Arm’s shares dropped more than 8% in after-hours trading on Wednesday after the chip-design company issued a weaker-than-expected revenue and earnings forecast for the current quarter. Despite beating analysts’ expectations for the fiscal fourth quarter, investors were concerned about the company’s outlook.
For the quarter ending March 31, Arm reported earnings per share of 55 cents, slightly above the expected 52 cents. Revenue for the quarter reached $1.24 billion, just surpassing the $1.23 billion analysts had anticipated. However, the company’s forecast for the first quarter of the fiscal year fell short of Wall Street’s expectations. Arm projected revenue between $1 billion and $1.1 billion, with the midpoint of this range being below the $1.1 billion analysts had anticipated. Additionally, earnings per share were forecasted to range from 30 cents to 38 cents, whereas analysts had expected 42 cents per share.
The company is majority-owned by SoftBank, which controls approximately 90% of Arm. In 2023, Arm went public, and its market capitalization exceeded $130 billion as of Wednesday’s close. Arm is known for designing the fundamental chip architecture used by numerous technology companies, including Qualcomm and Nvidia. The company licenses its designs to these firms and charges royalty fees on each sale they make. Arm claims that its technology powers 99% of premium smartphones globally.
In the most recent quarter, Arm saw its royalty revenue increase by 18% year-over-year, reaching $607 million. Despite this growth, the company’s net income fell 6% to $210 million, or 20 cents per share, compared to $224 million, or 21 cents per share, in the same period last year. Overall, revenue surged 34% from $928 million a year ago.
Investors are now focusing on how Arm will perform in the upcoming quarter, with analysts concerned about the company’s ability to meet its guidance given the current market conditions. The lower-than-expected forecast for the first quarter highlights the challenges Arm may face as it continues to navigate the competitive landscape of chip design.
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