ARM (Minutes): Tariffs have no direct impact on the company

ARM (ARM.O) released its Q4 FY2025 earnings report (as of March 2025) in the US after-hours session on May 8, 2025, Beijing time:

Below are the earnings call minutes for ARM's Q4 FY2025. For earnings analysis, please refer to ARM: Guidance Warning "Pours Cold Water," Valuation Bubble About to Burst?

I. $Arm(ARM.US) Key Earnings Highlights

1. Revenue Performance: Q4 total revenue reached $1.24 billion, at the upper end of guidance. Full-year revenue exceeded $4 billion, with royalty revenue surpassing $2 billion, both hitting record highs. Q4 royalty revenue grew 18% YoY to a record $607 million, driven by flagship smartphones featuring Armv9 and CSS solutions. Licensing revenue surged over 50% YoY to a record $634 million, fueled by Armv9 technology and AI demand.

2. Profitability: Non-GAAP operating profit hit a new high of $655 million. Non-GAAP EPS was $0.55, at the upper end of the $0.48-$0.56 guidance range.

3. Annual Contract Value (ACV): Q4 ACV grew 15% YoY, exceeding the company's long-term mid-to-high single-digit growth target.

4. Remaining Performance Obligations (RPO): RPO declined QoQ as ARM recognized revenue from prior licensing agreements.

5. Operating Expenses: Non-GAAP operating expenses were $566 million in Q4, reduced due to some costs being deferred to Q1 FY2026.

6. Q1 Guidance: Projects Q1 FY2026 revenue between $1.0-$1.1 billion, representing 12% YoY growth at midpoint. Royalty revenue is expected to grow 25%-30% YoY. Licensing business, despite a tough comp, should deliver its second-highest quarterly performance. Non-GAAP operating expenses are estimated at ~$625 million, including deferred Q4 costs. Non-GAAP EPS is guided at $0.30-$0.38.

7. Tariff Impact: Direct tariff effects on royalty/licensing revenue appear limited, but indirect demand impacts remain uncertain. 10%-20% of royalty revenue comes from US shipments. Licensing business is minimally affected as clients continue investing during short-term slowdowns given long chip development cycles.

II. ARM Earnings Call Details

2.1 Executive Highlights

1. Business Highlights: Q4 capped a record year driven by cloud-to-edge AI efficiency demands. Quarterly revenue first exceeded $1 billion. Full-year revenue topped $4 billion with royalties over $2 billion - both historic firsts. Up to 50% of new server chips at hyperscalers may use ARM architecture this year. ARM NVIDIA Grace Blackwell (Armv9) is now in full production. Google's Armv9 deploys across 10 regions, adopted by 40 of its top 100 clients, offering 65% better performance than x86. Microsoft's Cobalt 100 supports major workloads (Databricks/Siemens/Snowflake) and internal services (Teams/Copilot). Over 50% of AWS' new CPU capacity in two years came from ARM-based Graviton.

ARM gains momentum in custom chips as enterprises adopt its CPU/GPU/NPU solutions, boosting licensing/royalty revenue. NVIDIA's AI desktop DGX Spark with Armv9 Grace Blackwell validates ARM's AI infrastructure demand. Royalty growth reflects broader Armv9 CPU/CSS adoption in smartphones, where royalties surged 30% YoY vs. industry's 2% shipment growth.

2. Product Launches: ARM debuted its first Armv9 edge-AI platform (Cortex A320 + Ethos-U85 MPU) for billion-parameter models, adopted by Infineon/NXP/Renesas/Qualcomm/STMicro. GM and NVIDIA collaborate on ARM-based Drive AGX for next-gen cars. CSS now ships at scale, lifting mobile/cloud royalties. ARM signed its first automotive CSS deal with a global EV leader for custom chips. Its universal CPU architecture enables OEMs to deliver cloud features in cars. ARM supports 22M+ developers - the world's largest such community.

3. Cloud AI: ARM's core AI software layer has surpassed 8B installs on ARM devices.

2.2 Q&A

Q: Tariff impact on ARM's costs/revenue?

A: As a service provider, ARM faces no direct tariff exposure. No Q4 impact seen; none expected in Q1. Indirect supply chain effects may emerge later, but fundamentals stay strong with Q4 royalties +18% YoY and Q1 guidance raised to 25%-30%. If device cost hikes dent US demand, royalty impact could reach low single-digits, but visibility is limited.

Q: Did Armv9 adoption rise from 25% to 30%? Growth drivers?

A: Yes, Armv9 now exceeds 30%. CSS (all Armv9-based) grows increasingly important. Two CSS products (client/infrastructure) now contribute royalties; more coming later this year. Future Armv9 adoption updates may be limited as CSS-driven growth becomes dominant. CSS remains early-stage but should lift Armv9 penetration.

Q: Is CSS pricing still ~2x standard Armv9 implementations?

A: Yes. Second-gen CSS brings major upgrades, with pricing typically rising through iterations. Update cycles vary by category (annually/biennially).

Q: Does ARM's endgame involve OEMs as direct clients? Implications?

A: Custom silicon is key for OEM differentiation, especially with ARM-based platform software. AI workloads amplify chip complexity, accelerating direct OEM engagements. Traditional fabless semi players remain relevant, but OEM demand expands ARM's TAM.

Q: Why no FY2026 guidance vs. past practice?

A: Partners' reduced visibility (especially on royalties) and macro uncertainties (e.g., tariffs) would require unusually wide guidance ranges, deemed unhelpful.

Q: Segment royalty growth and cloud/network mix?

A: Smartphones (+30% YoY) and clients (PCs/devices) outperformed. Infrastructure (hyperscaler CSS) should sustain double-digit growth. Networking rebounded from 2023 lows. Auto (IVI/ADAS) maintains double-digit growth. IoT lags but is recovering. 50% of new hyperscaler server chips now use ARM, aided by NVIDIA's Grace transition.

Q: Malaysia government license deal - one-off or sovereign AI trend?

A: The March deal enables Malaysian startups to accelerate chip designs using ARM CSS. Other governments may follow given its strategic benefits.

Q: 2025 royalty trajectory and Grace-to-Vera impact? Seasonal weakness?

A: No full-year guidance. Q1 growth expected; Q2 may be seasonally soft; H2 could see 10%-15% QoQ growth.

Q: License business drivers and China tariff impact?

A: Q4 licenses hit $600M+ (record), up 53% YoY. CSS demand, platform growth, and AI-driven product cycles fuel expansion. ACV growth (15%) suggests potential mid-to-high single-digit license growth upside.

Q: CSS client mix (13 total)?

A: ~6 client (mostly mobile), ~6 infrastructure, 1 auto.

Q: Stargate/Crystal AI opportunities?

A: ARM participates in OpenAI's Stargate (Grace Blackwell chips). Energy efficiency makes ARM the sole CPU supplier despite massive compute needs.

Q: Chiplets strategy?

A: ARM's AMBA bus is the de facto standard for chiplet interfaces. CSS and chiplets are synergistic for custom SoCs.

Q: FY2025 review and outlook?

A: Record year ($4B+ revenue) validates ARM's strategy. Unprecedented AI demand across devices positions ARM strongly.

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Disclosures: Dolphin Research Disclaimer