Qualcomm Stock Drops on Report that Arm Seeks to Cancel Chip Design License

Qualcomm (QCOM) shares are falling in premarket trading Wednesday following a report that Arm Holdings (ARM) is canceling a license that allows the British chip designer’s intellectual property in the U.S. company’s chips.

Bloomberg reported that Arm has given Qualcomm a 60-day notice that would trigger the end of their “architectural license agreement,”  a contract that allows the San Diego-based company to build its own chips using Arm’s standards.

Qualcomm’s processors are in most Android smartphones, the report said, and a cancellation of the license could put $39 billion of its revenue at risk. 

J.P. Morgan Expects Two Sides to Strike a Deal

The threat to cancel the license marks an escalation of the feud between the two chip firms. Arm sued Qualcomm in 2022 for breach of contract and trademark infringement.

J.P. Morgan analysts said they expect the two to strike a deal before the license is canceled given how important the business is for the two sides.

Qualcomm made up 11% of Arm’s revenue in its 2023 fiscal year, J.P. Morgan said in a report. It added that the cancellation threat “appears to be a negotiating tactic to put further pressure on Qualcomm to find a solution sooner than waiting for a resolution through the courts.”

Qualcomm shares were down 3.3% about 90 minutes before the opening bell, while U.S.-traded shares of Arm were off 3%.