By Tae Kim

Arm Holdings shares fell after the chip designer reported better-than-expected December quarter earnings results Wednesday afternoon. Investors may be taking some profits after the stock's big rally over the past year.

The company reported fiscal third-quarter adjusted earnings per share of 39 cents, compared with Wall Street's consensus estimate of 34 cents, according to FactSet. Revenue came in at $983 million, which was above analysts' expectations of $949 million.

Arm also guided current-quarter sales to a range of $1.175 billion to $1.275 billion versus the $1.22 billion analysts' estimate.

"With our high-performance, energy efficient, flexible technology, Arm is a key enabler in advancing AI innovation and transforming the user experience, from the edge to the cloud," CEO Rene Haas wrote in a letter to investors.

Arm shares fell 4.5% in early trading Thursday. The stock was up 6.8% in Wednesday's regular trading session.

Arm makes money by licensing its chip designs to semiconductor companies and smartphone makers. Arm's latest advanced chip technology, called Armv9, generates significantly higher royalty rates than its previous Armv8. It is also making progress in high-end cloud server processors -- including chips from Microsoft and Nvidia.

Some analysts were disappointed the percentage of royalties for the more profitable Armv9 technology didn't grow faster. Armv9 accounted for 25% of royalty revenue for the December quarter, which was the same level as the prior quarter.

Armv9 penetration is "stalling," New Street analyst Pierre Ferragu wrote in a note to clients Thursday. "Long-term 60-70% penetration [for Armv9] is a necessity," adding he believes Arm will eventually get there.

Arm shares are up 137% over the past 12 months, compared with the 10% gain for the iShares Semiconductor ETF.

Write to Tae Kim at tae.kim@barrons.com

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February 06, 2025 10:27 ET (15:27 GMT)

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