Arm Guidance Only Slightly Above Expectations
Arm forecast Q3 revenue of $1.54 billion, only slightly above analysts' average estimate of $1.53 billion, disappointing investors, with after-hours shares down about 3.5%. Q2 revenue reached $1.44 billion, beating analysts' average estimate of $1.38 billion; adjusted earnings per share were 52 cents, above the market estimate of 47 cents per share. Of that, royalties grew 8% to $670 million, below the market expectation of $720.8 million; licensing revenue reached $773 million, above the market estimate of $625.1 million, including prepayments for use of its technology.
Data Center Demand and AGI Push
Reuters reported that large cloud companies are developing custom processors for data center computing demand, with demand for Arm-architecture technology benefiting from the expanded AI boom. Arm architecture offers high power-efficiency advantages and is gaining favor as operators control the energy and cooling costs needed to run large AI models. CEO Haas said demand for all types of data center technology has climbed sharply. Arm said that in 2025 its server chip architecture already accounted for more than 50% of deployments by large cloud providers, and is expected to exceed 60% by the end of 2026. Arm expects to sell $2 billion worth of central processing unit AGI CPUs between the 2027 and 2028 fiscal years, and has worked with suppliers including Taiwan's TSMC to secure raw materials. Haas called $2 billion already a highly achievable target. In March this year Arm announced its move into the full-chip business, and secured $1 billion in orders at the launch of its AGI CPUs. Unlike chipmakers, Arm derives most of its revenue from licensing processor architectures and collecting royalties. Last month a Delaware jury found Arm violated parts of its licensing agreement with Qualcomm and interfered in Qualcomm's relationship with Meta, but awarded only $2 in damages, leaving the core dispute over royalties and future licensing to a judge.
Qualcomm Handset Chip Revenue Disappoints
Qualcomm's Q4 smartphone chip revenue came in below Wall Street expectations, mainly due to weak demand and lower Apple-related revenue, with after-hours shares sliding more than 6%. The handset division's Q4 revenue plunged 26% to $5.14 billion, below the $5.25 billion forecast by analysts surveyed by Visible Alpha; the chip division's revenue fell 8% to $9.02 billion. Rising demand for high-priced high-bandwidth memory used in AI servers has pushed up memory chip prices, driving up consumer electronics costs and pressuring smartphone processor designers. According to Counterpoint Research, global smartphone shipments fell 20% in the quarter ended September, to a 14-year historic low. Qualcomm forecast its emerging data center business revenue will beat expectations, but not enough to offset the weaker-than-expected core business. CEO Amon said Android handset sales have bottomed out and are gradually recovering, that the company foresaw the memory market situation early and was prepared, and is now seeing its Android business grow quarter by quarter, with non-handset businesses also showing execution.