AI helps boost Arm’s chip success story – but the market response is lukewarm
Arm Holdings received a lukewarm response from the markets after publishing its results for the first fiscal second quarter and three months ended September 30, 2023.
Arm says more than 7.1 billion Arm-based chips were shipped during the quarter – the first since the chip designer went public again in September - taking the cumulative total to 272.5 billion designs.
Total revenue was up 28 per cent to $806million on an annual basis during the quarter (against $744m expected). Royalty revenue was $418m, a 5 per cent decline from the same period last year. But Arm licensing sales were $388m, up 106 per cent from the same period last year.
“The immediate need for companies to increase investment in artificial intelligence (AI) across all end markets helped drive licence revenue up 106 per cent year-over-year,” said Arm in its statement on the results.
Financially, operationally and strategically, Arm is in a great place, but Arm’s shares fell 7 per cent. Why? This was the first time results have been announced since Arm’s IPO in September – and the stock markets’ demand for more profitability (for shareholders) is always insatiable.
Put simply, the market wants a bigger share, even though the bill for the IPO process itself involved $490m of share-based compensation cost (equity settled) and $27m for costs associated with the launch in September. GAAP (generally accepted accounting principles) operating profit showed a loss of $156m compared with a profit of $183m for the same period a year.
In his remarks about the results, Arm CEO Rene Haas focused on the company’s progress, rather than the verdict from the markets.
“Following our successful IPO, Arm is off to an outstanding start as a public company with record revenue fueled by the success of our diversified business,” he said. “Licensing revenue was up over 100 per cent year-over-year as the demand for AI has kicked off increased investment across all end markets. Our royalty revenue benefited from market share gains in automotive and cloud compute as our latest technologies, such as Armv9, increased penetration across all markets where AI is driving the need for our unique combination of performance and power efficiency.”
Since going on sale on the Nasdaq on September 14, Arm’s share price has been $66.28, with a low of $47.87 on October 20. Today the share price is $55.31: immediately after the results were published last week, the shares were worth $51.58 each.
