Arm’s annual revenue forecast fails to impress investors; shares tumble

Arm’s annual revenue forecast fails to impress investors; shares tumble

By Max A. Cherney and Stephen Nellis

(Reuters) -Arm Holdings gave a full-year revenue forecast on Wednesday that missed the expectations of investors who had sent the chip designer’s shares soaring last September following its IPO on optimism around AI.

Shares of Arm fell about 7% in extended trading after the report.

For the current fiscal first quarter, Arm forecast revenue in a range between $875 million and $925 million, with a midpoint of $900 million, compared with an average analyst estimate of $857.5 million, according to LSEG data.

The UK chip designer also said it expects full-year revenue between $3.8 billion and $4.1 billion, with a midpoint of $3.95 billion. That compares with a consensus estimate of $3.99 billion.

“I wanted to make sure we set a target that ties to what we have high confidence in to what we can deliver,” finance chief Jason Child told Reuters in an interview. The timing of some of the company’s licensing deals, he added, can be “hard to pin down,” which is why the company issues a range for guidance.

Arm’s fourth-quarter revenue rose 47% to $928 million, compared with analyst estimates of $875.6 million.

It reported fourth-quarter earnings of 36 cents per share, adjusted for stock-based compensation, among other things.

Arm generates revenue from licensing fees for its semiconductor designs and collects a royalty for each chip sold that uses its technology.

Arm’s designs power nearly every smartphone in the world, and the company has attempted to make headway in data centers and other markets. Chips with Arm technology generate $200 billion a year of revenue for the many chipmakers that sell them, according to research from TD Cowen.

The company’s licensing business grew 60% to $414 million in the fourth quarter compared with the year-ago period, and its royalty segment jumped 37% to $514 million.

Arm struck four major licensing agreements during the quarter, which is why that segment grew substantially, Child said. The royalties business benefited from a new Arm design that commands a higher rate, and now accounts for 20% of the segment, growing 5 percentage points.

Bets that Arm will benefit from a surge in artificial-intelligence computing have doubled the chipmaker’s share price since its initial public offer last September, giving it a market value of about $110 billion. The shares recently traded at nearly 70 times expected earnings, compared with 35 times earnings for heavyweight chipmaker Nvidia, according to LSEG data.

Though Arm’s designs are found adjacent to chips that power AI applications, the company’s revenue and profit have not benefited from AI to the same degree as Nvidia’s.

Shares of Nvidia dipped 0.5% in extended trade after Arm’s report.

(Reporting by Max A. Cherney and Stephen Nellis in San FranciscoAdditional reporting by Arsheeya Bajwa and Pushkala Aripaka in Bengaluru, and by Noel Randewich in Oakland, CaliforniaEditing by Matthew Lewis)

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