• Total Revenue: $983 million, a 19% year-on-year increase, exceeding the high end of guidance.
• Royalty Revenue: $580 million, a 23% year-on-year increase, setting a new record.
• Licensing Revenue: $403 million, a 14% year-on-year increase.
• Non-GAAP Operating Costs: $522 million, in line with expectations.
• Non-GAAP Operating Profit: $442 million, near-record levels.
• Q4 Revenue Guidance: Between $1.175 billion and $1.275 billion, representing 32% year-on-year growth at the midpoint.
• Q4 Non-GAAP EPS Guidance: $0.48 to $0.56.
• Fiscal Year '25 Revenue Guidance: Around $4 billion, a 24% year-on-year growth.
• Fiscal Year '25 Royalty Revenue Growth: High teens year-on-year.
• Fiscal Year '25 License Revenue Growth: Around 30% year-on-year.
• Fiscal Year '25 Non-GAAP Operating Expenses: About $2.1 billion, a 21% year-on-year increase.
• Fiscal Year '25 Non-GAAP EPS Guidance: Between $1.56 and $1.64.

• Warning! GuruFocus has detected 4 Warning Sign with ARM.

Release Date: February 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• ARM Holdings PLC (NASDAQ:ARM) reported record total revenue and royalty revenue for the third quarter of fiscal 2025, with total revenue growing 19% year-on-year.
• The company is experiencing strong demand for its v9 and CSS technologies, driven by AI growth across various markets including smartphones, autos, and IoT.
• ARM is gaining market share in the data center with significant adoption of its technology by major players like AWS, Microsoft, Google, and NVIDIA.
• The company has a large developer community of over 20 million, which supports its ecosystem and future growth.
• ARM's guidance for the fourth quarter indicates expected revenue growth of 32% year-on-year, reflecting strong market demand and potential large license deals.

Negative Points

• ARM's non-GAAP operating costs have reached their highest level at $522 million due to increased R&D spending, which could impact short-term profitability.
• The company's ACV growth rate has decelerated to 9% year-on-year, which is lower than the recent run rate of low teens.
• There is uncertainty regarding the timing of large license deals, which could affect revenue forecasts if they slip into the next fiscal year.
• The Qualcomm lawsuit poses a risk, although ARM has forecasted revenue assuming it will not prevail in the lawsuit.
• ARM China remains a significant portion of revenue, but its contribution is expected to decrease over time, potentially impacting overall revenue growth.

Q & A Highlights

Q: Can you outline the opportunity set for Arm in the AI landscape, particularly with projects like Stargate and Cristal intelligence? A: Rene Haas, CEO: Stargate is a significant infrastructure project with a $100 billion immediate investment, where Arm is the CPU of choice. Cristal intelligence focuses on agentic AI across various hardware nodes. Both projects present substantial opportunities for Arm, as AI workloads will run on Arm's pervasive compute platform.

Q: How should we think about the contribution of CSS to royalty revenue as we enter fiscal '26? A: Jason Child, CFO: We are not ready to discuss fiscal '26 yet, but we are seeing strong momentum with CSS, contributing to a record $580 million in royalty revenue this quarter. We expect continued momentum with more CSS deployments in the coming quarters.

Q: What is the impact of the Qualcomm lawsuit on Arm's revenue? A: Jason Child, CFO: There is no impact on revenue from the Qualcomm lawsuit. We have forecasted as though we would not prevail, and we expect to continue receiving royalties at the same rates as before.

Q: Can you discuss the progress and monetization strategy for Arm's chiplet system architecture (CSA)? A: Rene Haas, CEO: We see significant demand for CSS across major markets. The chiplet approach is becoming pervasive, offering a huge opportunity for Arm to provide compute CSS with the right mix of components. This strategy helps address complex design challenges and accelerates product market entry.

Q: How does the v9 adoption rate affect Arm's future growth prospects? A: Jason Child, CFO: While v9 adoption as a percentage of total royalties has stalled at 25%, the absolute dollar growth is strong. We expect v9 to reach 60-70% of total royalties, providing a longer runway for future growth. The current slower growth in v9 mix is offset by strong overall royalty growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.