Arm Gives Tepid Forecast in Sign of Sluggish Chip Demand

Arm Holdings, the leading provider of semiconductor intellectual property, recently issued a tepid revenue forecast for the fiscal third quarter, signaling a potential slowdown in chip demand. The company expects revenue between $920 million and $970 million, falling short of analysts' expectations of $939.3 million. This guidance reflects a combination of factors, including a cyclical downturn in the semiconductor industry and a slowdown in smartphone sales, which account for a significant portion of Arm's royalty revenue.

Arm's guidance for the fiscal third quarter and full year 2025 reflects a more cautious outlook compared to the previous year. In Q2 2024, Arm guided for revenue between $920 million and $970 million, with adjusted per-share earnings between 32 cents and 36 cents. This is a slight decrease from the previous year's guidance of $939.3 million in revenue and 36 cents in adjusted per-share earnings. For the full year, Arm expects revenue between $3.8 billion and $4.1 billion, and adjusted per-share earnings between $1.45 and $1.65, compared to the previous year's guidance of $3.97 billion in revenue and 1.56 in adjusted earnings. This suggests a more conservative approach to forecasting, possibly reflecting the current economic uncertainty and slower chip demand.

Arm's tepid guidance signals a potential slowdown in chip demand, but it's crucial to consider the broader semiconductor industry context. While Arm's revenue growth decelerated, its competitors like AMD and Nvidia have maintained robust growth. AMD's revenue increased 39% YoY in Q2 2025, while Nvidia's revenue grew 33%. The broader semiconductor industry, as represented by the PHLX Semiconductor Sector Index (SOX), has also shown resilience, with a year-to-date growth of 18%. This suggests that Arm's performance may be more company-specific than indicative of a broader industry slowdown.

Arm is taking several strategic initiatives to mitigate the impact of sluggish chip demand and maintain growth. First, it's expanding its memory capabilities, as seen in AWS's new Graviton4-powered, memory-optimized EC2 X8g instances. Second, it's scaling AI inference everywhere with new Llama 3.2 LLMs on Arm, in partnership with Meta. Third, it's investing in developer resources, such as integrating Arm Tools in GitHub Copilot. Lastly, it's exploring new markets like automotive, with a strong pipeline for CSS in ADAS and IVI applications. These moves demonstrate Arm's commitment to diversifying its offerings and maintaining growth despite market fluctuations.

In conclusion, Arm's tepid forecast signals a potential slowdown in chip demand, but the broader semiconductor industry remains resilient. While Arm's performance may be more company-specific, the company is taking strategic initiatives to maintain growth and adapt to market changes. Investors should monitor Arm's progress and assess the company's long-term prospects in the context of the broader semiconductor industry and technological trends.