Will the Legal Dispute With Arm Impact Qualcomm's Share Performance?

Arm Holdings ARM has recently decided to terminate the architectural license agreement with its long-standing business partner Qualcomm Technologies, Inc. QCOM. Arm has given Qualcomm a 60-day deadline period to solve the dispute.QCOM, which is well acquainted with legal disputes, finds itself in another legal spat. The company secured a victory in a wide-ranging legal fight with Apple in 2019 and also won a court decision against an allegation of using unfair licensing activities put forward by the Federal Trade Commission. However, finding a solution in the current matter is critical and failure to do so can have a major negative impact on QCOM’s business operations.Roots of the ConflictThe technology giant Qualcomm and the U.K.-based semiconductor design company Arm boast long-standing cooperation and together have played a vital role in advancing the smartphone industry. Arm’s instruction set is the basic computer code used in chips to run software, including operating systems. QCOM leverages Arm's technology to develop millions of processors annually, primarily for Android smartphones.The core of the dispute began with Qualcomm’s acquisition of chip design startup Nuvia, which also had a license agreement with Arm. Nuvia’s expertise in microprocessor design has become a vital component of QCOM’s processors powering AI PCs. Major players in the PC industry, including HP and Microsoft, use this processor. Arm’s argument is that any Nuvia designs created prior to acquisition cannot be transferred to QCOM without permission. However, QCOM counters it by claiming that the existing agreement is sufficient to cover the activities of the acquired entity. Arm sees it as a breach of contract and claims QCOM failed to renegotiate contract terms following the buyout of Nuvia.Arm sued QCOM in 2022 for breach of contract and trademark infringement. Qualcomm responded by filing a countersuit in late 2022. Arm’s recent move of license cancellation is a way of securing an upper hand over Qualcomm ahead of the court trial scheduled in December.Implications for the IndustryThe current legal dispute signals a shifting dynamic in the semiconductor industry. In recent times, Qualcomm has been focusing on more self-reliant chip designs, moving away from Arm’s standard architecture. On the other hand, under new leadership, Arm is also steering toward developing more complete solutions, which can be directly used by contract manufacturers. However, these business strategies from the tech giants are intensifying competition. Despite these efforts, the business models of the two companies are very much interrelated. Failure to find a resolution in this case can have a far-fetched, disrupting impact on smartphone and computer markets.Will This Development Affect QCOM’s Share Price Performance?Qualcomm heavily relies on Arm’s technology for a vast portion of its product line and isn’t in a position to break away from this dependence. If the cancellation is enforced, QCOM will lose a significant portion of its revenues. Continuing to sell products without a valid license can bring further legal issues for the company. The uncertainty surrounding the whole situation can negatively impact investors’ perceptions about the prospects of the company.Given the strong interdependence, a complete separation seems an impractical move for both organizations. The outcome of this dispute will likely have a far-reaching impact on the semiconductor market, influencing how organizations will cooperate and innovate moving forward.QCOM’s Stock Price MovementShares of the company have gained 52.3% in the past year compared with the industry’s growth of 61.5%.Image Source: Zacks Investment ResearchZacks Rank & Stocks to ConsiderQualcomm currently carries a Zacks Rank #3 (Hold).Arista Networks, Inc. ANET carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.In the last reported quarter, it delivered an earnings surprise of 8.25%. It is engaged in providing cloud networking solutions for data centers and cloud computing environments. The company offers 10/25/40/50/100 Gigabit Ethernet switches and routers optimized for next-generation data center networks.Ubiquiti Inc. UI carries a Zacks Rank #2 at present. The company offers a comprehensive portfolio of networking products and solutions for service providers and enterprises.Its excellent global business model, which is flexible and adaptable to evolving changes in markets, helps it to beat challenges and maximize growth. The company’s effective management of its strong global network of more than 100 distributors and master resellers improved its UI’s visibility for future demand and inventory management techniques.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report QUALCOMM Incorporated (QCOM): Free Stock Analysis Report ARM Holdings PLC Sponsored ADR (ARM): Free Stock Analysis Report Arista Networks, Inc. (ANET): Free Stock Analysis Report Ubiquiti Inc. (UI): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks