Arm Holdings PLC on Wednesday forecast fiscal fourth-quarter sales and adjusted profit above Wall Street expectations as customers aim to design new chips for artificial intelligence (AI) work, generating higher royalties for the British technology firm.
Arm’s forecast ranges for its fourth quarter had midpoints of US$875 million for sales and US$0.30 per share for adjusted earnings, above estimates of US$780.3 million and U$$0.21 per share, LSEG data showed.
For the full fiscal year, Arm expects US$3.18 billion in revenue and adjusted earnings of US$1.22 per share, both above analysts’ estimates of US$3.05 billion and US$1.07 per share.
“We’re seeing more interest in newer designs and newer technologies by customers” due to interest in AI, Arm chief financial officer Jason Child said. “It’s real. Folks are actually buying and licensing that technology.”
For the fiscal third quarter, Arm reported sales of US$824 million and adjusted earnings of US$0.29 per share, topping Wall Street estimates of U$$761.6 million and US$0.25 per share.
Arm, which is still majority-owned by Japan’s Softbank Group Corp after a public listing last year, creates intellectual property that underlies most of the world’s smartphone chips.
The company has also expanded into laptops, where customers such as Qualcomm Inc and Nvidia Corp plan to use its technology for forthcoming chips, and data centers, where Microsoft Corp and Amazon.com Inc now offer Arm-based central processors to developers via their cloud computing businesses.
Arm makes money via licensing deals for its intellectual property and a royalty charged for each chip sold that uses its technology. The company’s US$75 billion valuation on just over US$3 billion in expected fiscal 2024 revenue — a multiple higher than any other firm in the chip industry — rests on its stated plan to obtain far higher royalties per chip than it has historically.
After a smartphone slump last year that caused Arm sales to contract, analysts expect Arm revenue to expand this year as consumers look to upgrade smartphones and laptops for new generative AI services such as chatbots.
Many of the chips in those devices will use the ninth generation of Arm’s core chip architecture, for which the company is charging higher royalty rates than previous versions.
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