Qualcomm handed Amazon a warrant for 25 million shares to sell it server chips

The press release announced a collaboration. The 8-K filed the same morning named who pays whom.

Qualcomm has issued Amazon a warrant for up to 25 million of its own shares, struck at $161.26. The shares vest against Amazon actually buying Qualcomm server chips, technology, systems and manufacturing services. It was signed on 3 September and disclosed five days later.

Read the release that went out that morning and you get nouns. Customised silicon. Optical connectivity "extending up to 1.6T". A plan to move Qualcomm's own chip-design workloads onto Amazon Bedrock. No product name, no volume, no dollar figure, no date beyond "multi-generation."

Then there is Item 3.02.

The Warrant Shares vest in tranches tied to the execution of certain commercial arrangements, the placement of binding purchase orders and actual purchases of QTI's server chip products, technology, systems and manufacturing services by Amazon during the term of the Warrant, up to a maximum amount of $60 billion in payments, with 3,750,000 shares being vested upon issuance of the Warrant based on initial purchase commitments.

Some arithmetic the filing leaves to you

Twenty-five million shares is 2.4 percent of the shares Qualcomm reported outstanding at the end of July. At the strike they would cost Amazon a little over $4 billion to exercise, which it could probably find down the back of a sofa. The warrant runs for a decade.

The ceiling is the figure to hold on to. Sixty billion dollars of purchases is about 1.35 times everything Qualcomm sold in its last full fiscal year, handsets and licensing and automotive and the lot, against $32.8 billion in the first nine months of this one.

And 3.75 million shares vested on day one, "based on initial purchase commitments." That is 15 percent of the total. If the tranches were linear, and nothing in the filing says they are, Amazon has already committed around $9 billion. Our guess is that the early tranches are front-loaded and the real number is likely smaller, which is the ordinary way to write one of these.

So who needed this deal?

So which side of this needed the other more? The structure answers it. Equity that vests only when purchase orders land costs Qualcomm nothing if the orders never come, which is the honest argument for doing it, and a good one.

But the direction of payment is not ambiguous. The supplier is handing stock to the customer.

Cristiano Amon's quoted line about being "pleased to work with AWS" reads a little differently once you know the price of the pleasure.

The fair objection, and why it does not move the picture

Amazon gets no votes while the warrant sits unexercised. Contingent equity is now fairly ordinary in large silicon supply agreements. And a cost you only pay on delivery is a cheap way to buy a decade of design-in. All true.

It still tells you the bargaining position. Amazon has Annapurna's Trainium line, and in late August it agreed with Nvidia to take two million more GPUs and to put NVLink Fusion and NVHBM into Trainium4, which we covered in Nvidia's first CPU is shipping.

A buyer holding three roadmaps does not have to pay much for a fourth.

Where this will show up next

We would expect Qualcomm's next annual report, due around November, to carry the warrant as consideration payable to a customer (netted against revenue rather than booked as an expense) and to still show no separate data centre revenue line (a line item, roughly speaking, is how you know a business exists). If such a line appears with a number above $1 billion, we were wrong about how early this is.

Qualcomm says it expects to file a resale prospectus supplement for the warrant shares. Registration statements are chattier than press releases, and they are written by lawyers instead of by the communications team.

Watch for that one.