The CEO of Arm, Rene Haas, minimized the company’s aspirations to become a direct chip supplier during a legal battle against Qualcomm, a significant customer contributing an estimated hundreds of millions of dollars annually in licensing fees. This dispute centers on Qualcomm’s licensing agreement for Arm’s intellectual property following its $1.4 billion acquisition of chip startup Nuvia in 2021.
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Licensing Dispute at the Heart of the Trial
The core issue lies in the clash over royalty rates. Arm contends that Qualcomm should adhere to Nuvia’s higher royalty rates for the chip designs used in Qualcomm’s chips, rather than leveraging Qualcomm’s significantly lower rates. Arm’s desired outcome is the dismantling of Nuvia’s designs, alleging they underpin the energy-efficient AI PC chips that Nuvia’s leadership helped Qualcomm develop. These chips, introduced earlier this year, are anticipated to bolster the Windows operating system’s competitiveness against Apple laptops, according to Microsoft and other industry observers.
Arm’s position as a neutral player, licensing fundamental technology to virtually every chip company, is central to the industry’s ecosystem. Internal documents presented to the jury revealed that permitting Qualcomm to utilize the lower rates could have undermined Arm’s business model, as Nuvia’s royalty rates were “many multiples” higher. Furthermore, estimates within these documents suggested that Qualcomm’s acquisition of Nuvia potentially reduced Arm’s revenue by $50 million. “We’ve never had an issue like this,” Haas testified.
Qualcomm’s Counterstrategy: Portraying Arm as a Competitor
Qualcomm’s legal team aimed to depict the royalty dispute as part of Arm’s strategy to challenge a customer it increasingly perceived as a rival. They presented a document Haas prepared for Arm’s board outlining a plan for Arm to design its own chips, directly competing with Qualcomm and other Arm customers. Haas dismissed the document, stating that Arm does not manufacture chips and never entered that market, but acknowledged he continually evaluates potential strategies. “That’s all I think about, is the future,” he told the jury.
Controversy Surrounding Arm’s Communication with Qualcomm’s Customers
Qualcomm’s attorneys also questioned Haas regarding letters Arm sent to numerous Qualcomm customers, including Samsung Electronics. These letters warned that the dispute could lead to the mandatory destruction of Nuvia technology, contrary to Qualcomm’s assertions. A Qualcomm attorney labeled these letters “misleading,” and industry experts have questioned whether Arm’s stance would disrupt Qualcomm’s ability to supply chips to the PC market. “I felt we had a reason,” Haas responded. “We were getting lots of questions from partners and customers at almost every meeting with senior executives.”
Trial Nears Conclusion, Potential Impact on the Chip Industry
Arm is expected to conclude its case on Tuesday, potentially including video deposition testimony. Qualcomm’s CEO, Cristiano Amon, may testify. The judge indicated that jury deliberations could commence as early as Thursday. While Arm hasn’t sought monetary damages, Bernstein analyst Stacy Rasgon estimates Qualcomm pays Arm approximately $300 million annually in fees. The trial’s outcome could significantly impact the dynamics of the chip industry and the relationship between Arm, owned by SoftBank Group, and its major customers.