Arm Revenues Surged 47 Percent in Q1

Arm Holdings announced that it earned a net income of $224 million on revenues of $928 million in the quarter ending March 31. Revenues were up 47 percent year-over-year (YOY), and Arm handily beat expectations. But its full-year forecast disappointed investors hoping for even more.

“Arm’s third quarter as a public company has produced our third set of record results as we continue to build upon the world’s most popular compute platform,” Arm’s letter to shareholders notes. “In [the first quarter, Arm’s fiscal fourth quarter], we delivered record revenues and exceeded the high-end of our guidance ranges for both revenue and EPS [earnings per share]. This growth was driven by record royalty revenue as Armv9 adoption continues, especially in smartphones, server, and automotive markets. Revenue from licensing was also very strong, driven by multiple high-value agreements and the increased demand for Arm’s power-efficient technology for AI from data centers to edge computing.”

Both of Arm’s core revenue streams—licensing and royalties—experienced massive, double-digit growth in the quarter. Revenues from licensing jumped 60 percent YOY to $414 million, driven by better than expected license and other revenue. And revenues from royalties grew 37 percent to $514 million, driven by record royalty revenue. Gross margins were 95.6 percent and flat with the year-ago quarter.

Arm reported that its customers shipped 7 billion chips based on its designs in the quarter. This brings the cumulative total to 287.4 billion Arm chips shipped worldwide. Arm Holdings now has a free cash flow of $907 million, up 50 percent YOY.

While this is all very rosy—Arm beat its own projections as well as Wall Street’s—the firm’s full fiscal year forecast, for the period ending June 30, fell short of expectations, sending its stock tumbling 7 percent in after hours trading. This is hard to understand: Arm said that it expects full-year revenues of between $3.8 billion and $4.1 billion, with a midpoint of $3.95 billion. But Wall Street was expecting $3.99 billion.