Qualcomm wins key legal battle against Arm, shares rise

Investing.com -- Qualcomm (NASDAQ:QCOM) won a key legal battle after a U.S. federal jury found that the company’s central processors are properly licensed under its agreement with   Arm   Holdings (NASDAQ:ARM), easing some uncertainty around Qualcomm’s expansion into the laptop market.

The trial, held in Delaware, concluded with a mistrial after the jury was unable to decide one of the three questions presented. Although the decision clarified parts of the dispute, it left other issues unresolved. Qualcomm welcomed the ruling, describing it as a validation of its innovation efforts, while Arm stated it would seek a retrial.

Qualcomm shares rose nearly 3% in premarket trading Monday, while Arm shares fell over 3%.

The possibility of a future trial remains open, with Arm reiterating its intention to pursue the case. Judge Maryellen Noreika, who oversaw the proceedings, urged the 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 said.

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

Moreover, the jury ruled that Qualcomm’s chips—developed using Nuvia’s technology and critical to its personal computer strategy—are covered under Qualcomm’s existing license with Arm. This outcome enables Qualcomm to continue 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 said in a statement.

For now, the ruling allows Qualcomm to advance its plans for AI-driven laptop chips, designed to handle tasks like chatbots and image generation. This market is attracting competition from 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,” Bernstein analysts led by Stacy A. Rasgon said in a note.

“As for Arm, their guidance did not include any assumed upside from a win in this suit, and we think they will still benefit from any success of Qualcomm’s Nuvia-inspired products— albeit likely less than if they had prevailed,” they added.

KeyBanc Capital Markets analysts shared similar remarks, noting they “view this verdict as positive for QCOM and negative for ARM.”

“Although ARM mgmt excluded any potential benefits from the court case from its forward projections, ARM would have had a higher royalty rate if it prevailed in court,” they added.