Qualcomm & NUVIA – Flarion II.

Bad for Apple but good for almost everybody else.

• The colossal price being paid by Qualcomm in combination with the legal tussle between Apple and its former employees that founded NUVIA imply that the huge step forward taken by Apple with its M1 processor is not patentable and will spread through the industry.
• This is bad news for Apple as it implies that the edge that the M1 enjoys will not last forever but excellent news for the consumer as they will be able to buy alternatives to the new Macs with the same performance and battery but minus the Apple price tag.
• This is obviously very bad news for the x86 camp which unless it pulls its’ finger out quickly (as AMD is already doing with its Ryzen mobile series) could find itself in real difficulty.
• Qualcomm is paying $1.4bn to acquire NUVIA which was founded in 2019 by three chip designers who left Apple set up NUVIA whose mission was to design server chips based on Arm that would be both extremely powerful and very power efficient.
• The price tag indicates that Qualcomm thinks that these guys have developed something pretty special because at just 2 years old, the company has no product, no customers, and no revenues.
• This reminds me of the acquisition of Flarion by Qualcomm in 2005 which everyone scratched their head about at the time but turned out to own a good portion of the OFDM IP that would go on to be instrumental in the 4G radio standard.
• I suspect that this acquisition has been put together pretty quickly as NUVIA raised $240m just 4 months ago and clearly was not expecting to be acquired or even to go fishing.
• Putting all of the publicly available facts together leads me to the following thesis.
  • Qualcomm has had difficulty in designing a decent processor for personal computers although it has had a little traction in servers.
  • The performance of the Surface X is reasonable with good battery life but it did not really wow the crowd making it far from a game-changer.
  • Apple releases the new Macs with M1 and blows the doors off with its claims which are almost universally found to accurate in independent reviews.
  • Seeing this and comparing this to what it achieved with Surface Pro X makes Qualcomm realise that something is missing in its Arm designs which need to be urgently fixed.
  • In early 2020 when Apple got wind of what its ex-employees were up to, it realised that the technical tricks that it had created to make the M1 as good as it is are either not patentable or it has not filed patents that cover these claims (unlikely).
  • This could happen if the performance uplift is more about design, the 5nm TSMC process and how one implements the Arm IP rather than anything radically new.
  • As a result, Apple tries to interfere with the development of NUVIA by filing a lawsuit against one of the founders in order to keep its new implementation techniques in-house for as long as possible.
  • Qualcomm realises that it can replicate the performance and power characteristics of the M1 much more quickly by purchasing NUVIA which how this start-up could be worth so much to Qualcomm.
• Qualcomm has made this pretty clear in its press release stating, “The acquisition of NUVIA builds on Qualcomm Technologies’ Snapdragon technology leadership, delivering step-function improvements in CPU performance and power efficiency to meet the demands of next-generation 5G computing”.
• In plain English, this means we have figured out how to replicate the characteristics of the M1 and these guys will get us there much more quickly.
• 22 of Apple’s rivals (see here at the bottom) have lined-up to congratulate Qualcomm on making this acquisition meaning that they are all breathing a collective sigh of relief.
• There were clearly serious concerns about what might happen to their businesses if the M1 characteristics remained exclusive to Apple.
• Qualcomm has made some horrible acquisitions in its history, but I don’t think that this is one of them.
• This acquisition also adds weight to the thesis that a good portion of the M1’s leap in performance and power efficiency is due to TSMC’s cutting edge 5nm process (see here).
• This will also aid Qualcomm in its fight to keep the merchant market for smartphone processors which has been moving more and more in-house as the handset market concentrates and handset makers bring their processor designs in house.
• With a stepwise change in performance and battery life, Qualcomm will have a good chance of reversing the in-house trend for a while (until handset makers also figure out how to design these chips) and also of designing an Arm chip for a Surface that I would buy.
• I think the outlook for Qualcomm in the medium has just improved but I think I have missed the big opportunity to make money through holding the shares.
• If I was a holder, I would think twice about selling just yet even though it is pretty expensive.