Arm announced its first financial report after the IPO: revenue of US$800 million increased 28% year-on-year, and performance guidance fell 7% after the market closed.

News on November 9, on Wednesday local time in the United States, chip design company Arm announced its second quarter financial report for fiscal year 2024 as of September 30, 2023.

Financial reports showed that Arm’s second-quarter revenue was US$806 million, a year-on-year increase of 28%. This was the first time in the company’s history that it exceeded US$800 million in a single quarter, higher than analysts’ expectations of US$744.3 million.

In the second fiscal quarter, Arm’s adjusted operating profit was US$381 million, a year-on-year increase of 92%; the adjusted operating profit margin was 47.3%. Adjusted earnings per share were $0.36, up 112% year over year and above analysts' consensus estimate of $0.26.

Arm expects fiscal third-quarter earnings in the range of $0.21 to $0.28 per share on revenue between $720 million and $800 million. That was slightly below Wall Street expectations, with analysts on average expecting earnings of $0.27 per share on revenue of $730 million to $805 million.

Revenue in Arm’s first earnings report since its initial public offering beat Wall Street expectations and showed the company’s lucrative licensing business has doubled in size over the past year.

Meanwhile, Arm reported a net loss of $110 million, or $0.11 per share. The company said the loss was due to more than $500 million in one-time stock-based compensation charges stemming from its recent IPO, and that stock-based compensation charges will be between $150 million and $250 million in the coming quarters.

Arm has been working hard to expand beyond mobile phone chips into other areas such as data center servers and personal computer chips. There were reports in October that Nvidia planned to use Arm's technology to re-launch a challenge to Intel in the PC market.

Arm has two main sources of revenue: upfront licensing fees for use of its chip designs and other intellectual property, and royalties on each chip made using its intellectual property. Arm said it aims to increase royalty revenue by entering parts of the market where chip average selling prices are higher.

Arm’s intellectual property is found in nearly every smartphone, many PCs and various other chips. Arm said it shipped more than 7.1 billion chips in the fiscal second quarter.

Arm earns revenue by charging royalties or by paying chipmakers to make Arm-compatible chips, often at a fraction of the chip's final price. The company also sells licenses for more complete chip designs, saving chipmakers time and effort, which is recorded as licensing revenue.

Arm’s patent royalty revenue was $418 million, down 5% from the same period last year and below analysts’ expectations of $420.3 million. But Arm's licensing revenue was $388 million, up 106% from the same period last year and above analysts' expectations of $326.9 million. It's a sign that Arm can sell more and more technology to its existing customers, a key metric analysts watch.

Arm attributed licensing sales to multiple long-term deals with technology companies, suggesting the segment may continue to grow in the coming quarters. However, the company warned that overall economic trends could affect future licensing growth.

In September this year, Arm went public again after Japan’s SoftBank Group sold part of its holdings. SoftBank Group still owns more than 90% of Arm. Prior to this, SoftBank had planned to sell Arm to Nvidia, but the deal was blocked by regulators in 2022. Arm was founded in 1990 to develop low-power chip technology.

Arm is grappling with a major question about how new accounting standards will affect the company's recognition of revenue from massive multi-year licensing deals. In a letter to shareholders, Arm executives said: "Revenue recognition for future agreements will be affected." Analysts said this unpredictability has triggered concerns about Arm's valuation doubts. Arm was valued at more than $65 billion following its IPO, far more than any other chip company relative to its expected annual revenue.

Creative Strategies CEO and principal analyst Ben Bajarin said: "There are still questions about whether this company has a sustainable growth narrative. The fiscal second quarter looks good. , but the guidance for the third fiscal quarter doesn’t look good, and we don’t really understand what the customer cycle looks like.”

Arm Chief Financial Officer Jason Child explained , the company's fiscal third-quarter revenue was lower than expected, but full-year revenue was higher than expected, as the company now expects a major licensing deal to be completed a quarter later than originally expected. He also said: "All the discussions about generative artificial intelligence indicate that the demand is very, very strong!"

Arm said that many companies, including Google, Meta and Nvidia, are using its technology to develop artificial intelligence capabilities. Functional chip. The company expects Arm's full-year revenue to exceed Wall Street expectations, driven by these users. Arm expects total fiscal 2024 revenue of $3.02 billion, above analysts' expectations of $2.95 billion.

On Wednesday local time in the United States, Arm’s stock price closed down 1.57% to close at $54.4 per share. After the release of the financial report, its stock price plunged more than 7% in after-hours trading as its third-quarter performance guidance fell short of expectations.

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