Tantra Analyst

The jury trial between Qualcomm and Arm kicked off at the Federal Court in Wilmington, DE, today. This is the second case between the companies. Arm brought the first case, which Qualcomm won, and it is currently before the United States Court of Appeals for the Third Circuit. Check my blogs for details.

Qualcomm brought the second case, alleging that Arm breached the licensing contracts and tried to interfere with Qualcomm’s relationship with its customers.

Summary of Day-1:

Both companies presented their opening statements, and CEOs took the witness stand. Qualcomm, as the plaintiff, went first and claimed that Arm failed to provide certain software packages and patches required to ensure compliance with Arm Instruction Set Architecture (ISA). They also claimed that Arm leaked the letter canceling Qualcomm’s contract to the media and misled Samsung, Meta, and its other customers regarding the situation. Additionally, it claimed that Arm didn’t offer or negotiate the V10 license in good faith.

In its opening statement, Arm rejected these claims. It stated that the packages and patches were not required under the contract. It also said sharing information about the license cancellation letter with the media is normal corporate practice for many companies. Regarding V10 licensing, it claimed that it did give the offer to Qualcomm, but the rates Qualcomm asked for were unreasonable.

Cristiano Amon, CEO of Qualcomm, and Rene Haas, CEO of Arm, took the witness stand and reiterated their companies’ points during their testimonies.

Key points from Qualcomm’s Opening Statement:

• Arm is everywhere: 100% of the world uses Arm, 350B+ chips shipped, 22M+ developers

• Nice explanation of Arm’s ISA – Manual for assembling IKEA furniture

• Arm’s behavior toward Qualcomm changed after the former was acquired by SoftBank – illustrated using Arm’s own slide depicting it as Dr. Evil from Austin Powers movies

• Documentation showing Arm’s intent to “unwind” ALA contracts

• ALA, TLA issues escalated after Qualcomm acquired Nuvia

• ALA breached because of not delivering Out-of-the-Box (OOB) packages & compliance kit patches, and TLA breached for not offering a license to new CPUs

• Leaked license cancellation letter to Bloomberg, and sent letters to many of Qualcomm’s customers about it, creating uncertainty

• Delayed a project with Meta, causing $170M worth of harm

Key points from Arm’s Opening Statement:

• Qualcomm brought this case to force Arm to settle the first case – Offense is the best defense

• Arm is one of the three ISA’s, not the only option; others are x86 and RISC-V

• OOBs and patches are not mandatory and not mentioned in the contract

• Many patches are included in the quarterly updates – Those were never stopped for Qualcomm

• The market has tremendously changed since 2013 (Qualcomm’s latest license); for e.g. Qualcomm was not in the data center market then; Data center chips have >200 cores to only 4-8 cores of smartphones chips, etc. So, licensing rates from that time can’t be applied now, and have to increase

• Nuvia ALA rates were low at the front end (to encourage innovation), and loaded at the back end

• Qualcomm didn’t show any harm – no major compliance issues, failures, etc.

• Qualcomm was not 100% faithful to Arm; it was actively supporting RISC-V

Key points from Cristiano Amon’s testimony:

• Qualcomm adopted Arm because of its non-discriminatory, open licensing approach

• x86 and RISC-V were/are not viable options for most Qualcomm use cases

• SoftBank’s acquisition changed the relationship (SoftBank still owns 90% of Arm)

• Qualcomm had to start designing its own CPU (twice) as Arm performance was lagging behind Apple

• Arm’s Bloomberg leak and letter to customers created uncertainty and made customers like Meta delay products and announcements

• Qualcomm didn’t ask for 2013 prices for licensing. Qualcomm pricing has to be within 10% of the best pricing Arm had with its other customers, and that was not the case

• Arm’s offer was 185x times higher than the 2013 prices

• An interesting tidbit – Arm lawyer was trying to convince Cristiano during the cross-examination that prices have gone up since 2013, using Qualcomm licensing rates as an example. But, funnily enough, those rates have stayed the same or come down (now including 3G, 4G, 5G, and soon 6G) instead of just 3G when they started.

Some part of the testimony (for bench trial) is still remaining and will be completed tomorrow

Key points from Rene Haas’s testimony (ongoing):

• Developed a test chiplet called Blackbird in September 22 – the first of their own silicon

• Started the AI silicon program in 2023

• In 2024, talked to many potential target customers, including Microsoft, OpenAI, Google, Cloudflare, and others; Meta approached Arm for AGI CPU

• Qualcomm lawyer reminded him about his statement that Qualcomm and Arm were not competitors during the first case’s testimony in Dec 2024, when Arm was working on its own chips

• Lots of discussion regarding the vision and market size presented during the Arm Everywhere event

• Back and forth regarding his compensation: ~$1B if Arm market cap reaches $2T by 2031

Testimony will continue tomorrow…

Tantra’s take:

Today was mostly about both legal teams making their first moves and previewing what’s next. There were some interesting snippets of information on ALA rates, etc. I am sure there will be even more exciting information and details on the royalty rates, etc., that will come out as progress.

Be sure to come back here tomorrow to read about Day-2’s highlights.