Shulou(Shulou.com)11/24 Report--

On Wednesday, local time, chip design company Arm released its results for the second quarter of fiscal 2024, which ended September 30, 2023.

Arm reported second-quarter revenue of $806 million, up 28% from a year earlier, the first time the company has exceeded $800 million in a single quarter, above analysts' expectations of $744.3 million.

In the second quarter, Arm's adjusted operating profit was $381 million, up 92% from a year earlier, and its adjusted operating profit margin was 47.3%. Adjusted earnings per share were $0.36, up 112% from a year earlier, higher than analysts' consensus expectations of $0.26.

Arm expects third-quarter earnings per share of between 21 cents and 28 cents on revenue of between 720 million and 800 million dollars. That was slightly lower than Wall Street expected, with analysts on average expecting earnings of 27 cents a share on revenue of between $730 million and $805 million.

This is the first time Arm has reported results since its initial public offering (IPO), with revenue beating Wall Street expectations and showing that the company's lucrative licensing business has doubled in the past year.

Meanwhile, Arm reported a net loss of $110 million, or 11 cents a share. The company said the loss was due to recent IPO-induced one-time stock compensation expenses of more than $500m, which will be between $150 million and $250 million in the coming quarters.

Arm has been trying to expand from mobile phone chips to other areas such as data center servers and PC chips. It was reported in October that Nvidia plans to use Arm's technology to re-challenge Intel in the PC market.

Arm has two main sources of revenue: pre-licensing fees for the use of its chip design and other intellectual property rights, and royalties for each chip manufactured using its intellectual property rights. Arm said its goal was to increase royalty revenue by entering parts of the market where the average price of the chip is higher.

Arm's intellectual property exists in almost every smartphone, many personal computers and various other chips. Arm said more than 7.1 billion chips were shipped in the second quarter.

Arm earns its income by charging royalties or by chipmakers to make Arm-compatible chips, usually at a fraction of the final price of the chips. The company also sells more complete chip design licenses, saving chipmakers time and effort, which is recorded as licensing revenue.

Arm's royalty revenue was $418 million, down 5% from the same period last year and below analysts' expectations of $420.3 million. But Arm's licensing revenue was $388 million, up 106% from the same period last year and above analysts' expectations of $326.9 million. This is a sign that Arm is able to sell more and more technology to its existing customers, a key indicator that analysts are focused on.

Arm attributed licensed sales to a number of long-term agreements with technology companies, suggesting that the sector could continue to grow in the coming quarters. However, the company warned that overall economic trends could affect future licensing growth.

Arm went public again in September after Japan's Softbank Corp. Group sold part of its stake. Softbank Corp. still holds more than 90 per cent of Arm. Softbank Corp. had previously planned to sell Arm to Nvidia, but the deal was rejected by regulators in 2022. Arm was founded in 1990 to develop low-power chip technology.

Arm is grappling with a big question of how the new accounting standards will affect the company's recognition of revenue from large-scale multi-year authorized transactions. In a letter to shareholders, Arm executives said: "the revenue recognition of future agreements will be affected."

Analysts say this unpredictability raises questions about Arm's valuation. After the initial public offering, Arm was valued at more than $65 billion, and Arm was valued at a much higher value than any other chip company relative to its expected annual revenue.

"there are still questions about whether the company has sustainable growth," said Ben Bajarin, chief executive and chief analyst of Creative Strategies. "the second quarter looks good, but the guidance for the third quarter doesn't look very good and we don't really know what the customer cycle looks like."

Jason Child, Arm's chief financial officer, explained that the company's third-quarter revenue was lower than expected, but full-year revenue was higher than expected because the company now expects a major licensing deal to be completed a quarter later than originally expected. "all the discussion about generative artificial intelligence shows that demand is very strong!" he added.

Arm says many companies, including Google, Meta and Nvidia, are using their technology to develop chips with artificial intelligence. The company expects Arm's full-year revenue to exceed Wall Street expectations, driven by these users. Arm expects total revenue of $3.02 billion in fiscal 2024, higher than analysts' expectations of $2.95 billion.

Arm shares closed down 1.57% at $54.40 on Wednesday local time. After the release of the results, its shares tumbled more than 7 per cent in after-hours trading due to weaker-than-expected guidance for the third quarter.

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