The surge in Arm's stock lifted its market capitalization by
about $26 billion. Now trading at $102.11, Arm has doubled from the $51 price
set in its September initial public offering.
The company, uniquely, supplies a library of blueprints to
chipmaking rivals. Its majority owner SoftBank Group (9984.T), opens new tab
bet in 2016 that Arm could use its dominant position in smartphones, where it
sits at the heart of both Apple (AAPL.O), opens new tab and Android devices.
"The solid Arm earnings and, even more importantly,
their robust forecasts are good signs for both the company and the tech
industry overall," said Bob O'Donnell, president and chief analyst at
TECHnalysis Research.
Arm executives said on Wednesday the expansion strategy was
starting to pay off, with customers flocking to Arm-based central processors to
complement Nvidia's (NVDA.O), opens new tab chips for AI work in data centers,
and working on new laptops and smartphones that can handle chatbots and other
AI features.
The midpoints of Arm's fourth-quarter sales and adjusted
profit forecasts range of $875 million and 30 cents per share, respectively,
beat estimates of $780.3 million and 21 cents per share, according to LSEG
data.
It raised its guidance by roughly $100 million because
markets such as automotive and AI are going to be strong in the fiscal fourth
quarter, finance chief Jason Child told Reuters.
The company expects licensing revenue for chips that power
AI in data centers, phones and PCs to be a significant factor.
Since 2016, Arm has significantly diversified its business.
Smartphones now represent 35% of overall units shipped,
versus between 60% and 70% in 2016, Child said. He said as well that AI was
driving additional sales, but mostly indirectly.
For instance, Arm-based central processors were frequently
being paired with Nvidia's graphics processors, or GPUs. More direct AI
business, such as consumers buying new phones and laptops with special AI
features, could take a year or more to play out, Child said.
"We're seeing more interest in newer designs and newer
technologies by customers" due to interest in AI, Child said. "It's
real. Folks are actually buying and licensing that technology."
Arm makes money two ways: via licensing deals for its
intellectual property and a royalty charged for each chip sold that uses its
technology.
In recent years, more of Arm's customers have started using
the ninth and newest version of its core chip architecture, which is important
to Arm's bottom line because the company charges about double the royalty rate
per chip for the technology.
Child said about 15% of Arm's royalty revenue is coming from
its ninth-generation technology, up from 10% in the previous quarter.
"Investors are starting to appreciate ... how Arm's
evolved business model is going to benefit from more advanced chip designs
across the board in all markets," said analyst Ben Bajarin from Creative
Strategies.
For the full fiscal year, Arm expects $3.18 billion in
revenue and adjusted earnings of $1.22 per share, both above analysts'
estimates of $3.05 billion and $1.07 per share.
For the fiscal third quarter, Arm reported sales of $824
million and adjusted earnings of 29 cents per share, topping Wall Street
estimates of $761.6 million and 25 cents per share.
Reuters
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