Shares of Arm Holdings PLC (NASDAQ:ARM) and Qualcomm Inc (NASDAQ:QCOM, ETR:QCI) both dropped on reports a licensing disagreement between the two chipmakers has escalated.
Arm shares plunged 7.4% at about $141 while Qualcomm traded 4.3% lower at $165.80.
Bloomberg reported on Tuesday evening that Arm is cancelling a license that allowed Qualcomm to use its intellectual property to design chips.
Per a document seen by the publication, Arm has issued a 60-day notice of cancellation of the architectural licence agreement.
Arm declined to comment on the matter.
A Qualcomm spokesperson said Arm was using “more unfounded threats designed to strong-arm a longtime partner.”
It “appears to be an attempt to disrupt the legal process, and its claim for termination is completely baseless,” the spokesperson said in a statement to Bloomberg.
“Arm’s anticompetitive conduct will not be tolerated.”
Analysts at Jefferies believe Arm’s decision to cancel the license is in response to Qualcomm’s launch this week of its Snapdragon 8 Elite chips for smartphones which incorporate Oryon CPU cores, on which a royalty rate hasn’t been agreed.
The two companies are going through litigation related to a breach-of-contract claim by Arm and a countersuit by Qualcomm centered on Qualcomm’s 2021 acquisition of Arm licensee Nuvia.
Nuvia was paying high royalty rates, as its chips were targeting the low-volume, high-value server market.
Post-acquisition, Arm and Qualcomm were not able to reach an agreement about the royalty rate, with Arm terminating Nuvia’s license in 2022. Arm then sued Qualcomm after it continued to use Nuvia’s cores.
“While we do not know the exact facts, we believe Qualcomm wanted to pay royalties on Nuvia cores at rates comparable to those associated with its own architectural license from Arm, while Arm wanted a higher royalty rate,” analysts believe.
“We expect a protracted legal process ending in a negotiated settlement.”
They noted that Arm has been clear in its guidance for fiscal 2025, 2026 and 2027 that this is not based on the expectation of success in its litigation with Qualcomm.
“As a result, we do not expect any cut in guidance or our forecasts, even if Arm were to eventually lose the case,” they wrote.
“On the other hand, if the two parties were to eventually arrive at a higher royalty rate by court decision or negotiation, it would provide upside to forecasts.”
They expect Arm to report Q2 fiscal 2025 revenue of $815 million, above the consensus estimate of $810 million, and an operating profit of $291 million, above the consensus $288 million.
Arm reports its earnings on November 6.