Arm makes the CPU architecture for chips found in nearly all smartphones. An Arm chip is shown here in San Jose, California, on October 12, 2023.Sydney Boyo

Arm shares soar as much as 41% after chip designer gives strong forecast, says AI is boosting sales

by · CNBC

Key Points

  • Arm reported fiscal third-quarter earnings that beat estimates and provided a strong profit forecast for the current quarter.
  • The shares spiked in extended trading.

In this article

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Arm reported fiscal third-quarter earnings Wednesday that beat estimates and gave a strong profit forecast for the current quarter. The shares soared as much as 41% in extended trading.

Here's how the company did for the quarter ending December versus consensus estimates from LSEG, formerly known as Refinitiv:

  • Earnings per share: 29 cents adjusted vs. 25 cents expected
  • Revenue: $824 million vs. $761 million expected

Arm, whose chip design technology is in nearly every smartphone and many PCs, said it expects earnings per share for the fiscal fourth quarter of between 28 cents and 32 cents on sales of $850 million to $900 million. Analysts expect earnings of 21 cents per share on sales of $780 million.

The company reported net income of $87 million, or 8 cents per share. Total revenue in the quarter increased 14% from a year earlier.

Arm makes money through royalties, when companies pay for access to build Arm-compatible chips, usually amounting to a small percentage of the final chip price.

Arm said its customers shipped 7.7 billion Arm chips during the September quarter, the most recent period for which figures are available.

The stock rose as high as $108.89 in after-hours trading, but later slipped below $100. It close on Wednesday at $77.01.

Royalty revenue increased 11% on an annual basis to $470 million. The company said the jump was partially because of a recovery in the smartphone market, as well as increasing sales to automotive companies and cloud providers. Arm said it expects growth to be driven by royalty revenue.

In recent years, Arm has emphasized its licensing business, selling access to more complete designs that semiconductor companies can plug into their planned chips. That process saves chipmakers time and effort, and it's more lucrative for Arm than simply collecting royalties.

Arm's license and other revenue was $354 million, up 18% year over year. Arm said more companies were choosing to license its CPU designs to run artificial intelligence, and that the company charges higher licensing fees for advanced designs.

Arm, which had been owned by SoftBank, went public in September. The company was founded in 1990 to develop technology for low-power chips, but became more important to the overall technology industry when the Apple iPhone and competing Android devices standardized on Arm-based chips.

Arm says companies including Apple, Google, Microsoft and Nvidia use its technology.