Source: Content compiled from pcworld

As reported earlier, Arm has notified its licensee Qualcomm that its architecture license will end in 60 days - the agreement that allows Qualcomm to produce the Oryon CPU cores at the heart of the Snapdragon X Elite chip and Copilot+ PC.

waForeign media PCWorld has independently confirmed an earlier report from Bloomberg that Arm will cancel the architecture licensing agreement. Qualcomm called the cancellation notice "more unfounded threats" and expected the December trial to resolve the issue.

A person familiar with the matter said on Wednesday that Arm's agreement with Qualcomm covers the existing Oryon core in the Snapdragon X Elite and the second-generation Oryon core that Qualcomm demonstrated at the Snapdragon Summit in Maui this week.

Specifically, the agreement that Arm canceled is the Arm v8 architecture license. Sources said Qualcomm never signed an Arm v9 architecture license, but does have an existing license for Arm v9 fixed cores, which should include Arm CSS for Client and Arm's Cortex cores.

01 License Agreement Explanation

Arm licenses its intellectual property in a variety of ways to companies like Qualcomm, Samsung, Apple, and MediaTek. Over the past few years, companies like Qualcomm have signed agreements to take Arm cores like the Cortex and embed them into their own designs.

In this case, a base core license would require the licensee to keep the Cortex CPU unchanged. If a competitor signed a similar agreement, the two CPU cores would be in direct competition with each other. While licensees typically have some flexibility (they can adjust the Cortex clock speed, for example), finished products based on these core licenses can end up being very similar.

Arm architecture licenses, however, offer licensees even more flexibility. For example, the license allows Apple to design a completely custom chip like the M3 while maintaining architectural compatibility with the Arm instruction set. With an architecture license, chip designers can exercise their creative freedom and potentially push the limits of what Arm engineers could think of in a fixed Cortex core.

02 Why Arm sued Qualcomm

The two came to a head a few years ago when Qualcomm's Snapdragon 8 series PC chips failed to keep up with AMD and Intel's x86 processors. Qualcomm acquired Nuvia in 2021 to enhance its Arm-based CPU designs because Nuvia had an architecture license for making server Arm chips.

Qualcomm argued that it purchased the license and Nuvia's intellectual property, but Arm disagreed and argued that the wording of the license gave it control over whether it could be transferred.

In the fall of 2022, Arm sued Qualcomm, seeking an injunction forcing Qualcomm to destroy Nuvia's chip designs. Arm subsequently rescinded Nuvia's license in 2023, according to Bloomberg. Since then, the litigation has been quietly ongoing, with no real action from either side, although the parties set a court date in December and Qualcomm has continued to ship products based on Nuvia's designs.

03 The stakes have now been raised

This week, Qualcomm unveiled its next-generation Oryon core at the Snapdragon Summit in Maui, which the company claims is actually faster than Intel's Lunar Lake chips.

In response to Arm's lawsuit, Qualcomm issued a statement calling the move a "desperate ruse."

"This is more of the same from Arm - more unfounded threats designed to strongarm a longtime partner, interfere with our performance-leading CPUs, and increase royalty rates regardless of the broad rights under our architecture license," Qualcomm said in a company statement emailed to PCWorld by a company representative. "With a trial fast approaching in December, Arm's desperate ploy appears to be an attempt to disrupt the legal process, and its claim for termination is completely baseless. We are confident that Qualcomm's rights under its agreement with Arm will be affirmed. Arm's anticompetitive behavior will not be tolerated."

(Original text: "This is more of the same from Arm — more unfounded threats designed to strongarm a longtime partner, interfere with our performance-leading CPUs, and increase royalty rates regardless of the broad rights under our architecture license," Qualcomm said in a company statement emailed to PCWorld by a company representative. "With a trial fast approaching in December, Arm's desperate ploy appears to be an attempt to disrupt the legal process, and its claim for termination is completely baseless. We are confident that Qualcomm's rights under its agreement with Arm will be affirmed. Arm's anticompetitive conduct will not be tolerated.")

Arm hit back in a statement on Wednesday.

"Following Qualcomm's repeated material breaches of Arm's license agreement, Arm is left with no choice but to take formal action requiring Qualcomm to remedy its breach or face termination of the agreement," the company said. "This is necessary to protect the unparalleled ecosystem that Arm and its highly valued partners have built over more than 30 years. Arm is fully prepared for the trial in December and remains confident that the Court will find in Arm's favor."

Currently, the Oryon cores (for smartphones and PCs) governed by the license are at the heart of the Arm-Qualcomm legal dispute. Now, those cores are at risk because of Arm's actions, and in a few months, either intense negotiations or an even more intense court battle will unfold.

04 How will this "war" evolve?

The threat has investors nervous because Arm and Qualcomm work closely together and are financially and technologically dependent on each other. Qualcomm accounted for 10% of its revenue in the fiscal year ending March 2024, according to Arm's filings.

Still, the worst-case scenario of Arm and Qualcomm not reconciling seems highly unlikely.

Bernstein analyst Stacy Rasgon noted that Qualcomm's legal dispute with Apple was settled in 2019, just as the case went to trial. "We have had considerable experience with Qualcomm litigation in the past and have noted that these cases tend to settle," he wrote on Wednesday. "Given the close working relationship between the two companies, we would be surprised if the parties actually expected both sides to settle."

Even if a potential settlement results in lower royalty rates for Qualcomm, Arm has several other successful growth initiatives that could cushion any short-term blow.

Arm's latest advanced chip technology, Armv9, generates twice the royalty rates of its predecessor, Armv8. The company has also made progress in high-end cloud server processors, which should bring in significant revenue next year. Microsoft and Nvidia are using Arm's designs to make chips with more than 100 "cores." For Arm, that means more than $100 in royalties per chip.

Designing mobile processors, meanwhile, is only part of Qualcomm's business; the company is partly influenced by licensing its own wireless technology patents.

The fight doesn't look good right now. But once the dispute is over, the recent declines in Arm and Qualcomm's stock prices could be erased.

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