Arm Holdings Plc (ARM) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary is generally positive, with record high revenues, strong royalty growth, and optimistic guidance. The Q&A section reveals some uncertainties, particularly around specific strategy details and market entry, but overall sentiment remains positive due to strong market positioning and growth prospects. The Q1 results exceeded expectations, and the guidance suggests continued growth. The lack of full-year guidance is a minor concern, but not enough to overshadow the positive indicators. Therefore, the stock price is likely to see a positive movement in the short term.
Key Financial Performance
Total Revenue $1.05 billion, marking the second successive quarter over $1 billion and the best Q1 ever. This represents a year-over-year increase, driven by strong momentum in AI compute demands and growth across all target end markets.
Royalty Revenue $585 million, up 25% year-on-year. Growth was observed across all target end markets, including smartphones, data center, automotive, and IoT. The increase was attributed to the uptake of flagship smartphones based on Armv9 and CSS.
Licensing Revenue $468 million, a 1% decrease year-on-year. The decline was expected due to a very strong Q1 in FY '25. However, new CSS deals and multigenerational GPU agreements contributed positively.
Annualized Contract Value (ACV) Up 28% year-on-year, well above the high end of the recent run rate of low teens. This growth was driven by new licensing deals and expanded agreements with SoftBank.
Non-GAAP Operating Expenses $619 million, primarily led by R&D spending. Operating expenses were slightly lower than expected due to the timing of some expenses shifting to Q2.
Non-GAAP Operating Profit $412 million, translating to a non-GAAP EPS of $0.35, which was above the midpoint of the guidance range. This includes a $0.01 FX headwind.
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Operating Highlights
AI Compute Platform: Arm's compute platform is designed to deliver AI performance across a wide range of power and performance needs, from milliwatts to megawatts. The platform supports AI workloads in data centers, edge devices, and premium smartphones.
Arm Neoverse CPUs: These CPUs power major AI infrastructures, including NVIDIA Grace, AWS Graviton, Google Axion, and Microsoft Cobalt. They are 25x more energy efficient than previous x86-based systems.
Ethos-U85 NPU and v9 CPUs: These technologies enhance image recognition and accelerate language models, providing energy-efficient AI performance for edge devices and smartphones.
Compute Subsystems (CSS): Arm's CSS platforms are gaining traction, with 5 customers already using the first generation. New CSS platforms offer higher royalty rates and are optimized for applications like AI-driven automotive workloads.
AI Workloads: AI workloads are expanding from data centers to edge devices, driving demand for Arm's energy-efficient compute solutions.
Smartphone Market: Flagship smartphones based on Armv9 and CSS are growing faster than the market, with major OEMs like Apple, Samsung, and MediaTek integrating Arm's AI capabilities.
Automotive Market: The Zena CSS platform is optimized for AI-driven automotive workloads, such as autonomous driving.
Revenue Growth: Q1 revenue reached $1.05 billion, the second-highest quarter ever, with royalty revenue up 25% year-on-year.
Licensing Revenue: Licensing revenue was $468 million, with strong contributions from new CSS deals and a multigenerational GPU deal with a leading smartphone OEM.
R&D Investments: Arm is accelerating R&D investments to expand engineering capabilities and develop next-generation technologies.
Expansion into New Markets: Arm is exploring opportunities beyond its current platform, including chiplets and full-end solutions.
SoftBank Partnership: SoftBank has expanded its IP licensing and design services agreements with Arm to support broader AI initiatives.
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Risk or Challenges
Macroeconomic and Tariff Uncertainty: The company acknowledges limited direct impact on royalty and licensing revenues due to current conditions but highlights reduced visibility into the indirect impact on end demand, which creates uncertainty in royalty revenue projections.
Licensing Revenue Variability: Licensing revenue is subject to normal fluctuations in timing and size of high-value agreements, which can impact quarterly financial performance and visibility.
R&D Investment Costs: The company is accelerating investments in R&D to support next-generation technologies, which increases operating expenses and could pressure short-term profitability.
End Market Demand Uncertainty: Uncertainty in end market demand, particularly in the context of macroeconomic conditions, could impact royalty revenue growth.
Competitive Pressures: The company faces competitive pressures in maintaining its leadership in AI and compute platforms, requiring continuous innovation and investment.
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Guidance & Outlook
Revenue Guidance for Q2 FY2026: Expected revenue of between $1.01 billion and $1.11 billion, representing approximately 25% year-on-year growth at the midpoint.
Royalty and Licensing Revenue: Both royalties and licensing revenues are expected to remain flat sequentially in Q2 FY2026.
Non-GAAP Operating Expenses for Q2 FY2026: Expected to be approximately $655 million, including the impact of Q1 expenses shifted to Q2 and foreign exchange effects.
Non-GAAP EPS for Q2 FY2026: Expected to range between $0.29 and $0.37.
Long-term Licensing Growth: Projected to remain in the mid- to high single digits over the long term.
Investment in R&D: Accelerating investments in next-generation technologies to support customers and partners, with a focus on AI and custom silicon.
Market Share of Arm Neo-based Chips: Expected to reach nearly 50% among hyperscalers in FY2026.
AI and Custom Silicon Demand: Rising demand for AI and custom silicon from cloud to edge is expected to drive growth in the coming years.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is Arm's strategy in ASICs and moving to full-end solutions?
A:Rene Haas mentioned that Arm is exploring the viability of moving beyond the current platform to additional subsystems, chiplets, or possibly full solutions. Arm has expertise and technologies to design and implement chiplets. The company is in a unique position to provide solutions across a wide range of devices, from small devices to large data centers.
Q:What drove the 25% royalty growth, and is the 10%-15% sequential growth trend for Q3 and Q4 still expected?
A:Jason Child explained that royalties grew close to forecast, but growth in the smartphone sector was slightly weaker than expected. The market growth was in low single digits. The 10%-15% sequential growth trend for Q3 and Q4 is still expected, with some monitoring of the smartphone sector.
Q:What is the Neoverse share among top hyperscalers, and how has it changed from last year?
A:Rene Haas stated that Neoverse share among top hyperscalers has grown from approximately 18% last year to nearly 50% this year. This growth is driven by general-purpose workloads and AI workloads, including NVIDIA's Hopper and Blackwell generations.
Q:What is the impact of FX on EPS, and what is Arm's hedging strategy?
A:Jason Child noted that FX had a $0.01 impact on EPS for the current quarter and is expected to have a similar impact for the next three quarters. Arm collects revenue in USD, with about two-thirds of OpEx in euros and pounds. The hedging strategy involves estimating expenses and hedging accordingly, with some unhedged portions due to increased OpEx.
Q:What is the potential market share for Arm in the data center, and why do customers stay with x86?
A:Rene Haas explained that Arm's architecture allows for high customization, which benefits performance and cost. The growth in AI data centers and the advantage of a single software stack across a CPU architecture support Arm's market share growth. Customers may stay with x86 due to existing investments, but Arm is confident in continued share gains.
Q:What drove the significant step-up in ACV, and what is the magnitude of the change in CSS royalty rates?
A:Jason Child attributed the ACV step-up to CSS deals and a large step-up in the relationship with SoftBank. CSS royalty rates have increased beyond the previous 10% ceiling, with new deals generating even higher rates.
Q:What is the nature of the expanded license deal with SoftBank, and how does it relate to Stargate?
A:Rene Haas mentioned that Stargate, a joint venture between SoftBank and OpenAI, plans to scale up to 10 gigawatts of compute. Arm is providing solutions for Stargate, which uses Arm as the core CPU. Specific products and timelines were not disclosed.
Q:Will Arm enter the market with a merchant CPU, or will it remain a licensed platform?
A:Rene Haas did not provide specifics but expressed confidence in Arm's ability to increase market share regardless of the strategy.
Q:What are the implications of increased hyperscaler CapEx for Arm's royalty growth and licensing opportunities?
A:Rene Haas stated that increased hyperscaler CapEx is a strong tailwind for Arm, benefiting both royalties and licensing opportunities. AI's broad applicability across industries supports long-term growth for Arm.
Q:What is the status of Arm China, and how do export controls impact its business?
A:Rene Haas and Jason Child noted that Arm China tracks the global market and has consistent growth. Export controls, such as the H20 release, have minimal impact on Arm's business. China contributed 21% of revenue in Q1, up from 15% last quarter.
Q:What is the adoption rate of Armv9, and how does it impact royalty growth?
A:Jason Child stated that Armv9 adoption was over 30% at the end of last year, with updates provided annually. Rene Haas added that royalty growth is driven by increasing rates for each generation of Armv9 implementations, not just adoption rates.
Q:What are the future prospects for Ethos and Zena CSS?
A:Rene Haas explained that Ethos is focused on low-power applications and may expand beyond 4 TOPS. Zena CSS targets the automotive market, particularly L2 to L4 ADAS applications. Both have strong pipelines and growth potential.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on Arm's potential entry into the merchant CPU market, the exact royalty rates for new CSS deals, and the specific products and timelines for the Stargate initiative with SoftBank.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AWS Graviton
Apple Samsung
Arm Neo
Arm Neoverse
Arm compute
Arm efficiency
Arm scale
Arm trajectory
Armv CSS
Arya BofA
Axion others
BHF Corporate
BNP Paribas
Blackwell energy
Blair LLC
BofA Securities
CEO Director
CFO
CPUs
CSS license
CSS platform
Child
LLC Research
NVIDIA Grace
Research Division
compute platform
compute subsystem
date
demand compute
generation CSS
investment
software
workload Arm
ARM Transcript
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The earnings report shows strong financial performance with significant revenue growth, high gross margins, and increased net income. Despite risks mentioned, there is no negative guidance or concerning Q&A feedback. The financial health and growth metrics suggest a positive outlook, likely leading to a stock price increase.
Arm Holdings plc (ARM) Q3 2026 Earnings Call Transcript
Positive2-4
The earnings call reveals strong financial performance with a 25% revenue growth, robust ACV growth, and a positive outlook on AI trends. Although there are concerns about royalty revenue deceleration and smartphone volume impacts, these are offset by growth in Cloud AI and infrastructure. Management's commitment to R&D and strategic partnerships further enhance the positive sentiment. The Q&A reassures investors about potential risks, and guidance on non-GAAP EPS aligns with expectations. The overall sentiment is positive, likely leading to a stock price increase of 2% to 8% over the next two weeks.
Arm Holdings plc (ARM) Q2 2026 Earnings Call Transcript
Positive11-5
The earnings call summary reveals strong financial performance with significant year-on-year growth in revenue, operating income, and EPS. The Q&A section highlights strategic positioning in the AI market, partnerships with major tech companies, and a promising acquisition. Despite some vague responses, the overall sentiment is positive due to robust demand, improved margins, and optimistic guidance. The strong growth in royalties and licensing, alongside strategic investments in R&D and AI, further supports a positive outlook. The lack of market cap data suggests a potentially strong stock price reaction.
Arm Holdings Plc (ARM) Q1 2026 Earnings Call Transcript
Positive7-30
The earnings call summary is generally positive, with record high revenues, strong royalty growth, and optimistic guidance. The Q&A section reveals some uncertainties, particularly around specific strategy details and market entry, but overall sentiment remains positive due to strong market positioning and growth prospects. The Q1 results exceeded expectations, and the guidance suggests continued growth. The lack of full-year guidance is a minor concern, but not enough to overshadow the positive indicators. Therefore, the stock price is likely to see a positive movement in the short term.
ARM Report
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