Arm (ARM) Downgraded by BofA on Smartphone and Royalty Headwinds

Group 1 - Arm Holdings plc (NASDAQ:ARM) has been downgraded from Buy to Neutral by BofA Securities, with a price target reduction from $145 to $120 ahead of its Q3 fiscal year 2026 results on February 4 [1] - The downgrade is attributed to near-term challenges in the smartphone market, including rising memory costs, increased reliance on SoftBank for licensing, and a slowdown in royalty revenue, which currently accounts for only about 10% of total royalties [1][3] - Global smartphone shipments are expected to decline at a low single-digit rate year-over-year, influenced by higher memory costs and supply constraints, which will negatively impact Arm's Client business that generates over 50% of royalty revenue [2][3] Group 2 - Revenue for Arm is projected to slow down, particularly in royalties and licensing, with a potential decline of 5% year-over-year in FY26 if excluding SoftBank, which now constitutes 25-30% of total licensing revenue [3] - Despite the short-term challenges, Arm's long-term potential in the data center market remains favorable, with opportunities in server content and new silicon/chiplet developments [2][3]