TLDR
- Arm Holdings delivered fiscal Q3 earnings of 43 cents per share on $1.24 billion revenue, topping Wall Street’s 41 cents and $1.23 billion forecasts
- Royalty revenue reached record $737 million, up 27% annually, exceeding $708 million estimates as AI demand accelerates
- Licensing revenue of $505 million grew 25% but missed $520 million expectations, triggering a 10% after-hours stock decline
- Company forecasts Q4 revenue of $1.47 billion and 58 cents EPS, both above analyst projections
- Shares have fallen 39% over 12 months despite posting fourth consecutive billion-dollar revenue quarter
Arm Holdings crushed earnings expectations but couldn’t escape a brutal after-hours selloff. The chip design firm saw shares tumble more than 10% to roughly $94 Wednesday evening.
The company posted adjusted earnings of 43 cents per share for its December quarter. Revenue climbed 26% to $1.24 billion from the year-ago period.
Arm Holdings plc American Depositary Shares, ARM
Analysts had predicted 41 cents per share on $1.23 billion in revenue. Arm exceeded both benchmarks yet faced immediate selling pressure.
AI Growth Powers Royalty Surge
The royalty business delivered standout results. Revenue in this segment hit $737 million, jumping 27% year-over-year and surpassing the $708 million consensus.
AI computing applications drove the performance. Growth came from data centers, smartphones, and edge AI deployments across multiple markets.
This represented the fourth consecutive quarter with revenue above $1 billion. Arm’s newer Armv9 technology generates better royalty rates than previous generations.
CEO Rene Haas emphasized the platform’s expanding reach. “Record royalty results in the third quarter reflect the growing scale of our ecosystem,” he stated in the shareholder letter.
The company serves major tech players. Apple and Qualcomm license designs for mobile devices while Microsoft and Nvidia use the technology for server processors.
Licensing Miss Sparks Concern
The weak link appeared in licensing revenue. This business generated $505 million, up 25% from last year but below the $520 million target.
These upfront fees matter to investors. They provide early signals about future royalty income streams from new chip designs.
Guggenheim Securities flagged potential smartphone volume weakness ahead. The analysts also noted broader technology sector concerns around AI’s software implications.
The stock has experienced a difficult stretch. Shares are down 4% year-to-date and have dropped 39% over the trailing 12-month period.
Forward Guidance Beats Estimates
Management issued optimistic fourth-quarter projections. Revenue should reach $1.47 billion, plus or minus $50 million.
Earnings per share are expected at 58 cents, plus or minus 4 cents. Wall Street had anticipated $1.44 billion in revenue and 57 cents per share.
The forecast suggests continued momentum in AI-related applications. Demand for efficient computing solutions remains strong across cloud and edge environments.
Arm generates income through two channels. Licensing provides upfront design access while royalties come from each chip manufactured using those designs.
The $15 million licensing shortfall overshadowed an otherwise strong quarter. Investors focused on this miss despite record royalty performance and upbeat guidance.
Company executives were scheduled to discuss results on a 5 p.m. Wednesday conference call.
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