Semiconductor companies Qualcomm (QCOM) and Arm (ARM) are preparing for closing arguments tomorrow in a legal dispute concerning contracts made with Nuvia. Nuvia is a chipmaker that was bought by Qualcomm in 2021 and has licensing contracts with Arm for its chip development.
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The crux of this legal dispute focuses on Nuvia’s contract with Arm and a potential breach of it. This is due to Qualcomm changing the royalty payments made to Arm following its acquisition of Nuvia. Qualcomm already had a contract with Arm when it bought Nuvia and it switched to paying fees under that contract instead of Nuvia’s after the purchase. The issue here is the contract between Nuvia and Arm has higher fees than the one between Qualcomm and Arm.
Arm argues that Qualcomm, or rather Nuvia, broke the contract when it switched to the lower fee rate. Qualcomm defends its actions and argues that Arm is making claims over products that were produced by Qualcomm engineers.
What This Means for QCOM and ARM Stock
Depending on how an eight-person jury in the U.K. rules, the legal battle could have major ramifications for either company. In the case of Qualcomm, a ruling in Arm’s favor could force the company to destroy the technology it gained from its Nuvia actuation, which cost it $1.4 billion. A ruling in Arm’s favor would also potentially alter how its licensing agreements with other companies are interpreted.
Investors in QCOM and ARM don’t appear overly antsy about the legal dispute today. Shares of QCOM and ARM are both rising in early morning trading. However, this could change after tomorrow’s final arguments are made.
QCOM vs ARM: Which Stock Should Investors Bet On?
Turning to Wall Street, the analysts’ consensus for Qualcomm and Arm are both Moderate Buy. The average price target for QCOM is $200.76, representing a potential 31.17% upside. Shares of ARM have an average price target of $154.60, representing a potential 13.21% upside for the stock.
