Citi see ‘minimal impact’ to Qualcomm, but possible drawn-out fight with Arm

After Bloomberg reported that ARM Holdings (ARM) has given Qualcomm (QCOM) a mandated 60-day notice of cancellation of the licensing agreement that allows Qualcomm to design chips based on ARM’s intellectual property, Citi says the firm does not expect Qualcomm to halt shipment of any chips. The firm believes this case could potentially head to the courts and Qualcomm ends up paying ARM a higher royalty, which would negatively impact Qualcomm margins, though it would not expect any such impact to be material to Qualcomm as “perhaps a low-single-digit” percentage at worst, the analyst tells investors. However, the firm also believes this situation has potential to be “dragged out for a while” and would not expect a decision any time soon given previous court battles over royalties. Citi has a Neutral rating on Qualcomm and sees near-term downside risk to the stock due to softness in the wireless end market.