Arm Posts Mixed Earnings, Powers Ahead With Google & Meta Partnerships

Semiconductor technology company Arm reported its first post-initial public offering earnings on Wednesday that beat Wall Street expectations for sales but fell short on revenue guidance.

Arm shares fell over 7% in extended trading after the company projected fiscal third-quarter revenue below analyst forecasts. Arm attributed the lower guidance to a large licensing deal that will likely close later than expected.

For its fiscal second quarter ending Sept. 30, Arm reported revenue of $806 million, surpassing expectations of $744.3 million. However, the company forecasted third-quarter revenue between $720 million and $800 million, shy of the $730 to $805 million Wall Street anticipated.

Arm reported a net loss of $110 million, or 11 cents per share, due to over $500 million in one-time share-based compensation from its recent IPO. The company said ongoing share-based compensation will land between $150 to $250 million per quarter.

Total revenue rose 28% year-over-year, topping $800 million for the first time and reinforcing Arm's diversified business strategy is delivering results, the company said. The outperformance was driven by multiple high-value long-term license agreements with leading tech firms.

Arm generates revenue through upfront licensing fees for its chip designs and other intellectual property and royalties on chips sold using its IP. Arm aims to boost royalties by expanding into more expensive chip markets.

Arm royalty revenue fell 5% to $418 million, while licensing sales jumped 106% to $388 million, signalling potential growth as Arm sells more IP to customers. However, the company cautioned macroeconomic conditions could affect licensing.

Arm went public after being spun off from Softbank Group in September. It aims to capitalize on the booming demand for artificial intelligence chips. The announcement also highlighted new products from Google, Meta, Nvidia, Renesas, Xiaomi, and others utilizing Arm-based technology for energy-efficient AI capabilities. Over 7 billion Arm-based chips shipped last quarter, totalling 272.5 billion.