Arm, Qualcomm legal battle seen disrupting AI-powered PC wave (updated)

Acer Incorporated

10/06/2024 18:34

(Updates Arm's position on Nuvia chip licenses in paragraph 10)
    By Max A. Cherney
       TAIPEI, June 10 (Reuters) - A two-year legal battle
pitting two tech titans threatens to disrupt an emerging wave of
new personal computers powered by artificial intelligence, tech
industry executives and experts say.
    A parade of executives from Microsoft  MSFT.O , Asus
 2357.TW , Acer  2353.TW  and others joined Qualcomm  QCOM.O 
CEO Cristiano Amon on stage last week at the annual Computex
trade show in Taipei to pitch a new generation of AI-powered
PCs.
    But the main conversation among conference attendees was
over how a contract dispute between Arm Holdings  ARM.O  and
Qualcomm, which work together to make the chips powering these
new laptops, could abruptly halt the shipment of new PCs that
industry leaders expect will make Microsoft and its partners
billions of dollars.
    Rough projections suggest Microsoft expects to take roughly
5% of the market with the Arm-based laptops by the end of the
year, selling about 1 million to 2 million units.
    Nearly two dozen models ranging from Microsoft, Dell
 DELL.N  and Samsung  005930.KS  are expected to ship to
consumers June 18.
    An Arm victory in the litigation could force Qualcomm and
its roughly 20 partners, including Microsoft, to halt shipments
of the new laptops.
    "It's definitely a real risk," said Doug O'Laughlin, the
founder of chip financial analysis firm Fabricated Knowledge.
"The more successful (the laptops are), the more fees Arm can
get eventually."
    The British company, which is majority-owned by Japan's
SoftBank Group  9984.T , sued Qualcomm in 2022 for failing to
negotiate a new license after it acquired a new company. The
suit revolves around technology that Qualcomm, a designer of
mobile chips, acquired from a business called Nuvia that was
founded by Apple chip engineers and which it purchased in 2021
for $1.4 billion.
    Arm builds the intellectual property and designs that it
sells to companies such as Apple  AAPL.O  and Qualcomm, which
they use to make chips. Nuvia had plans to design server chips
based on Arm licenses, but after the acquisition closed,
Qualcomm reassigned its remaining team to develop a laptop
processor, which is now being used in Microsoft's latest AI PC,
called Copilot+.
    Arm said the current design planned for Microsoft's Copilot+
laptops is a direct technical descendant of Nuvia's chip. Arm
said it had cancelled the license for these chips.
    "Arm's claim against Qualcomm and Nuvia is about protecting
the Arm ecosystem and partners who rely on our IP and innovative
designs, and therefore enforcing Qualcomm's contractual
obligation to destroy and stop using the Nuvia designs that were
derived from Arm technology," an Arm spokesperson said.
    Qualcomm has said that its broad license for Arm technology
already covers its PC chips, and a Qualcomm spokesperson said
its position has not changed since Arm filed the suit in 2022. 
    "Arm's complaint ignores the fact that Qualcomm has broad,
well-established license rights covering its custom-designed
CPUs, and we are confident those rights will be affirmed," Ann
Chaplin, Qualcomm's general counsel, said in a 2022 statement.
     
    FRENEMIES
    On top of this legal dispute is another level of complexity
because the exclusive deal to supply laptop builders with its
chips expires this year, opening up the market to Qualcomm's
competitors.
    Nvidia  NVDA.O  and Advanced Micro Devices  AMD.O  are
working on chips, Reuters reported last year. And other design
companies will join the fray and make chips for Microsoft's new
effort, industry executives have said.
    Yet, because the initial batch of Windows designs for
Microsoft's new Copilot+ laptop program are based on Qualcomm's
processors, the litigation is an undercurrent that exists but
often goes unmentioned in public.
    Despite the public fight between two companies that rely on
each other for revenue and profit, some investors and analysts
believe they will reach a settlement well ahead of the trial,
which is scheduled to begin in the federal court in Delaware in
December.
    "There is a degree of absurdity of Arm suing its
second-biggest customer, and Qualcomm being sued by its largest
supplier," said Jay Goldberg, the CEO chief of D2D Advisory, a
finance and strategy consulting firm. 

 (Reporting by Max A. Cherney in San Francisco; editing by
Kenneth Li, Paul Simao and Aurora Ellis)
 ((mailto:Max.Cherney@thomsonreuters.com; 415-404-2697;))