Andrew Gardiner

Andrew Gardiner inquired about the expected trajectory of OpEx, particularly R&D investment, into fiscal 2027, and whether its growth rate would slow relative to revenue.

Answer

Jason Child, Arm's Chief Financial Officer, expects the Q4 to Q1 OpEx step-up to be similar to last year's low double-digit sequential growth. He anticipates R&D growth to moderate after Q1 next year compared to the more significant step-ups observed in the current fiscal year.

Andrew Gardiner questioned the expected R&D growth rate relative to revenue growth for fiscal year 2027, given the significant current investment.

Answer

CFO Jason Child projected that the sequential OpEx step-up from Q4 to Q1 would be similar to last year's low double-digit growth. He anticipated that R&D growth would likely moderate after Q1 2027 compared to the significant step-ups seen in the current year, with more color to be provided later.

Andrew Gardiner of Citigroup inquired about the drivers of the significant step-up in ACV, the royalty rate increase for second-generation CSS, and clarification on a major OEM deal.

Answer

CFO Jason Child clarified it was 'a major OEM' and broke down the 28% ACV growth, attributing ~17% to new CSS and other deals, with the remainder from an expanded relationship with SoftBank. He noted that new CSS deals carry a royalty rate 'north of 10%,' exceeding the ~10% rate of the first generation.

Andrew Gardiner of Citigroup Inc. sought confirmation that the Armv9 adoption rate increased to 30% and asked about the key drivers, such as smartphones or data centers. He also inquired if pricing for new CSS deals remains strong.

Answer

CEO Rene Haas confirmed Armv9 adoption rose to over 30%, driven primarily by Compute Subsystems (CSS), which are all v9-based and are becoming a more material part of royalties. CFO Jason Child added that CSS pricing represents a significant step-change in royalty rates, with future generations offering further increases.

Andrew Gardiner asked about M&A speculation and the potential for Arm to move beyond its pure IP model into silicon, probing what internal or customer discussions might be driving this consideration.

Answer

CEO Rene Haas declined to comment on specific rumors but acknowledged that the rapid evolution of AI puts tremendous pressure on the ecosystem to develop products faster. He stated that as a result, Arm is constantly evaluating how to best solve these complex customer problems.

Andrew Gardiner inquired about the ongoing litigation with Qualcomm, seeking clarity on reports of a canceled license and the potential financial impact on Arm's revenue recognition and operating expenses.

Answer

CEO Rene Haas clarified that Arm sent a notification letter regarding the cancellation of Qualcomm's architectural license due to a breach of contract, but the license has not been formally canceled. He stated that Arm's financial forecast has always accounted for the risk of not prevailing in the case. CFO Jason Child confirmed there are no changes to revenue or expense forecasts, as they assume payment at existing royalty rates until the situation is resolved.

Andrew Gardiner from Citi inquired about the improved visibility ASML has into customers' equipment needs for 2027 and beyond, given their revised medium-term plans and public statements about increased CapEx. He asked how this improved visibility translates into ASML's plans for increasing its move rate.

Answer

CFO Roger Dassen confirmed that customers' public commentary on AI-related demand aligns with private conversations, translating into concrete orders and demand indications. He cited the strong Q4 order intake as evidence and noted that ASML's move rate plans consider expectations for 2027. CEO Christophe Fouquet added that recent months have shown strong alignment across the ecosystem regarding midterm demand, with proof from both logic and DRAM customers.

Andrew Gardiner inquired about the improved visibility ASML has from customers regarding equipment needs for 2027 and beyond, given the revised medium-term plans and public statements from major customers like TSMC about increased CapEx.

Answer

Roger Dassen, CFO, confirmed that customers share their public commentary on AI-related demand sustainability in private conversations, translating into concrete orders or demand indications. He highlighted the strong Q4 order intake as evidence and noted that ASML's move rate plans consider customer expectations for 2027. Christophe Fouquet, CEO, added that the recent alignment across the ecosystem, driven by customer discussions, confirms a strong midterm demand buildup.

Andrew Gardiner asked how ASML, as a critical supplier, plans to ensure the broader market isn't supply-limited by 2027-2028 given the continuous massive AI-related announcements. He followed up by asking if ASML's customers are providing sufficient heads-up regarding their future demands.

Answer

CEO Christophe Fouquet acknowledged the difficulty in translating announcements into exact needs but emphasized ASML's improved flexibility, investment in long lead-time items, and constant dialogue with customers. CFO Roger Dassen added that timely heads-up from customers is crucial for ASML to scale its supply chain and workforce. Mr. Fouquet confirmed that customers are doing their best with transparency, which helps avoid bigger surprises.

Questioned the perceived inconsistency of the U.S. government encouraging fab reshoring while also imposing tariffs on necessary equipment, and asked if the High-NA backlog already covers the 'Phase 2' ramp.

Answer

The complexity of the U.S. government's position is recognized, which is likely why the industry has been temporarily exempted from tariffs pending a review. The existing double-digit High-NA bookings are sufficient to cover both Phase 1 (R&D) and Phase 2 (early production), with Phase 3 (HVM) orders expected later.

Andrew Gardiner highlighted the low level of logic orders in 2024 and asked if ASML needs to see significant EUV order commitments in the first half of 2025 to meet customer needs for the 2026 ramp. He also asked about the company's tool pre-building strategy.

Answer

CFO Roger Dassen agreed it would be 'logical' to see continued good EUV order intake in the first half of 2025 to support 2026 demand, but emphasized that the company has flexibility in its supply chain and manufacturing. He added that the pre-build strategy is continuously reviewed based on customer discussions and is used to ensure level loading of the factory and maintain flexibility.

Andrew Gardiner noted the low level of logic orders in 2024 and asked if ASML needs to see significant EUV order commitments in the first half of 2025 to support growth in 2026. He also asked for an update on the company's tool prebuilding strategy.

Answer

CFO Roger Dassen agreed it was a fair assumption that good EUV order intake would be needed in the first half of 2025 for 2026 growth, but emphasized ASML's supply chain flexibility. He confirmed the prebuilding strategy continues, adjusted based on customer discussions, to ensure level factory loading and maintain flexibility.

Andrew Gardiner questioned the relevance of Ericsson's long-term financial targets, given the noticeable improvement in profitability and strong operational cash generation in 2025, asking if the company has ambitions to outperform these older targets.

Answer

Börje Ekholm, CEO, acknowledged that the targets are old and haven't been reached, having been set in a different geopolitical and business mix environment. He stated a preference not to change targets easily and aims to solidly reach the 15-18% EBITDA margin first before discussing if they are still the right targets.

Andrew Gardiner of Citigroup Inc. followed up on the Americas, asking about the current state of customer inventory levels and the mix of market activity between new deployments and swaps.

Answer

CFO Lars Sandström assessed that inventory levels among North American operators appear 'fairly balanced.' He also indicated that the revenue mix will increasingly include more services and rollout activities, but expects the full-year margin development to remain stable and positive.

Andrew Gardiner questioned the Q2 outlook, noting that despite a Q1 demand pull-forward and FX headwinds, the guidance for normal seasonality implies strong underlying organic growth. He asked for the regional drivers of this strength and the potential risk to H2 performance.

Answer

CFO Lars Sandstrom clarified that Q1 saw a favorable product mix rather than a significant demand pull-in. He attributed the expected Q2 strength to the continued ramp-up from North American contract wins and normalizing investment levels in India. For the full year, he maintained the view of a flat RAN market (ex-China) with potential for growth in markets like India, though timing remains uncertain.

Andrew Gardiner of Citi sought more detail on the AT&T contract, asking about the current stage of deployment, Ericsson's visibility, and why revenue from this specific contract would not continue to grow into the next year.

Answer

CFO Lars Sandstrom clarified that the deployment pace in Q3 was particularly high and is expected to 'calm down' to a more normalized, stable level in Q4. He confirmed that this stabilized rollout pace will continue for many quarters and that the contract will certainly contribute revenue into the next year.

Andrew Gardiner of Citi followed up on whether the 'selective investment' in the U.S. was from short-term orders with low visibility, and if increased Chinese competition was causing Ericsson to lose market share or sacrifice margins.

Answer

CEO Börje Ekholm confirmed the characterization of U.S. investments as being driven by immediate needs like inventory depletion. Regarding competition, he stated that Ericsson prioritizes profitability and gross margin, indicating a willingness to forgo certain deals rather than engage in aggressive pricing, asserting they will not be the 'most aggressive in the market.'

Andrew Gardiner asked how Infineon is managing the operational risk of slowing down fabs based on a "guesstimate" of tariff impacts, especially when orders are still increasing.

Answer

CEO Jochen Hanebeck acknowledged the challenge, stating they are preparing measures to potentially reduce fab loading over the summer. They will monitor order entry for the next few months and then act, using their high inventory levels as a buffer to manage short-term movements.

Andrew Gardiner of Citigroup questioned how Infineon is operationally managing the discrepancy between its prudent, tariff-adjusted financial guidance and the current reality of increasing orders, specifically regarding fab loading decisions.

Answer

CEO Jochen Hanebeck acknowledged the challenge, stating that the company is preparing measures to potentially reduce fab loading over the summer. He explained they will monitor order entry over the next few months before acting, using their high inventory levels as a buffer to manage short-term movements.

Andrew Gardiner inquired about the company's plans for fab loadings and underutilization charges, as well as the outlook for net operating expenses beyond the first quarter. He also asked for more detail on why visibility in the automotive market has become particularly weak.

Answer

Lorenzo Grandi, President and CFO, explained that the impact of unloading charges in Q1 is over 500 basis points and will remain significant in Q2, though slightly improving. He expects net OpEx to decrease by a low single-digit percentage in 2025 compared to 2024. Jean-Marc Chery, President and CEO, added that automotive visibility is now very short-term (2-3 weeks) and that Q1 is experiencing an inventory adjustment from that sector.