Arm Holdings Shifts Strategy to Develop Own Chips, Disappointing Investors

Chip tech provider Arm looks to design own processors in major shift

July 30 (Reuters) - Arm Holdings is investing in developing its own chips, CEO Rene Haas said on Wednesday, marking a major shift to its model of licensing its blueprints to other companies. "We are consciously deciding to invest more heavily -- is the possibility of going beyond (designs) and building something, building chiplets or even possible solutions," Haas said in an interview with Reuters. Arm shares dropped roughly 4% in extended trading on Wednesday. Chiplets are smaller, modular versions of a so-called monolithic processor that performs specific functions. Designers will stitch several chiplets together to form a complete processor. Arm has been recruiting from its customers and competing against them for deals as it pushes toward selling its own chips, Reuters has reported. The investments Arm is making are an extension of its approach to building more complete designs, known as CSS, Haas said. Haas declined to provide a timeframe in which the company's investments in the new strategy would translate into profit, or give specifics about potential new products that are part of the initiative. This expansion of its business puts the chip tech provider Arm in competition with some of its customers, including Nvidia (NVDA.O), opens new tab, which builds its own processors on top of Arm's architecture. The company also forecast second-quarter profit slightly below estimates on Wednesday, as global trade tensions threaten to hit demand for the chip architecture provider in its mainstay smartphone market. The company's chip technology powers nearly every smartphone in the world, and its tame forecast underscores uncertainty faced by global manufacturers and their suppliers resulting from U.S. President Donald Trump's tariff policies. UK-based Arm forecast adjusted per-share profit between 29 cents and 37 cents for the fiscal second quarter, the midpoint of which is below analysts' average estimate of 36 cents per share, according to LSEG data. The company generates revenue through licensing deals for its intellectual property and a royalty charged for each chip sold that uses its technology. Smartphones remain Arm's biggest stronghold. Morningstar analysts expect Arm to continue as the dominant architecture in smartphone processors, where it has a 99% market share. Global trade tensions, however, cloud the outlook for the market. Uncertainty fueled by tariff volatility and ongoing macroeconomic challenges has tapered end-market demand, with global smartphone shipments increasing just 1% in the April-to-June period, according to International Data Corporation. The company expects current-quarter revenue between $1.01 billion and $1.11 billion, in line with estimates of $1.06 billion. The company reported first-quarter sales of $1.05 billion, coming in just shy of estimates of $1.06 billion. Adjusted profit of 35 cents per share was in line with estimates. It has also made attempts to diversify into the booming data center market, where customers such as Amazon's (AMZN.O), opens new tab cloud unit use its technology. The company's chip architecture also competes against Intel and AMD's longstanding x86 stronghold in the server central processor market -- a booming area in the AI industry where CPUs are used alongside advanced graphics processors in data centers. Reporting by Max A. Cherney in San Francisco and Arsheeya Bajwa in Bengaluru; Editing by Alan Barona and Nia Williams Our Standards: The Thomson Reuters Trust Principles., opens new tab * Suggested Topics: * Artificial Intelligence Max A. Cherney Thomson Reuters Max A. Cherney is a correspondent for Reuters based in San Francisco, where he reports on the semiconductor industry and artificial intelligence. He joined Reuters in 2023 and has previously worked for Barron's magazine and its sister publication, MarketWatch. Cherney graduated from Trent University with a degree in history.

Arm considers developing own chips; stock falls as outlook disappoints

July 30 (Reuters) - Chip architecture provider Arm Holdings is investing in developing its own chips, CEO Rene Haas said on Wednesday, marking a major shift to its model of licensing its blueprints to other companies. Arm also issued quarterly forecasts that failed to satisfy investors who have sent the company's stock surging in recent months on expectations it will become a key player in artificial intelligence. Arm shares slumped around 8% in extended trading on Wednesday. The plan to invest more heavily in developing its own chips marks a departure from Arm's long-time business of supplying intellectual property to companies ranging from Nvidia (NVDA.O), opens new tab to Amazon.com (AMZN.O), opens new tab, which already design their own chips. Finished chips are the "physical embodiment" of a product Arm already sells called Compute Sub Systems (CSS), Haas said. "We are consciously deciding to invest more heavily - is the possibility of going beyond (designs) and building something, building chiplets or even possible solutions," Haas said in an interview with Reuters. Chiplets are smaller, modular versions of a larger chip. Chiplets perform specific functions, and designers will stitch several together to form a complete processor. To build up the necessary staff to make chiplets and other finished chips, Arm has been recruiting from its customers and competing against them for deals, Reuters has reported. Haas declined to provide a timeframe in which the company's investments in the new strategy would translate into profit, or give specifics about potential new products that are part of the initiative. But, Haas said that Arm would look at chiplets, "a physical chip, a board, a system, all of the above." In recent months, chip companies have begun to focus more effort on building the necessary server hardware, or server rack, around a chip. Nvidia sells its NV72 rack systems, and Advanced Micro Devices (AMD.O), opens new tab acquired server builder ZT Systems to build system-level products. This expansion of its business could put Arm in competition with some of its customers, who design finished chips and chiplets for their own products. Arm has surged around 150% since its stock market debut in 2023, and its shares recently traded at over 80 times expected earnings, far higher than the PE valuations of Nvidia, Advanced Micro and other chipmakers focused on AI. DISAPPOINTING FORECAST The company forecast second-quarter profit slightly below estimates on Wednesday, as global trade tensions threaten to hit demand for Arm in its mainstay smartphone market. Arm's chip technology powers nearly every smartphone in the world, and its tame forecast underscores uncertainty faced by global manufacturers and their suppliers resulting from U.S. President Donald Trump's tariff policies. UK-based Arm forecast adjusted per-share profit between 29 cents and 37 cents for the fiscal second quarter, the midpoint of which is below analysts' average estimate of 36 cents per share, according to LSEG data. The forecast disappointed investors, according to Summit Insights analyst Kinngai Chan. "Results and outlook were light and below expectations," he said. The company generates revenue through licensing deals for its intellectual property and a royalty charged for each chip sold that uses its technology. Smartphones remain Arm's biggest stronghold. Morningstar analysts expect Arm to continue as the dominant architecture provider in smartphone processors, where it has a 99% market share. Global trade tensions, however, cloud the outlook for the market. Uncertainty fueled by tariff volatility and ongoing macroeconomic challenges has tapered end-market demand, with global smartphone shipments increasing just 1% in the April-to-June period, according to International Data Corporation. Arm expects current-quarter revenue between $1.01 billion and $1.11 billion, in line with estimates of $1.06 billion. The company reported first-quarter sales of $1.05 billion, coming in just shy of estimates of $1.06 billion. Adjusted profit of 35 cents per share was in line with estimates. "Smartphone royalties (call it "Android on a low‑carb diet") remain soft, especially in China, but cloud‑server and AI accelerator design wins keep the (next generation Arm tech) royalty treadmill humming," Running Point Capital chief investment officer Michael Schulman said. Reporting by Max A. Cherney in San Francisco and Arsheeya Bajwa in Bengaluru; Editing by Alan Barona and Nia Williams Our Standards: The Thomson Reuters Trust Principles., opens new tab * Suggested Topics: * Artificial Intelligence Max A. Cherney Thomson Reuters Max A. Cherney is a correspondent for Reuters based in San Francisco, where he reports on the semiconductor industry and artificial intelligence. He joined Reuters in 2023 and has previously worked for Barron's magazine and its sister publication, MarketWatch. Cherney graduated from Trent University with a degree in history.

Arm to develop own chips; stock falls as outlook disappoints

July 30 (Reuters) - Chip architecture provider Arm Holdings is investing in developing its own chips, CEO Rene Haas said on Wednesday, marking a major shift to its model of licensing its blueprints to other companies. Arm also issued quarterly forecasts that failed to satisfy investors who have sent the company's stock surging in recent months on expectations it will become a key player in artificial intelligence. Arm shares slumped around 8% in extended trading on Wednesday. The plan to invest more heavily in developing its own chips marks a departure from Arm's long-time business of supplying intellectual property to companies ranging from Nvidia (NVDA.O), opens new tab to Amazon.com (AMZN.O), opens new tab, which already design their own chips. Finished chips are the "physical embodiment" of a product Arm already sells called Compute Sub Systems (CSS), Haas said. "We are consciously deciding to invest more heavily -- is the possibility of going beyond (designs) and building something, building chiplets or even possible solutions," Haas said in an interview with Reuters. Chiplets are smaller, modular versions of a larger chip. Chiplets perform specific functions, and designers will stitch several together to form a complete processor. To build up the necessary staff to make chiplets and other finished chips, Arm has been recruiting from its customers and competing against them for deals, Reuters has reported. Haas declined to provide a timeframe in which the company's investments in the new strategy would translate into profit, or give specifics about potential new products that are part of the initiative. But, Haas said that Arm would look at chiplets, "a physical chip, a board, a system, all of the above." In recent months, chip companies have begun to focus more effort on building the necessary server hardware, or server rack, around a chip. Nvidia sells its NV72 rack systems, and Advanced Micro Devices (AMD.O), opens new tab acquired server builder ZT Systems to build system-level products. This expansion of its business could put Arm in competition with some of its customers, who design finished chips and chiplets for their own products. The company forecast second-quarter profit slightly below estimates on Wednesday, as global trade tensions threaten to hit demand for Arm in its mainstay smartphone market. The company's chip technology powers nearly every smartphone in the world, and its tame forecast underscores uncertainty faced by global manufacturers and their suppliers resulting from U.S. President Donald Trump's tariff policies. UK-based Arm forecast adjusted per-share profit between 29 cents and 37 cents for the fiscal second quarter, the midpoint of which is below analysts' average estimate of 36 cents per share, according to LSEG data. The company generates revenue through licensing deals for its intellectual property and a royalty charged for each chip sold that uses its technology. Smartphones remain Arm's biggest stronghold. Morningstar analysts expect Arm to continue as the dominant architecture provider in smartphone processors, where it has a 99% market share. Global trade tensions, however, cloud the outlook for the market. Uncertainty fueled by tariff volatility and ongoing macroeconomic challenges has tapered end-market demand, with global smartphone shipments increasing just 1% in the April-to-June period, according to International Data Corporation. The company expects current-quarter revenue between $1.01 billion and $1.11 billion, in line with estimates of $1.06 billion. The company reported first-quarter sales of $1.05 billion, coming in just shy of estimates of $1.06 billion. Adjusted profit of 35 cents per share was in line with estimates. It has also made attempts to diversify into the booming data center market, where customers such as Amazon's (AMZN.O), opens new tab cloud unit use its technology. Reporting by Max A. Cherney in San Francisco and Arsheeya Bajwa in Bengaluru; Editing by Alan Barona and Nia Williams Our Standards: The Thomson Reuters Trust Principles., opens new tab * Suggested Topics: * Artificial Intelligence Max A. Cherney Thomson Reuters Max A. Cherney is a correspondent for Reuters based in San Francisco, where he reports on the semiconductor industry and artificial intelligence. He joined Reuters in 2023 and has previously worked for Barron's magazine and its sister publication, MarketWatch. Cherney graduated from Trent University with a degree in history.

Arm shares drop as outlook disappoints; company looks to invest to make own chips

July 30 (Reuters) - Arm Holdings shares tumbled 8% in extended trading on Wednesday, after the chip tech provider issued quarterly forecasts that disappointed investors, in part because of its plans to invest a portion of its profit into building its own chips and other components. The company forecast fiscal second-quarter profit slightly below estimates as global trade tensions threaten to hit demand for Arm in its mainstay smartphone market, failing to satisfy investors who have sent the stock surging in recent months. The plan to invest more heavily in developing its own chips marks a departure from Arm's long-time business of supplying intellectual property to companies ranging from Nvidia (NVDA.O), opens new tab to Amazon.com (AMZN.O), opens new tab, which already design their own chips. Finished chips are the "physical embodiment" of a product Arm already sells called Compute Sub Systems (CSS), Arm CEO Rene Haas said. "We are consciously deciding to invest more heavily - (in) the possibility of going beyond (designs) and building something, building chiplets or even possible solutions," Haas said in an interview with Reuters. Chiplets are smaller, function-specific versions of a larger chip that designers can use as building blocks to form a complete processor. Solutions integrate hardware and software. The decision to increase its investments in potential chips, chiplets and solutions may not result in a product if Arm decides to halt development or pause various projects, the company said. If the company opts to make a full chip, it will eat into the company's profit and is no guarantee of success. Advanced AI chips cost upwards of $500 million for the silicon alone and potentially more for the server hardware and software necessary to support it. To build up the necessary staff to make chiplets and other finished chips, Arm has been recruiting from its customers and competing against them for deals. Haas declined to provide a timeframe in which the company's investments in the new strategy would translate into profit, or give specifics about potential new products that are part of the initiative. But he said that Arm would look at chiplets, "a physical chip, a board, a system, all of the above." For years, the SoftBank Group -owned Arm has embarked on an ambitious campaign to expand its revenue and boost its profit through a combination of new, higher-margin products such as the CSS tech and boosting the royalties it collects on each chip. Details of discussions among Arm executives about making its own chips emerged during a trial in December. The decision to build its own chip could bring Arm into direct competition with its customers such as Nvidia (NVDA.O), opens new tab, who rely on the company's intellectual property. INVESTORS DISAPPOINTED Arm's chip technology powers nearly every smartphone in the world, and its tame forecast underscores uncertainty faced by global manufacturers and their suppliers resulting from U.S. President Donald Trump's tariff policies. UK-based Arm forecast adjusted per-share profit between 29 cents and 37 cents for the fiscal second quarter, the midpoint of which is below analysts' average estimate of 36 cents per share, according to LSEG data. "Results and outlook were light and below expectations," said Summit Insights analyst Kinngai Chan. Arm has surged around 150% since its stock market debut in 2023, and its shares recently traded at over 80 times expected earnings, far higher than the PE valuations of Nvidia, Advanced Micro and other chipmakers focused on AI. Smartphones remain Arm's biggest stronghold. Morningstar analysts expect Arm to continue as the dominant architecture provider in smartphone processors, where it has a 99% market share. Global trade tensions, however, cloud the outlook for the market. Uncertainty fueled by tariff volatility and ongoing macroeconomic challenges has tapered end-market demand, with global smartphone shipments increasing just 1% in the April-to-June period, according to International Data Corporation. Arm expects current-quarter revenue between $1.01 billion and $1.11 billion, in line with estimates of $1.06 billion. The company reported first-quarter sales of $1.05 billion, coming in just shy of estimates of $1.06 billion. Adjusted profit of 35 cents per share was in line with estimates. "Smartphone royalties (call it "Android on a low‑carb diet") remain soft, especially in China, but cloud‑server and AI accelerator design wins keep the (next generation Arm tech) royalty treadmill humming," Running Point Capital chief investment officer Michael Schulman said. Reporting by Max A. Cherney in San Francisco and Arsheeya Bajwa in Bengaluru; Editing by Alan Barona and Nia Williams Our Standards: The Thomson Reuters Trust Principles., opens new tab * Suggested Topics: * Artificial Intelligence Max A. Cherney Thomson Reuters Max A. Cherney is a correspondent for Reuters based in San Francisco, where he reports on the semiconductor industry and artificial intelligence. He joined Reuters in 2023 and has previously worked for Barron's magazine and its sister publication, MarketWatch. Cherney graduated from Trent University with a degree in history.

Arm sinks as chip ambitions, muted forecast shake investor confidence

July 31 (Reuters) - Arm Holdings shares fell 7% in premarket trading on Thursday as the chip tech provider's plan to invest in its own chip development, which would bite into future profits, disappointed investors. Arm's decision to ramp up investment in chip creation marks a significant pivot from its legacy business model of licensing intellectual property to tech heavyweights like Nvidia (NVDA.O), opens new tab and Amazon.com (AMZN.O), opens new tab, companies that already design their own chips. Potential conflicts of interest could arise as Arm's chip strategy positions it to compete with its own customers, said analysts at J.P. Morgan led by Harlan Sur. "The (Arm) team remains focused on system-level, software, and AI initiatives. However, we are increasingly concerned with its strategy to develop full chip solutions," Sur said. Arm forecast fiscal second-quarter profit slightly below Wall Street estimates, as escalating global trade tensions threaten demand in its core smartphone market, disappointing investors who had driven the stock sharply higher in recent months. Arm has jumped 150% since its stock market debut in 2023, and has risen 32.4% so far this year, compared with gains of about 34% for Nvidia (NVDA.O), opens new tab and 49% for AMD (AMD.O), opens new tab. The shares trade at over 80 times the earnings estimates, much higher than rivals Nvidia's 34.91 and AMD's 35.33. Arm's subdued forecast highlights the uncertainty facing global manufacturers and supply chains amid ongoing U.S. trade tensions. At least two brokerages raised their price targets on the stock, bringing the median to $155, according to data compiled by LSEG. Reporting by Akriti Shah in Bengaluru; Editing by Mrigank Dhaniwala Our Standards: The Thomson Reuters Trust Principles., opens new tab

Arm sinks as chip-making ambitions, muted forecast shake investor confidence

July 31 (Reuters) - Arm Holdings shares tumbled nearly 13% in early trading on Thursday as the chip tech provider's plan to invest in its own chip development, which would bite into future profits, disappointed investors. The company's decision to ramp up investment in chip creation marks a significant pivot from its legacy business model of licensing intellectual property to the likes of Nvidia (NVDA.O), opens new tab and Amazon (AMZN.O), opens new tab, which already design their own chips. This new chip strategy positions it to compete with its own customers and could lead to conflicts of interest, J.P. Morgan analyst Harlan Sur said. "The (Arm) team remains focused on system-level, software, and AI initiatives. However, we are increasingly concerned with its strategy to develop full chip solutions," Sur said. Arm forecast fiscal second-quarter profit slightly below Wall Street estimates, as escalating global trade tensions threaten demand in its core smartphone market, disappointing investors who had driven the stock sharply higher in recent months. Arm has jumped 150% since its stock market debut in 2023, and has risen 32.4% so far this year, compared with gains of about 34% for Nvidia (NVDA.O), opens new tab and 49% for AMD (AMD.O), opens new tab. The shares trade at over 80 times the earnings estimates, much higher than rivals Nvidia's 34.91 and AMD's 35.33. Arm's subdued forecast highlights the uncertainty facing global manufacturers and supply chains amid ongoing U.S. trade tensions. At least nine brokerages raised their price targets on the stock, while two lowered theirs, bringing the median to $155, according to data compiled by LSEG. The company's shares were last down 12.6% at $142.75. Reporting by Akriti Shah in Bengaluru; Editing by Mrigank Dhaniwala and Savio D'Souza Our Standards: The Thomson Reuters Trust Principles., opens new tab

Shares of chipmakers Arm and Qualcomm slide as smartphone sales skid - SiliconANGLE

Shares of chipmakers Arm and Qualcomm slide as smartphone sales skid Shares of the chipmakers Arm Holdings Plc and Qualcomm Inc. were heading lower in today's after-hours trading session. The decline in Arm's stock was perhaps understandable, given its mixed results, but Qualcomm will be wondering what it did wrong after beating expectations on earnings and revenue and offering strong guidance for the current quarter. First up was Arm, whose stock fell more than 8% in extended trading after it posted disappointing first-quarter earnings and revenue. The company delivered earnings before certain costs such as stock compensation of 35 cents per share, matching Wall Street's forecast, while revenue came to $1.05 billion, just shy of the analyst's target of $1.06 billion. The company's net income was down 42% to just $130 million, while its guidance wasn't much better, with executives forecasting a range of between $1.01 billion and $1.11 billion, which is more or less in line with the Street's target of $1.05 billion. Arm has made a name for itself by designing the architecture for computer chips that power the vast majority of the world's smartphones, as well as tablets and wearable devices. In recent years, its chip designs have also started appearing in data center servers and in PCs. However, the company's story may change, for Arm Chief Executive Rene Haas (pictured) told Reuters in an interview after the results were published that he's now looking to invest more heavily in technology that goes "beyond designs". He didn't say so directly, but the suggestion is that Arm could be thinking of building its own, complete processors. On an earnings call with analysts, Haas elaborated on this a bit more, admitting that there is an "execution risk". Arm, which sells its chip designs to almost every major semiconductor company, would also risk turning its main customers into competitors if it did decide to make its own chips. However, those customers might still be interested in buying Arm's complete chips. For instance, the likes of Microsoft Corp. and Amazon Web Services Inc. both design their own data center processors based on Arm's architecture designs, and according to Haas, some of them have "asked for a better starting point." According to Haas, that better starting point might be an entire chiplet designed and built by Arm, which could then be integrated into custom chips. It could also build the entire chip itself, according to the customer's specifications. "We're looking now at the viability of moving beyond the current platform to additional subsystems, chiplets or possibly full solutions," Hass said. That's all well and good, but investors seemed to be more focused on Arm's immediate business, which is earning royalties from the sales of other companies' chips that utilize its architectural designs. Unfortunately for Arm, that business isn't doing so great, primarily due to dwindling smartphone sales that it has little direct control over. "The growth wasn't quite as strong in the smartphone sector as maybe we'd expected," Arm Chief Financial Officer Jason Child admitted on the call. Arm's problem is that U.S. President Donald Trump continues to create economic uncertainty with threats of implementing big, blanket tariffs on any country that doesn't negotiate a separate trade agreement. In turn, that uncertainty continues to curtail consumer spending on smartphones. As a result, Arm's "license and other revenue" declined 1% from a year earlier to $468 million. Royalty revenue, which stems from the sales of more complete architecture designs, was a bright spot, up 25% to $585 million. Despite the after-hours decline, Arm's stock is still up more than 29% in the year to date, outperforming the broader S&P 500 Index, which is up just 8% in the same period. While Arm's after-hours movements could be easily explained, it's a lot less clear why investors were taking out their frustrations on Qualcomm. The chipmaker, which dominates the market for smartphone semiconductors, delivered solid third-quarter results, with earnings of $2.77 per share beating the Street's target of $2.71, and revenue growing 10% to $10.37 billion, just ahead of the $10.35 billion forecast. The results helped Qualcomm to increase its net profit to $2.66 billion in the quarter, up from $2.13 billion a year earlier. Qualcomm's guidance was decent too, with executives saying they're looking at revenue of $10.7 billion at the midpoint of their guidance range, ahead of Wall Street's $10.35 billion target. They're also looking for earnings of $2.85 per share, versus the $2.83 cent analyst forecast. The one, glaring blot on Qualcomm's results was revenue from its handset business, which makes chips for smartphones. It reported total sales of $6.33 billion, shy of the Street's forecast of $6.44 billion. Even so, the company made up for it with strong gains in its automotive and internet of things businesses, where revenue increased by 21% and 24%, respectively. Qualcomm also reported growth in its QTL division, which makes money from patent licensing fees for technologies it has developed, such as the 5G standard. Overall, the unit generated $1.32 billion in sales, up 11% from the year-ago period. Just like Arm, Qualcomm is eager to expand its business further and has plans to design and sell chips that can be used directly in data centers for artificial intelligence workloads. On a conference call with analysts, Qualcomm CEO Cristiano Amon (pictured, right) said the company is already holding discussions with a major cloud infrastructure provider over such a move, which could start generating revenue for the company by fiscal 2028. "While we are in the early stages of this expansion, we are engaged with multiple potential customers," Amon said. "We are currently in advanced discussions with a leading hyperscaler." That prospect, however, wasn't enough to dissuade whatever concerns investors have about Qualcomm's near-term prospects, and its stock fell more than 5% after-hours. As a result, Qualcomm's shares are up just over 3% in the year to date.

Arm considers developing own chips; stock falls as outlook disappoints - The Economic Times

Arm Holdings is investing in developing its own chips, a big shift from its usual model of licensing designs. The move may create competition with its customers. Despite strong past growth, Arm gave a weaker profit forecast, causing shares to fall 8%. Smartphone market uncertainty and global trade tensions remain key concerns.Chip architecture provider Arm Holdings is investing in developing its own chips, CEO Rene Haas said on Wednesday, marking a major shift to its model of licensing its blueprints to other companies. Arm also issued quarterly forecasts that failed to satisfy investors who have sent the company's stock surging in recent months on expectations it will become a key player in artificial intelligence. Arm shares slumped around 8% in extended trading on Wednesday. The plan to invest more heavily in developing its own chips marks a departure from Arm's long-time business of supplying intellectual property to companies ranging from Nvidia to Amazon.com, which already design their own chips. Finished chips are the "physical embodiment" of a product Arm already sells called Compute Sub Systems (CSS), Haas said. "We are consciously deciding to invest more heavily - is the possibility of going beyond (designs) and building something, building chiplets or even possible solutions," Haas said in an interview with Reuters. Chiplets are smaller, modular versions of a larger chip. Chiplets perform specific functions, and designers will stitch several together to form a complete processor. To build up the necessary staff to make chiplets and other finished chips, Arm has been recruiting from its customers and competing against them for deals, Reuters has reported. Haas declined to provide a timeframe in which the company's investments in the new strategy would translate into profit, or give specifics about potential new products that are part of the initiative. But, Haas said that Arm would look at chiplets, "a physical chip, a board, a system, all of the above." In recent months, chip companies have begun to focus more effort on building the necessary server hardware, or server rack, around a chip. Nvidia sells its NV72 rack systems, and Advanced Micro Devices acquired server builder ZT Systems to build system-level products. This expansion of its business could put Arm in competition with some of its customers, who design finished chips and chiplets for their own products. Arm has surged around 150% since its stock market debut in 2023, and its shares recently traded at over 80 times expected earnings, far higher than the PE valuations of Nvidia, Advanced Micro and other chipmakers focused on AI. Disappointing forecast The company forecast second-quarter profit slightly below estimates on Wednesday, as global trade tensions threaten to hit demand for Arm in its mainstay smartphone market. Arm's chip technology powers nearly every smartphone in the world, and its tame forecast underscores uncertainty faced by global manufacturers and their suppliers resulting from U.S. President Donald Trump's tariff policies. UK-based Arm forecast adjusted per-share profit between 29 cents and 37 cents for the fiscal second quarter, the midpoint of which is below analysts' average estimate of 36 cents per share, according to LSEG data. The forecast disappointed investors, according to Summit Insights analyst Kinngai Chan. "Results and outlook were light and below expectations," he said. The company generates revenue through licensing deals for its intellectual property and a royalty charged for each chip sold that uses its technology. Smartphones remain Arm's biggest stronghold. Morningstar analysts expect Arm to continue as the dominant architecture provider in smartphone processors, where it has a 99% market share. Global trade tensions, however, cloud the outlook for the market. Uncertainty fuelled by tariff volatility and ongoing macroeconomic challenges has tapered end-market demand, with global smartphone shipments increasing just 1% in the April-to-June period, according to International Data Corporation. Arm expects current-quarter revenue between $1.01 billion and $1.11 billion, in line with estimates of $1.06 billion. The company reported first-quarter sales of $1.05 billion, coming in just shy of estimates of $1.06 billion. Adjusted profit of 35 cents per share was in line with estimates. "Smartphone royalties (call it "Android on a low-carb diet") remain soft, especially in China, but cloud-server and AI accelerator design wins keep the (next generation Arm tech) royalty treadmill humming," Running Point Capital chief investment officer Michael Schulman said.

Arm Holdings Explores Designing Its Own Chips As AI Demand Skyrockets: More Competition For Nvidia? - ARM Holdings (NASDAQ:ARM), Amazon.com (NASDAQ:AMZN)

Arm Holdings Plc ARM is actively exploring a significant strategic shift towards developing "full-end solutions" and chiplets, potentially moving beyond its traditional intellectual property (IP) licensing model. Check out the stock price of Arm over here. What Happened: This revelation came during the company's first quarter 2026 earnings call, where CEO Rene Haas indicated the move is driven by the "insatiable compute demands of AI" and customer requests for more integrated solutions. Haas stated, "We are continuing to explore the possibility of moving beyond our current platform into additional compute to subsystems, chiplets and potentially full-end solutions." He elaborated that the company is "looking now at the viability of moving beyond the current platform to additional subsystems, chiplets or possibly full solutions," emphasizing that Arm possesses the internal expertise needed to "design, implement and have a chiplet, for example, manufacturing." This signals a potential foray into areas currently dominated by its partners and customers, including major players like Nvidia Corp. NVDA. The strategic exploration is closely tied to Arm's surging presence in the AI landscape. The company reported that its Neoverse data center chips are expected to capture "nearly 50%" market share among top hyperscalers this year, a dramatic leap from "sub 20%" just a year ago. This growth is fueled by adoption in critical AI infrastructure, including Nvidia Grace Blackwell, Amazon.com Inc.'s AMZN AWS Graviton, Alphabet Inc.'s GOOG GOOGL Google Axion, and Microsoft Corp.'s MSFT Cobalt. The integration of Arm designs into high-performance AI systems, such as Nvidia's Grace Blackwell, which is "25x more energy efficient than the previous x86-based system," underscores Arm's growing influence. See Also: Bitcoin Miner IREN Could Surge 1,572% As SOTP Valuation Pegs $300 Target -- Hedge Fund Manager Eric Jackson Says, 'We're Cooking With Gas' Why It Matters: While a direct entry into chip manufacturing could create new competitive dynamics with its existing clientele, Arm's confidence stems from its unique position as the "only compute platform built to deliver AI performance across the full spectrum of power and performance from milliwatts to megawatts." The company also highlighted the success of its Compute Subsystems (CSS) platforms, which are already delivering "double the royalty of Armv9" and exceeding expectations, providing a blueprint for more integrated offerings. Arm missed the first-quarter revenue estimate of $1.055 billion, as its sales came in at $1.053 billion. The adjusted earnings of 35 cents per share were in line with the analyst estimates. - Price Action: Arm shares fell 8.56% in after-hours on Wednesday. The stock was up 27.40% year-to-date and 13.29% over the past year. Benzinga's Edge Stock Rankings indicate that Arm maintains solid momentum across the short, medium, and long term. However, the stock scores poorly on value rankings. Additional performance details are available here. The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, ended on a mixed note on Wednesday. The SPY was down 0.13% at $634.46, while the QQQ advanced 0.13% to $568.02, according to Benzinga Pro data. On Thursday, the futures of the Dow Jones, S&P 500, and Nasdaq 100 indices were trading higher. Read Next: Warren Buffett Has 56% Of His $258 Billion Portfolio's Value Exposed To AI: Here Are The 5 Stocks That Are Leveraging AI Within Berkshire's Holdings Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors. Photo courtesy: Shutterstock AMZNAmazon.com Inc$237.422.77%Stock Score Locked: Edge Members Only Benzinga Rankings give you vital metrics on any stock - anytime. Unlock RankingsEdge RankingsMomentum69.00Growth97.31Quality66.69Value49.39Price TrendShortMediumLongOverviewARMARM Holdings PLC$149.35-8.64%GOOGAlphabet Inc$196.900.24%GOOGLAlphabet Inc$195.900.08%MSFTMicrosoft Corp$555.748.42%NVDANVIDIA Corp$183.384.48%QQQInvesco QQQ Trust, Series 1$573.951.18%SPYSPDR S&P 500$638.950.58%Market News and Data brought to you by Benzinga APIs

Arm AI Ambitions Grow, But Analysts Worry About Margin Trouble - ARM Holdings (NASDAQ:ARM)

Arm Holdings ARM underwhelmed with its latest quarterly results, prompting Wall Street analysts to revise their ratings on the chip designer. The company reported fiscal first-quarter revenue of $1.053 billion, up 12% year-over-year. It missed analyst estimates of $1.055 billion. Arm reported first-quarter adjusted earnings of 35 cents per share, which is in line with analyst estimates. Also Read: Chipmaker Arm Is Riding AI Wave And Outperforming The Market Arm expects second-quarter revenue of $1.01 billion to $1.11 billion, compared to estimates of $1.056 billion. The company anticipates second-quarter adjusted earnings of 29 cents to 37 cents per share, compared to estimates of 35 cents per share. Trending Investment OpportunitiesAdvertisementArrivedBuy shares of homes and vacation rentals for as little as $100. Get StartedWiserAdvisorGet matched with a trusted, local financial advisor for free.Get StartedPoint.comTap into your home's equity to consolidate debt or fund a renovation.Get StartedRobinhoodMove your 401k to Robinhood and get a 3% match on deposits.Get StartedAnalyst Reaction Needham analyst Charles Shi reiterated a Hold rating for ARM. Rosenblatt analyst Kevin Cassidy maintained a Buy rating and a $180 price forecast for ARM. Goldman Sachs analyst James Schneider reiterated ARM with a Neutral rating and reduced the price forecast from $160 to $150. JPMorgan analyst Harlan Sur maintained a rating of Overweight for ARM and increased the price forecast from $150 to $175. Needham: Shi sees Arm's first-quarter results and second-quarter guidance as primarily in line with expectations. While full-year revenue expectations remain unchanged, guidance now suggests a weaker third quarter and stronger fourth quarter. Licensing revenue, Shi says, offsets softer royalties due to weak smartphone trends. Arm is transitioning from a pure IP licensing model to a product-centric approach, likely involving chiplet or full-chip development. This shift, driven partly by expanded design services revenue from SoftBank, pushes operating expenses higher -- raising fiscal 2026 OpEx by around $100 million. Shi believes this transformation could pressure earnings soon, even as it signals a bold strategic pivot with long-term implications. Rosenblatt: Cassidy views Arm's first-quarter fiscal 2026 results as roughly in line with expectations, though earnings guidance came in slightly below consensus due to increased R&D spending, primarily to support its growing relationship with SoftBank. Cassidy remains optimistic that this investment will yield a positive return, particularly in AI data center applications. He highlights the strong momentum of Arm's Compute Subsystem (CSS), which helps customers bring AI-enabled products to market faster and supports higher royalty rates. First-quarter revenue of $1.053 billion, driven by a 25% year-over-year rise in royalties, slightly exceeded forecasts. While license revenue dipped 1%, this was expected due to timing shifts. Cassidy forecasted continued growth from AI, hyperscaler deployments, and Arm's expanding product partnerships. Goldman Sachs: Schneider sees Arm's latest quarterly results as primarily in line with expectations, but believes the stock may face near-term pressure. While revenue and EPS matched Street estimates, royalty revenue came in below forecast, and management's updated guidance pointed to slower royalty growth and elevated operating expenses. Schneider notes that expectations were high going into the report, driven by optimism around AI deployments and smartphone recovery. However, lower visibility in smartphone demand and deferral of royalty recognition have tempered the outlook. Arm is well-positioned for long-term gains in data centers and benefits from increasing royalty rates. Still, Schneider remains Neutral on the stock. He cut his EPS estimates by 6% and lowered his price forecast, citing limited near-term upside and high valuation. JPMorgan: Arm's fiscal first-quarter 2026 results as in line with expectations. Substantial licensing revenue helped offset weaker royalties tied to soft smartphone demand. For the September quarter, Arm guided revenue of $1.06 billion -- matching consensus -- but EPS guidance of 33 cents missed expectations due to higher operating expenses. While full-year revenue expectations remain unchanged, management now expects royalty growth to come in at the low end of its prior 10-15% range. Sur remains impressed by Arm's success with its Compute Subsystem (CSS) architecture, which generates royalty rates above 10%, but expresses concern over the company's push into full chip development. He warns this could erode margins and potentially alienate key customers. Price Action: ARM stock is down by 13.8% at $140.78 at the last check on Thursday. Read Next: Garmin Stock Climbs After Strong Q2 Beat, Fitness And Outdoor Sales Surge, MYLAPS Acquisition Image: Shutterstock ARMARM Holdings PLC$139.85-14.4%Stock Score Locked: Want to See it? Benzinga Rankings give you vital metrics on any stock - anytime. Reveal Full ScoreEdge RankingsMomentum70.66GrowthN/AQualityN/AValue5.49Price TrendShortMediumLongOverviewMarket News and Data brought to you by Benzinga APIs

Arm Stock: Are Investors Missing the Forest for the Trees? | The Motley Fool

The stock sold off on a decline in profits and weak guidance, but there's more to the story than that. Arm Holdings (ARM 1.68%) has been a clear winner since its 2023 initial public offering as the stock has tripled in less than two years. However, investors have greeted its last two earnings reports less warmly. For the second time in a row on Thursday, Arm stock dove following its earnings report after offering disappointing guidance. Back in May, shares fell 6.2% after management declined to give full-year guidance due to uncertainty in the macro environment and the semiconductor sector. This time around, the stock fell 13.4% after first-quarter results only matched estimates and guidance for the second quarter was underwhelming. The company's first-quarter results were in line with guidance, since revenue rose 12% to $1.05 billion as it lapped a large licensing deal from the quarter a year ago. Adjusted earnings per share fell from $0.40 to $0.35 as the company stepped up its investments in R&D, which rose 48% to $440 million on an adjusted basis. Some investors seemed to balk at those expenses given the double-digit sell-off in the stock, but Arm could be setting itself up for some big wins down the road. Arm didn't make any product announcements on the earnings call despite questions from analysts, but media reports have been trickling out about its plans for new chip components after finding success with Compute Subsystems (CSS), a more advanced starting point to build chips, which moves its design strategy beyond Arm v9 CPUs. On the earnings call, CEO Rene Haas said that CSS has "been successful beyond our expectations." In an interview with The Motley Fool, Arm CFO Jason Child explained the evolution of the company's strategy from licensing its CPU architecture to now possibly designing its own chips. Child described the status of the product development as being far enough along that it's time to increase investment for things like lab testing, more complete design, and growing head count around those products. He called the investment "offensive spending," and said the company has a track record of turning this kind of investment into high-leverage revenue, as it did with CSS. With this investment cycle, Arm is also responding to what its customers want. Haas said on the earnings call that newer customers and even traditional customers have "asked for a better starting point as they develop their systems on chips." By doing more of the design work, Arm can both charge more money for its product and save its customers valuable time bringing products to market, especially at a time when many of its customers are racing to develop artificial intelligence (AI) models. On the one hand, the post-earnings sell-off in the stock is understandable. A 12% revenue increase, even with difficult comparisons, isn't particularly exciting, and a decline in profits tends to be anathema for growth stocks. Arm also trades at a lofty price-to-sales valuation of 42, showing high expectations are baked into the stock. However, it makes sense for the company to advance its product strategy right now, when AI demand is soaring from all end users. Arm already has a unique competitive advantage in the industry with its battery-efficient CPU design, which gives it a clear edge in markets like smartphones and, increasingly, data centers. Building chiplets or even complete chips with that technology inside seems like a winning strategy, especially as Arm continues to take market share from the X86 design employed by Intel and Advanced Micro Devices. Investors will have to be patient with the current investment cycle, but it seems likely to pay off for Arm, given the strong performance of CSS and customer interest in more advanced products. Arm may not even have to take a product to market to reward investors. A simple announcement may be enough for that. It's unclear when we'll get an update, but viewed in that context, it's much easier to look at the increase in R&D spending as an investment in future growth and a potentially transformative product, rather than just a headwind on profits. Arm has the competitive advantage and strength of its core business to take such a risk, and the success with CSS should lead to other wins. For long-term investors, taking advantage of the post-earnings sell-off looks like a smart move.

Arm Stock Drops as the Artificial Intelligence (AI) Chip Designer's Earnings Guidance Disappoints Investors | The Motley Fool

The chip designer's results and guidance were not good enough to support its highly valued stock, but its attractive business model makes it worth watching. Arm Holdings (ARM -0.12%) stock dropped 8.6% in Wednesday's after-hours trading, following the leading central processing unit (CPU) chip designer's release of its report for the first quarter of its fiscal year 2026 (ended June 30, 2025). The stock's decline is attributable to investors being disappointed with second-quarter guidance for both revenue and adjusted earnings per share (EPS). The midpoint of the guidance ranges for these metrics fell a bit short of the analyst consensus estimates. Arm's first-quarter revenue slightly surpassed Wall Street's estimate, while adjusted EPS was in line with the consensus estimate. Data source: Arm Holdings. GAAP = generally accepted accounting principles. Fiscal Q1 2026 ended June 30, 2025. Investors should focus on the adjusted numbers, which exclude one-time items. Wall Street was looking for adjusted EPS of $0.35 on revenue of $1.04 billion, so Arm hit the earnings estimate on the target and slightly beat the revenue estimate. Both results were at or near the midpoint of the company's own guidance ranges, which were for adjusted EPS of $0.30 to $0.38 on revenue of $1 billion to $1.1 billion. So why did year-over-year revenue grow but adjusted operating income, net income, and EPS decline? The culprit: Adjusted operating expenses increased by 33% year over year, significantly more than revenue rose. The company said this surge in operating expenses was "driven primarily by an increase in engineering headcount." Arm generated $332 million in cash running its operations during the quarter, whereas it used $290 million in cash in the year-ago period. On an adjusted basis, free cash flow was $150 million, versus an outflow of $348 million in last year's first quarter. The company ended the quarter with cash, cash equivalents, and short-term investments of $2.91 billion. It has no long-term debt. Data source: Arm Holdings. YOY = year over year. Royalty revenue was a record high for a first quarter. Its growth was driven by continued adoption of the company's newest architecture, Armv9, which has a higher royalty rate than its predecessor; the ramp-up of chips based on its computer subsystems (CSS); and increased usage of Arm-based chips in data centers. Data centers have been increasing in size and number largely to process surging artificial intelligence (AI) workloads. License and other revenue declined slightly "due to normal fluctuations in the timing and size of multiple high-value license agreements and contributions from backlog," the company said in the release. CEO Rene Haas' statement in the earnings release: Arm is powering AI workloads everywhere with unmatched performance and energy efficiency. Our Q1 FYE26 [fiscal year 2026] results exceeded $1 billion in revenue for the second straight quarter as royalties grew across all target end markets, demonstrating the strength of Arm as the AI platform of choice -- from the cloud to the smallest edge devices. Arm issued fiscal second-quarter guidance: Going into the report, Wall Street had been modeling for Q2 revenue of $1.07 billion and adjusted EPS of $0.35, so Arm's outlook at both midpoints was a little lower than these expectations. In short, Arm turned in a very good quarter. Investors shouldn't be concerned that license revenue declined 1% year over year, as this revenue stream will be "lumpy" from quarter to quarter based on sizes and timing of license signings. That said, it makes sense that investors drove the stock down moderately after the release. Arm stock sports a high valuation. It was priced at 89 times Wall Street's estimated forward adjusted EPS, as of the close of Wednesday's regular trading session. Arm's Q1 adjusted EPS result and Q2 adjusted EPS guidance are not good enough to support a stock valued this richly. Arm, however, remains a stock worth watching and considering buying during pullbacks. The company has a great business model featuring recurring revenue (royalty revenue) that can have a very long tail in some cases.

Chip tech provider Arm looks to design own processors in major shift

(Reuters) -Arm Holdings is investing in developing its own chips, CEO Rene Haas said on Wednesday, marking a major shift to its model of licensing its blueprints to other companies. "We are consciously deciding to invest more heavily -- is the possibility of going beyond (designs) and building something, building chiplets or even possible solutions," Haas said in an interview with Reuters. Arm shares dropped roughly 4% in extended trading on Wednesday. Chiplets are smaller, modular versions of a so-called monolithic processor that performs specific functions. Designers will stitch several chiplets together to form a complete processor. Arm has been recruiting from its customers and competing against them for deals as it pushes toward selling its own chips, Reuters has reported. The investments Arm is making are an extension of its approach to building more complete designs, known as CSS, Haas said. Haas declined to provide a timeframe in which the company's investments in the new strategy would translate into profit, or give specifics about potential new products that are part of the initiative. This expansion of its business puts the chip tech provider Arm in competition with some of its customers, including Nvidia, which builds its own processors on top of Arm's architecture. The company also forecast second-quarter profit slightly below estimates on Wednesday, as global trade tensions threaten to hit demand for the chip architecture provider in its mainstay smartphone market. The company's chip technology powers nearly every smartphone in the world, and its tame forecast underscores uncertainty faced by global manufacturers and their suppliers resulting from U.S. President Donald Trump's tariff policies. UK-based Arm forecast adjusted per-share profit between 29 cents and 37 cents for the fiscal second quarter, the midpoint of which is below analysts' average estimate of 36 cents per share, according to LSEG data. The company generates revenue through licensing deals for its intellectual property and a royalty charged for each chip sold that uses its technology. Smartphones remain Arm's biggest stronghold. Morningstar analysts expect Arm to continue as the dominant architecture in smartphone processors, where it has a 99% market share. Global trade tensions, however, cloud the outlook for the market. Uncertainty fueled by tariff volatility and ongoing macroeconomic challenges has tapered end-market demand, with global smartphone shipments increasing just 1% in the April-to-June period, according to International Data Corporation. The company expects current-quarter revenue between $1.01 billion and $1.11 billion, in line with estimates of $1.06 billion. The company reported first-quarter sales of $1.05 billion, coming in just shy of estimates of $1.06 billion. Adjusted profit of 35 cents per share was in line with estimates. It has also made attempts to diversify into the booming data center market, where customers such as Amazon's cloud unit use its technology. The company's chip architecture also competes against Intel and AMD's longstanding x86 stronghold in the server central processor market -- a booming area in the AI industry where CPUs are used alongside advanced graphics processors in data centers. (Reporting by Max A. Cherney in San Francisco and Arsheeya Bajwa in Bengaluru; Editing by Alan Barona and Nia Williams) By Max A. Cherney and Arsheeya Bajwa

Arm sinks as chip-making ambitions, muted forecast shake investor confidence

(Reuters) -Arm Holdings shares tumbled nearly 13% in early trading on Thursday as the chip tech provider's plan to invest in its own chip development, which would bite into future profits, disappointed investors. The company's decision to ramp up investment in chip creation marks a significant pivot from its legacy business model of licensing intellectual property to the likes of Nvidia and Amazon, which already design their own chips. This new chip strategy positions it to compete with its own customers and could lead to conflicts of interest, J.P. Morgan analyst Harlan Sur said. "The (Arm) team remains focused on system-level, software, and AI initiatives. However, we are increasingly concerned with its strategy to develop full chip solutions," Sur said. Arm forecast fiscal second-quarter profit slightly below Wall Street estimates, as escalating global trade tensions threaten demand in its core smartphone market, disappointing investors who had driven the stock sharply higher in recent months. Arm has jumped 150% since its stock market debut in 2023, and has risen 32.4% so far this year, compared with gains of about 34% for Nvidia and 49% for AMD. The shares trade at over 80 times the earnings estimates, much higher than rivals Nvidia's 34.91 and AMD's 35.33. Arm's subdued forecast highlights the uncertainty facing global manufacturers and supply chains amid ongoing U.S. trade tensions. At least nine brokerages raised their price targets on the stock, while two lowered theirs, bringing the median to $155, according to data compiled by LSEG. The company's shares were last down 12.6% at $142.75. (Reporting by Akriti Shah in Bengaluru; Editing by Mrigank Dhaniwala and Savio D'Souza)