Flexing financial muscles, Arm aims to elbow into Windows PC market

Despite record revenues, Wall Street doesn't expect growth to last

Chip designer Arm predicts that PCs based on its architecture will account for a significant share of the Windows market within three years as the company claims record revenues for the quarter just ended.

The biz is pinning growth prospects on more than just AI, despite riding the coattails of the industry craze for anything AI-related, and believes it is now on the cusp of stealing a decent chunk of the Windows laptop market.

While Windows on Arm kit has until now largely been built on silicon from licensee Qualcomm, Arm says there are more players coming that will deliver greater choice for buyers.

"I think one of the things that's needed for the PC industry to grow, particularly the Windows on Arm segment, is going to be a diversification of the supplier base to provide multiple units, multiple SKUs, multiple price points, and multiple experiences for end consumers," Arm chief Rene Haas said on the company's earnings call for Q4 of FY2024.

"Everything I'm hearing says that there are going to be multiple suppliers to serve that market over the next 12 to 36 months," Haas claimed.

"And with that, we think now will be the time, over the next two, three years, where the Arm ecosystem will take a significant level of market share, primarily because of the level of experience that we've seen in the other ecosystem, the fantastic performance, the great battery life, the fact that you can build a high-performance machine minus a fan."

Haas said all of these things will "add up for significant growth," and once the vendor base diversifies, that growth will "start to kick in over the next 12 to 36 months."

According to Canalys research published in October, Arm accounted for one percent of the PC market (excluding Macs) in Q3 2023.

Arm posted record results yet again for the last quarter, topping its own guidance of between $850 million and $900 million to reach $928 million in revenue for Q4 FY24, up 47 percent on the same period a year ago.

Royalty revenue was up 37 percent to $514 million, thanks to the growth of chip designs based on the ARMv9 architecture, for which it typically charges a higher royalty rate. Meanwhile, license revenue was up an impressive 60 percent year-on-year to $414 million, which Arm attributed to "multiple high-value license agreements being signed as companies increase investment in Arm-based technology for AI across all end markets."

Full year revenue for fiscal 2024 came in at $3.233 billion, up by 21 percent over the previous year.

But despite the healthy results, Arm shares dropped nearly 10 percent in after-hours trading yesterday. The problem, it appears, is that the chip designer isn't expected to keep up this rate of growth, leaving stock market traders disappointed.

Chief financial officer Jason Child said Arm is forecasting revenue for Q1 FY25 to be between $875 million and $925 million, which would represent a 30 to 37 percent year-on-year increase if met, although down on the quarter just finished.

For the whole of FY 2025 ending March 31 next year, Arm expects to see revenues of between $3.8 billion and $4.1 billion, Child said, representing a 17 to 27 percent increase. Not good enough for Wall Street, apparently.

"Arm has been a beneficiary of the boom in AI-related spending even though it's not directly involved in the same way as Nvidia, and its latest results are impressive. But investors, who sent shares in the SoftBank-backed group soaring on its IPO last September, were apparently unimpressed by the forecast for the coming year," TechMarketView analyst and CEO Tola Sargeant commented.

However, she added: "Arm is confident that it will achieve revenue growth of at least 20 percent in fiscal 2026 and 2027. By most standards, that's a pretty good outlook!"

In Arm's letter to shareholders, Haas reiterated that the company's long-term growth strategy will be driven by royalty revenue and also by the need for more energy-efficient compute and AI capability

"We finished our financial year achieving over $3 billion in revenue for the first time, and with strong tailwinds heading into FYE25 as AI is driving increased demand for Arm-based technology across all end markets," he stated.

Haas also commented that it took Arm 20 years to get to $1 billion in revenue, then 10 years to get to $2 billion. This year, the company passed $3 billion after just a further two years, and it expects to be at or around the $4 billion this year. ®

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