spokesperson said the UK company was trying to use “more unfounded threats designed to strong-arm a longtime partner” and increase royalty rates.

It “appears to be an attempt to disrupt the legal process, and its claim for termination is completely baseless,” the spokesperson said in an emailed statement. “Arm’s anticompetitive conduct will not be tolerated.”

The two are headed to a trial to resolve the breach-of-contract claim by Arm and a countersuit by Qualcomm. The disagreement centers on Qualcomm’s 2021 acquisition of another Arm licensee and a failure — according to Arm — to renegotiate contract terms. Qualcomm argues that its existing agreement covers the activities of the company that it purchased, the chip-design startup Nuvia.

Arm said it was “fully prepared” for the trial in December and “remains confident that the court will find in Arm’s favor.”

Nuvia’s work on microprocessor design has become central to new personal computer chips that Qualcomm sells to companies such as HP Inc. and Microsoft Corp. The processors are the key component to a new line of artificial intelligence-focused laptops dubbed AI PCs. Earlier this week, Qualcomm announced plans to bring Nuvia’s design — called Oryon — to its more widely used Snapdragon chips for smartphones.
Arm says that move is a breach of Qualcomm’s license and is demanding that the company destroy Nuvia designs that were created before the Nuvia acquisition. They can’t be transferred to Qualcomm without permission, according to the original suit filed by Arm in the US District Court in Delaware. Nuvia’s licenses were terminated in February 2023 after negotiations failed to reach a resolution.

“Arm’s move to cancel Qualcomm’s architectural license looks like an effort to gain leverage in advance of the parties’ Dec. 16 trial,” Bloomberg Intelligence analysts Tamlin Bason and Kunjan Sobhani wrote in a research note. “Our Thesis: Arm’s suit against Qualcomm likely ends in a negotiated license, granting the chipmaker rights to customize Arm architecture, but at higher royalty rate than Nuvia had been paying.”

Like many others in the chip industry, Qualcomm relies on an instruction set from Cambridge, England-based Arm, a company that has created much of the underlying technology for mobile electronics. An instruction set is the basic computer code that chips use to run software such as operating systems.

If Arm follows through with the license termination, Qualcomm would be prevented from doing its own designs using Arm’s instruction set. It would still be able to license Arm’s blueprints under separate product agreements, but that path would cause significant delays and force the company to waste work that’s already been done.

Prior to the dispute, the two companies were close partners that helped advance the smartphone industry. Now, under newer leadership, both of them are pursuing strategies that increasingly make them competitors.

Under Chief Executive Officer Rene Haas, Arm has shifted to offering more complete designs — ones that companies can take directly to contract manufacturers. Haas believes that his company, still majority owned by Japan’s SoftBank Group Corp., should be rewarded more for the engineering work it does. That shift encroaches on the business of Arm’s traditional customers, like Qualcomm, who use Arm’s technology in their own final chip designs.

Meanwhile, under CEO Cristiano Amon, Qualcomm is moving away from using Arm designs and is prioritizing its own work, something that potentially makes it a less lucrative customer for Arm. He’s also expanding into new areas, most notably computing, where Arm is making its own push. But the two companies’ technologies remain intertwined, and Qualcomm isn’t yet in a position to make a clean break from Arm.
Arm was acquired in 2016 by SoftBank, and part of it was sold to the public in an offering in September of last year. The Japanese company still owns more than 80% of Arm.

Arm has two types of customers: companies that use its designs as the basis for their chips and ones that create their own semiconductors and only license the Arm instruction set.

Qualcomm is no stranger to licensing disputes. The company gets a large chunk of its profit from selling the rights to its own technology — a key part of mobile wireless communications. Its customers include Samsung Electronics Co. and Apple Inc., the two biggest smartphone makers.
Qualcomm emerged victorious in 2019 from a wide-ranging legal fight with Apple. It also won a court decision on appeal against the US Federal Trade Commission, which alleged that the company was using predatory licensing activities.

Arm to Scrap Qualcomm Chip Design License in Feud Escalation

Arm Holdings Plc is canceling a license that allowed longtime partner Qualcomm Inc. to use Arm intellectual property to design chips, escalating a legal dispute over vital smartphone technology.

www.bnnbloomberg.ca

 

[kvas]

Here's one theory that I've seen, that sort of makes sense (except for ARM's overly aggressive behavior):
- Oryon v2 cores that Qualcomm has developed after acquiring Nuvia do not rely on Nuvia IP and are therefore not affected by the existing lawsuit with ARM.
- Oryon v2 cores are better than latest ARM Cortex cores.
- If Qualcomm would switch to using Oryon v2 cores in their new mobile chips (instead of ARM Cortex), ARM's revenue would take a hit, because ALA (architecture license) royalties are about half of TLS (technology license) royalties.
- If Qualcomm's own ALA (not Nuvia's) is revoked, they can't sell Oryon v2, which would be bad for ARM, and also create more competition for Apple's chips.

References:
- Recent Irrational Analysis writeup
- Older hackernews thread

 

[blueone]

As of this posting, the stock market is punishing both companies for this behavior.

 

[delong.height]

Here's one theory that I've seen, that sort of makes sense (except for ARM's overly aggressive behavior):
- Oryon v2 cores that Qualcomm has developed after acquiring Nuvia do not rely on Nuvia IP and are therefore not affected by the existing lawsuit with ARM.
- Oryon v2 cores are better than latest ARM Cortex cores.
- If Qualcomm would switch to using Oryon v2 cores in their new mobile chips (instead of ARM Cortex), ARM's revenue would take a hit, because ALA (architecture license) royalties are about half of TLS (technology license) royalties.
- If Qualcomm's own ALA (not Nuvia's) is revoked, they can't sell Oryon v2, which would be bad for ARM, and also create more competition for Apple's chips.

References:
- Recent Irrational Analysis writeup
- Older hackernews thread

Here is the things, regardless of v2, v3 Qualcomm come up with, it's built on top of ARM instruction set. There's literally no way from esscaping, the only way that they can do is ditch ARM entirely and switching to RISC-V, which in a report that they are doing.

 

[delong.height]

As of this posting, the stock market is punishing both companies for this behavior.

Correct, if ARM wins, Qualcomm would lose the battle against AMD, Intel, and Apple unless they agree to pay up their reyalties to ARM, but ARM will lose Qualcomm business three years from now.
If ARM fail or withdraw, ARM would essentially fail to become an impactful company, and it present opportunity for companies like Mediatek, Nvidia, Apple. And it would present a thesis that big company can ditch ARM at any time, proving ARM has no potential to maintain its current high price multiple. Either way, it hurts ARM more than Qualcomm.

 

[kvas]

Here is the things, regardless of v2, v3 Qualcomm come up with, it's built on top of ARM instruction set. There's literally no way from esscaping, the only way that they can do is ditch ARM entirely and switching to RISC-V, which in a report that they are doing.

Yeah, and I think the stock market reaction is spot on. ARM fighting their own clients is bad for both ARM and their clients (Qualcomm in this case) and great for RISC-V. I don't understand ARM's strategy here, but maybe their position is indeed so strong that they can strongARM everyone into paying them more and still hold off RISC-V competition... only time will tell.

 

[blueone]

Yeah, and I think the stock market reaction is spot on. ARM fighting their own clients is bad for both ARM and their clients (Qualcomm in this case) and great for RISC-V. I don't understand ARM's strategy here, but maybe their position is indeed so strong that they can strongARM everyone into paying them more and still hold off RISC-V competition... only time will tell.

Agreed on Arm's demeanor, but RISC-V IP availability is currently many years behind the diversity, sophistication, and trust-level of Arm IP. And the gap looks like it's still widening, rather than narrowing.

I'm still a bit of a skeptic about RISC-V's success. It's permissive licensing model is similar to BSD Unix, and BSD Unix is nowhere to be found (except perhaps as part of MacOS), while highly-controlled Linux with GPL licensing and Torvalds' iron fist control over the code base dominates. I'm not a betting man, but even I would bet Microsoft would not be enthusiastic about a RISC-V client port for Windows.

 

[samwilde]

The Chinese companies seem to be taking care of the low and middle end just fine. There are also US core design companies like SiFive. Microchip produces chips for embedded. We need a US company (or several) to attack the high end of the RISC-V segment.

While there are several supposed high end core designs, it is their lack of availability as an actual product someone can buy that is the failure.

I would not be surprised if hyperscalers were using RISC-V in some capacity already, but those higher end platforms are not for non-billion dollar companies yet.

Companies like Qualcomm could help here but remains to be seen.

 

[Daniel Nenni]