Arm issues light earnings guidance as the company stops disclosing number of chips reported as shipped

Arm shares fell more than 13% in extended trading on Wednesday after the chip-architecture maker issued light earnings guidance for the current quarter and the full fiscal year.

Here’s how the company did in the fiscal first quarter compared with LSEG consensus:

• Earnings per share: 40 cents adjusted vs. 34 cents expected
• Revenue: $939 million vs. $902.7 million expected

Arm’s revenue grew 39% year over year in the quarter, which ended on June 30, according to a shareholder letter. Net income came to $223 million, or 21 cents per share, up from $105 million, or 10 cents per share, in the year-ago quarter.

But Arm maintained its full-year view of $1.45 to $1.65 in adjusted earnings per share on $3.8 billion to $4.1 billion in revenue. Analysts surveyed by LSEG had been looking for $1.58 in adjusted earnings per share and revenue of $4.02 billion.

The middle of the revenue guidance range factors in a growth rate from royalties in the low twenties, down from a forecast from April in the mid twenties, Jason Child, Arm’s finance chief, said on a conference call with analysts.

For the fiscal second quarter, Arm sees adjusted earnings of 23 to 27 cents per share on $780 million to $830 million in revenue. That would imply no growth at the middle of the range. Analysts polled by LSEG had expected 27 cents per share and $804.1 million in revenue.

Revenue from royalties — a percentage of average selling price or a set amount per chip when they ship — totaled $467 million. That was up 17%, but it was lower than the $486.6 million consensus among analysts polled by StreetAccount.

License and other revenue, at $472 million, was up 72% and above the $418.3 million LSEG consensus.

The company said that as of this quarter, it is no longer reporting the number of Arms-based chips that were reported as shipped.

“We previously considered the number of chips reported as shipped by our customers as a key performance indicator because it represented the acceptance of our products by companies who use chips in their products (e.g., our customers’ customers),” Child and Arm CEO Rene Haas wrote in the letter.

“As we shift our focus to higher-value, lower-volume markets such as data center servers, AI accelerators and smartphone applications processors, the number of chips reported as shipped is less representative of our performance as the growth in royalty revenue is concentrated in a smaller number of chips.”

In the fiscal fourth quarter, Arm had 7 billion chips reported as shipped, which were down 10% year over year. Previously management blamed the trend on an inventory correct in industrial internet of things chips, which are high in volume but relatively low in value.

The company is now investing in Arm Compute Subsystems that will lower development costs and accelerate time to market, Haas and Child wrote. They said the technology also can boost royalty revenue fees per chip.

Arm added two high-value Arm Total Access licenses in the quarter, bringing the total to 33.

During the quarter, Microsoft started selling Surface PCs that draw on Qualcomm’s Arm-based chips.

Before Arm issued the results, its stock had risen 93% so far this year, well ahead of the S&P 500 index, which has gained 16% in the same period.

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