Arm Holdings Plc Q4 FY2025 earnings call

• Q4 marked a record with revenue exceeding $1B for the first time, full year revenue over $4B, and royalty revenue over $2B.
• Strong demand for power-efficient AI compute from cloud to edge, with Arm being the first choice for AI cloud deployments, expecting up to 50% of new server chips at hyperscalers to be Arm-based.
• Royalty growth broad-based across data center, automotive, smartphones, and IoT; smartphone royalties jumped 30% y-o-y.
• Strong momentum in custom silicon, with companies turning to Arm for CPU, GPU, and NPU solutions. Software developer community over 22 million, Kleidi AI surpassing eight billion cumulative installs.

In the fourth quarter, Arm achieved a record-breaking performance. Total revenue was $1.24 billion. Royalty revenue grew 18% year-on-year to $607 million, representing broad-based growth across major markets including data center, automotive, smartphones, and IoT. Licensing revenue increased more than 50% year-on-year to a record $634 million. Royalty revenue contribution was significant from the growing adoption of Armv9 in various segments, and licensing revenue was driven by new deals like the multi-year AI partnership with the Malaysian government. Revenue contribution: Royalty revenue was $607M (approx. 48.95% of Q4 revenue), licensing revenue was $634M (approx. 51.05% of Q4 revenue).

• Q1 2026 revenue expected between $1.0 billion and $1.1 billion, midpoint representing 12% y-o-y growth.
• Expect Q1 royalty growth of 25% to 30%.
• No full-year guidance provided due to uncertainty in global trade and economic picture.

• Tariffs and macro uncertainty with limited visibility on direct impact to royalty and licensing revenues, and less visibility on indirect impact on end demand.
• Estimated 10% to 20% of royalty revenues stem from shipments into the US, and impact of Poland demand on royalty business has been limited but uncertain.

Q: Good day, and thank you for standing by. Welcome to the Arm Fourth Quarter and Fiscal Year ended 2025 Webcast and Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there'll be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ian Thornton, Vice President, Investor Relations. Please go ahead, sir.

A: Thank you very much indeed, operator. Thank you, and welcome, everybody. I'll be standing in for Jeff Kvaal today. Welcome to our earnings conference call for the fourth quarter of fiscal year ended March 31, 2025. On the call today are Rene Haas, Arm's Chief Executive Officer and Jason Child, Arm's Chief Financial Officer. During the call, Arm will discuss forecasts, targets and other forward-looking information regarding the company and its financial results. While these statements represent our best current judgment about future results and performance, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially. In addition to any risks that we highlight during this call, important risk factors that may affect our future results and performance are described in our registration statements on Form 20-F filed with the SEC. Arm assumes no obligation to update any forward-looking statements. We will refer to non-GAAP financial measures during the discussion. Reconciliations of certain of these non-GAAP financial measures to their most directly comparable GAAP financial measures, as well as a discussion of certain projected non-GAAP financial measures that we are not able to reconcile without unreasonable efforts and supplementary financial information can be found on our shareholder letter. The shareholder letter and other earnings related materials are available on our website at investors.arm.com. And with that, I'll turn the call over to Rene.

Q: Mark Lipacis from Evercore asks about tariff side impact.

A: Jason Child responds that tariffs have limited direct impact on royalty and licensing revenues, with less visibility on indirect impact on end demand. Royalty revenues from US shipments are 10%-20%, and past slowdowns like COVID had minimal impact on licensing.

Q: Andrew Gardiner from Citi asks about v9 percentage.

A: Jason Child says v9 adoption stepped up to north of 30%, driven by CSS (Custom Silicon Subsystems) with CSS adoption being early but expected to drive growth.

Q: Ross Seymore from Deutsche Bank asks about strategic progression to OEMs.

A: Rene Haas says customization of silicon is driving direct relationships with OEMs, with trend likely to continue, and traditional fabless semiconductor market will still exist but customization is increasing.

Q: Joe Quatrochi from Wells Fargo asks about not giving full year guide.

A: Jason Child explains less visibility due to partners not providing full year guidance and macro impacts, leading to not providing full year guide.

Q: Srini Pajjuri from Raymond James asks about royalty growth by end market.

A: Jason Child says smartphones and client business growing ~30%, infrastructure accelerating with hyperscaler deployment, automotive strong, IoT bottomed out but growing slower. Rene Haas adds on data center market-share growth with NVIDIA's Blackwell architecture.

Q: Sebastien Naji from William Blair asks about Malaysian government licensing deal.

A: Rene Haas says deal with Malaysian government is progressive for startups to access Arm technology, with potential for other governments to follow.

Q: Timm Schulze-Melander from Redburn Atlantic asks about royalty progression and sequential trends.

A: Jason Child says Q1 royalty growth strong, Q2 likely flattish, back half of year expected 10%-15% sequential growth.

Q: Vivek Arya from Bank of America asks about licensing side.

A: Rene Haas and Jason Child discuss licensing growth driven by CSS and AI demand, ACV growth mid-teens, and limited macro impact on licensing.

Q: Vijay Rakesh from Mizuho asks about CSS split and Stargate.

A: Jason Child says CSS split is roughly half client (mostly mobile) and half infrastructure, with one auto. Talks about Stargate project being well进展 but details not public.

Q: Lee Simpson from Morgan Stanley asks about chiplet space.

A: Rene Haas says AMBA fabric is de-facto standard for chiplet interfaces, chiplets being a value proposition for CSS.