Arm Holdings Plc Q2 FY2025 earnings call

• Execution since IPO: Exceeded expectations on growth strategies. Over 300 billion Arm chips shipped historically. Record royalty revenue due to Armv9 adoption.
• Product Highlights: Version9 now 25% of royalty revenue (vs 10% a year ago). Apple's iPhone 16 and iPhone 16 Pro use Arm Version9. MediaTek's Dimensity 9400 uses Arm's v9 CSS. NVIDIA's Grace Blackwell integrates Arm CPU. Microsoft Azure Cobalt and Google GCP Axion (Armv9 based) in general availability. Collaboration with Meta on optimizing Llama 3.2. Strong automotive pipeline for CSS in ADAS and IVI. Largest software ecosystem with over 20 million developers; GitHub integrated Arm Tools in Copilot.
• Market Share and Growth: Gaining share in automotive and cloud. Weakness in industrial due to inventory correction.

Royalty Revenue: $514 million, up 23% year-on-year, representing 60.9% of total revenue ($844 million). Driven by Armv9 adoption and CSS deployments. Smartphone royalties grew 40% despite mid-single-digit unit growth, as more Armv9-based application processors with higher royalty rates contributed. Licensing Revenue: $330 million, down 15% year-on-year but better than expected (-25% guidance). Annualized contract value (ACV) up 13% year-on-year. Remaining performance obligations (RPO) up 10% sequentially.

• Q3 2025: Revenue expected between $920 million and $970 million (midpoint 15% year-over-year growth). Non-GAAP operating expense ~$525 million. Non-GAAP EPS between $0.32 and $0.36.
• Fiscal Year 2025: Reiterates revenue guidance $3.8 billion to $4.1 billion (18%-27% year-over-year growth). Midpoint includes high teens royalty growth. Expect CSS ramping in next couple of quarters. Continue gaining share in cloud and automotive. Networking expected to grow sequentially in Q3 and Q4. IoT recovery next year. Non-GAAP operating expenses ~$2.05 billion (19% year-over-year increase). Full year non-GAAP EPS guidance $1.45 to $1.65.

• Litigation with Qualcomm: Ongoing litigation regarding Qualcomm's breach of license agreement by not obtaining consent for Nuvia license. Forecast and guidance already account for potential outcomes. No immediate financial impact on revenue recognition or operating expenses indicated.

Q: Press reports on working relationship and litigation with Qualcomm. Veracity and financial impact?

A: Rene Haas stated contractual consent was needed for Qualcomm to sign Nuvia license, which was not obtained, so they sent a notification letter. Financials: forecast already considers potential outcomes, no immediate changes to revenue or OpEx.

Q: Licensing side, TAM growth and future prospects?

A: Rene Haas mentioned ATA expansion, majority of customer base can move to ATA, driving broader upside. Jason Child added ATA annual costs increase ~7% per year, contracts ~3 years, multiple growth points for TAM.

Q: v9 contribution to royalties stalled at 25%, why?

A: Rene Haas explained v9 adoption strong, but v9 has higher value-based pricing due to better technology and CSS (higher royalty rates). Transition to CSS and improved product economics drive higher growth than traditional versions.

Q: Networking and data center business momentum?

A: Rene Haas mentioned NeoVerse adoption in network and data center, Graviton in general availability with Azure and GCP, NVIDIA Grace Blackwell leveraging Arm CPU. Jason Child noted data center cloud compute strong, expected to accelerate in back half of year.

Q: China smartphone mix impact on royalties and v9 penetration?

A: Rene Haas noted strong growth in China Android market, v9 already in high-end smartphones, will move to midrange.

Q: PC and smartphone market outlook, v9 penetration?

A: Rene Haas bullish on PC market, confident in Windows on Arm growth. v9 penetration expected to increase as products waterfall from flagship to midrange and low end.