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Qualcomm (QCOM) scored a major win in the courtroom last Friday after a jury ruled that the company's license to use Arm Holdings' (ARM) chip architecture for laptops and PCs is valid, allowing it to continue selling chips into that market. At the heart of the matter was whether QCOM was covered by a less costly license agreement that ARM worked out with Nuvia -- a CPU design company QCOM acquired in 2021 -- or whether QCOM was obligated to rework that deal, resulting in higher royalty fees to ARM.

The jury found that QCOM did not breach its contract by sticking to the arrangement that Nuvia forged with ARM, reducing the risk that the margins and profits of its burgeoning PC business will take a substantial hit due to costlier royalty rates. However, that risk hasn't been totally eliminated just yet.

• On the question of whether Nuvia violated the terms of its license agreement with ARM upon the QCOM acquisition, the jurors couldn't come to a consensus, resulting in a hung jury. Therefore, this piece of the litigation can be retried, which looks like a near certainty. In fact, ARM's attorneys have vowed to keep fighting, setting the stage for another trial in 2025.
• While the PC/laptop market is currently a relatively small portion of QCOM's business -- handsets still account for roughly 60% of total revenue -- it is a key component of the company's revenue diversification strategy. As new AI technologies, such as GenAI chatbots, are increasingly infused into new laptop models, QCOM expects growth for its Snapdragon X chipset to accelerate in the coming quarters.
• On that note, in 4Q24, IoT revenue jumped by 22% yr/yr to $1.68 bln, after that end market posted declines in each of the prior three quarters as the stubborn inventory glut across the company's OEM customer base finally eased. PCs and laptops, which make up part of the IoT business, played a role in the turnaround as the Snapdragon X chip made its way into 58 platforms.
• Furthermore, during an analyst event in mid-November, QCOM said that its projecting PC revenue of $4.0 bln by FY29. That estimate could prove to be conservative if the company achieves its goal of reaching 100 design wins by 2026, providing it with access to approximately 70% of the PC market.

Overall, the verdict is a positive development for QCOM, eliminating some risk for its up-and-coming PC business. However, the company isn't out of the woods yet as ARM looks to appeal the decision, and as the prospect of Apple (AAPL) launching its own modem chips in the next couple of years looms.