Chip design firm Arm has adjusted its full-year revenue outlook, narrowing the forecast range while maintaining an overall growth trajectory. The company’s earnings for the third quarter of the financial year ending 2025 (Q3 FY25) exceeded Wall Street expectations, but its guidance did not reach the upper end of its previous projections.
For the reported quarter, Arm posted revenue of $983m, reflecting a year-on-year increase of 19%. The company’s royalty revenue, a key driver of earnings, rose by 23% to $580m, supported by the growing adoption of its Armv9 architecture and increased demand for Arm-based chips in data centres and Internet of Things (IoT) applications. Licensing and other revenue climbed 14% to $403m, benefiting from multiple high-value agreements signed during the quarter. Arm’s net income for the reported quarter rose by 190%, reaching $252m, up from $87m in Q3 of the previous fiscal year.
Arm has forecast fourth-quarter revenue ranging from $1.18bn to $1.28bn, with a midpoint of $1.23bn. Analysts had estimated an average of $1.22bn. The company also adjusted its full-year revenue guidance to between $3.94bn and $4.04bn, refining its earlier projection of $3.8bn to $4.1bn. The midpoint of its adjusted earnings per share forecast rose to $1.6 from $1.55.
Shares decline as growth expectations moderate
Despite reporting stronger-than-expected earnings, Arm’s share price dropped around 6% in extended trading. Since its public listing in 2023, the company’s stock has more than tripled in value as investors anticipated its role in the AI boom. Unlike semiconductor manufacturers like Nvidia, which generates direct revenue from AI chip sales, Arm derives income through licensing fees and royalties. While the AI market has driven demand for Arm’s designs in AI servers and mobile devices, the company’s business model results in a more gradual revenue increase compared to chipmakers selling physical components.
CEO Rene Haas stated that the revised full-year guidance reflected the company’s position late in the fiscal year, rather than a shift in business performance. Analysts had expected a stronger outlook, particularly with the adoption of Armv9 designs in smartphones and AI applications.
Arm’s technology has played a central role in AI development, with its designs integrated into Apple’s latest iPhones and AI-focused data centre hardware. The company is also a key supplier in the recently announced Stargate Project, a joint AI infrastructure initiative involving Microsoft, Nvidia, OpenAI, and Oracle. Additionally, Arm has partnered with SoftBank and OpenAI on the Cristal Intelligence project, which aims to optimise AI-driven workloads.
In a related update, Qualcomm announced that Arm had withdrawn a notice alleging a breach of its licensing agreement, which had been issued in October 2024. Qualcomm also reported earnings above analyst expectations, driven by AI-enabled smartphone demand. However, its stock declined after the company forecasted flat revenue from its patent licensing business. For its current fiscal second quarter, Qualcomm projected revenue between $10.34bn and $11.16bn, with a midpoint of $10.75bn, surpassing analyst expectations of $10.34bn. The company also forecast adjusted earnings per share of $2.8, exceeding analysts’ estimate of $2.69, according to LSEG data.
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