ArmIPO's first financial report: revenue increased by 28% year-on-year to $800 million, and performance guidance fell by 7% after hours compared to expectations

On Wednesday, November 9th, chip design company Arm released its second quarter financial report for the fiscal year 2024 as of September 30th, 2023. According to the financial report, Arm's revenue for the second quarter was $806 million, a year-on-year increase of 28%

On Wednesday, November 9th, chip design company Arm released its second quarter financial report for the fiscal year 2024 as of September 30th, 2023. According to the financial report, Arm's revenue for the second quarter was $806 million, a year-on-year increase of 28%. This is the first time in the company's history that it exceeded $800 million in a single quarter, higher than analysts' expectations of $744.3 million.

In the second fiscal quarter, Arm's adjusted operating profit was $381 million, a year-on-year increase of 92%; The adjusted operating profit margin is 47.3%. Adjusted earnings per share were $0.36, a year-on-year increase of 112%, higher than analysts' consensus expectation of $0.26.

Arm expects earnings per share in the third quarter to be between $0.21 and $0.28, and revenue to be between $720 million and $800 million. This is slightly lower than Wall Street's expected data, with analysts expecting an average earnings per share of $0.27 and revenue ranging from $730 million to $805 million.

This is the first financial report released by Arm after its initial public offering (IPO), with revenue exceeding Wall Street expectations and indicating that the company's lucrative licensing business has doubled in size over the past year.

Meanwhile, Arm reported a net loss of $110 million, or a loss of $11 per share. The company stated that the loss was due to a one-time stock compensation expense of over $500 million triggered by the recent IPO, with stock compensation expenses expected to range from $150 million to $250 million in the coming quarters.

Arm has always been striving to expand from the field of mobile chips to other fields such as data center servers and personal computer chips. In October, there were reports that Nvidia planned to use ARM's technology to launch a new challenge against Intel in the personal computer market.

Arm has two main sources of income: first, pre licensing fees charged for the use of its chip design and other intellectual property rights, and second, patent fees charged for each chip manufactured using its intellectual property rights. Arm stated that its goal is to increase patent royalty revenue by entering certain markets with higher average chip prices.

Arm's intellectual property rights exist in almost every smartphone, many personal computers, and various other chips. Arm stated that the shipment volume of chips in the second fiscal quarter exceeded 7.1 billion.

Arm earns revenue by charging patent royalties or paying chip manufacturers the cost of manufacturing ARM compatible chips, typically at a small fraction of the final price of the chip. The company also sells more complete chip design licenses, saving chip manufacturers time and effort, which is recorded as licensing revenue.

Arm's patent royalty revenue was $418 million, a 5% decrease from the same period last year and lower than analysts' expectations of $420.3 million. But Arm's authorized revenue was $388 million, an increase of 106% from the same period last year, higher than analysts' expectations of $326.9 million. This sign indicates that Arm is able to sell more and more technology to its existing customers, which is a key indicator that analysts are focusing on.

Arm attributed authorized sales to multiple long-term agreements with technology companies, suggesting that the field may continue to grow in the coming quarters. However, the company warns that overall economic trends may affect future authorization business growth.

In September of this year, Arm went public again after Japan's Softbank Group sold some of its holdings. Softbank Group still holds over 90% of Arm's shares. Prior to this, Softbank had planned to sell Arm to NVIDIA, but the transaction was rejected by regulatory authorities in 2022. Arm was established in 1990 with the aim of developing low-power chip technology.

Arm is working to address a significant issue of how the new accounting standards will affect the company's recognition of revenue from large-scale multi-year authorized transactions. In a letter to shareholders, Arm's executives stated: "The revenue recognition of future agreements will be affected

Analysts say this unpredictability has raised doubts about Arm's valuation. After its initial public offering, Arm's valuation exceeded $65 billion, which is much higher than any other chip company's expected annual revenue.

Ben Bajarin, CEO and Chief Analyst of CreativeStrategies, said, "There are still doubts about whether this company has sustainable growth. The second quarter looks good, but the performance guidance for the third quarter doesn't look very good, and we don't really understand what the customer cycle is like

Jason Child, Chief Financial Officer of Arm, explained that the company's revenue for the third quarter was lower than expected, but for the entire year it was higher than expected because the company currently expects a major authorization transaction to be completed one quarter later than initially expected. He also said, "All the discussions about generative artificial intelligence indicate that the demand is very, very strong

Arm stated that many companies, including Google, Meta, and Nvidia, are using their technology to develop chips with artificial intelligence capabilities. The company expects that driven by these users, Arm's annual revenue will exceed Wall Street's expectations. Arm expects a total revenue of $3.02 billion in the 2024 fiscal year, higher than analysts' expectations of $2.95 billion.

On Wednesday local time in the United States, Arm's stock price closed 1.57% lower at $54.4 per share. After the financial report was released, its stock price plummeted by more than 7% in after hours trading due to lower than expected performance guidance for the third quarter. (Small)