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 (ARM, Financial) 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.
Q: Given the strong licensing activity, can the team grow its backlog for this fiscal year?
A: Rene Haas, CEO: We're seeing increased demand for Arm technology across various sectors, driven by AI and compute needs. This has led to stronger licensing demand than anticipated, indicating a strong business outlook. Jason Child, CFO: Based on current strength, we expect to maintain or slightly increase our backlog, with license revenue guidance up 45% from IPO plans.
Q: How do you see the adoption of CSS in smartphones trending, and could it reach 50% of the market?
A: Rene Haas, CEO: CSS adoption in smartphones is strong due to its ability to reduce time to market and increase design confidence. Given the relentless product cycle in the smartphone market, we believe CSS can reach 50% market penetration due to its value in reducing development time.
Q: What is the outlook for the PC and smartphone markets, and how does AI factor into this?
A: Rene Haas, CEO: We expect growth in the PC market as Arm-based devices fill out the SKU lineup, including thin-and-light and gaming laptops. AI PCs are still early in defining their value proposition, but Arm devices are equipped to handle AI applications. We remain bullish on Arm's growth in PCs and smartphones, with AI playing a role in future-proofing devices.
Q: What is the impact of the smartphone mix shift in China on your royalties, and what is the penetration of v9 in China?
A: Rene Haas, CEO: We've seen strong growth in China, particularly with local brands like Xiaomi, Oppo, and Vivo. The premium flagship market is already using version 9, and this will extend to the midrange. The majority of products in China will transition to version 9, supporting royalty growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
