Qualcomm Wins Legal Battle

Qualcomm (NASDAQ:QCOM) has emerged victorious in a legal battle as a U.S. federal jury determined that the company's central processors are properly licensed under its agreement with Arm Holdings (NASDAQ:ARM). This ruling alleviates some uncertainty regarding Qualcomm's plans to expand into the laptop market.

The trial took place in Delaware, but concluded with a mistrial since the jury could not reach a decision on one of the three issues presented. While this ruling clarified aspects of the disagreement, it left other matters unresolved. Qualcomm welcomed the decision, viewing it as a validation of its innovation efforts, whereas Arm announced its intention to seek a retrial.

As a result of the verdict, Qualcomm shares rose nearly 3% during premarket trading on Monday, while Arm shares fell over 3%. There remains the possibility of future litigation, as Arm reiterated its commitment to pursue the case. Judge Maryellen Noreika, who was presiding over the trial, encouraged both companies to consider mediation.

> "I don't think either side had a clear victory or would have had a clear victory if this case is tried again," Noreika stated.

The jury deliberated for more than nine hours over two days but failed to reach a consensus on whether Nuvia, a startup that Qualcomm acquired for $1.4 billion in 2021, violated its license with Arm. However, they concluded that Qualcomm itself did not breach the agreement.

Additionally, the jury ruled that Qualcomm's chips—developed using Nuvia's technology and integral to its personal computer strategy—are covered under Qualcomm's existing license with Arm. This outcome allows Qualcomm to proceed with marketing these chips.

> "The jury has vindicated Qualcomm's right to innovate and affirmed that all the Qualcomm products at issue in the case are protected by Qualcomm's contract with Arm," Qualcomm stated.

Currently, this ruling permits Qualcomm to advance its plans for AI-driven laptop chips capable of handling tasks such as chatbots and image generation. This competitive market involves key players like Nvidia (NASDAQ:NVDA), Advanced Micro Devices (NASDAQ:AMD), and MediaTek Inc (TW:2454), all of which are developing Arm-based processors.

> “It is hard not to view this turn of events as a clear victory for Qualcomm,” noted Bernstein analysts led by Stacy A. Rasgon.

KeyBanc Capital Markets analysts echoed similar sentiments, stating that they view the verdict as positive for Qualcomm and negative for Arm. They highlighted that Arm management did not factor in any potential benefits from the court case in its future projections, while asserting that Arm would have benefited from a higher royalty rate if it had won in court.