Arm (ARM) Q1 Earnings call transcript Jul 31, 2025

In the latest earnings call, Arm, a leading technology company specializing in chip design, showcased its impressive financial performance for the first quarter of the fiscal year 2025. With a 39% year-on-year revenue growth, exceeding the high-end of the guidance, Arm continues to demonstrate its potential as a growth company. This growth is particularly notable in the areas of license and royalty revenue, which saw a 70% and 17% increase, respectively.

Record License Revenue and the Power of AI

The impressive rise in license revenue can be attributed to the increasing demand for Arm technology in the AI space. With more chips being designed with Arm in mind, the company is experiencing significant growth in royalty revenue, driven by its strong ties into all the world's software. This trend is expected to continue, as every chip designed today requires a CPU, and Arm's performance and power-efficient compute platform is becoming the go-to choice for AI applications.

Strategic Investments and Future Outlook

Arm's strategic investments, particularly in compute subsystems, are paying off. The launch of the Compute Subsystem for Servers (CSS) has seen active engagements in major markets like mobile, laptop, cloud, and automotive. This demand for CSS is driven by the largest software ecosystem on the planet, emphasizing the importance of hardware and software integration in the tech industry.

Looking Ahead: Guidance and Challenges

Looking ahead, Arm expects a steady revenue year-over-year in the second quarter, with a midpoint of $780 million to $830 million. However, there are challenges on the horizon, particularly in the industrial IoT and networking sectors, where an ongoing inventory correction is impacting royalty revenue. Despite these challenges, Arm remains optimistic, citing continued v9 adoption, share gains in cloud and automotive, and the initial ramp of chips based on their compute subsystems as key growth drivers.

Investor Confidence and the Future of Arm

Investor confidence in Arm's future prospects is high, with the company's strong financial performance and strategic direction providing a solid foundation for growth. As Rene Haas, CEO of Arm, highlighted, "the future is very bright, and it will be built on Arm going forward." With a clear focus on AI, Arm is poised to continue its growth trajectory, making it an exciting investment opportunity for those looking to capitalize on the tech industry's shift towards AI and compute-intensive applications.