Arm Reports Strong Earnings. The Stock Falls. -- Barrons.com

Tae Kim

Arm Holdings shares fell after the chip designer reported better-than-expected September quarter earnings. Investors may be taking some profits after the stock's big rally this year.

For the fiscal second quarter, Arm reported adjusted earnings per share of 30 cents, compared with Wall Street's consensus estimate of 26 cents, according to FactSet. Revenue came in at $844 million, which was above analysts' expectations of $810 million.

Arm's outlook was also solid. It guided to revenue of $920 million to $970 million in the current quarter versus the $939 million analysts' estimate.

"Demand for our high-performance Armv9 and CSS compute platforms continues to exceed expectations," CEO Rene Haas wrote in a letter to investors. "AI everywhere is generating new opportunities for the Arm compute platform from the cloud to the edge."

Arm shares fell 6.4% to $135.50 in premarket trading Thursday.

Arm makes money by licensing its chip designs to semiconductor companies and smartphone makers. The company's latest advanced chip technology, called Armv9, generates double the royalty rates of its previous Armv8. It is also making progress in the high-end cloud server processor space. Customers such as Microsoft and Nvidia are making chips with more than 100 "cores" using Arm's designs.

Arm is also undergoing a legal dispute with one of its largest customers, Qualcomm. Last month, Arm gave Qualcomm a 60-day notice for cancellation of its architectural chip design license.

The legal dispute stems from Qualcomm's acquisition of chip design start-up Nuvia in 2021. Arm sued Qualcomm, alleging the company should have asked for consent from Arm to use Nuvia's prior work or destroyed any intellectual property developed by Nuvia under the startup's architectural license with Arm. The trial is scheduled for mid-December.

As of Wednesday's close, Arm shares are up 93% this year, compared with a 27% gain for the Nasdaq Composite.

Write to Tae Kim at tae.kim@barrons.com

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November 07, 2024 04:48 ET (09:48 GMT)

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