Chip tech provider Arm narrows full-year forecast, stock plunges

By Max A. Cherney

SAN FRANCISCO (Reuters) -Chip tech provider Arm Holdings said on Wednesday it will no longer meet the top end of its previous full-year guidance, but slightly topped Wall Street's current-quarter expectations.

Arm shares slumped about 6% in extended trading after the report.

Since Arm went public in 2023, it has more than tripled its market value as investors bet it would see a significant share of the artificial intelligence boom that propelled Nvidia to become the world's most valuable company.

But Arm does not typically enjoy growth spurts in boom times because it makes money more indirectly from AI than chip sellers, by steadily raising licensing fees for its technology and royalties for each chip other companies sell.

For the full year, Arm narrowed its revenue guidance to a range of $3.94 billion to $4.04 billion from $3.8 billion to $4.1 billion. The company also narrowed its adjusted earnings per share guidance for the full year.

Investors were expecting Arm to raise its full-year outlook with the adoption of its chip designs for AI servers, and with increased use of its higher royalty rate Armv9 design for smartphones, Summit Insights Group analyst Kinngai Chan said.

CEO Rene Haas said the company's narrowed full-year guidance was the result of being close to the end of the fiscal year. The prior guidance had not changed for some time, he said.

"You kind of know where you're going to land the plane as you're getting that close," Haas said in an interview.

The chip technology provider's latest Armv9 technology is used in the chips that power Apple's latest generation of iPhones. Unlike prior versions of the designs, the company has structured deals for the v9 technology to allow Arm to increase prices. Haas said the rates could rise with each new iteration of a device.

FOURTH-QUARTER REVENUE SLIGHTLY TOPS EXPECTATIONS

For the current fiscal fourth quarter, Arm forecast revenue in a range between $1.18 billion and $1.28 billion, with a midpoint of $1.23 billion, compared with an average analyst estimate of $1.22 billion, according to LSEG data.

Arm's third-quarter revenue rose 19% to $983 million, compared with analyst estimates of $946.7 million.  

The UK chip designer reported third-quarter earnings of 39 cents per share, adjusted for stock-based compensation among other items. Analysts expected earnings of 34 cents a share.

The company's designs power nearly every smartphone in the world, and the company has attempted to make headway in data centers and other markets. Chips with Arm technology generate $200 billion a year of revenue for the many chipmakers that sell them, according to research from TD Cowen.

But in recent years, low-profile Arm has attempted to alter its position in the chip market by raising prices and moving to potentially compete with its biggest customers, Reuters reported last month. In December, Arm failed at one attempt to secure higher royalty rates from Qualcomm in a Delaware court after a week-long trial.

During Qualcomm's conference call after it reported results on Wednesday, CEO Cristiano Amon said Arm had withdrawn its notice that Qualcomm breached its license agreement, which Arm sent in October. Amon also said Arm had no current plans to terminate its architectural license.

Last month, President Donald Trump's administration announced a $500-billion AI infrastructure venture called Stargate that includes data centers and related technologies. Backers include Arm-majority owner SoftBank, Oracle and Arm itself, which is a "technology partner."

Arm's inclusion in the project, while rivals and Advanced Micro Devices that use the x86 technology to make chips were not announced as involved, is a sign of the company's importance, Haas said.

"Arm is a technology partner and no mention of either of the x86 candidates," Haas said.

(Max A. Cherney in San Francisco and Juby Babu in Mexico City; Editing by Rod Nickel)