Q4 2024 Earnings Summary
- Strong licensing revenue growth driven by broad-based demand, especially in AI, leading to sustained momentum and high confidence in future royalties. The company expects licensing revenues to be more broad-based, with Q4 being the largest license quarter of the year, driven by demand for additional licensing capabilities related to AI. There is high confidence in future royalty revenues due to the lack of alternatives to Arm for customers seeking to enter markets requiring AI capabilities, rich application ecosystems, and broad OS support ,.
- Accelerated adoption of Armv9 architecture, leading to higher royalty rates and increased royalties. The transition from Armv8 to Armv9 is happening faster, with v9 adoption increasing by approximately 5% per quarter. Armv9 commands higher royalty rates, almost double that of v8, particularly with the introduction of compute subsystems ,. The company anticipates that Armv9 could reach 60%-70% of total volume in 2-3 years, driving sustained royalty growth ,.
- Expansion into new markets like client PCs and automotive, with expectations of significant market share gains and new revenue streams. The company is positive about the growth potential in client PCs, expecting the Arm ecosystem to take significant market share in Windows PCs over the next 12 to 36 months. Additionally, there is strong engagement with automotive OEMs for Armv9 adoption and compute subsystems, indicating future growth opportunities in the automotive sector.
- ARM is experiencing weakness in key end markets, particularly in automotive, networking, industrial, and IoT segments, which is expected to impact royalty revenues in the near term. Jason Child notes a 7% sequential decline in royalty revenue, driven by significant declines or weakness in these areas. ,
- The company's expected bookings for fiscal year '25 are projected to be approximately 60% of last year's bookings, indicating a potential slowdown in licensing activity and future revenue growth. Jason Child states that their assumptions for this year's license bookings are significantly lower than last year's strong booking year.
- ARM's recent strong revenue growth is heavily reliant on the Chinese market, with significant acceleration in royalty revenues driven by China. Dependence on China exposes the company to geopolitical and market risks that could impact future performance if conditions in China change.
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Royalty Revenue Outlook
Q: What's driving your royalty revenue growth?
A: Our royalty revenue is growing due to increased adoption of our v9 architecture, especially in premium smartphones and infrastructure. We're seeing a 500 basis point increase in v9 share per quarter, aiming for 60-70% share in 2-3 years. The v9 architecture almost doubles royalty rates, supporting our confidence in royalty growth of around 20% for years to come. () -
Data Center Market Share
Q: Will ARM's data center market share exceed prior projections?
A: We are confident in our original market share targets, but increased AI investment in data centers is benefiting ARM. The need for power-efficient, custom designs makes ARM-based solutions attractive, potentially accelerating our adoption faster than initially projected. We're not making any official statements now. () -
v9 Adoption and Impact
Q: How quickly is v9 adoption occurring, and what's the impact?
A: The v9 conversion is happening faster than previous generations due to growth in infrastructure and premium smartphones. With a 500 basis point increase per quarter, we could reach 60-70% v9 share in 2-3 years. This rapid adoption boosts our royalty revenues significantly. () -
Licensing Revenue Growth
Q: Is the recent 20% licensing growth sustainable long-term?
A: We're confident in maintaining strong licensing momentum due to high demand, particularly driven by AI. However, we expect royalties to become a larger portion of revenue, exceeding 75% in the next few years. Therefore, we don't view the current 20% licensing growth as the new normal in the long term. () -
China Royalty Growth
Q: What drove the strong royalty growth from China?
A: The growth was driven by a shift with Chinese consumers buying more from Chinese producers, not just market recovery. This resulted in a significant increase in royalties from China, with similar trends expected to continue. Rest of the world also showed acceleration in royalty growth. () -
PC Market Potential
Q: What's ARM's outlook for the PC market?
A: We're very positive about PC growth, especially for Windows on ARM. With multiple suppliers entering over the next 12 to 36 months, we expect the ARM ecosystem to gain significant market share. Benefits like high performance, great battery life, and fanless designs make ARM solutions compelling. () -
June Quarter Royalty Outlook
Q: What's causing the expected 7% sequential decline in royalties?
A: The decline is due to significant weakness in networking, industrial, and IoT segments, based on forecasts from our partners. Mobile remains consistent, and overall year-over-year growth is expected to be around 20%. () -
Automotive Licensing and Backlog
Q: How will automotive v9 licensing impact revenue?
A: Automotive v9 licensing revenue is deferred into backlog as the technology is not yet delivered. It will be recognized once launched. We have multiple customers engaged in automotive, a complex market needing customization and standardization, indicating strong future growth. () -
Licensing Pipeline and Backlog
Q: Can you grow total backlog this fiscal year?
A: Last year's bookings totaled $2.2 billion, but we're assuming about 60% of that this year. We have high confidence in our plan, with 80%+ of our revenue forecast already in backlog or under contract. There's potential upside if trends continue as they did last year. () -
Infrastructure Business Growth
Q: How is ARM positioned in data center accelerators?
A: ARM is well-positioned due to advantages in performance per dollar and the ability to customize SoCs, which is unique to ARM. This flexibility meets the needs of data centers investing heavily in AI, potentially driving our growth beyond original projections. ()