Arm is planning to change its existing business model.
According to reports, chip technology supplier Arm Holdings (Arm) is developing a long-term strategy to raise its chip design licensing fees by as much as 300% and is considering developing its own chips to compete with its largest customers.
Arm is a UK-based company that has long operated quietly, but its technology supports billions of dollars in chip sales every year. Arm licenses its intellectual property (IP) to companies like Apple, Qualcomm, and Microsoft for chip design, earning a small royalty on each chip that uses Arm technology. Although Arm has played a central role in the rise of smartphones and high-performance data center chips, its scale is far smaller than that of its customers. In fiscal year 2024, Arm’s revenue was only $3.23 billion, whereas in the most recent fiscal year, Apple’s hardware revenue (which all uses Arm-based chips) was more than 90 times that amount.
The price hike news comes from internal documents and executive testimony disclosed during a lawsuit between Arm and Qualcomm last month. While Arm tried to use the lawsuit to push for higher licensing fees from Qualcomm, it ultimately did not succeed.
The dispute between the two companies dates back three years to 2021, when Qualcomm, one of Arm’s main customers, announced it would spend $1.4 billion to acquire Nuvia, a chip design company that had been founded only two years earlier. Nuvia’s chip designs also used Arm’s technology, which caused dissatisfaction at Arm. In 2022, Arm filed a lawsuit against Qualcomm and Nuvia in Delaware court, accusing them of violating Arm’s licensing agreement and seeking a ban on the sale of Qualcomm’s related products.
In this case, the jury needed to make rulings on three issues: whether Nuvia violated its licensing agreement with Arm, whether Qualcomm violated the licensing agreement between Nuvia and Arm, and whether the licensing agreement between Arm and Qualcomm covered the disputed chip technology. The jury reached a consensus on the last two issues, ruling that Qualcomm had not violated the Nuvia-Arm licensing agreement and that under the agreement between Arm and Qualcomm, Qualcomm was authorized to use Nuvia’s technology to produce chips.
However, the jury was unable to reach a unanimous decision on whether Nuvia violated its licensing agreement with Arm. The judge overseeing the case, Maryellen Noreika, encouraged both parties to resolve the dispute through mediation: “I don’t think either side has won clearly, and even if the case were retried, there might not be a clear winner.”
Subsequently, Qualcomm issued a statement expressing satisfaction with the verdict, stating that the jury “validated Qualcomm’s innovation rights,” confirming that the Qualcomm products in question were protected under its existing contract with Arm. During the trial, Qualcomm’s internal documents also revealed that by acquiring Nuvia, the company expected to save up to $1.4 billion annually in fees for using Arm technology.
Arm, on the other hand, stated that since the jury was unable to reach a consensus on the charges, it would seek a retrial: “From the beginning, our primary objective has been to protect Arm’s intellectual property and the strong ecosystem we have built over the past 30 years with our esteemed partners.”
Analysts pointed out that the outcome of the case has cleared the way for Qualcomm to continue launching AI PC chips. Stacy Rasgon, an analyst at investment firm Bernstein, stated: “My biggest concern was what would happen to Qualcomm’s future product roadmap if they no longer had Nuvia’s (compute) cores. That risk has almost completely disappeared now.”
Since being acquired by SoftBank in 2016, Arm’s computing architecture has not only been used in smartphones but has gradually expanded into the PC and data center markets. Documents disclosed in the lawsuit show that Arm executives have discussed the possibility of moving closer to completing the development of their own chips. Currently, Arm primarily sells chip design blueprints, and customers need several months to complete chip designs. If Arm were to directly release complete chip designs, it could pose a threat to its customers.
Previously, Arm had long been responsible only for upstream chip design and technology work, with little change after being acquired by SoftBank. However, when Nvidia attempted to acquire Arm, regulators rejected the deal, and Arm eventually chose to go public.
Now that Arm is listed, it naturally faces pressure to generate profits, so in the long term, Arm must find ways to expand its product lineup and cannot continue relying solely on patent licensing fees.
Analyst Prakash Sangam remarked after the trial: “The news that Arm is considering developing its own chips is unexpected, and it could make its customers uneasy.” In February 2022, Arm CEO Rene Haas submitted a presentation to the board when applying for the CEO position, suggesting that Arm change its business model from solely selling chip design blueprints to selling chips or chiplets. Chiplets are smaller modules used to build processors, a technology already adopted by companies like AMD.
In an internal chat in December 2021, Arm CEO Rene Haas stated that if Arm were to launch its own chips, companies like Qualcomm would face immense competition. However, during the trial, he downplayed these remarks, calling them part of a long-term strategic discussion with colleagues and board members. Haas emphasized that Arm has not yet entered the chip design field but is considering possible strategic directions.
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