Arm Holdings Plc Q3 FY2025 earnings call

• AI demand drives strong momentum for Arm ecosystem. Record total revenue and royalty revenue in Q3. - Adoption of Armv9 and strong demand for CSS. - Gaining share in data center with AWS Graviton, Microsoft Cobalt, etc. - Projects like Stargate for AI infrastructure and Cristal Intelligence for enterprise AI. - Licensing revenue up 14% y-o-y, ACV up 9% y-o-y. - Balancing long-term investments and near-term profitability.

Total revenue for the third quarter of fiscal 2025 was $983 million, growing 19% year-on-year to an all-time high. Royalty revenue was a record $580 million, up 23% year-on-year. Licensing revenue increased 14% year-on-year to $403 million. Royalty revenue from smartphones, data center, networking equipment, and automotive were within expectations, while IoT royalty revenue showed signs of recovery. Revenue from smartphones grew faster than the overall smartphone market due to chips based on Armv9 and CSS.

• Q4 revenue expected to be between $1.175 billion and $1.275 billion, midpoint represents 32% y-o-y growth. - Fiscal year 2025 full-year revenue midpoint around $4 billion, 24% y-o-y growth. - Full-year non-GAAP operating expenses expected to be about $2.1 billion. - Full-year non-GAAP EPS expected between $1.56 and $1.64.

• Mention of legal matters like the Qualcomm lawsuit, but noted no impact on revenue as forecasts assumed continuing royalty payments at prior rates.

Q: Where see strength in licensing as we go into subsequent year, related to AI and Arm's capability?

A: Stargate and Cristal Intelligence are significant opportunities. Licensing revenue in Q4 expected to grow ~60% y-o-y, driven by AI and CSS.

Q: Partner demand for CSS stronger than anticipated, how think about contribution to royalty revenue ramping in fiscal '26?

A: Momentum delivered, but will provide more detail next quarter. CSS deployments in next quarters expected to drive continued momentum.

Q: Impact of Qualcomm lawsuit on revenue?

A: No impact, forecasted royalty payments to continue at prior rates.

Q: Armv9 contribution to total royalties, expected to go up?

A: V9 contribution was 25% of total royalties in prior quarter, expected to reach 60%-70% over time, driven by OEM chip mix shifts.

Q: FY '26 royalty growth and Armv9 contribution?

A: Will provide guidance next quarter, expect mid-20% royalty growth, driven by v9 and CSS adoption.

Q: Licensing revenue complexity, will take longer?

A: No structural change, longer for new contracts, shorter for renewals, but larger deals take longer.

Q: AWS Cobalt progress and related party revenue?

A: Defer to Microsoft on Cobalt specifics, related party revenue (largely Arm China) expected to be consistent, likely to be smaller percentage of revenue over time.

Q: M&A and monetizing chiplet strategy?

A: Can't comment on M&A, but CSS demand is accelerating, Arm Total Design Partners program has strong demand, driven by complex chip design needs.

Q: v9 adoption slowing as percentage of total, impact?

A: Slowing as percentage is good, indicates better view on growth, still expect v9 to reach 60%-70% of total, driven by contracted products.

Q: DeepSeek and AI impact on Arm?

A: DeepSeek's work drives efficiency, lowers cost, increases compute demand, beneficial for Arm as AI runs in areas where Arm is pervasive.

Q: ACV growth and Arm China contribution?

A: ACV growth model expects majority from royalties, Arm China contribution around 20%-25% of ACV.

Q: CSS license activity and chiplet strategy?

A: CSS license activity ~50-50 between infrastructure and client business, chiplet strategy has strong demand, driven by complex chip design needs.