Arm predicts results will meet expectations and shares will fall

By Max A. Cherney, Deborah Mary Sophia

SAN FRANCISCO (Reuters) – Chip designer Arm Holdings forecast sales in line with Wall Street targets on Wednesday, triggering a 4.5% drop in shares that some analysts blamed on dashed hopes for a stronger AI -supported growth.

Bets that Arm, which licenses its designs, will benefit from a rebound in AI computing have seen the chip designer's stock price more than double since its IPO last September, giving it a market value of about $144 billion. However, the forecast fell short of expectations from companies like AMD and Nvidia, which directly develop AI chips.

“Arm has done a good job of getting in touch with some of these AI semiconductor trends, and the challenge is that in doing so they have raised expectations that may not yet be fully met,” said Bob O'Donnell, president and Principal analyst at TECHnalysis Research “They are several steps away from final chips,” he added.

Arm results beat second-quarter sales and profit expectations on Wednesday, partly because customers like Apple are using a more profitable version of its next-generation technology.

However, for the current fiscal third quarter, Arm forecast revenue in a range of $920 million to $970 million, with a median of $945 million, compared to an average analyst estimate of $944.3 million, according to LSEG- data shows.

The company said it expects fiscal third-quarter profit to be between 32 cents and 36 cents per share. Analysts had expected third-quarter profit of 34 cents per share.

“Investors want to see the current AI boom in its results,” said Kinngai Chan, senior research analyst at Summit Insights Group.

“This quarter is all about validating the strategies we talked about,” Chief Executive Rene Haas said in an interview with Reuters. “We have some real proof points.”

Arm generates revenue from royalties on its chip designs and collects a royalty for every chip sold that uses its technology. The company is in the midst of rolling out its v9 architecture, which is expected to result in higher licensing fees.

Arm's designs power nearly every smartphone in the world, and the company has sought to gain a foothold in data centers and other markets. The company has developed a range of pre-built designs that allow customers to build chips faster and has doubled the number of pre-built design licenses this fiscal year, the company said.

Haas said the company has secured its first smartphone chip customer for its pre-built blueprints. Arm has previously sold these designs to server chip designers.

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