Qualcomm Shares Drop Amid License Cancellation Notice from Arm

Investing.com — Shares in Qualcomm (NASDAQ:QCOM) fell in premarket US trading on Wednesday following a report that longtime partner Arm Holdings (NASDAQ:ARM) is scrapping a license enabling Qualcomm to use Arm's intellectual property for chip design.

UK-based Arm has issued Qualcomm a mandated 60-day notice of cancellation for their architectural license agreement, as reported by Bloomberg News. Qualcomm, similar to many semiconductor groups, relies on Arm's instruction set to craft chips that power much of mobile electronics technology.

The price of US-listed Arm's shares also decreased before the Wall Street opening bell.

If the cancellation takes effect, it could significantly impact the global smartphone market. Qualcomm, which manufactures hundreds of millions of chips annually, might have to stop selling products that generate about $39 billion in revenue, or risk facing legal claims.

"As practically every chip Qualcomm sells uses Arm, and custom chips (the ones affected by an architecture license cancellation) form the bulk of the company’s product roadmap, a license cancellation would be extremely problematic," analysts at Bernstein noted.

Despite being one of Arm's largest customers, Qualcomm is currently in a protracted legal dispute with the company. Arm alleges that Qualcomm has breached their contract and infringed on Arm's trademark following Qualcomm's acquisition of the chip-design start-up Nuvia in 2021.

Both companies are set to go to trial in December to resolve the conflict, during which multiple lawsuits have been exchanged over the contract negotiated between Nuvia — another Arm licensee — and Qualcomm. The 60-day notice timing puts the potential cancellation right in the middle of or at the end of the trial, as Bernstein analysts pointed out.

"Hence, the timing of the cancellation notice suggests to us an attempt to force a pre-trial settlement," they added.

In a statement cited by Bloomberg, Qualcomm accused Arm of trying to "strong-arm" its client. Representatives from Arm declined to comment to Bloomberg.