Arm has announced that it may terminate its chip architecture licensing agreement with Qualcomm (QCOM) due to repeated breaches of the agreement by Qualcomm. Arm has stated that it had no option but to take legal action to address these violations. The company emphasized the importance of this move to protect its ecosystem, built over the past 30 years with its partners. Arm is prepared for a court hearing in December and expects a favorable ruling.
Following the announcement, Arm's stock price fell nearly 7%, while Qualcomm's dropped close to 4%. Qualcomm responded, accusing Arm of making baseless threats and attempting to pressure long-term partners to increase licensing fees unjustly. Arm provided a statement from August 2022, outlining that it had already sued Qualcomm and Nuvia for violating license agreements and trademark infringement. Arm alleged that Qualcomm attempted to transfer Nuvia's license without consent, which led to the termination of Nuvia's license in March 2022.
The lawsuit, ongoing for two years, remains unresolved. Arm, a prominent chip architecture design company, licenses its technology to firms like Qualcomm and Nvidia, powering 99% of high-end smartphones and being integral to Nvidia's data center chips. Besides smartphones, Arm has expanded its reach into data centers, automotive, and AI processing. The company aims to launch AI chips by 2025.
Qualcomm is a leading player in the smartphone processor market, with its chips embedded in millions of smartphones annually. It has also increased investments in personal computing, developing processors for AI applications. Arm's stock has surged nearly 90% this year, driven by the AI boom, and its price-to-earnings ratio is approximately 358 times, compared to Nvidia's 65 times.
