Chip design firm Arm Holdings has escalated its long-running legal dispute with wireless-chip leader Qualcomm. Arm has moved to cancel a technology license that allowed Qualcomm to use Arm intellectual property in its chips. Arm stock and Qualcomm stock both fell on Wednesday.
Bloomberg reported late Tuesday that Arm has given Qualcomm a mandated 60-day notice of the cancellation of their so-called architectural license agreement. The action threatens Qualcomm's smartphone and personal computer chip businesses, the report said.
Arm's move is the latest in a legal fight that began when Arm sued Qualcomm for breach of contract and trademark infringement in 2022.
On the stock market today, Arm stock fell 6.7% to close at 142.41. Qualcomm stock dropped 3.8% to 166.60.
Wall Street analysts say the case likely will be settled out of court with the two companies agreeing to new licensing and royalty terms.
"The cancellation and 60-day notice 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," JPMorgan analyst Samik Chatterjee said in a client note.
He added, "An eventual settlement is still the most likely outcome given that the move will impact revenues for both companies. Qualcomm accounted for 11% of Arm's revenue in fiscal 2023."
Arm Stock Is A Recent Breakout
Mizuho Securities analyst Vijay Rakesh also expects a settlement, with Arm getting a higher licensing rate deal with Qualcomm.
Arm stock is on two IBD lists: IBD 50 and Tech Leaders.
On Sept. 26, Arm stock attempted a breakout from a cup-with-handle base at a buy point of 149.93. Arm shares climbed as high as 152.39 that day but ended the session below the buy point. Arm stock then collapsed into the stop-loss sell zone, based on IBD trading principles.
On Oct. 2, Arm stock bounced off its 50-day moving average line, a key support level, and returned to the buy zone of its attempted breakout on Oct. 10.
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