Arm’s earnings beat expectations; the CEO warned that the mobile market is weak, and launched the “AGI CPU” to expand its share in AI

Arm, a major semiconductor architecture design company, has released its latest financial report, showing it is in a critical phase of transitioning from mobile devices to AI data centers. While fourth-quarter revenue and profits beat market expectations, weakness in the smartphone market caused royalty income to fall short, prompting a brief pullback in the stock price of about 6% in after-hours trading. CEO Rene Haas said that although growth in low-end phones has turned negative, strong demand for AI infrastructure will be enough to offset the shortfall. Arm expects that in the coming years, cloud computing and new AGI CPUs will become the core engines for revenue growth. The company is also trying to expand its market share in the highly competitive AI market by offering chip solutions based on its own designs.

Arm financial forecast vs. market expectations

Arm’s quarterly earnings (fourth quarter of fiscal year 2024) show a pattern of “revenue beating expectations, but royalties weakening.” In the quarter, revenue reached $1.49 billion, up 20% year over year, and earnings per share (EPS) was $0.60, both above analysts’ expectations. However, royalties revenue—closely watched by the market—was $671 million, below the forecast of $693 million. This reflects that while demand for new design licenses remains strong, the shipment momentum of existing end products is slightly insufficient. The company expects next quarter revenue of $1.26 billion and EPS of about $0.40, indicating it remains cautiously optimistic about future growth. Still, investors appear more sensitive to the royalties missing the target, leading to stock price volatility after hours: it rose first and then fell by about 6%.

CEO warns that smartphone market growth is slowing

CEO Rene Haas said the smartphone industry is experiencing a notable slowdown in growth, with even negative growth in the low-end market. Arm has traditionally been highly dependent on licensing revenue from the mobile device market, so fluctuations in the smartphone market have a direct impact on its profit model. Smartphone makers are currently dealing with supply-chain issues such as shortages of memory chips, further limiting overall production capacity. To reduce reliance on the consumer electronics industry—which is more volatile—Arm is accelerating the expansion of its technology scope into areas such as automotive, IoT, and data centers, seeking a more stable revenue structure and hedging the risk of a downturn in any single market.

AI data center and AGI CPU transformation strategy

Amid the decline in the smartphone market, AI data centers (Data Center) are seen as Arm’s most important growth driver. Cloud computing service providers are significantly increasing infrastructure investment to meet the compute demand of generative AI, which boosts demand for Arm architecture chips. The company plans to launch a new product called “AGI CPU” and expects that between 2027 and 2028, it will contribute more than $2 billion in revenue, according to Bloomberg. Arm said in March that it has already received orders worth $1 billion. This shift signals Arm moving from being a pure technology licensing provider (Neutral IP provider) toward a more direct business model involving greater participation in chip product development, aiming to capture more effectively the above-average profits created by the AI wave.

SoftBank Group’s AI strategy setup and synergy effects

Arm is still owned by Japan’s SoftBank Group, which holds about 90% of the shares. SoftBank founder Masayoshi Son is pushing the group toward AI chip manufacturing, and appointed Rene Haas to concurrently serve as SoftBank International’s head of business operations, strengthening internal synergy. In recent years, SoftBank has successively acquired chip companies such as Ampere Computing and Graphcore, showing its ambition to build an AI ecosystem. Giving Haas a dual role is intended to integrate AI resources within SoftBank, so that while Arm provides underlying architecture, it can be more closely connected to the group’s chip R&D and application side, reinforcing its authoritative position in the AI computing era.

This article says Arm’s earnings beat expectations, the CEO warns about weak smartphone demand, and it launches “AGI CPU” to expand AI market share. First appearing on Chain News ABMedia.