Arm announced its third-quarter financial forecast on Wednesday (5th). Driven by the artificial intelligence (AI) computing boom, Arm performed better than expected. As soon as the news came out, Arm's share price immediately rose by 5%, and the...
Arm announced its third-quarter financial forecast on Wednesday (5th). Driven by the artificial intelligence (AI) computing boom, Arm performed better than expected. As soon as the news came out, Arm's share price immediately rose by 5%, and then the gains converged, finally closing up by about 3%.
Arm expects mid-point revenue for the current quarter (third quarter) to be $1.23 billion, higher than the average analyst estimate of $1.1 billion, according to LSEG data. Arm CEO Rene Haas said that its chip design solution CSS products bring higher royalties, and more and more customers adopt this technology. Coupled with the increase in overall AI investment, the company's prospects are expected to be quite optimistic.
Haas pointed out that when observing the development of Arm in data centers, we will find that the market demand for AI computing has surged, and the current bottleneck lies in power consumption. "For us, this is a good thing."
Arm’s second-quarter revenue grew 34% to US$1.14 billion, higher than analysts’ expectations of US$1.06 billion; adjusted earnings per share (excluding stock-based compensation and other items) was US$0.39, which was also better than market expectations of US$0.33. Arm's revenue sources include licensing fees for semiconductor designs and royalties from using its technology to produce chips.
At present, Arm’s design solutions are increasingly used in data centers. The company said in a letter to shareholders that it expects that by 2025, Arm-based central processing units (CPUs) will account for nearly 50% of deployments among major cloud players. Alphabet currently uses Arm architecture in its self-developed Axion processor. Haas said the chips are 60 percent more energy efficient than designs using Intel or AMD technology.
Arm’s second-quarter royalty revenue grew 21% to $620 million. The company said growth was seen in all of its target markets including smartphones, data centers and automobiles. Additionally, licensing revenue surged 56% to $515 million in the second quarter, primarily due to the timing of high-value contracts.
According to TD Cowen research, chips using Arm technology generate approximately US$200 billion in revenue for major chip manufacturers every year. Arm revealed last quarter that it plans to invest part of its profits in developing its own complete chips and other components, which means shifting from a business model that only provided intellectual property licensing to designing its own chips.
Haas believes that Arm has taken a small step forward and continues to explore the possibility of designing its own chips.
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