Arm Stock Falls After Chip Designer Gives Muted Outlook

Arm Holdings plc (ARM), the leading chip designer, reported strong third-quarter financial results but provided a muted outlook for the coming quarters, sending its stock price tumbling. The company reported record revenue of $983 million, beating analyst estimates, and adjusted earnings of 39 cents per share, surpassing expectations. However, investors were spooked by the company's guidance for the fourth quarter and the full year, which fell short of expectations.



Arm expects fourth-quarter revenue of $1.175 billion to $1.275 billion, with the midpoint representing a 32% year-over-year growth. While this is a strong growth rate, it is lower than the 40% growth rate expected by analysts. For the full year, Arm expects revenue of $3.94 billion to $4.04 billion, with the midpoint representing a 24% year-over-year growth. This is also lower than the 25% growth rate expected by analysts.



The company's muted outlook can be attributed to several factors. First, the smartphone market, where Arm has a 99% market share in CPUs, is expected to grow at a slower pace. This could limit the growth of royalty revenue from smartphones, which is a significant portion of Arm's total revenue. Second, the transition to v9 architecture, while increasing, is not accelerating as quickly as expected. This is due to the transition of OEM products and the time it takes for new versions to be released and adopted. While v9 is expected to grow to 67% to 70% of total royalties, the transition rate is slower than initially anticipated. Third, CSS adoption, while strong, is not yet contributing significantly to Arm's revenue. In the most recent quarter, CSS contributed 25% of total royalties, which is consistent with the previous quarter. Although CSS royalty rates are higher than v9, the overall contribution to revenue is still relatively low.



Arm's recent performance can be compared to its competitors in the semiconductor industry, such as Intel and AMD. In the third quarter of 2025, Intel reported revenue of $18.3 billion, while AMD reported revenue of $5.55 billion. Although ARM's revenue is significantly lower than its competitors, the company's growth rate and market share in specific segments, such as mobile and data center, are impressive.

To regain market share and investor confidence, Arm can consider the following strategic moves:

1. Increase investment in research and development (R&D) to maintain its competitive edge in the market.
2. Expand into new markets, such as automotive and IoT, to diversify its revenue streams and tap into growth opportunities.
3. Strengthen partnerships with key players in the industry to enhance its offerings and gain a competitive advantage.
4. Improve communication with investors by providing more detailed information about its financial performance and growth prospects.
5. Address regulatory concerns by working with regulators to maintain a positive reputation and avoid potential regulatory issues that could impact its growth.

In conclusion, Arm's muted outlook can be attributed to several specific factors, including market saturation in smartphones, the transition to v9 architecture, and the relatively low contribution of CSS to revenue. To regain market share and investor confidence, the company can consider increasing investment in R&D, expanding into new markets, strengthening partnerships, improving communication with investors, and addressing regulatory concerns. By focusing on these strategic moves, Arm can continue to grow and maintain its competitive position in the semiconductor industry.