Qualcomm (QCOM, Financial) achieved a significant legal victory last Friday when a jury ruled that its license to use Arm Holdings' (ARM, Financial) chip architecture for laptops and PCs is valid. This decision allows Qualcomm to continue its chip sales in this market. The case centered on whether Qualcomm was covered by a less expensive license agreement that ARM had with Nuvia, a CPU design company acquired by Qualcomm in 2021, or if Qualcomm needed to renegotiate the deal, potentially increasing royalty fees to ARM.
The jury determined that Qualcomm did not breach its contract by adhering to the Nuvia-ARM agreement, alleviating concerns that its PC business margins and profits would suffer due to higher royalty rates. However, the risk is not entirely eliminated.
- Jurors could not agree on whether Nuvia violated its license agreement with ARM after the Qualcomm acquisition, resulting in a hung jury. This aspect of the litigation is likely to be retried, as ARM's attorneys plan to continue the legal battle, with another trial expected in 2025.
- Although the PC/laptop market is currently a smaller segment of Qualcomm's business, with handsets making up about 60% of total revenue, it is crucial for the company's revenue diversification strategy. Qualcomm anticipates growth for its Snapdragon X chipset as AI technologies like GenAI chatbots are integrated into new laptop models.
- In the fourth quarter of 2024, IoT revenue increased by 22% year-over-year to $1.68 billion, following declines in the previous three quarters due to an inventory glut among OEM customers. PCs and laptops, part of the IoT business, contributed to this recovery as the Snapdragon X chip was incorporated into 58 platforms.
- During a mid-November analyst event, Qualcomm projected PC revenue of $4.0 billion by FY29. This forecast might be conservative if the company achieves its target of 100 design wins by 2026, potentially accessing approximately 70% of the PC market.
Overall, the verdict is a positive development for Qualcomm, reducing some risks for its emerging PC business. However, challenges remain as ARM plans to appeal the decision and with the possibility of Apple (AAPL, Financial) launching its own modem chips in the coming years.
