Licensing Predicts Future Royalties
Q: How does licensing today predict future royalties?
A: Increased licensing activity signals future royalty growth, as it takes 3 to 4 years for licensed IP to reach the market and generate royalties. The strong growth in licensing, especially with v9 architecture and compute subsystems that carry higher royalty rates, indicates a promising outlook for royalties.

Robust Licensing Despite Market Weakness
Q: Is the licensing pipeline strong despite market weakness?
A: Despite industry corrections, there is no slowdown in R&D investment or licensing activity. Demand for AI workloads requires more compute capability, driving increased licensing. The licensing pipeline is strong, and growth is outpacing forecasts, reflecting resilient demand even amid market softness.

Royalty Trends Beyond Smartphones
Q: What are the royalty trends in non-smartphone sectors?
A: While smartphone royalties grew over 50% year-over-year, other sectors showed varied performance. Cloud compute royalties grew over 75%, driven by projects like AWS, Microsoft's Cobalt, and Google's Axion. Automotive royalties increased around 20%, mainly in ADAS and IVI systems. However, IoT, networking, and industrial segments experienced persistent weakness with negative growth.

ARM in Data Center Accelerators
Q: How is ARM penetrating data center accelerators?
A: ARM is expanding in AI data centers through partnerships like NVIDIA's Grace Hopper and upcoming Grace Blackwell, which integrate ARM CPUs with GPUs. Grace Blackwell is expected to have higher volumes, offering customization and unprecedented power efficiency, enhancing ARM's presence in data center accelerators.

Ambition for 50% PC Market Share
Q: How can ARM achieve 50% PC market share in 5 years?
A: ARM believes this target is achievable due to improvements like annual product releases, no-compromise performance, and superior battery life (e.g., over 19 hours on Dell's XPS). With a broadening supplier base and benefits like customization and power efficiency, ARM expects to replicate its success in the Mac ecosystem within Windows PCs.

Smartphone Royalties and Inventory
Q: Are smartphone royalties affected by inventory corrections?
A: Despite potential inventory corrections, smartphone royalty growth is expected to significantly outpace unit growth due to the v8 to v9 transition. Approximately 50% of smartphone royalty dollars are now from v9, and compute subsystems (CSS) will start contributing in Q4, leading to continued royalty growth.

Anticipated Licensing Pickup in Q4
Q: Is a significant licensing pickup still expected in Q4?
A: Yes, the strongest licensing growth is expected in Q4, driven by a robust pipeline of deals, including renewals and new licenses. High confidence is based on the pipeline and ongoing discussions, though the final deal sizes may affect exact outcomes.

China OEMs and AI Core Licensing
Q: Are China handset OEMs licensing ARM's AI cores?
A: While specific deals aren't disclosed, macro trends indicate that China follows global patterns. Demand for ARM technology, including AI cores, is strong in China via Arm China, with licensing behavior aligning with global demand for AI and compute capabilities.

Modeling Royalty Seasonality
Q: How should we model royalty seasonality in H2?
A: Royalty growth is expected to be roughly 10% per quarter, driven by the v8 to v9 transition and the ramp-up of compute subsystems (CSS). Overall royalty growth for the year is anticipated to be in the low 20% year-over-year range, considering seasonality and year-ago comparisons.

ARMv9 Adoption Beyond Handsets
Q: How is the ARMv9 ramp progressing outside handsets?
A: ARMv9 adoption is increasing across sectors, with overall royalty mix shifting by about 500 basis points each quarter toward v9. While mobile leads with 50% of royalties from v9, infrastructure follows, then automotive, and IoT last. This consistent trajectory indicates ongoing v9 penetration beyond handsets.