Qualcomm shares fall on report Arm is set to scrap chip design license

Investing.com -- Shares in Qualcomm (NASDAQ:QCOM) fell in premarket US trading on Wednesday on a report longtime partner Arm Holdings (NASDAQ:ARM) is scrapping a license allowing it to use Arm's intellectual property to design chips.

UK-based Arm has given Qualcomm a mandated 60-day notice of the cancellation of their so-called architectural license agreement, Bloomberg News reported, citing a document. Qualcomm, like many other semiconductor groups, relies on Arm's instruction set to craft the chips underpinning much of the technology powering mobile electronics.

The price of US-listed Arm's shares also dropped prior to the opening bell on Wall Street.

Should the shutdown come into effect, it could substantially impact the global smartphone market. In such an event, Qualcomm, the manufacturer of hundreds of millions of chips every year, may have to cease sales of products that make up about $39 billion in revenue -- or face legal claims.

"As practically every chip Qualcomm sells uses Arm, and custom chips (which would be the ones impacted by an architecture license cancellation) form the bulk of the company’s forward product roadmap, it goes without saying that a license cancellation would be extremely problematic," analysts at Bernstein said in a note.

Despite Qualcomm being one of its largest customers, Arm has been in a protracted legal feud with the San Diego, CA-based company. Arm has alleged that, following Qualcomm's acquisition of chip-design start-up Nuvia in 2021, Qualcomm has breached their contract and infringed on Arm's trademark.

The two are now on track to go to trial in December to settle the conflict, in which both sides have exchanged lawsuits over the negotiated contract between Nuvia -- another Arm licensee -- and Qualcomm. The 60-day timing of the notice would place a potential cancellation in the middle of or right at the end of the trial, the Bernstein analysts noted.

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

In a statement quoted by Bloomberg, Qualcomm said Arm was trying to "strong-arm" its client. Representatives from Arm declined to comment, Bloomberg said.