Futu News APP learned that Arm Holdings (ARM.USA) is taking action to cancel Qualcomm's (QCOM.USA) architecture license agreement, which is a contract that allows Qualcomm to use Arm's intellectual property to design chips. This decision may intensify legal disputes between the two companies and could have a significant impact on the smart phone and personal computer markets. According to documents seen by Bloomberg, Arm has issued a 60-day notice to Qualcomm to cancel the agreement, giving Qualcomm eight weeks to resolve its disputes with Arm. If the agreement is terminated, Qualcomm may have to halt the sale of most products, which account for a significant portion of its approximately 39 billion US dollars in revenue, or face substantial claims.

Specifically, this dispute began in 2022, when Arm sued Qualcomm for breach of contract and trademark infringement. Now, the two companies are about to go to trial to resolve Arm's breach claims and Qualcomm's countersuit. The focus of the disagreement lies in Qualcomm's acquisition of another Arm licensee, Nuvia, in 2021, while Arm alleges that Qualcomm failed to renegotiate contract terms. Qualcomm argues that its existing agreement covers the activities of its acquired company, Nuvia.

It is understood that Nuvia's microprocessor designs have become the core of new PC chips sold by Qualcomm to companies like HP and Microsoft, which are key components of a new series of AI laptops. Qualcomm plans to introduce Nuvia's designs into its more widely used Snapdragon chips for smart phones. However, Arm claims that this violates Qualcomm's license and demands the company to destroy Nuvia designs created before the acquisition. As negotiations failed to reach a resolution, Nuvia's license was terminated in February 2023.

It is worth noting that Qualcomm relies on Arm's instruction set, which is the fundamental computer code chips use to run operating systems and other software. If Arm insists on terminating the authorization, Qualcomm will be unable to use Arm's instruction set for its designs, although it can obtain Arm's blueprints under separate product agreements, this would cause significant delays and force the company to waste work already completed.

In fact, prior to the dispute, Arm and Qualcomm were close partners, driving the development of the smart phone industry together. Now, both companies are pursuing strategies that are increasingly becoming those of competitors. Under CEO Rene Haas, Arm has shifted towards providing more comprehensive designs, while under CEO Cristiano Amon, Qualcomm is moving away from using Arm's designs and prioritizing its own work.

However, the technologies of both companies are still intertwined, and Qualcomm has not completely severed ties with Arm.

It is reported that Arm was acquired by SoftBank in 2016. In September last year, part of the company's equity was sold to the public in an IPO, but this Japanese company still holds more than 80% of Arm's shares. Arm has two types of customers: companies that use its designs as the basis for chips, and companies that create semiconductors themselves and only obtain Arm instruction set licenses.

Qualcomm is no stranger to licensing disputes, with most of its profits coming from selling rights to its proprietary technology, a key part of mobile wireless communication. Its customers include two major smart phone manufacturers, Samsung Electronics and Apple.

Qualcomm emerged victorious in the extensive legal dispute with Apple in 2019 and won an appeal ruling from the US Federal Trade Commission, which accused Qualcomm of engaging in predatory licensing practices.