By Tom Hals

WILMINGTON, Delaware (Reuters) – Internal Qualcomm (NASDAQ:QCOM) documents revealed that the chip firm estimated it could save as much as $1.4 billion annually on payments to Arm by acquiring a lesser-known startup, Nuvia, in 2021. This information was disclosed during a trial where Qualcomm CEO Cristiano Amon testified about the rationale behind the $1.4 billion purchase.

Amon stated, "It justified the acquisition," regarding the potential royalty savings. The trial seeks to address claims from Arm that Qualcomm must destroy Nuvia's technology since Arm never consented to the transfer of its license agreements related to Nuvia.

The technology and talent acquired from Nuvia is crucial for Qualcomm's ventures in the PC market, aiming to help Microsoft (NASDAQ:MSFT) regain share against Apple (NASDAQ:AAPL). Amon explained the deteriorating relationship between Qualcomm—Arm's largest customer—and Arm, which began before their current legal dispute. In the 2010s, Qualcomm shifted from creating its own computing cores to purchasing designs from Arm.

As Qualcomm struggled against Apple in smartphones and saw an opportunity against Intel (NASDAQ:INTC) in laptops, Amon revealed they lacked a clear plan to reduce reliance on Arm. This changed with the founding of Nuvia by ex-Apple engineers in 2019. After unsuccessful negotiations to have Nuvia create cores for Qualcomm, Amon pursued acquiring the startup.

Justifying the expensive acquisition was challenging since Nuvia lacked a finished product and focused on the server market. Amon informed Qualcomm's board that they could potentially save $1.4 billion every year by shifting to Nuvia-based designs, especially with plans to enter a significant new market for PC chips, requiring substantial payments to Arm.

This figure surpassed the $50 million revenue decline that Arm executives anticipated when the acquisition was announced. Qualcomm reportedly pays Arm approximately $300 million annually, not accounting for potential expansions into new sectors.

Amon expressed confidence that Qualcomm could utilize Nuvia's technology since both companies possessed licenses to create cores compatible with Arm's architecture. However, Arm executives contested this claim, ultimately terminating Nuvia's license and demanding the destruction of all Nuvia technology developed under it.

Closing arguments in the trial are expected on Thursday.

(Reporting by Tom Hals in Wilmington, Delaware; Writing by Stephen Nellis in San Francisco; Editing by Bill Berkrot)