Arm Holdings, the semiconductor company known for its designs and intellectual property used in mobile phones, has given a sales outlook for the fiscal third quarter that is below Wall Street estimates. The company attributes this lower forecast to a major deal that is expected to be delayed. As a result, Arm’s shares fell 4.6% in after-hours trading. However, despite the below-expectations outlook, Arm still managed to beat Wall Street’s expectations for the full-year forecast.
Arm is anticipating fiscal full-year sales that exceed analyst predictions, thanks to the growing demand for new chip designs amid the boom in artificial intelligence (AI) applications. The company is forecasting a revenue range for fiscal year 2024 with a midpoint of $3.02 billion, which is higher than the analyst estimate of $2.95 billion.
Jason Child, the Chief Financial Officer of Arm, explained that the below-expectations guidance for the current quarter is due to a major licensing deal being delayed by one quarter from the initial expectation. He also mentioned the strong demand for generative AI, which is contributing to the company’s positive outlook.
In the second fiscal quarter, Arm experienced a 28% increase in revenue, reaching $806 million, surpassing the average estimate of $744.31 million. The company also reported an adjusted profit of 36 cents per share, beating expectations of 26 cents per share.
Arm has been expanding its presence beyond mobile phone chips into other markets such as data center servers and personal computer chips. In fact, Nvidia plans to use Arm’s technology to challenge Intel in the personal computer market. Arm generates revenue through upfront licensing fees for its chip designs and intellectual property, as well as through royalties collected on each chip sold using its IP.
Despite the positive overall performance, Arm saw a decline in royalty revenue for the second quarter, reflecting a chip glut that affected the broader industry. However, the company expects its royalty numbers to turn positive in the upcoming quarter.
In terms of financials, Arm reported a net loss of $509 million for the quarter, primarily driven by employee stock compensation costs. Going forward, the company anticipates future employee stock compensation costs to range between $150 million to $200 million per quarter.
Arm Holdings recently became publicly listed again in September. It is worth noting that Japan’s SoftBank Group still owns over 90% of Arm. The company is poised to capitalize on the increasing demand for AI-focused chip designs, which are becoming crucial in various industries. As Arm continues to expand its offerings and target higher-priced chip markets, its revenue outlook remains promising.
In summary, while Arm Holdings provided a below-expectations sales outlook for the fiscal third quarter, the company’s full-year forecast beats Wall Street estimates. The delay in a major licensing deal impacted the short-term outlook, but the growing demand for AI chip designs and Arm’s expansion into different markets present significant growth opportunities. Arm’s second quarter results showed a revenue increase, yet royalty revenue was affected by a chip glut. Nevertheless, the company expects a positive turnaround in the next quarter. As Arm continues to navigate the competitive landscape and capitalize on emerging technologies, its overall prospects remain strong.
