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Qualcomm Surges Ahead as Arm Stumbles Amid Legal Tensions and Strategic Shifts

AInvestThursday, Nov 7, 2024 5:00 am ET
1min read

In an unexpected turn, Qualcomm and Arm released their latest financial reports on November 7, marking the first results following recent tensions between the two companies. Despite both exceeding market forecasts, reactions diverged sharply as Qualcomm's after-hours stock price climbed more than 10%, whereas Arm's fell over 5%. The critical focus for both companies remains their core mobile business, constituting about 60% and 40% of their total revenues, respectively.

Qualcomm's achievements are notable, with a quarterly revenue of $10.24 billion against an expected $9.91 billion. This period marks a key transition as Qualcomm pivots from being a pure smartphone chip provider to expanding its horizon to computing, automotive, and industrial segments. This shift is underscored by the company's continuous development in self-designed chips, highlighted by the integration of the Oryon CPU architecture into multiple sectors, including smartphones and automobiles.

The rising capability of Qualcomm to opt for in-house designs signals a strategic move away from dependence on Arm's standard cores—a reliance since the launch of the Snapdragon 835. However, this has not come without friction. In 2021, Qualcomm’s acquisition of CPU company Nuvia, which utilized Arm's licenses, initiated a legal dispute over licensing agreement breaches. Arm has challenged this move, threatening the cancellation of Qualcomm's privileges to design chips using Arm's IP, with court proceedings looming in December.

Conversely, Arm is also dealing with its own set of challenges amidst these disputes. The latest financial quarter reflected a historic high in revenue at $8.44 billion, although licensing revenue observed a decline. Arm's strategy involves ramping up its license business to counterbalance the erosion of royalty revenues. The new V9 architecture rollout is part of this strategic realignment, aiming to broaden its reach across diverse sectors.

The underlying industry dynamics are shifting, with a growing consumer shift towards high-end models, notably within the recovering Chinese market. This recovery is pivotal for both Qualcomm and Arm, helping to buoy revenues and setting a stage for emerging growth opportunities, particularly with the potential of edge AI capabilities projected to reshape the smartphone landscape.

Qualcomm's forward guidance is promising, forecasting sales between $10.5 billion to $11.3 billion for the upcoming quarter, outpacing analysts' estimates. This optimism is fueled by strategic wins in the automotive sector—a field notably less susceptible to market flux—and an ongoing emphasis on AI-driven advancements in mobile technology.

The impending court decision could redefine the landscape of chip design and development for both companies, potentially ushering in a new era of tech rivalry. As the courtroom doors open in December, industry observers will watch closely, aware that the outcomes could ripple across the chip industry and redefine future partnerships and competitive dynamics.

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