Since Apple replaced Intel processors with ARM processors in notebooks, Qualcomm has also developed processors for notebooks, and many manufacturers such as Microsoft, Dell, Asus, and Samsung have launched complete products. Microsoft executives expect that Arm-based notebook shipments will reach 1 million to 2 million units in 2024, with a 5% share in the Windows camp. Arm CEO Haas said that in the next five years, Arm-based chips will get more than half of the market share in Windows PCs.
ARM's dispute with Qualcomm began with the acquisition of Nuvia
NUVIA was founded in 2019. The company's founder, Gerard Williams, is a senior architect at ARM and Apple, who participated in the development of a series of classic CPU architectures from ARM9 to Cortex-A15 during his tenure at ARM, and presided over the development of most CPUs from A7 to A14 during his tenure at Apple.
Manu Gulati, vice president of NUVIA, was an architect at Google and an architect at Apple for 8 years, responsible for the design of CPUs such as A5X, A9, A11, and A12X. Another senior vice president, John Bruno, spent seven years at ATI, eight years at AMD, and five years at Apple, where he was responsible for APU design.
NUVIA SIGNED A LICENSE AGREEMENT WITH ARM AND THEN BEGAN DESIGNING ARM CPUS WITH CORES THAT WERE HIGHLY COMPETITIVE IN THE MARKET. AFTER THAT, NUVIA WAS VALUED BY QUALCOMM AND SPENT $1.4 BILLION TO ACQUIRE NUVIA AND OBTAINED THE CPU CORES IT DESIGNED.
According to Qualcomm's public statement, it plans to use the core of NUVIA's design in smartphones, laptops and automotive electronics, which will directly compete with ARM and reduce ARM's profitability. The Snapdragon X Elite processor was announced at the Snapdragon Technology Summit in the fall of 2023, surpassing Apple's own custom M3 processor in terms of performance.
It is estimated that Qualcomm sells 350 million-400 million chipsets per year, each of which uses an ARM core chipset to pay ARM about 80 cents on average, if Qualcomm replaces ARM's core with a core designed by Nuvia, it may save 40%-50% of patent fees, and the core designed by high-general NUVIA replaces the core of ARM, which is good for Qualcomm but bad for ARM.
Conflicts of interest induce litigation
Due to Qualcomm's stronger voice in the industry and stronger bargaining power, the licensing rate negotiated between Qualcomm and ARM is much lower than that negotiated by NUVIA and ARM. The contradiction between ARM and Qualcomm stems from this, and there are two main contradictions.
First, the authorization rate cannot be negotiated. GIVEN THAT QUALCOMM HAS MORE FAVORABLE TERMS, ARM WANTS TO IGNORE QUALCOMM'S LICENSING AND RATES, AND TRIES TO FORCE QUALCOMM TO PAY HIGHER LICENSING FEES FOR NUVIA'S PRODUCTS. Qualcomm believes that its licensing agreement with ARM can cover NUVIA's products, that is, pay NUVIA's licensing fees according to the licensing rates between Qualcomm and ARM.
The second is the ownership of NUVIA products. ARM said that under the agreement between ARM and NUVIA, NUVIA's authorization was only for NUVIA itself, not for Qualcomm, and that on February 1, 2022, ARM terminated NUVIA's license agreement, requiring NUVIA and Qualcomm to destroy all ARM confidential information and to demonstrate compliance with ARM's requirements by April 1, 2022. ARM also argued that Qualcomm should repurchase a license from ARM if it wanted to acquire NUVIA's design or rights after acquiring NUVIA, and that any transfer of NUVIA design, rights or licenses to Qualcomm would require ARM's prior consent. Qualcomm argued that ARM's consent was not required to acquire the NUVIA design and rights, as ARM did not own any rights to the IP transferred from NUVIA to Qualcomm.
Qualcomm and ARM have engaged in lengthy litigation, and in August 2022, Arm filed a lawsuit against Qualcomm and Nuvia in Delaware court, alleging that they breached Arm's licensing agreement. Arm announced that it has withdrawn its license agreement for Nuvia, requiring Qualcomm not to use Nuvia's chip design. ARM is also asking for a ban on all Qualcomm processor-based notebooks.
Qualcomm and ARM have a high probability of reconciliation
From ARM's point of view, after Qualcomm acquired Nuvia, it used Nuvia's custom chip design without Arm's consent. This is already a violation of the previous licensing agreement, so Arm has the right to revoke the licensing agreement and require Qualcomm to destroy the chip products built on Nuvia and pay compensation to Arm.
From Qualcomm's point of view, after Qualcomm acquired Nuvia, it used the CPU cores designed by Nuvia instead of Arm's public architecture. Since the acquisition of Nuvia has already cost $1.4 billion, there is no need to pay a separate licensing fee to ARM for using the CPU cores designed by Nuvia, and Qualcomm obviously does not plan to pay two licensing fees.
In fact, ARM's biggest concern is the reduction in revenue, Apple has already used a large number of custom cores on its M-series chips, and Qualcomm will use its own CPU cores in the future, which will reduce revenue on the one hand, and on the other hand, may trigger other customers to follow suit.
In terms of volume, ARM's revenue is only $3.23 billion, which is only a small company compared to Qualcomm, and there is a huge gap in political and business relations and legal resources. It is difficult for small companies to argue with the Big Mac, and eventually ARM and Qualcomm will have a high probability of reconciliation, Qualcomm spends money to eliminate disasters, and ARM takes the money.
For domestic ARM manufacturers, we should also take caution. In particular, it is necessary to guard against a fire at the city gate and the fish in the pond. Previously, ARM was considering a reform of its IP licensing model. After Qualcomm plans to use its own architecture in the Snapdragon 8 Gen4, ARM's revenue from Qualcomm may be reduced.
Since ARM has been listed, it will be responsible to the capital market and will inevitably fill this part of the revenue gap, and at that time, ARM may increase the licensing fee standard for Chinese customers in order to realize the benefits of the company.