To The Moon

$Qualcomm(QCOM)$ and $ARM Holdings Ltd(ARM)$ have fallen out! Recent reports indicate that Arm has revoked Qualcomm's architecture licensing agreement. This means Qualcomm can no longer use Arm’s architecture to design its mobile chips.

Qualcomm is a giant in the mobile chip industry, dominating the Android ecosystem, while Arm is the leading provider of chip architecture. Think of architecture like blueprints for a building: Qualcomm is the developer who pays licensing fees to tweak the designs and save on foundational work.

For years, Qualcomm and Arm worked together smoothly. However, things changed when Arm was acquired by Japan’s $Softbank Group Corp(SFTBF)$ and later went public, facing pressure to boost profits.

Arm's New Strategy

In this context, Arm decided to shift its business model. Instead of licensing to chip designers like Qualcomm, Arm plans to charge device manufacturers directly for patents. This move allows Arm to bypass Qualcomm and collect fees from companies like $Apple(AAPL)$ $Samsung Electronics Co., Ltd.(SSNNF)$ .

Additionally, Arm is looking to bundle its offerings, preventing the use of non-Arm components such as GPUs, NPUs, and ISPs in chips.

For Qualcomm, this means they would need to abandon their Adreno GPUs and switch to Arm’s Mali GPUs, crippling their ability to independently design chips and weakening their competitive edge. Device makers might then choose to partner directly with Arm, sidelining Qualcomm entirely.

Qualcomm's Response

Qualcomm isn't taking this lightly. In 2021, they acquired NUVIA, giving them the ability to independently design chip architectures.

Just a day before Arm revoked its licensing, Qualcomm announced its Oryon architecture, set to power their flagship Snapdragon 8 Elite chip. This move completes Qualcomm's System-on-Chip (SoC) capabilities with in-house designs for GPU, NPU, ISP, and baseband.

Arm has been proactive, suing Qualcomm in August 2022. The lawsuit demands that Qualcomm either destroy designs developed under the NUVIA licensing agreement or renegotiate their licensing terms with Arm. The case is set for trial later this year, and Qualcomm has labeled Arm's revocation as a "desperate tactic" aimed at disrupting legal proceedings.

Looking Ahead

Despite the tension, industry analysts believe both companies might eventually reach a new licensing agreement.

Regardless of the lawsuit's outcome, it’s clear Qualcomm and Arm are on diverging paths. While Qualcomm may face some turbulence, freeing themselves from Arm could ultimately reduce licensing costs and allow for more tailored designs that set them apart in the mobile SoC market.

For Arm, this dispute highlights their aggressive approach to increasing licensing fees and serves as a warning to other Arm-based chip designers.

In the long run, the fallout may impact Arm more significantly than Qualcomm.