Arm Holdings’ stock dropped over 13% in after-hours trading on Wednesday after the company provided a cautious earnings outlook and announced it would no longer disclose chip shipment numbers.
Financial Performance Overview
- Fiscal First Quarter Results:
- Earnings Per Share (EPS): 40 cents (adjusted) vs. 34 cents expected
- Revenue: $939 million vs. $902.7 million expected
- Net Income: $223 million, or 21 cents per share, compared to $105 million, or 10 cents per share, a year earlier
- Revenue Growth: 39% year over year
Revised Earnings Forecast
- Full-Year Guidance:
- Adjusted EPS: $1.45 to $1.65
- Revenue: $3.8 billion to $4.1 billion
- Analysts had anticipated adjusted EPS of $1.58 and revenue of $4.02 billion
- Fiscal Second Quarter Expectations:
- Adjusted EPS: 23 to 27 cents
- Revenue: $780 million to $830 million
- Analysts had expected 27 cents per share and $804.1 million in revenue
Key Changes and Strategic Shifts
- Reporting Changes:
- Arm will no longer report the number of chips shipped.
- The company is focusing on higher-value markets like data centers, AI accelerators, and smartphone processors, where the number of chips is less indicative of performance.
- Revenue Sources:
- Royalty Revenue: $467 million (up 17%, but below the $486.6 million consensus)
- License and Other Revenue: $472 million (up 72%, above the $418.3 million consensus)
Strategic Investments
- New Initiatives:
- Arm is investing in Arm Compute Subsystems to reduce development costs and enhance market speed.
- Two high-value Arm Total Access licenses were added, bringing the total to 33.
- Partnerships:
- Microsoft began selling Surface PCs using Qualcomm’s Arm-based chips during the quarter.
Market Performance
- Stock Movement:
- Despite the recent drop, Arm’s stock had previously surged 93% this year, outperforming the S&P 500, which gained 16% over the same period.
