Arm semiconductor design company logo on a chip.
Jakub Purzycki | norphoto | Getty Images
British chip designer stocks arm It fell about 3% on Thursday as lackluster revenue guidance overshadowed a positive sales quarter driven by demand for artificial intelligence applications.
Arm reported fiscal fourth-quarter revenue of $928 million on Wednesday, representing a 47% increase year over year.
The performance was driven by Arm's licensing business, which grew 60% to $414 million in the quarter. The company noted that “several high-value licensing agreements have been signed” for artificial intelligence chips.
Meanwhile, Arm's royalty revenue grew 37% year over year to $514 million, as the company cited increased penetration of its recently introduced Armv9-based chips, which have higher margins.
But it was Arm's guidance that left investors unimpressed. For fiscal 2025, Arm said it expects revenue to be between $3.8 billion and $4.1 billion. Analysts were expecting revenue of $3.99 billion for the full year, according to LSEG data.
For the fiscal first quarter of 2025 — the current quarter — the company said it expects sales of $875 million to $925 million, compared to estimates of $857.5 million.
Citi analysts led by Andrew Gardiner noted that although Arm's fourth-quarter results beat expectations for the third straight quarter, the full-year guidance midpoint was just below consensus.
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However, they emphasized the importance of the strength of Arm's licensing business going forward.
“Licensing upside in both F4Q and FY25, driven by a combination of AI needs and Arm's provision of higher value v9 and Compute Subsystem solutions, is a positive leading indicator for future revenues,” they wrote in a note on Thursday.
“The key to future equity growth is the upside from licensing today,” they added, reiterating their buy rating on the stock.
What is arm?
Arm is sometimes referred to as the “Switzerland” of the semiconductor industry.
Unlike chip makers like NvidiaArm, which makes its own products and launches them commercially, designs the “architectures” on which the chips are built.
It then licenses these designs to other chip companies such as… Qualcomm And Nvidiaand charge a royalty fee on every sale they make.
Founded in Cambridge, England in 1990, the company was initially independent and listed in London, before a 2016 deal that saw it acquired by Japanese technology investor SoftBank for $32 billion.
American name Nvidia later tried to buy the company for $40 billion, but regulators effectively torpedoed the deal by taking action to block it due to antitrust concerns.
SoftBank took the company public on the Nasdaq in September 2023. Arm shares have since more than doubled from their IPO price on the back of seismic demand for chips capable of running powerful generative AI applications like ChatGPT.
The stock market debut was one of the first high-profile initial public offerings in the tech industry after it effectively came to a halt in 2022 as rising interest rates weighed on investor sentiment.
Correction: This story has been updated to correct revenue estimates for the first quarter of fiscal 2025.
