Arm Holdings (ARM) Q1 2026 Earnings Call July 30, 2025 05:00 PM ET Company ParticipantsJeff Kvaal - Vice President of Investor RelationsRene Haas - CEOJason Child - Executive VP & CFOVivek Arya - Managing DirectorMark Lipacis - Senior MDAndrew Gardiner - Head of European Technology, Equity ResearchVijay Rakesh - Managing DirectorSteven Chin - Vice PresidentStéphane Houri - Head of Equity ResearchConference Call ParticipantsDavid O'Connor - AnalystJoe Quatrochi - Director & Equity Research AnalystSebastien N ...

Financial Data and Key Metrics Changes - The company reported total revenue of $1,050 million for Q1, marking the highest revenue quarter and the second highest overall revenue quarter [5][11] - Royalty revenue reached $585 million, up 25% year on year, with strong growth across all end markets [5][11] - Licensing revenue was $468 million, showing a slight decrease of 1% year on year, which was anticipated following a strong previous fiscal year [12][14] - Non-GAAP operating profit was $412 million, with non-GAAP EPS of $0.35, exceeding the midpoint of guidance [15][18] Business Line Data and Key Metrics Changes - ARM's compute subsystems (CSS) are gaining traction, with demand exceeding expectations and delivering double the royalty of RMV9 [8] - The first generation of CSS is now in market with five customers, and three additional CSS licenses were signed this quarter, more than doubling CSS licenses from a year ago [8][12] - The company expects the royalty rate for the new CSS platforms to be higher than previous generations, indicating strong future revenue potential [12][52] Market Data and Key Metrics Changes - More than 70,000 enterprises are running AI workloads on ARM Neoverse data center chips, a 40% increase year on year [5] - ARM's market share in AI workloads is expected to reach nearly 50% this year, up from approximately 18% last year [6][34] - ARM's China business accounted for about 21% of revenue in Q1, showing growth from previous quarters [70] Company Strategy and Development Direction - The company is focusing on expanding into full end solutions and exploring opportunities in the ASIC market, driven by customer demand for better starting points in SoC development [23][24] - ARM is committed to investing aggressively in R&D to support customer needs and capitalize on AI opportunities [18][88] - The company aims to leverage its unique compute platform to address a wide range of applications from cloud to edge computing [4][88] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in healthy growth for the coming year, driven by visibility into customer design pipelines and rising demand for custom silicon [18][66] - The ongoing increase in CapEx from hyperscalers is seen as a strong tailwind for ARM, supporting both technology and royalty growth [66] - Management noted limited direct impact from current macroeconomic conditions on royalty and licensing revenues, although there is uncertainty regarding indirect impacts on end demand [16][18] Other Important Information - The company highlighted the importance of its software developer ecosystem, with over 22 million developers building on ARM, which drives demand for its compute platform [7] - ARM's leadership in AI is supported by its unmatched software ecosystem, which is crucial for expanding its market presence [7] Q&A Session Summary Question: ARM's strategy in ASICs and full end solutions - Management acknowledged the complexity of entering the ASIC market but emphasized the company's unique position and expertise in chip design and manufacturing [21][24] Question: Royalty growth expectations and market performance - Management indicated that royalty growth was slightly below expectations due to slower growth in the smartphone sector, but overall performance remained strong [28][30] Question: Neoverse market share and competition with x86 - Management reported that ARM's share in the hyperscaler market is expected to approach 50%, up from 18% last year, driven by AI workloads and general-purpose workloads [34][35] Question: Impact of foreign exchange on EPS - Management stated that FX had a minimal impact on EPS this quarter and expected a similar impact in the upcoming quarters [38][40] Question: Insights on SoftBank's expanded licensing deal - Management discussed the potential of the Stargate project with SoftBank, emphasizing the significant compute opportunities it presents [57][58] Question: Adoption of ARM V9 - Management noted that while specific adoption rates would be updated annually, royalty growth from V9 implementations continues to increase [75][76] Question: Future of Ethos and Xena platforms - Management expressed optimism about the long-term potential of Ethos for low-power applications and highlighted the growth opportunities for Xena in the automotive sector [80][82]