The battle between Arm and Qualcomm, there are no winners

The patent dispute between Arm and Qualcomm has once again pushed the chip industry to the forefront. As a global leading IP licensor, the escalating conflict between Arm and its core customer Qualcomm may have far-reaching implications for the entire mobile device industry.

On October 23, according to a document seen by Bloomberg, Arm has notified Qualcomm to cancel the so-called architecture license agreement, as part of the legal battle that started two years ago. This move undoubtedly intensifies the confrontation between the two parties and has attracted widespread attention in the industry.

Qualcomm is no stranger to patent litigation. In 2019, it appeared to settle the baseband patent war with Apple, but it actually ended with Qualcomm winning the lawsuit. "Apple agreed to pay an undisclosed settlement amount to Qualcomm and signed a 6-year license agreement with Qualcomm." In this current battle between Arm and Qualcomm, who will emerge victorious? Of greater interest is whether RISC-V will rise to become the biggest winner in this struggle of "the snipe and the clam fighting each other."

Escalation of Dispute between Arm and Qualcomm

Arm and Qualcomm are undoubtedly the two cornerstones of the smartphone industry. Founded in 1990, Arm's processor architecture is used by over 99% of smartphones globally, with over 50% of processors worldwide based on Arm. To date, more than 28.7 billion chips based on Arm have been shipped. As the world's largest mobile processor IP supplier, Arm's architecture is efficient and energy-saving, providing solid underlying support for the rapid development of smartphones.

Arm was founded by 12 Arm architecture designers in an old turkey shed in Cambridgeshire (Source: Arm Official Website)

Qualcomm, as the world's largest third-party mobile processor manufacturer, uses Arm's instruction set and architecture through licensing agreements to develop the popular Snapdragon series processors. These processors continuously innovate in performance, power consumption, and functionality, bringing excellent user experience to Android smartphones. Qualcomm pays licensing fees and royalties to Arm, providing continuous revenue for Arm.

The relationship between Arm and Qualcomm can be described as "interdependent." Qualcomm is Arm's second-largest customer, while Arm is Qualcomm's largest supplier, making both extremely important to each other. Despite close cooperation for a long time, tensions have arisen in the relationship between Arm and Qualcomm since 2022.

It all started with an acquisition. In 2021, Qualcomm acquired the startup Nuvia founded by Apple chip engineers for $1.4 billion, which was a technical licensing customer of Arm. In 2019, Arm granted two licenses to Nuvia: a Technology License Agreement (TLA) and an Architecture License Agreement (ALA), one for modifying its existing core and the other for designing custom cores The conditions for granting these licenses require Nuvia to develop data center-level products and not to transfer them without Arm's approval. However, when Qualcomm acquired Nuvia in 2021, it did not obtain Arm's approval. As Nuvia's licensing agreement terminated in March 2022, Arm believes that Qualcomm should renegotiate the licensing terms, but Qualcomm disagrees.

Therefore, on August 31, 2022, Arm directly sued Qualcomm, demanding that Qualcomm fulfill its contractual obligations to destroy certain designs of Nuvia, prohibit trademark infringement, and provide reasonable compensation for the trademark infringements that have occurred.

The background of Arm's lawsuit at that time is as follows:

"Arm filed the lawsuit to protect Arm, our partners, and the unparalleled ecosystem we have built together. Arm and its partners have invested billions of dollars to create leading industry intellectual property. Qualcomm attempted to transfer Nuvia's licensing without Arm's consent (which is a standard restriction in Arm's licensing agreements), and Nuvia's licensing had already terminated in March 2022.

Before and after this, Arm had made several good-faith efforts to seek a solution. In contrast, Qualcomm continued to violate Arm's licensing agreement for development after the licensing termination. With no other choice, Arm had to sue Qualcomm and Nuvia to protect our intellectual property and business, and ensure that customers can access effective products based on the Arm architecture."

Why is Arm so persistent in fighting this patent licensing dispute? Because this is fundamental to Arm's survival. Arm's profit model mainly consists of two parts:

• One is the upfront instruction set licensing fee for IP licensing. Arm signs licensing agreements with chip manufacturers to license its instruction set to customers, who then customize chips for their unique applications. Customers pay a one-time fee, providing Arm with a continuous source of income, although this revenue is relatively small.

• The other part is when customers use Arm's architecture to design chips, such as Arm v7/v8/v9, Arm will extract royalties based on the price of each chip sold. This is the main source of Arm's continuous profit.

According to Arm's financial report, in the 2024 fiscal year (from March 31, 2023, to March 31, 2024), Arm's total revenue was $32.33 billion. License and other licensing revenue amounted to $14.31 billion, with a 43% annual growth, accounting for 44% of total revenue; royalty income was $18.02 billion, with an 8% annual growth, accounting for 56% of total revenue The revenue distribution of different Arm architectures in the fiscal years 2014-2024. The latest advanced chip technology from Arm, Armv9, has a patent fee rate twice that of its previous Armv8. It is expected that chips based on the Armv9 architecture will become the main source of Arm's licensing revenue (source: Arm financial report).

However, Qualcomm did not take this lawsuit seriously. After the two companies failed to reach an agreement on appropriate payments, Qualcomm continued to develop products using Nuvia CPU. Qualcomm believes that the existing licensing agreement already covers the development achievements of Nuvia, claiming that Arm's consent is unnecessary.

On the 10th and 22nd, at the annual Qualcomm Snapdragon Summit, Qualcomm just launched the latest PC platform - "Snapdragon 8 Elite", which uses Nuvia's Oryon CPU design. Shortly after, Arm issued a final ultimatum regarding this pending lawsuit, informing the company that its architecture license will be terminated within 60 days - this agreement allows Qualcomm to produce Snapdragon X Elite chips and Copilot+ PC cores with the Oryon CPU core. Specifically, the agreement canceled by Arm is the Armv8 architecture license.

An insider said on Wednesday that Arm's agreement with Qualcomm covers the existing Oryon core in Snapdragon X Elite as well as the second-generation Oryon core showcased by Qualcomm at the Maui Snapdragon Summit this week. If Qualcomm fails to resolve this issue, Arm will demand that it stop selling a variety of products, including client PC processors.

In response to Arm's lawsuit, Qualcomm stated: "Arm's actions are as usual - more baseless threats aimed at coercing long-term partners, disrupting our performance-leading CPUs, and raising patent usage fees, regardless of our broad rights under the architecture license." "As the December trial approaches, Arm's desperate tactics seem to be an attempt to disrupt the legal process, and their request to terminate the lawsuit is completely unfounded. We believe that Qualcomm's rights under the agreement with Arm will be upheld. Arm's anti-competitive behavior will not be tolerated."

Arm retaliated in a statement on Wednesday. The company stated: "After Qualcomm repeatedly and seriously violated Arm's licensing agreement, Arm had no choice but to take formal action to demand that Qualcomm correct its breach, otherwise it will face the consequences of terminating the agreement." "This is necessary to protect the unparalleled ecosystem that Arm and its highly valued partners have built over more than 30 years. Arm is fully prepared for the December trial and firmly believes that the court will make a ruling favorable to Arm

Who is the winner?

If this judgment is established, it will be a lose-lose situation for both Arm and Qualcomm.

Impact on Qualcomm: Qualcomm's acquisition of Nuvia is an important step for its entry into the PC market. The Oryon CPU carries Qualcomm's ambition in this field. If the design is destroyed, Qualcomm will not only lose a huge investment but also miss the opportunity for rapid growth in the PC market, putting it at a disadvantage in competition with Intel and AMD.

Impact on Arm: For Arm, even if they win the lawsuit and receive compensation, they will lose a significant amount. Firstly, this strengthens Qualcomm's determination to leave Arm. Secondly, at present, it is an important period for Arm's rise in the PC market. The larger the Windows PC market, the more beneficial it is for Arm. Any incremental market share will benefit Arm through royalty fees. Additionally, PC processors are more expensive than smartphone processors, so they generate more royalty fees per processor.

In the past, this market was mainly dominated by the x86 architecture. In recent years, following the success of Apple's Arm-based PCs, Arm PC processors have started to develop. Qualcomm also sees the potential in this market and acquired Nuvia in an attempt to make a mark in the Windows PC market. It is predicted that by the end of this year, Microsoft expects Arm-based laptops to hold about 5% of the market share, with sales of around 1 to 2 million units.

If the conflict between Arm and Qualcomm is not resolved, it may not only hinder Arm's progress in the PC market but more importantly, the dispute between Arm and Qualcomm may lead other customers to have a chilling effect. This especially serves as a warning to other vendors relying on the Arm architecture, forcing the industry to accelerate towards embracing competitors like RISC-V, which is not conducive to the long-term development of the Arm ecosystem.

Will RISC-V seize the opportunity to rise?

The legal dispute between Qualcomm and Arm provides a great market entry opportunity for RISC-V, especially in the context where major players like Qualcomm may consider reducing their dependence on Arm technology.

Indeed, in the past few years, the Arm architecture has gradually gained market share. As shown in the figure below, in 2014, the market share of the Arm architecture was only 39%, rising to 42% in 2020, and is expected to reach 51% by 2023. The main reason behind this is the industry's pursuit of low power consumption.

As the computational workload for running complex AI workloads grows exponentially, the energy required will also increase. According to a report by the Boston Consulting Group in 2023, data centers in the United States already consume about 126TWh of electricity annually, and this is expected to triple by 2030. Due to the low power consumption characteristics of the Arm architecture, Arm's market share has been steadily increasing over the past few years. However, an undeniable fact is that other architectures also have a growing trend, especially RISC-V An overview of the market share of Arm, x86, and other architectures over the past decade (Source: Arm financial report)

The fact is, as major companies seek cheaper and faster CPU design methods, the influence of RISC-V is growing every year. More and more chip giants are considering RISC-V as an alternative or have already incorporated it into their products. Apple also uses RISC-V microcontrollers in its M-series CPUs. Samsung has stated that it has ported its TizenOS to RISC-V, which is used in its televisions.

Qualcomm is currently exploring independent design to reduce its dependence on Arm architecture. In a blog post in September 2023, Qualcomm revealed that they have shipped over 650 million RISC-V cores. Last year, Qualcomm also disclosed that it is collaborating with Google to develop RISC-V Snapdragon processors, which will power Google's next-generation Wear OS solution.

RISC-V is not only used for CPUs but is also entering the GPU arena. At the 2024 North America RISC-V Summit held from October 22nd to 24th, Nvidia and Google discussed the advantages of RISC-V in GPUs and TPUs. The open-source and modular design of RISC-V allows for customization based on different application scenarios, which is particularly important for specialized processors like GPUs and TPUs. Compared to traditional closed architectures like Arm and x86, RISC-V allows designers to optimize the architecture according to requirements, providing better performance in graphics processing and AI inference. Adopting RISC-V can significantly reduce chip design and development costs while providing highly customizable designs to meet specific needs.

All GPUs from mobile graphics processor IP supplier Imagination are compatible with RISC-V SoCs, providing chip designers with more choices and potentially encouraging more manufacturers to adopt RISC-V to enhance GPU design capabilities, thereby promoting market diversity and competitiveness.

By the end of 2023, over 13 billion RISC-V cores had been shipped, completing a 30-year development cycle of traditional architectures in just over a decade, providing momentum for new innovations in AI/ML, wireless, automotive, data centers, space, IoT, embedded systems, and other fields. According to Omdia's forecast, by 2030, RISC-V processors will account for nearly a quarter of the global market.

RISC-V is also evolving rapidly. On October 22nd, RISC-V International announced the approval of the RISC-V RVA23 configuration file standard The importance of the configuration file of RVA23 lies in its ability to ensure the portability of software across different hardware implementations. This is crucial for software developers and businesses as it reduces the risk of being tied to a single vendor and increases flexibility. This announcement marks a key step for the RISC-V architecture in standardization, application areas, and industry promotion.

The open architecture of RISC-V has not only attracted a lot of attention from the industry but also gained support from the academic community. More and more top universities are starting to incorporate RISC-V into their curriculum to train a new generation of engineers, further promoting its global popularity.

Conclusion

The patent dispute between Arm and Qualcomm reflects the complexity of the chip industry ecosystem. Arm, as a global leader in processor architecture licensing, its licensing decisions will have a profound impact on the entire industry chain. If Qualcomm loses Arm's license, its chip design capabilities will be severely constrained. Although Qualcomm has been involved in RISC-V early on, Android remains a difficult gap to bridge, and Qualcomm still cannot do without Arm.

It is worth noting that patent litigation often lasts a long time, and the outcome is unpredictable. The final outcome of this dispute depends not only on the legal game between the two parties but also on multiple factors such as market competition, technological development, etc. Considering the importance of the long-term cooperative relationship between the two parties and the impact of this dispute on the entire industry, the most likely outcome for both parties is to reach a settlement and resolve their differences through renegotiating licensing agreements.

However, it must be said that this event may accelerate the penetration of RISC-V in the market. More and more companies will start paying attention to and adopting this open instruction set architecture.

Author: 杜芹 DQ, Source: Semiconductor Industry Observation, Original Title: "The Battle Between Arm and Qualcomm, No Winners"