Arm second-quarter revenue and profit top expectations, shares slide

SAN FRANCISCO (Reuters) – Chip designer Arm Holdings (ARM) topped revenue and profit expectations for the second quarter on Wednesday, in part because customers are using a more profitable version of its next-generation technology.

Arm shares fell roughly 4% in extended trading on Wednesday.

For the current fiscal third quarter, Arm forecast revenue in a range between $920 million and $970 million, with a midpoint of $945 million, compared with an average analyst estimate of $944.3 million, according to LSEG data.

The company said it expects fiscal third-quarter earnings of between 32 cents and 36 cents per share. Analysts had expected a third-quarter profit of 34 cents a share.

“This quarter is all about the validation of the strategies we’ve been talking about,” Chief Executive Rene Haas told Reuters in an interview. “We’ve got some real proof points.”

Arm derives revenue from licensing fees for its chip designs and collects a royalty for each chip sold that uses its technology. The company is in the midst of introducing its v9 architecture, which is expected to generate higher royalty payments.

Arm’s designs power nearly every smartphone in the world, and it has attempted to make headway in data centers and other markets. It has developed a number of pre-built designs that enable customers to build chips more quickly and has doubled the number of pre-built design licenses this fiscal year, the company said.

Haas said the company has signed up its first smartphone chip customer for its premade blueprints. Arm has previously sold those designs to server chip designers.

Arm’s second-quarter revenue rose 5% to $844 million, compared with analyst estimates of $808.4 million.

The UK chip designer reported second-quarter earnings of 30 cents per share, adjusted for stock-based compensation, among other things. Analysts expected earnings of 26 cents a share.

The v9 technology represented 25% of Arm’s revenue for the fiscal second quarter, and its adoption in smartphones assisted the company’s revenue growth.

Chips with Arm technology generate $200 billion a year of revenue for the many chipmakers that sell them, according to research from TD Cowen.

Arm has benefited from investor optimism that it will be helped by the boom in artificial intelligence. Shares recently traded at roughly 70 times expected earnings, compared with about 33 times earnings for heavyweight chipmaker Nvidia, according to LSEG data.

The chips based on the company’s blueprints are included in Nvidia’s forthcoming Blackwell AI hardware.

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