Chip Designer Arm Stumbles: Weak Guidance Clouds Strong AI Sales


Arm’s Stellar Sales Overshadowed by Subdued Revenue Forecast

London, February 16, 2023 – Shares of British chip designer Arm tumbled 8.8% in premarket trading on Thursday despite a solid fourth quarter performance. While revenue soared, Arm’s subdued guidance cast a shadow over its impressive results.

Boost Driven by Licensing and AI Demand

Arm reported fourth-quarter revenue of 8 million, a remarkable 47% increase year-over-year. The surge was primarily driven by the company’s licensing business, which saw a 60% growth to 4 million. Arm believes numerous high-value licensing agreements for artificial intelligence (AI) chips contributed significantly to this growth.

Royalty revenues also flourished, growing 37% year-over-year to 4 million. Arm attributes this success to the growing adoption of its Armv9-based chips, which offer improved performance and higher margins.

Unimpressive Guidance Raises Concerns

Despite the positive sales quarter, Arm’s revenue guidance for the 2025 fiscal year left investors disappointed. The company’s projected revenue range of .8 billion to .1 billion fell slightly short of analyst estimates of .99 billion.

Furthermore, Arm’s guidance for the current quarter (2025 fiscal first quarter) anticipates sales between 5 million and 5 million, which is below the expected 7.5 million.

Licensing Strength a Bright Spot

While the guidance may have dampened spirits, analysts emphasized the significance of Arm’s robust licensing business. Citi analysts noted that the licensing upside in both the fourth quarter and fiscal year 2025 stemmed from growing AI needs and Arm’s provision of higher-value designs.

They reiterated their “buy” rating for the stock, stressing that the current licensing momentum signals promising future royalty growth.

Understanding Arm’s Semiconductor Expertise

Arm is renowned as the “Switzerland” of the semiconductor industry because it operates in a similar role as Switzerland in international diplomatic relations. Instead of manufacturing and selling chips like market giants Nvidia and Qualcomm, Arm specializes in designing the architectural blueprints upon which chips are constructed.

Arm then licenses these designs to companies like Nvidia and Qualcomm, enabling them to build their own chips. Arm earns its revenue by charging royalty fees on each chip sold by its licensees.

A Timeline of Arm’s Journey

Arm was founded in Cambridge, England, in 1990 as an independent company listed on the London Stock Exchange. In 2016, Japanese tech investor SoftBank acquired Arm for billion.

U.S. chipmaker Nvidia attempted to buy Arm for billion in 2021, but regulators blocked the deal due to antitrust concerns.

SoftBank eventually brought Arm to the Nasdaq in September 2023, with the company’s shares doubling since their IPO. This success is largely attributed to the soaring demand for chips used in advanced AI applications, such as ChatGPT.