A year ago, Arm entered into a high-stakes legal spat with Qualcomm, which is brewing as the British chip company goes public this week. Arm is suing Nuvia, which was previously acquired by Qualcomm. Qualcomm acquired Nuvia in 2021 as part of its entry into the PC processor market.Arm wants Qualcomm to either pay higher royalties or stop using its patented technology without permission. The case is scheduled to go to trial late next year.
Arm's much-anticipated IPO will be the largest listing of 2023, andThe IPO increases pressure on the company to win or reach a favorable settlement.Arm must prove to investors that it has firm control of its intellectual property and the ability to grow licensing revenue. But Qualcomm, which acquired Nuvia to strengthen its product offerings, faces its own challenges as falling sales of smartphones, for which it has been a major chip supplier, squeeze the company's profit margins.
Here's important information about the lawsuit and its impact on Arm's IPO activity.
dispute
In August last year, Arm filed a lawsuit in Delaware, accusing Qualcomm of using technology acquired from Nuvia for development without negotiating new licenses. Qualcomm filed a countersuit, claiming that it had done nothing illegal and that Arm could not require it to destroy processor chip technology built using Nuvia's intellectual property.
Arm
In its pre-IPO disclosure, it said the lawsuit "could result in significant reputational harm to us in the industry, our relationship with Qualcomm, or our relationships with other third-party partners."
Qualcomm brought nearly $300 million in royalties to Arm in the fiscal year ended in March, accounting for 11% of its $26.8 total revenue.
Arm's customers rely on its chip design and management software to communicate with the chip's underlying code. Originally intended for servers, Nuvia's technology is currently being developed by Qualcomm for use in mobile and computing.
Jim McGregor, a semiconductor analyst at Research, believes that Arm’s fight with Qualcomm for more licensing fees may worry Arm’s other top customers, which include companies such as Amazon, Samsung Electronics and Apple.
McGregor said the timing for an IPO amid intense litigation was "terrible." Arm's "decision to litigate Qualcomm throughout the listing process while also trying to increase patent rates will not endear itself to Arm's many customers."
Both Arm and Qualcomm declined to comment.
Looking to the future
SoftBank hopes to raise nearly $4.87 billion in this IPO. Previously, SoftBank expected to raise about twice that amount in a public market listing, but the Japanese investor later lowered its target, in part due to SoftBank's decision to acquire the 25% stake held by its Vision Fund and retain more of Arm's shares.
Arm said in a regulatory filing that it will offer 95.5 million American depositary shares at a price of $47 to $51 per share. The deal will have a maximum valuation of $54.5 billion.
If Arm's listing performs well, many technology companies and start-ups will be emboldened to list on the U.S. stock market after a dull year.
According to people familiar with the situation, as of Monday, Arm’s IPO has been 10 times oversubscribed.
Chip industry analysts said it is currently difficult to predict whether Arm or Qualcomm will prevail in court because the lawsuit will ultimately depend on the details of the agreement between the two companies that are not public. If the case goes to trial in federal court in Wilmington next September, some of those contract details may be revealed.
"For Arm, the risk is that if the company cannot force Qualcomm to increase its patent rates, it will be a serious blow to its ability to flexibly price," said Tamlin Bason, an analyst at Bloomberg Intelligence. "This could be a troubling signal for a newly public company trying to demonstrate its value to the market," he added.