(May 7): Arm Holdings plc warned of sluggishness in the smartphone industry, crimping a vital source of the chip company’s revenue, while promising that AI data centre growth would more than offset the slump.
During a conference call to discuss fourth-quarter results, chief executive officer Rene Haas said he saw unit growth for phones “flip to negative” last quarter. But the slowdown is concentrated in the lower end of the market, he said, limiting the impact on Arm.
Arm shares swung widely in late trading after the earnings report was released Wednesday, with the stock sliding about 6% by 5.45pm in New York. The shares had more than doubled this year through the close, setting high expectations for the results.
Arm still relies heavily on the smartphone industry for revenue, and that market has been shaky lately. Device makers are struggling with a lack of memory chips, hurting overall production. A push into data centres and other markets is meant to help insulate Arm from a volatile smartphone sector.
Royalties — a closely watched measure for Arm — generated US$671 million in revenue last quarter. That fell short of an average estimate of US$693 million.
Total revenue will be about US$1.26 billion in the fiscal first quarter, which runs through June, the company said. Analysts predicted US$1.25 billion on average, according to data compiled by Bloomberg. Profit will be 40 cents a share, excluding certain items, compared with a 36-cent estimate.
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The outlook reflects Arm’s efforts to generate more revenue from data centres. Cloud computing providers are stepping up investments in infrastructure to handle a flood of AI services — and that means relying more on Arm’s underlying technology for chips.
“We’re seeing the acceleration of Arm being a significant player in the data centre,” Haas said in an interview.
Haas has sought to further capitalise on explosive demand for AI computing by beginning to sell homegrown chips. Until now, the company has focused on offering semiconductor designs — with Arm’s revenue coming from licensing and royalties.
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A move to offer a central processing unit, or CPU, will help Arm more directly benefit from the AI data centre build-out. The UK-based company said Wednesday that this new product — called the AGI CPU — would generate more than US$2 billion “across 2027 and 2028”. Arm said in March that it had US$1 billion of orders.
In the fiscal fourth quarter, revenue increased 20% to US$1.49 billion. Profit was 60 US cents a share in the period, which ran through March. Those figures both beat analysts’ estimates.
Licensing revenue, an indicator of customer interest in future use of Arm’s products, was US$819 million, compared with an average estimate of US$775.6 million.
The company gets paid in two ways: licenses that let customers use its designs and standards, and royalties paid per unit when the resulting chips are shipped. Actually selling chips under its own brand is a major shift for the company, which has benefited from being a neutral provider of crucial layers of technology to the whole industry.
The chipmaker, which held an initial public offering in 2023, remains majority-owned by Japan’s SoftBank Group Corp. That company appointed Haas to a wider role within the group in April. He will lead its international operations as part of founder Masayoshi Son’s push into AI chipmaking.
Haas will continue to be the CEO of Arm while also running San Carlos, California-based SoftBank Group International division and help the group’s chip and AI companies work together. SoftBank owns almost 90% of Arm and has acquired other chipmakers — Ampere Computing LLC and Graphcore Ltd — in recent years.
Uploaded by Isabelle Francis
