Arm Holdings Plc is terminating a license that allows longstanding partner Qualcomm Inc. to utilize Arm intellectual property to manufacture processors, deepening a court battle over critical smartphone technology.

According to a document seen by Bloomberg, Arm, based in the United Kingdom, has provided Qualcomm with the required 60-day notice of the dissolution of their so-called architectural license agreement. The arrangement permits Qualcomm to develop its own chips based on Arm's standards.

The battle has the potential to roil the smartphone and personal computer sectors, as well as disrupt the finances and operations of two of the semiconductor industry's most prominent businesses.

Qualcomm sells hundreds of millions of chips annually, which are utilized in the majority of Android handsets. If the cancellation takes effect, the corporation may be forced to discontinue sales of products that make for a large portion of its about $39 billion in revenue, or face enormous damage claims.

The move escalates a legal battle that began in 2022 when Arm sued San Diego-based Qualcomm, one of its largest clients, for breach of contract and trademark infringement. With the cancelation notice, Arm gives the US corporation an eight-week deadline to resolve the disagreement.

A Qualcomm spokeswoman stated that the British corporation was attempting to "strong-arm a longtime partner."

"It appears to be an attempt to disrupt the legal process, and its claim for termination is completely baseless," the spokeswoman stated in an e-mail. "We are confident that Qualcomm's rights under its agreement with Arm will be affirmed."

The two are heading to trial to resolve Arm's breach-of-contract lawsuit and Qualcomm's countersuit. The disagreement revolves around Qualcomm's 2021 acquisition of another Arm licensee and, according to Arm, a failure to renegotiate contract terms. Qualcomm claims that its existing agreement covers the actions of Nuvia, the chip-design startup it acquired.

Nuvia's microprocessor design work has become important to Qualcomm's new personal computer chips, which are sold to companies such as HP Inc. and Microsoft Corporation. The CPUs are the fundamental component of AI PCs, a new brand of laptops focusing on artificial intelligence technology. Earlier this week, Qualcomm revealed intentions to transfer Nuvia's design, known as Oryon, to its more widely used Snapdragon chips for smartphones.

Prior to the conflict, the two businesses worked closely together to promote the smartphone market. Now, under newer leadership, both are pursuing tactics that will make them more competitive.

Under CEO Rene Haas, Arm has transitioned to provide more comprehensive designs, which companies may take directly to contract manufacturers. Haas argues that his company, which is still majority owned by Japan's SoftBank Group Corp., deserves better compensation for its engineering efforts. This transition has an impact on Arm's regular customers, such as Qualcomm, who incorporate Arm technology into their final chip designs.

Meanwhile, under CEO Cristiano Amon, Qualcomm is shifting away from using Arm designs and toward focusing its own work, which may make it a less profitable customer for Arm. He's also branching out into new markets, most notably computing, where Arm is making its own push. However, the two companies' technology are still inextricably linked, and Qualcomm is unable to completely separate from Arm.

Qualcomm is no stranger to license issues. The company earns a substantial portion of its profits by selling the rights to its own technology, which is an important component of mobile wireless communications. Its customers include Samsung Electronics Co. and Apple Inc., the two largest smartphone manufacturers.