ARM concluded its fiscal year with record revenues, surpassing the high end of its guidance range.
Q4 revenue increased by 47% year-over-year, with royalty revenue up 37% and licensing revenue up 60%.
Significant growth attributed to the acceleration of v9 adoption and increased R&D investment in AI.
Strategic Progress and Market Expansion
ARM’s growth strategies outlined during its IPO are driving company growth, particularly in royalty revenue due to v9 adoption.
Adoption of v9 is enhancing royalties across all end markets, notably in smartphones and infrastructure.
ARM announced its first autonomous solutions based on v9 for the automotive sector and introduced the Ethos-U85, the lowest power transformer for IoT designs.
Compute subsystems strategy is showing strong demand, with ARM being oversubscribed in this area.
Focus on AI and Licensing Activity
ARM’s large installed base of CPUs is supporting AI workloads across various platforms, from edge devices to data centers.
Licensing activity, a proxy for AI engagement, has seen significant growth due to the need for rapid hardware advancements to support AI workloads.
Financial Outlook
ARM reported over 20% revenue growth for the past year and anticipates even stronger growth in the upcoming years.
For Q1 of the fiscal year ending March 31, 2025, ARM expects revenue between $875 million and $925 million, with non-GAAP EPS between $0.32 and $0.36.
Full-year revenue for FYE ‘25 is projected to be between $3.8 billion and $4.1 billion, with non-GAAP operating expenses of $2.05 billion.
ARM expects to maintain at least 20% year-over-year total revenue growth for the fiscal years ending in 2026 and ‘27.
Additional Highlights
ARM’s remaining performance obligations grew by 45% year-over-year to nearly $2.5 billion, indicating strong future revenue potential.
The company is experiencing broad market share gains, particularly in cloud and automotive sectors, and expects royalty revenue growth in the mid-20% range for the full year.
Question and Answer
Arm’s Infrastructure Business and Market Share in the Cloud
Question
How is Arm’s infrastructure business, particularly in the cloud, performing compared to the IPO projections, and what factors are contributing to its growth?
Answer
Arm’s infrastructure business, particularly in the cloud, is experiencing accelerated growth due to increased investment in data centers for AI applications, which benefit from Arm’s power efficiency.
The integration of Arm’s CPU with NVIDIA’s GPU in products like Grace Blackwell enables higher memory bandwidth and faster training and inference applications, further driving Arm adoption in the data center.
Armv9 Conversion and Licensing Growth
Question
How does the v9 conversion rate compare to v8, and what factors are contributing to its faster adoption?
Answer
The v9 conversion rate is expected to be faster than v8 due to the presence of a strong infrastructure business and rapid adoption in the premium handset segment.
The v9 conversion is projected to reach the high end of the market share within 2 to 3 years, with increased royalties from v9 subsystems contributing to long-term growth.
Arm’s Role in the Accelerated Data Center and AI Trend
Question
How is Arm positioned to benefit from the trend towards accelerators in the data center, and what is its role beyond the head node of accelerated servers?
Answer
Arm’s focus on performance per dollar and its ability to provide a cost advantage through chip and system integration make it well-positioned to address the increasing use of accelerators in the data center.
Arm’s flexibility and ecosystem support enable custom implementations and interconnect features, driving further adoption in the data center beyond the head node.
Licensing Mix and Rebound in Fiscal Year 2025
Question
Will the licensing mix rebound in the second half of fiscal year 2025, and what factors will contribute to this rebound?
Answer
The licensing mix rebound is expected to be broad-based, driven by the focus on AI capabilities across various end markets.
Royalties from smartphone shipments with Armv9 are expected to kick in during calendar year 2025.
Royalty Growth and China Royalty Revenue
Question
Can you clarify the drivers of the over 50% sequential growth in China royalty revenue in the December quarter and provide a breakdown of the drivers for the March quarter?
Answer
The sequential growth in China royalty revenue was primarily driven by a mix shift in the Chinese consumer market, with a transfer from Chinese customers buying from Chinese producers to those outside of China.
The March quarter is expected to see similar trends, with accelerated growth in both China and the rest of the world.
June Quarter Royalty Outlook and Drivers
Question
What is driving the sequential decline in royalty revenue for the June quarter, and can you provide more details on the factors impacting unit volume and pricing?
Answer
The sequential decline is driven by weakness in networking and industrial IoT markets, while the mobile market is expected to be relatively consistent.
The decline in unit volume is expected to be partially offset by growth in blended royalty rates, particularly from the v8 to v9 transition and mix effects.
PC Potential and Arm’s Growth in the Windows Ecosystem
Question
What are Arm’s thoughts on the potential for PCs over the next few years, particularly in the Windows ecosystem, and how does Arm’s experience in the Apple ecosystem contribute to its growth expectations?
Answer
Arm is optimistic about the growth potential for PCs, particularly in the Windows on Arm segment, due to the need for a diversified supplier base offering multiple options for end consumers.
Arm’s success in the Apple ecosystem and its performance, battery life, and fanless design advantages position it well for significant market share growth in the Windows ecosystem.
Long-Term Licensing Revenue Growth and ATA Conversion
Question
Is the 10% long-term licensing revenue growth target still applicable, and how challenging will it be to convert the remaining half of the top 30 customers into ATA licensees?
Answer
The 10% long-term licensing revenue growth target remains valid, driven by the continued positive momentum in licensing activity due to the demand for AI capabilities and Arm’s strong position as the logical choice for partners entering AI-driven markets.
It is estimated that approximately 80% of the customer base could eventually move to ATA licenses, providing increased predictability in license renewals.
Automotive v9 Profiles, CSS Engagements, and Licensing Recognition
Question
Can you clarify how much of the licensing revenue from automotive v9 AI technology would have been recognized in Q4 and provide more details on the engagement with multiple customers for CSS releases in 2025?
Answer
Licensing revenue from automotive v9 AI technology is unique, with approximately 50% recognized at the time of booking and the remaining amount deferred to backlog due to the pending launch of v9 for automotive.
Arm has engaged with multiple partners in the automotive industry for CSS releases, with strong demand expected due to the complexity of automotive devices and the need for supply chain resiliency.
Royalty Outlook for Next Quarter and Drivers of Growth
Question
Can you provide more details on the drivers of royalty growth for the next quarter and how volume, price, and mix are expected to contribute to the overall growth rate?
Answer
The growth in blended royalty rates from the v8 to v9 transition and mix effects is expected to be partially offset by a decline in unit volume, particularly in networking and industrial IoT markets.
Backlog Growth and Licensing Pipeline
Question
Does the renewal pipeline and discussions with customers suggest that Arm can grow its total backlog in the current fiscal year, and what are the key factors contributing to this growth?
Answer
The renewal pipeline and discussions with customers indicate the potential for total backlog growth, with strong licensing growth expected to be driven by the adoption of higher value-added compute and Compute Subsystems IP across various end markets.
