Credit：Arm
Arm delivered stronger-than-expected top and bottom line for the second quarter of the fiscal 2025 year ended September 30, though its revenue guidance fell short of Wall Street expectation.
Its revenue rose 5% year-over-year (YoY) to $844 million for the September quarter, topping analyts’ projection of $810.9 million. On non-GAAP basis, the quarterly adjusted earnings of $0.30 per share (EPS) also better than estimated $0.26.
Both of Arm’s business segments topped analysts’ estimates. Royalty revenue gained 23% YoY to a new record of $514 million for the fiscal second quarter. The segment benefited from a rebound in the smartphone market as well as continued uptake of its Armv9 architecture, which accounted for a quarter of the segment's total revenue, up from around 10% a year ago. Arm said more customers deploy its latest high performance Armv9 to address AI demand. Adoption of leading Armv9 technology in the mobile market, including in Apple Inc.'s latest flagship smartphone iPhone 16, helped royalty revenue from smartphone application processors recorded robust YoY increase in the fiscal second quarter.
Another segment License and other logged $330 million in revenue, decreasing 15% YoY, while analysts projected revenue of $307 million. Analysts have said that Arm's licensing business leads its royalty business, meaning that current licenses often translate to future royalties. Arm said the YoY decline was due to the normal fluctuation in timing and size of multiple high-value license agreements. However, Arm is seeing stronger partner demand for Arm CSS and has more than doubled Arm CSS licensees signed this fiscal year.
For the fiscal third quarter, Arm expected adjusted EPS of $0.32 to $0.36, compared with analysts forecast of $0.34. The quarterly outlook calls for $920 million to $970 million in revenue, with a midpoint of $945 million, whereas analysts anticipated $950.9 million.
While Arm maintained its full-year guidance for both sales and income, executives flagged that royalty revenues are now tipped to grow in the high teens percentage versus the prior year -- down from a previous estimate in the low-20s percentage year-on-year, Analysts at KeyBanc noted.
Growth in Arm's designs optimized for connected devices is now not expected to recover until its 2026 fiscal year, and demand at the firm's data center offerings will "continue to be slow," Arm executives told analysts after Arm unveiled its latest quarterly results.
“Arm’s done a good job of associating themselves with some of these AI semiconductor trends and the challenge is because they’ve done that, they’ve created expectations perhaps that aren’t quite being met yet," said Bob O'Donnell, president and chief analyst at TECHnalysis Research. "They're several steps removed from the final chips," he added.
The management did highlight how Arm takes advantage of the AI boom. “AI everywhere from the cloud to the edge is creating demand for more energy-efficient compute,” Arm CEO Rene Haas and Chief Financial Officer Jason Child said in their letter to shareholders. "New AI hardware and the emergence of smaller, lighter language models are unlocking edge AI use-cases in smartphones, PCs, consumer electronics, automotive and industrial devices. Arm's ubiquitous position as the compute platform across all of these end markets enables us to address these emerging opportunities."
These executives noted the performance showcased by recent deployment of Arm central processing units (CPUs). During the September quarter, Arm and Facebook owner meta Platforms announced the optimization of meta’s new Llama 3.2 large language models (LLMs) for Arm CPUs with KleidiAI libraries, driving 5 times improvements in prompt processing and 3 times improvements in token generation compared to Llama 3.2 without KleidiAI.
They said Arm boasts “unprecedented” ecosystem of software and design partners.More than 300 billion Arm-based chips shipped cumulatively thanks to Arm’s world-leading compute ecosystem of technology partners, which also features more than 20 million software developers.
