• Total Revenue: $844 million, above the top end of the guided range.

• Royalty Revenue: $514 million, up 23% year-over-year.

• Smartphone Royalty Revenue Growth: Increased approximately 40% year-over-year.

• Licensing Revenue: $330 million, declined 15% year-over-year.

• Annualized Contract Value (ACV): Up 13% year-over-year.

• Remaining Performance Obligations (RPO): Up 10% sequentially.

• Q3 Revenue Guidance: Between $920 million and $970 million.

• Non-GAAP Operating Expense Guidance for Q3: Around $525 million.

• Non-GAAP EPS Guidance for Q3: Between $0.32 and $0.36.

• Fiscal Year '25 Revenue Guidance: Between $3.8 billion and $4.1 billion, representing an 18% to 27% year-over-year increase.

• Full Year Non-GAAP Operating Expenses Guidance: Approximately $2.05 billion, a 19% year-over-year increase.

• Full Year Non-GAAP EPS Guidance: Between $1.45 and $1.65.

• Warning! GuruFocus has detected 3 Warning Sign with ARM.

Release Date: November 06, 2024

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 royalty revenue, up 23% year-on-year, driven by increased adoption of the v9 architecture.

• The company exceeded the high end of its revenue guidance for the quarter, with total revenue reaching $844 million.

• ARM's smartphone royalty revenue grew by 40% year-over-year, significantly outpacing the 4% growth in smartphone unit shipments.

• ARM has doubled the number of CSS licenses in the past year, indicating strong demand for its new technology offerings.

• The company is seeing strong demand for its AI capabilities, with significant milestones achieved in partnerships with NVIDIA, Microsoft Azure, and Google GCP.

Negative Points

• Licensing revenue declined 15% year-over-year, although this was better than the expected 25% decline.

• There is ongoing litigation with Qualcomm, which could potentially impact future revenue and operating expenses.

• The industrial sector continues to show weakness due to an ongoing inventory correction in the semiconductor industry.

• ARM's guidance indicates that IoT market recovery is not expected until next year.

• The company faces challenges in the networking sector, which is expected to remain slow despite growth in data center applications.

Q & A Highlights

Q: Can you comment on the reports regarding your litigation with Qualcomm and its impact on revenue recognition and operating expenses? A: Rene Haas, CEO: Contractual consent was required by Qualcomm to sign a Nuvia license, which was not obtained, leading to a breach. We sent a notification letter regarding the cancellation of the architectural license. Our financial forecasts have considered the possibility of not prevailing in this case, so there are no changes to revenue recognition or operating expenses. Jason Child, CFO: No changes in revenue recognition or expenses as our forecast assumes existing ALA royalty rates.