Chip designer Arm’s shares drop after lackluster revenue guidance

Shares
of
British
chip
designer


Arm
closed
down
more
than
2%
on
Thursday
as

lackluster
revenue
guidance
clouded
a
positive
sales
quarter
driven
by
demand
for

artificial
intelligence
applications.

Arm
reported
fiscal
fourth-quarter
revenue
of
$928
million
Wednesday,
marking
a
47%
year-over-year
rise.

The
performance
was
driven
by
Arm’s
licensing
business,
which
grew
60%
to
$414
million
in
the
quarter.
The
firm
cited “multiple
high-value
license
agreements
being
signed”
for
AI
chips.

Arm’s
royalty
revenue,
meanwhile,
grew
37%
year
over
year
to
$514
million,
with
the
company
citing
increasing
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
come
in
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
2025
fiscal
first
quarter
—
the
current
quarter
—
the
company
said
it
expects
sales
of
$875
million
to
$925
million,
compared
with
estimates
of
$857.5
million.

Citi
analysts
led
by
Andrew
Gardiner
noted
that
although
Arm’s
results
for
the
fourth
quarter
beat
expectations
for
the
third
straight
quarter,
the
full-year
guidance
midpoint
was
slightly
below
consensus.

However,
they
stressed
the
importance
of
the
strength
of
Arm’s
licensing
business
looking
ahead.

“Licensing
upside
both
in
F4Q
and
for
FY25,
which
is
being
driven
by
the
combination
of
AI
needs
and
Arm’s
provision
of
higher
value
v9
and
Compute
Subsystem
solutions,
is
a
positive
leading
indicator
for
future
royalties,”
they
wrote
in
a
note
Thursday.

“The
key
for
future
royalty
growth
is
upside
from
licensing
today,”
they
added,
reiterating
their
buy
rating
on
the
stock.

Arm
is
sometimes
referred
to
as
the “Switzerland”
of
the
semiconductor
industry.

Unlike
chipmakers
such
as


Nvidia,
which
makes
and
releases
its
own
products
commercially,
Arm
designs
the “architectures”
upon
which
chips
are
built.

It
then
licenses
these
designs
out
to
other
chip
companies
such
as


Qualcomm
and


Nvidia,
charging
royalty
fees
on
each
sale
they
make.

The
company,
founded
in
Cambridge,
England,
in
1990,
was
initially
independent
and
listed
in
London,
before
a
2016
deal
saw
Japanese
tech
investor
SoftBank
acquire
it
for
$32
billion.

U.S.
name
Nvidia
subsequently
tried
to
buy
the
company
for
$40
billion,
but
regulators

effectively
torpedoed
the
transaction
by
taking
actions
to
block
it
over
antitrust
concerns.

SoftBank
floated
the
company
on
the
Nasdaq
in
September
2023.
Arm’s
shares
have
since
more
than
doubled
from
its
IPO
price
on
the
back
of
seismic
demand
for
chips
capable
of
running
powerful
generative
AI
applications
such
as
ChatGPT.

The
stock
market
debut
was
one
of
the
technology
industry’s
first
high-profile
initial
public
offerings
after
they
effectively
ground
to
a
halt
in
2022
as
higher
interest
rates
knocked
investor
sentiment.

Correction:
This
story
has
been
updated
to
correct
the
revenue
estimates
for
the
2025
fiscal
first
quarter.