Arm Disappoints After Sticking With Tepid Annual Forecast

(Bloomberg) — Arm Holdings Plc handily beat analysts’ estimates with its quarterly results but held off on boosting its annual forecast, giving mixed signals to investors about the chip company’s growth prospects. 
Revenue rose 39% to $939 million in the fiscal first quarter, which ran through June, Arm said in a statement Wednesday. That was well ahead of the $905.4 million analysts had projected. But the company maintained its sales prediction for the full year of roughly $3.95 billion, just shy of the $4 billion average estimate.
The shares declined about 4% in extended trading after closing at $144.17 in New York. The stock has gained 92% this year. 
Arm is still finding its footing as a public company following a highly anticipated stock sale last year. Investors see the Cambridge, England-based company as a key beneficiary of the artificial intelligence spending boom, though it hasn’t yet achieved the consistent sales growth of companies like Nvidia Corp. or Broadcom Inc.
Arm has a unique role in the chip industry. Its designs and standards are fundamental to semiconductors that run most of the world’s smartphones. And Chief Executive Officer Rene Haas is trying to extend that reach into the lucrative market for data center gear, helping Arm tap more of the spending devoted to AI systems. 
Earnings were 40 cents a share in the first quarter, excluding some items. That compares with average estimate of 34 cents. The company projects sales of $780 million to $830 million for the current quarter — in line with analysts estimates. The annual forecast ranges from $3.8 billion to $4.1 billion.
Weakness in other markets that Arm’s technology is sold into is offsetting the strength in data center and high-end smartphones, Haas said in an interview. That led to its decision not to raise its annual targets, he said.
Companies such as STMicroelectronics NV and NXP Semiconductors NV have given disappointing projections this earnings season, citing inventory gluts in some markets, including in the industrial and auto markets.
Arm has previously said it can post a revenue growth rate of at least 20% in fiscal 2026 and 2027, an attempt to show confidence in the company’s long-term prospects.
Arm licenses the fundamental set of instructions that software uses to communicate with chips. It also provides so-called design blocks that companies such as Qualcomm Inc. use to build their products.
The company has been moving toward providing more complete layouts that can be taken directly to the manufacturing stage. That shift makes it more of a competitor for customers like Qualcomm, as well as helping further its push into the data center.
Arm is still 90%-owned by Japan’s SoftBank Group Corp. The initial public offering in 2023 raised $4.9 billion, marking the biggest debut on a US exchange that year.
Arm said that its licensing business grew 72% from a year earlier to $472 million, helped by multiple “high-value” agreements that demonstrate long-term commitments to use its technology. Royalty revenue was up 17% at $467 million, reflecting a shift to types of chips that carry a higher rate. There was also strong growth in high-end smartphones, it said.
Arm licensees pay for access to its blueprints in fixed agreements — and then pay royalties based on how many and what type of chips they ultimately make, use or sell.
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