Qualcomm: Arm threatens to end CPU licensing, charge device makers instead

Snapdragon giant warns of dramatic shift in business model

Analysis Qualcomm has hit back at Arm with explosive allegations that the British chip designer has threatened to phase out CPU design licenses for semiconductor companies and instead charge device makers royalties for using Arm-compliant processors.

These claims were made in Qualcomm's amended response to Arm's lawsuit against the US chip giant. Arm is right now trying to stop Qualcomm from developing custom Arm-compatible processors using CPU core designs Qualcomm obtained via its acquisition of Nuvia. According to Arm, Qualcomm should have got, and failed to get, Arm's permission to absorb Nuvia's technologies, which were derived from Arm-licensed IP.

Qualcomm counterclaimed that Arm tried to demand at least "tens of millions" of dollars in transfer fees and extra royalties for using the newly acquired Nuvia designs. Nuvia had a higher royalty rate with Arm than Qualcomm, and Qualcomm had hoped to use Nuvia's designs on Qualcomm's lower rate, Arm claimed. Arm would prefer Qualcomm pay the higher rate when it comes to using Nuvia's blueprints, something that Qualcomm is seemingly resisting.

Core issues

Arm's decades-long business model is primarily licensing chip blueprints – such as CPU cores and GPU engines – to companies including Qualcomm, who put these blocks of technologies into their own chip designs and have the components manufactured. These chips can be sold on to device makers, or can feature in the chip designers' own products. Arm charges a fee for providing the initial blueprints, and then a royalty on each shipped chip.

This is called an Arm technology license. Arm also offers an architectural license, with which chip designers can create their own fully custom Arm-compatible processors from scratch and again pay a (smaller) royalty per shipped component.

Qualcomm is now essentially claiming that Arm has threatened to pretty much scrap that approach within the next three years, and rather than license technology to chip designers and make them pay for it, Arm will instead directly charge device makers for using Arm-based silicon. Also, Qualcomm alleges Arm has said it intends to force chip designers to only use Arm IP – such as its GPUs and AI accelerators – in their processors if they use Arm CPUs. Today, Arm ordinarily allows system-on-chip designers to mix licensed Arm IP with their own specialist units.

The allegations raise questions about the future of chip designers that use Arm's off-the-shelf core designs, as Qualcomm states in its filing [PDF] that Arm has signaled it "will no longer license CPU technology to semiconductor companies" once existing agreements expire.

This would be an incredible transformation for Softbank-owned Arm: how exactly would Arm-based chips get into devices if no more Arm technology licenses are issued to chip designers ... unless, perhaps, Arm starts making its own chips, which it's previously said it has no appetite for, or it gets certain chip designers to make pure Arm-designed processors for it, and the makers of the end products using these components get charged a royalty per device.

In response to Qualcomm's filing, Arm's veep of external communication Phil Hughes didn't directly address the allegations about licensing changes, but said the filing is "riddled with inaccuracies, and we will address many of these in our formal legal response that is due in the coming weeks."

Qualcomm declined to comment further.

Arm's alleged plan to seek royalties from device makers

Qualcomm claimed in its filing last week that Arm has already told at least one device maker that uses Qualcomm's processors that it will need to obtain a "new direct license from Arm" in the future to use Arm-powered silicon. This new license will apparently require product manufacturers to pay royalties directly to Arm for every Arm-based device sold. If these makers do not accept the license, "they will be unable to obtain Arm-compliant chips from 2025 forward," Qualcomm alleged.

Thus, Qualcomm is claiming a whole range of manufacturers – from those in the embedded electronics space to personal computing – using Arm-compatible chips may need to directly pay Arm a royalty for every device sold. And if they don't, they'll need to shop elsewhere for a system-on-chip architecture, which could be unfortunate for them because Arm has few rivals. In fields like smartphones, few alternatives exist. Ironically, Qualcomm acquired Nuvia to make itself a better alternative to Intel and AMD in laptops.

According to Qualcomm, Arm has tried to strong-arm one or more OEMs – device makers – into paying these per-device royalties directly to Arm:

Arm has threatened at least one OEM that, if the OEM does not do so, Arm will go on to license the OEM's large competitors instead — the implication being that the OEM would be excluded from the market and could not obtain any Arm-compliant chips from Qualcomm or any other supplier

"Arm has done this despite already having approached the OEM's competitors with a direct licensing offer, while acting as if Arm would only approach the competing OEMs if the threatened OEM declined the license in the first instance," Qualcomm added.

An end to CPU licenses for semiconductor companies?

The Snapdragon giant stated plainly in its filing that Arm has told folks in the industry that once its existing licensing agreements with designers hit an expiration date, "Arm will cease licensing CPUs to all semiconductor companies," including Qualcomm.

"Arm claimed that it is changing its business model and will only provide licenses to the device-makers themselves," Qualcomm wrote. "Arm has explained to the OEMs that a direct OEM license will be the only way for device-makers to get access to Arm-compliant chips."

Qualcomm also elaborated on its claim that chipmakers will be barred from providing OEMs with processors that feature custom engines, such as GPUs, neural processing units, and image signal processors, and instead must use only Arm-designed blocks, "because Arm plans to tie licensing of those components to the device-maker CPU license."

As noted by Dylan Patel of SemiAnalysis, who first highlighted Qualcomm's fresh claims, some companies, such as Nvidia and Apple, have "favorable" agreements with Arm. Those deals mean some semiconductor houses may not feel the impact of the changes Qualcomm alleges Arm has threatened to make. Nvidia, for instance, said earlier this year it will retain a 20-year license with Arm when its bid to acquire the British biz failed.

For Qualcomm, however, Arm has allegedly told some OEMs that the mobile chip designer won't be able to develop or sell Arm-compatible chips beginning in 2025 because Qualcomm's license agreements will terminate in 2024 and Arm will not extend any of those licenses.

Qualcomm said, to the contrary, that it is "licensed for several years past 2025" under its architectural license agreement (ALA) with Arm. The Snapdragon giant said its ALA, which is at the center of Arm's lawsuit, gives it "the universal right to extend the contract past the initial term for several more years." As evidence, Qualcomm quoted terms from the ALA. Those terms were redacted from court filings.

Among Qualcomm's other allegations in the 83-page filing is a claim that Arm has conducted a "misinformation campaign" meant to "damage Qualcomm, disparage its products, disrupt Qualcomm's relationships with its customers, and create uncertainty where there is none."

Latest claims raise new questions about the future of the industry

While Arm's lawsuit against Qualcomm began as a disagreement over whether Qualcomm's ALA covers the use of custom CPU cores from the company's Nuvia acquisition, this filing raises far bigger questions about the future of the semiconductor industry.

That's because many companies, big and small, rely on Arm's technology, whether it's the British chip designer's off-the-shelf Neoverse and Cortex cores or its instruction set architecture, from which companies can build custom CPU cores using an ALA.

For one, if Qualcomm's claims about Arm's planned licensing changes are true, how do other companies that use Arm's technology feel about the coming shift? How will chip designers get access to Arm's Neoverse and Cortex cores without CPU technology licenses in the future? What does the future of Arm's architecture license look like?

And what does this all mean for Softbank as it attempts to offload its RISC-y chip company? And Arm's plans to IPO? Might the licensing scheme Qualcomm alleges be a ploy by Softbank to strengthen its position? Is this Arm trying to get a larger slice of device revenues, especially from hardware like smartphones, laptops, and servers that sell for hundreds to thousands of dollars each?

Could this be Qualcomm – which reportedly was lately interested in taking a stake in Arm – upending Arm in retaliation, and in doing so, unsettling rival Arm's licensees such as Ampere, Amazon, and MediaTek?

The language in Qualcomm's filing is specific and nuanced. It talks of threats by Arm, and Arm indicating it intends to do certain things. At first read, Qualcomm's filing appears to state outright that Arm will change its business model; on second read, it appears more that Qualcomm is claiming Arm is threatening it will overhaul its licensing approach – to the detriment of Qualcomm – so as to scare Qualcomm into agreeing to Arm's terms regarding the Nuvia acquisition and its licensed technologies.

Qualcomm previously complained Arm is trying to steer it onto higher royalty rates, by making it renegotiate its licensing agreements following the acquisition of Nuvia and its Arm-derived technologies.

Meanwhile, no matter how unfair Qualcomm believes Arm has acted, Qualcomm still has to answer Arm's initial complaint: that Qualcomm transferred Nuvia's Arm license and Arm-derived technology to itself after the acquisition, whereas the fine print of Nuvia's agreement with Arm is that any such transfer must be negotiated with Arm, and that Qualcomm allegedly failed to do so and is in breach of contract.

Qualcomm says this assertion is simply wrong.

Whatever happens, this case has the potential to shine a light into some dark corners of the semiconductor industry – and this filing suggests whatever we find down there will be fascinating. ®

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