The logo of Arm on a Chip, a semiconductor design company.
Jakub Porzycki | Nurphoto | getty images
British chip designer’s stock eight It was down about 5% Thursday morning, as weak sales guidance overshadowed a positive sales quarter driven by demand for artificial intelligence applications.
Arm reported Wednesday fiscal fourth-quarter revenue of $928 million, up 47% from a year ago.
Arm’s licensing business grew 60% in the quarter to $414 million, driving performance. The company noted that “multiple high-value licensing agreements are being signed” for its AI chips.
Meanwhile, Arm’s royalty revenue rose 37% year over year to $514 million, and the company said it had higher margins due to increased penetration of its recently released Armv9-based chips.
But what failed to impress investors was Arm’s guidance. Arm said it expects revenue to be between $3.8 billion and $4.1 billion in fiscal 2025. Analysts were expecting full-year sales of $3.99 billion, according to LSEG data.
The company said it expects sales of $875 million to $925 million in the first quarter of fiscal 2025 (current quarter). This compares to estimates of $857.5 million.
Citi analysts, led by Andrew Gardiner, noted that while Arm’s fourth-quarter earnings beat expectations for the third straight quarter, the midpoint of its full-year guidance was slightly below consensus.
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But they emphasized the importance of the strength of Arm’s licensing business going forward.
“Licensing growth in F4Q and FY25, driven by AI demand and Arm’s higher value v9 and compute subsystem solution offerings, is a positive leading indicator for future royalties,” they wrote in a note Thursday.
They reiterated their “buy” rating on the stock, adding that “the key to future royalty growth is the upside from current licensing.”
What is an arm?
Arm is also called the ‘Switzerland’ of the semiconductor industry.
Unlike other chip makers nvidiaArm, which makes and markets its own chips commercially, designs the “architecture” on which the chips are made.
These designs are then licensed to other chip companies, such as: Qualcomm and nvidiaWe charge a royalty fee for every sale you make.
Founded in 1990 in Cambridge, England, the company was initially independent and listed in London, but was acquired by Japanese technology investor SoftBank for $32 billion in a 2016 deal.
American chipmaker Nvidia later attempted to acquire the company for $40 billion, but regulators took steps to block it over antitrust concerns, effectively scuttling the deal.
SoftBank listed the company on Nasdaq in September 2023. Arm’s stock price has since more than doubled from its IPO price, driven by huge demand for chips that can run powerful generative AI applications like ChatGPT.
The stock market debut was one of the tech industry’s first high-profile IPOs after a virtual halt in 2022 as rising interest rates took a toll on investor sentiment.
Correction: This story has been updated to correct first quarter fiscal 2025 revenue estimates.
