Qualcomm vs. Arm – Short but Sharp pt. II

RFM returns for one more update before CES 2025

Qualcomm wins, but not entirely.

• The jury has delivered Qualcomm a significant win in its battle with Arm and while Arm still has an avenue to continue to fight, its path to an eventual victory is now far narrower than it was.
• The problem for Qualcomm is that it does not have an architecture licence for the latest instruction set (v9) meaning that at some point it is going to have to negotiate with Arm to get one.
• The crucial finding of the jury was that Qualcomm was found not to be in breach of the Nuvia contract with Arm and that Qualcomm’s Orion processors are properly licenced under Qualcomm’s existing architecture licence with Arm.
• However, the jury was deadlocked on the question of whether Nuvia breached its licence with Arm, and it is on this basis that Arm could seek a retrial.
• I have my doubts over whether this would allow Arm to re-litigate the issues where it lost and so I am far from convinced that this will help Arm’s case very much.
• The net result is that Qualcomm can now continue to sell its chips based on the Orion CPU which are now available for PCs, smartphones and automotive and pay a much lower royalty than it would have done if it had used the Nuvia licence.
• Given the speed with which Qualcomm is likely to switch over to the new CPU, I estimate that this represents a saving of around $200m – $300m per year over what it would have paid had it used the Nuvia license.
• Furthermore, as Qualcomm is switching back to an architecture license as opposed to taking the full processor design from Arm, the royalty rate per unit will fall meaningfully as the royalty for a full processor is higher than licensing the IP and building the processor oneself.
• However, this has a limited lifespan as Qualcomm’s architecture license only covers the v8 instruction set and the Arm ecosystem is rapidly moving to the latest version which is v9.
• At some point, Qualcomm is going to have to get an architecture licence for v9 which means that it will have to enter negotiations with Arm.
• Although Arm is a de-facto industry standard, its IP is not covered by the essential patent FRAND requirement (Fair, Reasonable and Non-discriminatory) and so as far as I can see it can charge what it wants for its licences and not be reasonable if it does not feel like it.
• This is a problem for Qualcomm although this finding by the jury will give it some ammunition for future negotiations.
• Arm said at the time that it intends to seek another trial, but I continue to think that this is not in the best interest of the Arm ecosystem.
• Arm and its customers should be working together to expand its reach into PCs, vehicles, servers, AI and so on and not wasting time and resources fighting each other.
• Each side now has something that the other wants and so there may be scope now for a negotiated settlement where Qualcomm gets a v9 architecture license and Arm gets paid higher royalties.
• Consequently, I am hopeful that there will now be a negotiation where everyone gets something, the two companies kiss and make up and get back to the business of driving the Arm ecosystem.
• This is crucial as the standards for AI are beginning to form and with Intel on its knees, the time to push hard is now.