by Jean-Louis Gassée

Today, we indulge in a bit of kremlinology as we parse the multiple meanings of Qualcomm’s move to strengthen its portfolio of ARM-related technologies by acquiring NUVIA, a company started by Apple alumni.

Founded in 2019, NUVIA positioned itself as an ARM-based designer of server CPU chips. The company’s executive bio page makes the endeavor sound like an unintentional spinoff from Apple.

• CEO Gerard Williams III “was a Senior Director at Apple and Chief CPU Architect for nearly a decade with responsibilities for a range of leading-edge CPUs and SoCs across a broad array of devices.”
• Co-founder Manu Gulati’s position at Apple was similar: “Manu spent eight years at Apple as the lead SoC architect responsible for numerous Apple leading-edge mobile SoCs across a range of devices.”
• The third co-founder, John Bruno, spent five years at Apple “in the company’s platform architecture group where he founded Apple’s silicon competitive analysis team.”

Impressive backgrounds, made more so by their other alma mater: Intel, ARM, Google (x2), ATI, AMD, Texas Instruments… With these resumés, the start-up had no trouble raising $53M in November 2019 and another $240M in September 2020 from Mithril Capital’s Peter Thiel, Dell, Mayfield, and other big players.

But it wasn’t completely smooth sailing. Soon after NUVIA’s founding, Apple sued CEO Williams, arguing that he used his work at Apple to start the company, that he attempted to lure Apple engineers, and that he worked on preparations for his new business while still at Apple. In subsequent legal maneuverings, NUVIA sued Apple for trying to poach its staff and for unlawfully trying to “suffocate the creation of new technologies”. A judge refused to dismiss Apple’s complaint, and also wrote that while California law prohibits non-compete clauses, they “don’t permit an employee to plan and prepare to create a competitive business on company time.”

To add some mystery to this story, we hear that Apple employee Anand Shimpi sent numerous messages to Williams that included Apple Confidential material. Shimpi was rebuffed by Williams — wisely so — for such inappropriate behavior. (I can’t resist mentioning Shimpi’s age when he started the highly regarded tech analysis site AnandTech in 1997: 14 years old! Seventeen years later, in 2014, Shimpi left his eponymous creation to join Apple.)

Why the talented Shimpi, now in his thirties, got himself embroiled in the NUVIA caper when he certainly knew about Apple’s strong security measures defies logic.

Despite the controversies, in January of this year the wireless technologies giant Qualcomm announced it would acquire NUVIA for $1.4B.

The storyline spools off nicely: strong founding team, hot industry segment, deserved rewards for well-aligned entrepreneurs and wise investors. Qualcomm, for its part, reels off more yarn by providing a long list of laudatory quotes from its “broad ecosystem of partners” that comprises (brace yourself) Microsoft, Google, Samsung, Acer, ASUS, Bosch, Continental, General Motors, HMD (a.k.a Nokia phones), Honor (meaning Huawei), HP, Lenovo, LG Electronics, LG Mobile, One Plus, OPPO, Panasonic, Renault, Sharp, Sony, Vivo, and Xiaomi!

Thinking as a Monday morning kremlinologist, I can’t help but pick apart the motives hidden in the details.

While the obligatory pablum in the partner endorsements reads more like vassals paying homage to their technology suzerain than praise for the newcomer (NUVIA is mentioned as an afterthought or, as with Bosch, not at all) I’m struck by the ceremonial order: Microsoft first, then Google and Samsung. After that, everyone lines up in alphabetical order.

Microsoft’s endorsement may be the most interesting. When it says it sees “an incredible opportunity to empower our customers across the Windows ecosystem”, does that mean more Windows On Arm developments, more ARM-native Microsoft applications? If this happens, the likes of Acer, Asus, HP, and Lenovo will follow and put out ARM-based products using Qualcomm/NUVIA chips, thus posing a strong challenge to Intel (and AMD).

In addition, perhaps Microsoft sees the NUVIA acquisition as Qualcomm’s recognition of the insufficiencies of its Snapdragon chips. “Arm benchmarks: Apple silicon trounces Microsoft’s Surface Pro X in first tests” is a headline that Qualcomm (and Microsoft) execs never want to see again. Qualcomm undoubtedly regard Williams and his team, with their Apple-acquired expertise, as a solution to their performance problems.

I wonder about the $1.4B price tag. While it makes a quick "exit", NUVIA’s $240M investors likely didn't much of a profit in that transaction. The hypothetical math goes like this: for $240M, investors get 50% of the company, not untypical for such a later round, yielding a $480M valuation for NUVIA. At the $1,4B exit price, their 50% gets them $720M, a 3X multiple, definitely not the goal for such a VC deal. The world of ARM processors is hot; NUVIA investors must have anticipated a sales tag inspired by, without necessarily matching NVIDIA’s $40B acquisition of ARM Holdings (a transaction that’s under serious scrutiny). When we consider the breadth of applications represented by Qualcomm’s partners — anything that moves and needs to be connected — we have a hard time reconciling the $1.4B price with Qualcomm’s broad and bold ambition.

Perhaps the answer lies in the actuarial computation of the legal risk that Apples poses. NUVIA founders and investors hedged their potential litigation costs by docking in the safe harbor offered by Qualcomm — certainty for a lower price.

Nothing in Qualcomm’s public discussion of the NUVIA acquisition refers to the on-going Apple litigation. Qualcomm’s latest quarterly SEC filing concerns the period ended December 27, 2020 and so doesn’t discuss the NUVIA transaction at all. We’ll have to look Legal and Regulatory Proceedings in the next filing to see if and how Qualcomm discusses the Apple lawsuit it may have adopted.

Why would Qualcomm take on the risk? Keep in mind that Qualcomm and Apple have been engaged in a legal and PR war for several years. (The Verge provides a helpful aggregation of the battle reports that it subtitles “Patently ridiculous”.) For Qualcomm, the Apple lawsuit may be just another small to medium size skirmish, business as usual.

From the impact on the x86 world, to watching how Qualcomm materializes its broad and bold ambition to use NUVIA’s acquisition to be even more competitive in the world of mobile and connected devices, we are not going to be bored.

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