A pivotal trial between Arm (ARM) and Qualcomm (QCOM) in a U.S. federal court in Delaware regarding an intellectual property case has riveted the tech industry. The outcome of this case could shape the future of the chip industry.
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Arm’s Computing Architecture Is at the Centre of the Dispute
Arm’s flagship product is a computing architecture that competes with Intel’s (INTC) and dominates the smartphone market. Increasingly, this computing architecture is being used in laptops and data centers. Furthermore, companies like Apple (AAPL) design custom computing cores based on Arm’s architecture, while other smaller companies, like MediaTek, rely on Arm’s off-the-shelf core designs. The heart of the dispute between Arm and Qualcomm revolves around the extent of Arm’s ownership of core designs derived from its architecture.
What Is the Arm and Qualcomm Legal Battle about?
The disagreement centers on Qualcomm’s $1.4 billion acquisition of Nuvia in 2021. Nuvia, founded by former Apple chip engineers, developed chip designs that Qualcomm used to produce AI-powered PC chips launched earlier this year.
Notably, Nuvia and Qualcomm had separate licensing agreements with Arm under different financial terms. As a result, Arm argues that Qualcomm must renegotiate the licensing terms for Nuvia-based designs to use them. Qualcomm, on the other hand, maintains that its existing license covers custom-designed central processing units (CPUs) and is “confident those rights will be affirmed.”
During the ongoing trial, Gerard Williams, Nuvia’s founder and a former Apple engineer, testified that his team’s designs used Arm’s architecture but estimated Arm’s technology constituted “one percent or less” of Nuvia’s final designs. However, Arm’s attorneys argued the licensing contract covered all derivatives and modifications of Arm’s technology.
QCOM Pays Arm $300M in Licensing Fees
According to a Reuters report, citing analysts, Qualcomm reportedly pays Arm $300 million annually in licensing fees. Additionally, trial evidence suggested Arm believed it was losing $50 million annually in potential revenue due to Qualcomm’s acquisition of Nuvia.
What Is the Future Price of ARM Stock?
Analysts remain cautiously optimistic about ARM stock, with a Moderate Buy consensus rating based on 15 Buys, four Holds, and one Sell. Year-to-date, ARM has surged by more than 90%, and the average ARM price target of $154.60 implies an upside potential of 8.3% from current levels.
