Arm’s Bogus Bravado – It Needs Qualcomm in AI to Edge as RISC-V Continues to Gain
Arm’s potential license cancellation could disrupt Qualcomm’s $33 billion Snapdragon business and impact its 550 million annual AI processor shipments.
Following the earnings call from both companies, Qualcomm stock jumped 10% post-earnings; Arm’s dropped 5% despite beating estimates.
Competiting technology to Arm, RISC-V adoption is forecasted to grow 50% annually, challenging Arm’s proprietary model.
Qualcomm contributes significantly to Arm, generating $354 million in licensing and $470 million in royalties.
The December trial could redefine Qualcomm’s access to Arm IP, reshaping a $7.37 billion market across AI and automotive.
Background
Unlike Qualcomm (QCOM), which outsources chip production to contract manufacturers, Arm Holdings (ARM) doesn’t sell processors directly. Instead, it licenses its chip designs to semiconductor companies and smartphone manufacturers. Both companies reported their latest quarterly earnings last week.
The Arm-Qualcomm Relationship and Legal Dispute
Qualcomm, one of Arm’s largest customers, is in a contentious legal dispute with Arm. Last month, Arm reportedly issued a 60-day notice to Qualcomm, signaling its intent to cancel Qualcomm's architectural design license. This conflict originated from Qualcomm’s 2021 acquisition of Nuvia, a chip design startup. Arm contends that Qualcomm needed its approval to use Nuvia’s intellectual property, which was created under an architectural license from Arm. As a result of not obtaining that consent, Arm asserts that Qualcomm is in breach of contract and has sent a notification letter regarding cancellation of the architectural license. The trial is scheduled for December and could reshape Qualcomm’s access to Arm’s designs, which would have far-reaching implications for its Snapdragon processors, widely used in Android smartphones and automotive applications.
Quarterly Earnings Performance
Both Qualcomm Inc. and Arm recently posted strong earnings, beating revenue expectations in their latest reports. However, while Qualcomm’s stock surged in after-hours trading, Arm’s shares declined, suggesting contrasting investor sentiment around each company’s earnings.
Qualcomm Earnings Highlights
Qualcomm reported fiscal Q4 earnings, excluding certain costs, of $2.69 per share, surpassing Wall Street’s $2.56 estimate. Revenue totaled over $10.24 billion, ahead of the $9.9 billion forecast. For the current quarter, Qualcomm projects revenue between $10.5 billion and $11.3 billion, with the midpoint exceeding analysts' $10.6 billion expectation.
The company’s Q4 net income was $2.92 billion, a substantial increase from $1.49 billion in the same quarter last year, contributing to a total annual revenue of $33.19 billion for fiscal 2024—up 9% from the prior year. Qualcomm’s stock climbed over 10% at one point in post-market trading after a 4% rise during regular hours, as the market responded favorably to its growth.
Qualcomm’s Smartphone and AI Processor Performance
Qualcomm’s success remains closely tied to the smartphone industry, producing essential components like system-on-a-chip processors, antennas, and modems for Android devices. It also supplies modem chips to Apple for iPhones. Quarterly handset chip sales rose 12%, reaching $6.1 billion, with Qualcomm optimistic about its high-end Snapdragon 8 Elite chip, launching in new Android models soon.
Table 1 shows my analysis of the Processor Shipments for AI Smartphones. Arm-based smartphones make up nearly 50% of total processor shipments, and of those, Qualcomm’s 550 million was just behind Samsung’s 610 million units, according to my report at The Information Network entitled Hot ICs: A Market Analysis of Artificial Intelligence (AI), 5G, Automotive, and Memory Chips.
