Arm Holdings Shares Drop After Q3 Revenue Forecast Falls Short, Despite Solid Post-IPO Earnings Report

Q3 revenue guidance misses analyst estimates due to uncertainty over the timing of licensing deals and recovery concerns in the chip industry, causing ADRs to tumble despite robust post-IPO earnings.

Despite reporting record revenue in its first quarterly report since going public, the shares of Arm Holdings dropped due to its Q3 revenue forecast falling short of analyst estimates. This is attributed to uncertainty over the timing of licensing deals and recovery concerns in the chip industry.
The company's American depositary receipts (ADRs) have declined since hitting an all-time high on their first day of trading, losing more than 20% of their value since September.
Arm's Q3 outlook missed estimates due to operating expenses exceeding gross profit, leading to a net loss of $110 million. Uncertainty regarding the exact timing of some deals and potential changes to revenue recognition profiles for future agreements also added to the weaker than expected outlook.
Arm also reported an increase in licensing revenue by 106% to $388 million, driven by an 'AI R&D supercycle,' where the demand for AI has increased investment across end markets.
Despite declines in the smartphone market, Arm's revenue increased by 28% to a record $806 million, surpassing market expectations. The company is now focusing on expanding into the cloud and automotive markets, as the smartphone market appears to be saturated.
Arm reported a total of 7.1 billion chips shipped by licensees during the quarter, down from the 7.5 billion shipped during the same period last year.

South China Morning Post