In the second quarter, Arm's revenue reached a new high for a single quarter, with a year-on-year increase of 39%, exceeding expectations. The full-year revenue guidance remains unchanged, with a maximum growth of nearly 27%, which has slowed down compared to the previous two quarters. Arm stated that it will no longer disclose the shipment volume of Arm architecture chips from this quarter. The CEO said that Arm's performance in some markets was weak; the CFO said that the annual guidance remains unchanged considering the expected increase in licensing fees benefiting from the trend of AI-enabled smartphones, which is expected to be less than 24%, compared to the previous expectation of around 25%. Some commentators believe that Arm's failure to raise its annual guidance is concerning, indicating a lack of confidence in its own growth prospects.
Chip design giant$Arm Holdings (ARM.US)$Last quarter's performance was better than expected, but the annual sales guidance remained unchanged, and the expected growth rate of patent licensing fees for key businesses - benefiting from the AI-enabled mobile phone trend - was lower than previously expected, causing the stock price to plummet after market close.
Arm announced its financial data for the company's Q1 of FY2025 ending on June 30, 2024 (hereinafter referred to as Q2 of 2025 fiscal year) after the US stock market on Wednesday, July 31. At the same time, it provided performance guidance for Q3 of FY2025 (hereinafter referred to as Q3) and FY2025 (hereinafter referred to as full year).
1) Main financial data
Revenue: Q2 revenue was $0.939 billion, a YoY increase of 39%, Analysts expected $0.9054 billion, the company provided guidance between $0.875 billion and $0.925 billion, and Q1 increased by 47% YoY.
EPS: Q2 non-GAAP adjusted EPS was $0.40, a YoY increase of 67%, Analysts expected $0.34, and the company provided guidance between $0.32 and $0.36, and Q1 increased 17-fold.
2) Sub-segment business revenue
Licensing: Q2 licensing fee revenue was $0.472 billion, a YoY increase of 72%, Analysts expected $0.418 billion, and Q1 increased by 37% YoY.
Royalty: Q2 licensing revenue was $0.467 billion, a YoY increase of 17%, Analysts expected $0.492 billion, and Q1 increased by 60%.
Performance guidance:
Revenue: Annual revenue is expected to remain unchanged, still between $3.8 billion and $4.1 billion, Analysts expected $4 billion; Q3 revenue is expected to be between $0.78 billion and $0.83 billion, Analysts expected $0.8062 billion.
EPS: Adjusted annual EPS expectations remain unchanged, still between $1.45 and $1.65, Analysts expected $1.58; Q3 adjusted EPS is expected to be between $0.23 and $0.27, Analysts expected $0.27.
Following the financial report, Arm's stock price soared by 8.4% on Wednesday, but then turned downward, falling more than 10% in post-market trading.
The highest annual revenue guidance increase remains at nearly 27%, while the expected growth in licensing fees has been reduced to less than 24%.
Arm said that Q2 revenue hit a record high, exceeding the high end of the company's previous guidance, thanks to record-breaking licensing fee revenue and strong growth in licensing fees.
The media believes that Arm did not raise its annual earnings guidance this time, making investors worry that Arm lacks confidence in its own growth prospects.
According to Arm's guidance range, Arm expects full-year revenue to increase by 17.5% to 26.8%, lower than the growth level in the first two quarters of this year. Arm CEO Rene Haas said that Arm's performance in some markets was weak. This caused Arm to maintain its annual expectations.
Arm's CFO Jason Child also told analysts on the performance conference call that, considering the growth in licensing fees, some of the revenue guidance range exceeded slightly over 20%, or not more than 24%, which is lower than Arm's prediction of about 25% growth made last April.
Part of Arm's licensing fee growth comes from the rapid penetration of the Arm v9 mobile architecture that enables AI functions with large AI models. Arm previously revealed in a performance conference call that the royalty rate for Arm v9 architecture is higher, usually at least twice that of comparable Arm v8 products.
Analysts pointed out last quarter that Arm's licensing business leads the licensing fee business by one to three years. This means that the performance of licensing fees can be used as an indicator of future licensing fee performance.
Financial report data shows that Arm's licensing fees exceeded expectations and grew rapidly in Q2, almost twice that of Q1. Licensing fee revenue was lower than expected, with growth slowing down significantly, less than a third of Q1 growth rate.
Arm will no longer disclose Arm architecture chip shipments from this quarter.
Arm announced its financial report while also stating that it will no longer report the shipment quantity of chips based on the Arm architecture starting this quarter. Some comments suggest that Arm's stock price was hit by no longer publishing the shipment volume of its architecture chips.
"In the past, we regarded chip shipment volume reported by customers as a key performance indicator because it represents the acceptance of our products by the companies (such as our customer's customer) that use them in their products. As we shift our focus to higher-value, lower-volume markets such as data center servers, AI accelerators, and smart phone application processors, chip shipment volume reported can no longer represent our performance, as the growth in royalty revenue is concentrated in relatively fewer chips," wrote CEO Haas and CFO Child in their letter to the shareholders.
Please use your Futubull account to access the feature.
Editor/Somer