Q1 2025 Arm Holdings PLC Earnings Call
Good day and thank you for standing by. Welcome to the Arm First Quarter Fiscal Year 2025 webcast and conference call.
Operator: 2025 webcast and conference call. At this time, all participants are in a listen only mode.
Unknown Executive: 2020-25 webcast and conference call. At this time, all participants are in a listen-only mode after the speaker's presentation that there'll be a question-and-answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. Please limit yourself to one question only and rejoin the cue for any follow-up questions. To avoid your question, please press star, one, and one again. Please be advised that today's conference has been recorded.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. Please limit yourself to one question only and rejoin the queue for any follow-up questions. To withdraw your question, please press star 1 and 1 again.
Speaker Change: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: Please limit yourselves to one question only and rejoin the queue for any follow-up questions.
Operator: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeff Cavale, Vice President of Investor Relations. Please go ahead, sir.
Speaker Change: To withdraw your question, please press star 1 and 1 again.
Unknown Executive: I would now like to hand the conference over to your first speaker today.
Speaker Change: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeff Cavale, Vice President of Investor Relations. Please go ahead, sir.
Jeff Kamar: Jeff Kamar, Vice President of Investigation, please go ahead, sir. Thank you and welcome to our earnings conference call for the first quarter of the fiscal year ending March 31st, 2025. On the call today are Rene Haas, Chief Executive Officer of Arm, and Jason Child, Arm's Chief Financial Officer. During the call, Arm will discuss forecasts, targets, and other forward-looking information regarding the company and its financial results. While these statements represent our best current judgment of future results and performance as it's today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially.
Jeff Cavale: Thank you, and welcome to our earnings conference call for the first quarter of the fiscal year ending March 31st, 2025. On the call today are Rene Haas, Chief Executive Officer of Arm, and Jason Child, Arm's Chief Financial Officer. During the call, Arm will discuss forecasts, targets, and other forward-looking information regarding the company and its financial results. While these statements represent our best current judgment of future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially.
Jeff Kavar: Thank you and welcome to our earnings conference call for the first quarter of the fiscal year ending March 31st, 2025. On the call today are Rene Haas, Chief Executive Officer of Arm, and Jason Child, Arm's Chief Financial Officer.
Jeff Cavale: In addition to any risks that we highlight during the call, important risk factors that may affect our future results and performance are described in our registration statement on Form 20-F filed with the SEC on May 29, 2024. ARM assumes no obligation to update any forward-looking statements, which speak only as of the day they are made. We will refer to non-GAAP financial measures during the discussion. Reconciliation of certain of these non-GAAP financial measures to their most directly comparable GAAP financial measures, as well as a discussion of certain projected non-GAAP financial measures that we are not able to reconcile without unreasonable efforts or supplemental financial information, can be found in our shareholder letter. The shareholder letter and other earnings-related materials are available on our website at investors.arm.com. And with that, I'll turn the call over to Rene. Rene.
Speaker Change: During the call, Arm will discuss forecasts, targets, and other forward-looking information regarding the company and its financial results.
Speaker Change: While these statements represent our best current judgment of future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially.
Jeff Kamar: In addition to any risk that we highlight during the call, important risk factors that may affect our future results and performance are described in the registration statement on Form 20-F filed with the SEC on May 29th, 2024. Arm assumes no obligation to update any forward-looking statements, which speak only as of the day they are made.
Speaker Change: In addition to any risks that we highlight during the call, important risk factors that may affect our future results and performance are described in our registration statement on Form 20-F filed with the SEC on May 29, 2024.
Speaker Change: Arm assumes no obligation to update any forward-looking statements, which speak only as of the date they are made.
Jeff Kamar: We will refer to non-GAAP financial measures during the discussion. Reconciliation of certain of these non-GAAP financial measures to their most directly comparable GAAP financial measures, as well as a discussion of certain projected non-GAAP financial measures that we are not able to reconcile without unreasonable efforts or supplemental financial information, can be found in our shareholder letter. The shareholder letter and other earnings-related materials are available on our website, investors.arm.com.
Speaker Change: We will refer to non-GAAP financial measures during the discussion.
Speaker Change: Reconciliation of certain of these non-GAAP financial measures to their most directly comparable GAAP financial measures, as well as a discussion of certain projected non-GAAP financial measures that we are not able to reconcile without unreasonable efforts or supplemental financial information can be found in our shareholder letter.
Speaker Change: The shareholder letter and other earnings-related materials are available on our website at investors.arm.com. And with that, I'll turn the call over to Rene. Rene. Thank you, Jeff, and good afternoon, everyone. I'm pleased to be able to give you an update on our most recent quarter.
Jeff Kamar: And with that, I'll turn the call over to Renee.
Rene Haas: Renee. Thank you, Jeff, and good afternoon, everyone. I'm pleased to be able to give you an update on our both recent quarter. We had our four-street quarter of record results, 39% year-on-year revenue, which exceeded the high end of the guidance. That was record license revenue, up 70% year-on-year, as companies continue to invest in Arm for AI everywhere. We also had strong royalty revenue, up 17% year-on-year as the V9 adoption increases.
Rene Haas: Thank you, Jeff. And good afternoon, everyone. I'm pleased to be able to give you an update on our most recent quarter. We had our fourth straight quarter of record results, 39% year-on-year revenue, which exceeded the high end of the guidance. That was record license revenue, up 70% year on year as companies continue to invest in ARM for AI everywhere. We also had strong royalty revenue, up 17% year-on-year as V9 adoption increased. Now, our long-term growth drivers remain consistent.
Rene Haas: We had our fourth straight quarter of record results, 39% year-on-year revenue, at which exceeded the high end of the guidance.
Rene Haas: That was record license revenue, up 70 percent year-on-year as companies continue to invest in ARM for AI everywhere.
Rene Haas: We also had strong royalty revenue, up 17% year-on-year as V9 adoption increases.
Rene Haas: Now, our long-term growth drivers remain consistent. Every chip being designed today requires a CPU, and these are being designed with ARM in mind, with our strong tie into all the world's software. Now, that has driven significant royalty revenue growth. More value for chip, V9, up to 25% now royalty revenue, of overall, that's up 20% from the previous quarter. More importantly, our smartphone royalty revenue is up 50% year-on-year. That's against a single-digit increase in units. Now, we are seeing AI everywhere, which is driving demand for arms, performance, and power-efficient compute platform. We had recent announcements in the last quarter of Google's Axion processor for the cloud, AWS Graviton 4-gen availability, we were very excited to see the announcement of the brand-new Windows-on-ARM PCs that run Co-Pilot through AI PCs, and we also announced the ARM Ethos U85 for AI.
Rene Haas: Every chip being designed today requires a CPU, and these are being designed with ARM in mind, with our strong tie-in to all the world's software. Now, that has driven significant royalty revenue growth. More value per chip, V9 is up to 25% of overall royalty revenue. That's up 20% from the previous quarter. More importantly, our smartphone royalty revenue is up 50% year on year. That's against a single-digit increase in units.
Rene Haas: Now, our long-term growth drivers remain consistent.
Rene Haas: Every chip being designed today requires a CPU, and these are being designed with ARM in mind, with our strong tie-in to all the world's software.
Rene Haas: Now, that has driven significant royalty revenue growth. More value per chip, V9 up to 25% now royalty revenue of overall, that's up 20% from the previous quarter.
Rene Haas: More importantly, our smartphone royalty revenue is up 50% year-on-year. That's against a single-digit increase in units.
Rene Haas: Now we are seeing AI everywhere, which is driving demand for ARM's performant and power efficient compute platform. We had recent announcements in the last quarter of Google's Axion processor for the cloud and AWS Graviton for General Availability.
Rene Haas: Now, we are seeing AI everywhere, which is driving demand for ARM's performant and power-efficient compute platforms.
Rene Haas: We had recent announcements in the last quarter of Google's Axion processor for the cloud.
Rene Haas: We were very excited to see the announcement of the brand new Windows on ARM PCs that run co-pilot true AI PCs, and we also announced the Arm Ethos U85 for Edge AI. One of the significant strategies that we've been investing in has been compute subsystems. With our recent launch of CSS for Client, we now have active CSS engagements in the major markets of mobile, laptop, cloud, and automotive.
Rene Haas: AWS Graviton for General Availability.
Rene Haas: We were very excited to see the announcement of the brand new Windows on ARM PCs that run co-pilot true AI PCs, and we also announced the ARM Ethos U85 for Edge AI.
Rene Haas: One of the significant strategies that we've been investing in has been compute subsystems. With our recent launch of CSS for client, we now have active CSS engagements in the major markets of mobile, laptop, cloud, and automotive. We are seeing demand for this technology everywhere, and this is all driven by the largest software ecosystem on the planet.
Rene Haas: One of the significant strategies that we've been investing in has been compute subsystems.
Speaker Change: With our recent launch of CSS for Client, we now have active CSS engagements in the major markets of mobile, laptop, cloud, and automotive. We are seeing demand for this technology everywhere.
Rene Haas: We are seeing demand for this technology everywhere. And this is all driven by the largest software ecosystem on the planet. Hardware, of course, is nothing without software.
Rene Haas: Now hardware, of course, is nothing without the software, and that's what has made Arm the most ubiquitous processor in history. We now have over 20 million software developers, the largest in the world, and we've added Clyde AI software libraries, which will make it easier for developers to benefit from the Arm compute platform. The future is very bright, and it'll be built on ARM going forward. We are extremely pleased over the last four quarters, and again, if I look back to where we were a year ago, and talking about whether Arm could be a growth company going forward, to have four quarters of consistent growth after being a public company, I could not be more proud.
Speaker Change: And this is all driven by the largest software ecosystem on the planet. Now, hardware, of course, is nothing without the software. And that's what has made ARM the most ubiquitous processor in history.
Rene Haas: And that's what has made ARM the most ubiquitous processor in history. We now have over 20 million software developers, the largest in the world, and we've added Clyde AI software libraries, which will make it easier for developers to benefit from our compute platform. The future is very bright, and it will be built on Arm going forward. We are extremely pleased with the last four quarters. And again, if I look back to where we were a year ago and talk about whether Arm could be a growth company going forward, to have four quarters of consistent growth after being a public company, I could not be more proud. And with that, I'll hand it over to Jason.
Speaker Change: We now have over 20 million software developers, the largest in the world, and we've added Clyde AI software libraries, which will make it easier for developers to benefit from the ARM Compute Platform.
Speaker Change: The future is very bright and it will be built on Arm going forward.
Speaker Change: We are extremely pleased over the last four quarters, and again, if I look back to where we were a year ago and talking about whether Arm could be a growth company going forward, to have four quarters of consistent growth after being a public company, I could not be more proud. And with that, I'll hand it over to Jason.
Jason Child: And with that, I'll hand it over to Jason. Thank you, Rene. Q1 was a great start for Fiscal Year 25. We grew revenue 39% year over year to $939 million. This was our highest ever quarterly revenue, and was above the midpoint of our guided range. Licency revenue rose 72% year over year, and royalty revenue was up 17%. We also delivered a non-GAAP property margin of 48%. As always, licensed revenue is lumpy. We recommend that you look at annualized contract value, or ACD, to check the underlying growth rate. ACD and Q1 was up 14% year over year, consistent with recent quarters.
Jason E. Child: Thank you, Rene. Q1 was a great start to fiscal year 25. We grew revenue 39% year over year to $939 million. This was our highest ever quarterly revenue and was above the midpoint of our guided range. Licensee revenue rose 72% year over year, and royalty revenue was up 17%. We also delivered a non-gap operating margin of 48%.
Jason E. Child: Thank you, Rene. Q1 was a great start for fiscal year 25. We grew revenue 39% year-over-year to $939 million. This was our highest-ever quarterly revenue and was above the midpoint of our guided range.
Jason E. Child: Licensee revenue rose 72% year-over-year and royalty revenue was up 17%. We also delivered a non-gap operating margin of 48%.
Jason E. Child: As always, license revenue is lumpy. We recommend that you look at annualized contract value or ACV to check the underlying growth. ACD and Q1 were up 14% year-over-year, consistent with recent, Remaining Performance Obligations, or RPO, was up 29% year-on-year and down sequentially as we recognized revenue from achieving key delivery milestones from contracts signed in prior quarters. Our Q1 royalty revenue growth was driven by continued Arm B9 adoption and a recovery in the smartphone market.
Jason E. Child: As always, license revenue is lumpy. We recommend that you look at annualized contract value, or ACV, to check the underlying growth rate.
Jason E. Child: ACV and Q1 was up 14% year-over-year consistent with recent quarters.
Jason Child: Remaining performance obligations or RPO was up 29% year on year and down sequentially as we recognize revenue from achieving key delivery milestones from contracts signed in prior quarters. Our Q1 royalty revenue growth was driven by continued RMB9 adoption, and to recover in the smartphone market. Royalty revenue from smartphones increased more than 50% year over year, compared with a mid-single-digit increase in the number of smartphones sold. In addition, we continued to gain share in automotive and cloud service providers, and this is partially offset by continued weakness in IoT and networking equipment, given an ongoing inventory correction in a broader industrial market, as has been widely reported by many of our semiconductor peers.
Jason E. Child: Remaining Performance Obligations, or RPO, was up 29% year-on-year and down sequentially as we recognized revenue from achieving key delivery milestones from contracts signed in prior quarters.
Jason E. Child: Our Q1 royalty revenue growth was driven by continued Arm V9 adoption and a recovery in the smartphone market.
Jason E. Child: Royalty revenue from smartphones increased more than 50% year over year, compared with a mid single-digit increase in the number of smartphones sold. In addition, we continue to gain share in the automotive and cloud service providers. This is partially offset by continued weakness in IoT and networking equipment, given an ongoing inventory correction in a broader industrial market, as has been widely reported by many of our semiconductor peers. Turning to guidance, I will briefly touch on both the second quarter and the fiscal year ending March 31st, 2020.
Jason E. Child: Royalty revenue from smartphones increased more than 50% year-over-year compared with a mid-single-digit increase in the number of smartphones sold.
Jason E. Child: In addition, we continue to gain share in automotive and cloud service providers.
Jason E. Child: And this is partially offset by continued weakness in IoT and networking equipment given an ongoing inventory correction in the broader industrial market, as has been widely reported by many of our semiconductor peers.
Jason Child: Turning to guidance, I will briefly touch on both second quarter and the fiscal year ending March 31st, 2025. This guidance reflects our current view of our end markets. For Q2, we expect revenue between 780 and 830 million dollars, which at the midpoint represents steady year revenue year over year. As previously guided, we expect Q2 revenue to be the low point of the year due to the timing of revenue recognition from licensing. However, we also expect Q2 to be one of our highest bookings quarters of the year. We expect year-over-year royalty revenue growth to accelerate to the low 20% range in Q2.
Jason E. Child: Turning to guidance, I will briefly touch on both second quarter and the fiscal year ending March 31st, 2025.
Jason E. Child: This guidance reflects our current view of our end market. For Q2, we expect revenue between $780 and $830 million, which at the midpoint represents steady revenue year over year. As previously guided, we expect Q2 revenue to be the lowest point of the year due to the timing of revenue recognition from life.
Jason E. Child: This guidance reflects our current view of our end markets.
Jason E. Child: For Q2, we expect revenue between $780 and $830 million, which at the midpoint represents steady revenue year over year.
Jason E. Child: As previously guided, we expect Q2 revenue to be the low point of the year due to the timing of revenue recognition from licensing.
Jason E. Child: However, we also expect Q2 to be one of our highest bookings quarters. We expect year-over-year royalty revenue growth to accelerate to the low 20% range in. Investments in our compute platforms are on track, and we expect our non-gap operating results to be around $500 million. We expect non-GAAP EPS to be between 23 and 27 cents, which is unchanged from our prior forecast.
Jason E. Child: However, we also expect Q2 to be one of our highest bookings quarters of the years.
Jason E. Child: We expect year-over-year royalty revenue growth to accelerate to the low 20% range in Q2.
Jason Child: Investments in our compute platforms are on track, and we expect our non-GAAP operating results to be around $500 million. We expect non-GAAP EBS to be between 23 and 27 cents, which is unchanged from our prior forecasts.
Jason E. Child: Investments in our compute platforms are on track and we expect our non-gap operating results to be around $500 million.
Jason E. Child: We expect non-GAAP EPS to be between $0.23 and $0.27, which is unchanged from our prior forecasts.
Jason Child: Looking out to fiscal year 25, we are reiterating our revenue guidance. We expect revenues to be between $3.8 and $4.1 billion, which represents an 18-27% year-over-year increase. At the mid-point of our revenue guidance, this includes full-year royalty revenue growth in the low 20% range. This is slightly below our prior expectation of the mid-20% range. Feedback from our customers suggests that inventory issues in the industrial IoT and networking seem to be more persistent than originally suggested. We expect the drivers of our healthy royalty revenue growth this year to be continued with V9 adoption, share gains in cloud and automotive, and the initial ramp of chips based on our compute subsystems in the second half.
Jason E. Child: Looking out to fiscal year 25, we are reiterating our revenue guidance. We expect revenues to be between $3.8 and $4.1 billion, which represents an 18 to 27% year-over-year increase. At the midpoint of our revenue guidance, this includes full-year royalty revenue growth in the low 20%. This is slightly below our prior expectation of the mid-20s, because feedback from our customers suggests that inventory issues in the industrial IoT and networking seem to be more persistent than originally expected. We expect the drivers of our healthy royalty revenue growth this year to be continued with V9 adoption.
Jason E. Child: Looking out to fiscal year 25, we are reiterating our revenue guidance.
Jason E. Child: We expect revenues to be between $3.8 and $4.1 billion, which represents an 18-27% year-over-year increase.
Jason E. Child: At the midpoint of our revenue guidance, this includes full-year royalty revenue growth in the low 20% range.
Jason E. Child: This is slightly below our prior expectation of the mid-20% range.
Jason E. Child: Feedback from our customers suggests that inventory issues in the industrial IoT and networking seem to be more persistent than originally suggested.
Jason E. Child: We expect the drivers of our healthy royalty revenue growth this year to be continued with V9 adoption.
Jason E. Child: Share Games and Cloud and Automotive, and the initial ramp of chips based on our compute subsystems in the second half. We are increasingly optimistic about licensing revenue for the year. At the midpoint of our revenue guidance, we anticipate growth in the low to mid-20% range. We expect Q2 to be the smallest quarter, and Q4 to be the largest quarter.
Jason E. Child: share gains in cloud and automotive, and the initial ramp of chips based on our compute subsystems in the second half.
Jason Child: We are increasingly optimistic about licensing revenue for the year. At the mid-point of our revenue guidance, we anticipate growth in the low to low the mid-20% range. We expect Q2 to be the smallest and Q4 to be the largest quarters of the year. We reiterate our outlook for ACV growth in the low double digits for the year, which reflects durable demand for arms' latest IP. We have high visibility through a combination of backlog, renewals, and the pipeline of new licenses. As a reminder, licensing is a leading indicator of future royalty revenue opportunities. Licenses signed now will generate royalty revenues in two to three years' time.
Jason E. Child: We are increasingly optimistic about licensing revenue for the year.
Jason E. Child: At the midpoint of our revenue guidance, we anticipate growth in the low to mid-20% range.
Jason E. Child: We expect Q2 to be the smallest and Q4 to be the largest quarters of the year.
Jason E. Child: We reiterate our outlook for ACV growth in the low double digits for the year, which reflects durable demand for Arm's latest IP. We have high visibility through a combination of backlog, and renewals. The Pipeline of New Life
Jason E. Child: We reiterate our outlook for ACV growth in the low double digits for the year, which reflects durable demand for Arm's latest IP.
Jason E. Child: We have high visibility through a combination of backlogs, renewals, and the pipeline of new licenses.
Operator: As a reminder, licensing is a leading indicator of future royalty revenue opportunities; licenses signed now will generate royalty revenues in two to three years. We expect non-GAAP operating expenses to be approximately $2.05 billion, which represents a 19% year-over-year increase. As we continue to invest in R&D to support future growth initiatives, we expect operating expenses to increase consistently throughout the year. We reiterate our full year non-GAAP EPS guidance of between $1.45 and $1.65. With that, I'll turn the call back to Jason. We'll now move forward with the Q&A portion of the program. Sharon.
Jason E. Child: As a reminder, licensing is a leading indicator of future royalty revenue opportunities.
Jason E. Child: Licenses signed now will generate royalty revenues in two to three years' time.
Jason Child: We expect non-GAAP operating expenses to be approximately $2.05 billion, which represent a 19% year-by-year increase. As we continue to invest in R&D to support future growth initiatives, we expect operating expenses to ramp consistently throughout the year.
Jason E. Child: We expect non-GAAP operating expenses to be approximately $2.05 billion, which represents a 19% year-over-year increase.
Jason E. Child: As we continue to invest in R&D to support future growth initiatives, we expect operating expenses to ramp consistently throughout the year.
Jason Child: We reiterate our full-year non-GAAP EPS guidance of between $1.45 and $1.65.
Jason E. Child: We reiterate our full-year non-GAAP EPS guidance of between $1.45 and $1.65.
Jeff Kamar: With that, I'll turn the call back to Jeff.
Unknown Executive: Thank you, Jason. We'll now move forward with the Q&A portion of the program.
Speaker Change: With that, I'll turn the call back to Jeff.
Unknown Executive: Sharon. Thank you. To ask a question, you will need to press star, one, and one on your telephone and wait for your name to be announced. Please limit yourself to one question only, and we join the Q for any follow-up question. To enjoy your question, please press star one and one again. We will now get your first question. One moment, please.
Speaker Change: Thank you, Jason. We'll now move forward with the Q&A portion of the program. Sharon?
Operator: Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. Please limit yourself to one question only and rejoin the queue for any follow-up questions. To withdraw your question, please press star 1 and 1 again. We will now go to your first question. One moment, please. And your first question comes from the line of Vivek Arya from Bank of America Securities. Please go ahead.
Sharon: Thank you. To ask a question you will need to press star 1 and 1 on your telephone and wait for your name to be announced. Please limit yourself to one question only and rejoin the queue for any follow-up questions. To withdraw your question please press star 1 and 1 again.
Sharon: We will now go to your first question.
Brenna: And your first question comes from the line of B-deck area from Bank of America. Security, please go ahead. Thanks for taking my question. Brenna, I was hoping you could help us draw a line between the licensing upside of today to the royalty upside of tomorrow. When I look back to during the IPO process, what you suggested for licensing, you have far exceeded that. But when do you think we will see that reflected in royalty upside in some commensurate manner? What is the right way to help look at this conversion factor between licensing and royalties over?
Sharon: One moment, please. And your first question comes from the line of Vivek Arya from Bank of America Securities. Please go ahead.
Vivek Arya: Thanks for taking my question. Rene, I was hoping you could help us draw a line between the licensing upside of today and the royalty upside of tomorrow. When, you know, when I look back at what you suggested for licensing during the IPO process, you have far exceeded that. But when do you think we will see that reflected in royalty upside in some commensurate manner? What is the right way to kind of help look at this conversion factor between licensing and royalties?
Speaker Change: Thanks for taking my question. Rene, I was hoping you could help us draw a line between the licensing
Rene Haas: Upside of Today to the Royalty Upside of Tomorrow.
Speaker Change: You know, when I look back to during the IPO process, what you suggested for licensing, you have far exceeded that.
Speaker Change: But when do you think we will see that reflected in royalty upside in some commensurate manner? What is the right way to kind of help look at this conversion factor between licensing and royalties over time?
Brenna: Thank you.
Rene Haas: Thank you for the question. We are super pleased about the growth and the licensing business. The way to think about that growth is really around continued investment in R&D that is essentially customers who are looking to design their next generation SSCs using Arm. What we are seeing, particularly with all things AI, is an increase in licensing momentum. Maybe one way to think about that is the AI workloads that some of these chips need to run. At the time these chips were conceived, some of the models that there being tax the run were never even invented yet, which kind of goes back to your timeline question.
Rene Haas: Yeah, thank you for the question. We are super pleased about the growth in the licensing business. The way to think about that growth is really around continued investment in R&D. That is, customers who are looking to design their next generation SSEs using ARM. What we are seeing, particularly with all things AI, is an increase in licensing momentum. From the time that we license a piece of IP to a customer, and from the time that they put that into a chip, and that chip goes into an end system, and then ultimately into the customer's hands, it can be anywhere between three and four years, and in some cases even longer.
Speaker Change: Yeah, thank you for the question. We are super pleased about the growth in the licensing business, the way to think about that growth.
Speaker Change: is really around continued investment in R&D. That is essentially customers who are looking to design their next generation SSEs using Arm. What we are seeing, particularly with all things AI, is an increase in licensing momentum.
Speaker Change: And maybe one way to think about that is the AI workloads that some of these chips need to run at the time these chips were conceived.
Speaker Change: some of the models that they're being taxed to run were never even invented yet, which kind of goes back to your timeline question. From the time that we license a piece of IP to a customer, and from the time that they put that into a chip and that chip goes into an end system,
Lee John Simpson: I would say the mobile industry, the smartphones, is probably the fastest at around three years-ish. But when you start looking at other markets like the data center and or automotive, it can be longer than that. The way to think about all this increased licensing activity is, I think, a very, very good predictor of further royalty growth. Increasingly, we are licensing more and more V9, obviously, but also more and more of these compute subsystems.
Rene Haas: From the time that we license a piece of IP to a customer and from the time that they put that into a chip and that chip goes into an end system and then ultimately into the customer's hands can be anywhere between three and four years. And in some cases, even longer, I would say the mobile industry, the smartphones, is probably the fastest at around three years, ish. But when you start looking at other markets like the data center and/or automotive, that can be longer than that. So the way to think about all this increased licensing activity, I think, is a very, very good predictor of further royalty growth.
Speaker Change: and then ultimately into the customer's hands can be anywhere between three and four years.
Speaker Change: And in some cases even longer. I would say the mobile industry, the smartphones, is probably the fastest at around three years-ish.
Speaker Change: But when you start looking at other markets like the data center and or automotive, it can be longer than that. So the way to think about all this increased licensing activity, I think, is a very, very good predictor of further royalty growth.
Lee John Simpson: Both V9 over V8 and then compute subsystems over V9 carry significantly higher royalty rates. All of this is a very good projection for the future. Thank you. Your next question comes from the line of Lee Simpson from Morgan Stanley. Please go ahead. Great. Thanks for fitting me in.
Rene Haas: Increasingly, we are licensing more and more V9, obviously, but also more and more of these compute subsystems. And both V9 over V8 and then compute subsystems over V9 carry significantly higher royalty rates. So all of this is a very good projection for the future.
Speaker Change: Increasingly we are licensing more and more v9 obviously but also more and more of these compute subsystems and both v9 over v8 and then compute subsystems over v9 carry significantly higher royalty rates. So all of this is a very good projection for the for the future.
Lee Citizen: Thank you.
Lee Citizen: Your next question comes from the line of Lee Citizen from Morgan Stanley. Please go ahead. Great. Thanks for fitting me in. It's noticeable here that you've had a raft of good product releases recently. You know, we've had the new Cortex X925 CPU. We've had Immortals course. So there's quite a lot of activity going on here, a lot for you to be licensing. I think somewhat unnoticed is there's quite a few CPU extensions that you've been putting out to market as well. So I'm really just trying to understand. Do we see more momentum in the CPU extensions?
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question comes from the line of Lee Simpson from Morgan Stanley . Please go ahead.
Rene Haas: Rene, it's noticeable here that you've had a raft of good product releases recently. You know, we've had the new Cortex-X925 CPU, and we've had Immortalis cores. So there's quite a lot of activity going on here, a lot for you to be licensing. But I think, somewhat unnoticed, there are quite a few CPU extensions that you've been putting out to market as well. So I'm really just trying to understand, do we see more momentum in these CPU extensions? Do we see more of these coming out?
Lee John Simpson: Thanks for fitting me in. Rene, it's noticeable here that you've had a raft of good product releases recently.
Lee John Simpson: You know, we've had the new Cortex-X925 CPU, we've had Immortalis cores, so there's quite a lot of activity going on here, a lot for you to be licensing, but I think somewhat unnoticed is there's quite a few CPU extensions.
Speaker Change: that you've been putting out to market as well. So I'm really just trying to understand, do we see more momentum in the CPU extensions? Do we see more of these coming out? Which markets would they address?
Lee Citizen: Do we see more of these coming out? Which markets would they address? And how does this drive some of that royalty growth that you've been talking about over the medium term? Thanks.
Rene Haas: Which markets would they address? And how does this drive some of that royalty growth that you've been talking about over the medium term? Thanks.
Speaker Change: And how does this drive some of that royalty growth that you've been talking about over the medium term?
Rene Haas: Yeah, thank you for the question. The way to think about the CPU product line and the GPU product line, for that matter. And addition to some of the fabric that goes with it, we're introducing these products annually for the smartphone market and PC market; in particular, those are those are annual beats for the data center market. More like every couple of years and similar to that on the automotive side. And all of that is driving a pretty significant growth and demand cycle for Arm technology. One of the things that we see to your question of extensions, if I if I understand it correctly, is really around taking advantage of more and more of the V9 features.
Rene Haas: Yeah, thank you for the question. The way you think about the CPU product line and the GPU product line, for that matter, in addition to some of the fabric that goes with it, we're introducing these products annually for the smartphone market and PC market, in particular. Those are annual beats for the data center market, more like every couple years. And similar to that on the automotive side. And all of that is driving a pretty significant growth and demand cycle for ARM technology.
Speaker Change: and all of that.
Speaker Change: is driving a pretty significant growth and demand cycle for...
Rene Haas: One of the things that we see, in response to your question about extensions, if I understand it correctly, is really around taking advantage of more and more of the V9 features. There's a lot inside version 9 with security.
Speaker Change: Arm Technology. One of the things that we see to your question of extensions, if I understand it correctly, is really around taking advantage of more and more of the V9 features. There's a lot inside version 9.
Rene Haas: There's a lot inside version nine with security. There's a lot in terms of version nine in terms of confidential compute. We're seeing increased demand for that across all areas, particularly in the data center. And when we think about the data center growth, one of the benefits we're also getting that's driving increased licensing activity is the fact that these AI data centers are largely custom. Meaning that the blades, the racks, the interconnect, everything associated with building an AI data center is different each time, which leads its way to customization, which is good for Arm because these custom ships require Arm.
Rene Haas: There's a lot in terms of version 9 in terms of confidential compute, and we're seeing increased demand for that across all areas, particularly in the data center. And when we think about data center growth, one of the benefits we're also getting that's driving increased licensing activity is the fact that these AI data centers are largely custom, meaning that the blades, the racks, the interconnect, everything associated with building an AI data center is different each time, which leads to customization, which is good for ARM because these custom chips require ARM. At the same time, the AI data centers, the power required by them is And that's also good news for ARM.
Speaker Change: When we think about the data center growth, one of the benefits we're also getting that's driving increased licensing activity is the fact that these AI data centers are largely custom, meaning that the blades
Speaker Change: The Racks.
Speaker Change: The Interconnect.
Speaker Change: Everything associated with building an AI data center is different each time, which leads its way to customization, which is good for ARM because these custom chips require ARM. At the same time, the AI data centers, the power required by them is unprecedented.
Rene Haas: At the same time, the AI data centers, the power required by them is unprecedented, relative to conventional data centers, and that's also good for Arm. And so the areas that I just mentioned around security and confidential compute, particularly these AI data centers, become hard require. That's great. Thank you.
Speaker Change: relative to conventional data centers, and that's also good for ARM. And so the areas that I just mentioned around security and confidential compute, particularly these AI data centers, become hard requirements.
Mark Ramsay: Your next question comes from the line of Mark Ramsay, T.D. Tell him, please go ahead. Thank you very much. Good afternoon, everybody. Rene H. Jason, I had a couple of questions. Maybe I'm just asking at the same time for the first one. The licensing business has continued to be really strong for Arm, and I think certainly stronger recently than you guys have even forecasted the IPO process and whatnot. And maybe some of the, I don't know, upselling to make AI-capable devices in certain markets has been part of that. And obviously you talked about some of the platform licenses and whatnot and data center.
Matthew D. Ramsay: And so the areas that I just mentioned around security and confidential compute, particularly these AI data centers, have become a hard requirement. That's great, thank you. Thank you. Your next question comes from the line of Matt Ramsay, TD Cowan. Please go ahead. Thank you very much. Good afternoon, everybody.
Speaker Change: That's great, thank you.
Rene Haas: Rene, Jason, I had a couple of questions. Maybe I'll just ask them at the same time for expediency. But the first one, the licensing business has continued to be really strong for ARM. And, I think, certainly stronger recently than you guys had even forecast through the IPO process and whatnot. And maybe some of the, I don't know, upselling to make AI-capable devices in certain markets has been part of that. And obviously, you talked about some of the platform licenses and whatnot in the data center, but there's no doubt some. Correction: There is correction going on in certain parts of the semiconductor industry. We've seen that across a number of your licensees in broader-based markets.
Speaker Change: Certainly stronger recently than than you guys had even forecast through the IPO process and whatnot
Mark Ramsay: But there's no doubt some correction going on in certain parts of the semiconductor industry. We've seen that across a number of your licensees in broader based markets. So I just wonder, you could maybe get some, some commentary about what you're seeing and the licensing pipeline just to pose against some weakness in some parts of the family's industry. And then I guess the second part, I know you guys don't plan to report royalties or comment on them based on segmental lines of business on a quarterly basis, but you did call out 50% year-over-year growth in smartphone royalties against a total royalty pie growing 17.
Jason E. Child: So I just wonder if you could maybe give some commentary about what you're seeing in the licensing pipeline juxtaposed against some weakness in some parts of the semis. And then I guess the second part, I know you guys don't plan to report royalties or comment on them based on segments or lines of business on a quarterly basis, but you did call out 50% year-over-year growth in smartphone royalties against the total royalty pie growing by 17. So maybe you could talk about the puts and takes in some of the other non-smartphone sectors of the royalty numbers that you just printed. Thanks, guys. Sure. Thank you, Matt.
Speaker Change: I just wonder if you could maybe give some commentary about what you're seeing in the licensing pipeline, juxtaposed against some weakness in some parts of the FAMIS industry.
Speaker Change: And then, I guess the second part, I know you guys don't plan to.
Speaker Change: Report royalties or comment on them based on segmental lines of business on a quarterly basis, but you did call out
Speaker Change: 50% year-over-year growth in smartphone royalties against the total royalty pie growing 17. So maybe you could talk about the puts and takes in some of the other non-smartphone sectors of the royalty numbers that you just printed. Thank you, guys.
Mark Ramsay: So maybe you could talk about the puts and takes in some of the other non-part phone sectors of the royalty numbers that you just printed it. Thank you. Sure, thank you, Matt.
Rene Haas: I'll take the first part of your question and then I'll let Jason address the second part. It's a great question relative to how to think about industry correction, inventory, and sell through as a function of investment in R&D. In cycles in the past, sometimes you might see the investment in future design be impacted by just what you describe. I would say in the current moment of time, that is not the case.
Rene Haas: I'll take the first part of your question, and then I'll let Jason address the second part. It's a great question relative to how to think about industry correction, inventory, self-through as a function of investment in R&D. And in cycles in the past, sometimes you might see the investment in future design be impacted by just what you described. I would say in the current moment of time, that is not the case. What we are not observing is any slowdown in licensing as it applies to anything going on in the end market. And I think what really drives that is when you think about these AI workloads and what's required to go drive them.
Speaker Change: Sure. Thank you, Matt. I'll take the first part of your question and then I'll let Jason address the second part.
Speaker Change: It's a great question relative to how to think about industry correction, inventory, sell-through as a function of investment in R&D, and
Speaker Change: In cycles in the past, sometimes you might see the investment in future design be impacted by just what you described. I would say in the current moment of time, that is not the case. What we are not observing is any slowdown.
Rene Haas: What we are not observing is any slowdown in licensing as it applies to anything going on in the end market. And I think what really drives that is when you think about these AI workloads and what's required to go drive them, keep in mind that if a designer is designing an SoC, and they're now having to run an AI workload or a small language model at the edge of a device, that is in addition to all of the things that the SoC and the system have to do anyway. So what that is driving is a demand for more compute, more compute capability, more CPU cores, more subsystems, all of the above relative to new SoC starts. So we're not observing anything slowing down.
Speaker Change: and licensing.
Speaker Change: as it applies to anything going on in the end market.
Speaker Change: And I think what really drives that is when you think about these AI workloads and what's required to go drive them, keep in mind that if a designer is designing an SoC and they're now having to run an AI workload or a small language model at the edge of a device,
Rene Haas: Keep in mind that if a designer is designing an SOC and they're now having to run an AI workload or a small language model at the edge of a device, that is in addition to all of the things that the SOC in the system has to do anyway. So what that is driving is a demand for more compute, more compute capability, more CPU cores, more subsystems, all of the above relative to new SoC starts. So we're not observing anything slowing down. And in fact, as you can see by the numbers and your commentary relative to what we talked about 12 months ago during the IPO, it's probably picked up.
Speaker Change: That is in addition to all of the things that the SSC and the system has to do anyway.
Speaker Change: So what that is driving is a demand for more compute, more compute capability, more CPU cores.
Speaker Change: more subsystems, all of the above relative to new SOC starts.
Rene Haas: And in fact, as you can see by the numbers and your commentary relative to what we talked about 12 months ago during the IPO, it's probably picked up. And I think one of the reasons that we're seeing the benefit of that from a revenue standpoint is that these are all running off existing platforms that are ARM-based. And one of the things that we continuously say about what drives our demand is this virtuous cycle of, The largest number of platforms from a software development standpoint are ARM-based. So the more software that's available to run on ARM, the more companies that are trying to build chips that go into these and products end up making them ARM-based.
Speaker Change: So, we're not observing anything slowing down, and in fact, as you can see by the numbers,
Speaker Change: and your commentary relative to what we talked about 12 months ago during the IPO, it's probably picked up. And I think one of the reasons that we're seeing the benefit of that from a
Rene Haas: And I think one of the reasons that we're seeing the benefit from a revenue standpoint is these are all running off existing platforms that are based. And one of the things that we continuously say about what drives our demand is this virtuous cycle of the largest number of platforms from a software development standpoint are ARM-based, so the more software that's available to run on ARM, the more companies that are trying to build ships that go into these end products, end up making them ARM-based. So we face very little competition, quite frankly, when people are considering what is the CPU that you use on the new design.
Speaker Change: Revenue standpoint is these are all running off existing platforms that are arm based and one of the things that we continuously say about what drives our demand is this virtuous cycle of
Speaker Change: The largest number of platforms from a software development standpoint are ARM-based, so the more software that's available to run on ARM, the more companies that are trying to build chips that go into these and products.
Rene Haas: So we face very little competition, quite frankly, when people are considering what CPU to use on the new design. And as a result, the availability of additional hardware just makes it easy for software developers to choose which hardware to continue to develop on because it ends up all being on ARM. So, a long-winded way of saying that in this cycle, we are not observing any slowdown in terms of R&D investment, even though there might be some slowdown in terms of end market consumption, as you state. I'll turn it over to Jason to answer the second part of your question. Thanks, Pat.
Speaker Change: end up making them ARM-based. So we face very little competition, quite frankly, when people are considering what is the CPU to use on the new design. And as a result...
Rene Haas: And as a result, the availability of additional hardware just makes it easy for the software developers to choose which hardware to contain. And it continues to develop on because it ends up all being on ARM.
Speaker Change: The availability of additional hardware just makes it easy for the software developers to choose which hardware to continue to develop on because
Jason Child: So long-winded way of saying that on this cycle, not observing any slowdown in terms of R&D investment, even though there might be some slowdown in terms of market consumption, as you state. I'll turn over Jason to answer the second part of your question. Thanks, Matt. So on royalties, we're going to provide a, in the company slides, we're going to update that; that'll be sent out right when the call ends, but we'll provide an update as we promise the annual kind of update on what is the mix of our royalties and then what is the kind of update in PAM and kind of market shares.
Speaker Change: and it ends up all being on ARM. So.
Speaker Change: long-winded way of saying that on this cycle not observing any slowdown in terms of R&D investment even though there might be some slowdown in terms of and market consumption as you state. I'll turn it over to Jason to answer the second part of your question.
Jason E. Child: So on royalties, we're going to provide an update on that. In the accompanying slides, we're going to update that. That'll be sent out right when the call ends, but we'll provide an update, as we promised, the annual kind of update on what is the mix of our royalties and then what is the kind of update in TAM and the kind of market shares. Just at a high level, I'll provide maybe a little bit of an update on kind of some of the key headlines.
Jason E. Child: Thanks, Pat. So, on royalties, we're going to provide a...
Jason E. Child: in the accompanying slides.
Jason E. Child: We're going to update that, that'll be sent out right when the call ends, but we'll provide an update as we promised, the annual kind of update on what is the mix of our royalties and then what is the kind of update in TAM and kind of market shares.
Jason Child: Just at a high level, I'll provide maybe a little bit of update at some of the key headlines. So first, as we said, during the prepared remarks, we did see the mobile phone or smartphone royalty revenues grow by over 50%. And so certainly very, very strong growth, as you said, versus the unit growth. In terms of the client overall, for the full year, we saw that grow some more, kind of in the 20th percent range when you factor all the different businesses together. And again, we'll provide more color across some of the various sectors where there was maybe some slowdown, specifically in PCs. Last year was a slow year.
Speaker Change: Just at a high level, I'll provide maybe a little bit of update at kind of some of the key headlines. So first, as we said during the prepared remarks, we did see the mobile phone or smartphone
Jason E. Child: So first, as we said during the prepared remarks, we did see mobile phone or smartphone royalty revenues grow by over 50%. And so, you know, certainly very, very strong growth, as you said versus unit growth. In terms of the client, overall, for the full year, we saw that grow, you know, somewhere kind of in the 20% range when you factor all the different businesses together. And, and, again, we'll provide more color across some of the various sectors where there was maybe some slowdown, specifically in PCs last year was a slow year. Obviously, we expect that to change this year, but last year was pretty slow.
Jason E. Child: Royalty revenues grow by over 50%.
Speaker Change: And so, you know, certainly very, very strong growth, as you said, versus the unit growth.
Speaker Change: In terms of the...
Speaker Change: Clients.
Speaker Change: Overall, for the full year, we saw that grow, you know, somewhere kind of in the 20th percent range when you when you factor all the different businesses together. And again, we'll provide more color across some of the various sectors where there was maybe some slowdown, specifically in PCs. Last year was a slow year. Obviously, we expect that to change this year, but last year was pretty slow.
Jason Child: Obviously, we expect that to change this year, but last year was pretty slow. For the cloud compute market, we actually saw the strongest growth we've ever seen at, say, north of 75% growth year on year. And that certainly driven by all the projects that we've talked about throughout this last year, certainly strong growth within AWS. And now with some of the projects coming online with both cobalt from Microsoft and action from Google, we expect to see that number continue to accelerate on the auto side. We saw that somewhere in the kind of somewhere around 28% year-on-year growth.
Jason E. Child: For the cloud compute market, we actually saw the strongest growth we've ever seen at, say, north of 75% growth year on year. And that's certainly driven by all the projects that we've talked about throughout this last year, certainly strong growth within AWS. But now with some of the projects coming online, with both Cobalt from Microsoft and Axiom from Google, we expect to see that number continue to accelerate. On the auto side, we saw that kind of growth of somewhere around 20% year on year.
Speaker Change: For the cloud compute market, we actually saw the strongest growth we've ever seen at, say, north of 75% growth year-on-year. And that's certainly driven by...
Speaker Change: all the projects that we've talked about throughout this last year. Certainly strong growth within AWS, but now with some of the projects coming online with both Cobalt from Microsoft and Axiom from Google, we expect to see that number continue to accelerate.
Jason E. Child: And again, that's a little bit different than what you're seeing in some of the other auto semiconductor companies, for the most part, you know, really are exposures primarily to ADAS and IBI, which are some of the stronger growth parts of that market. And then on IoT, networking, industrial, as mentioned, those categories have been, you know, kind of, we've seen persisting weakness in those categories.
Speaker Change: On the auto side, we saw that somewhere in the kind of somewhere around 20-ish percent year-on-year growth.
Jason Child: And again, that's a little bit different than what you're seeing in some of the other auto semiconductor companies for the most part. You know, we really are exposures primarily on ADAS and IBI, which are some of the stronger growth parts of that market. And then on IoT, networking, industrial, as mentioned, those categories have been kind of losing, persisting weakness in those categories. So we've seen negative growth in those categories, expecting to see things start to pick up maybe a little bit at least a clentially this quarter, but last year, definitely they were in the negative territory.
Speaker Change: And again, that's a little bit different than what you're seeing in some of the other auto semiconductor companies, for the most part, you know, really are exposures primarily on ADAS and IBI, which are some of the stronger growth parts of that market.
Speaker Change: And then on IoT, networking, industrial, as mentioned, those categories have been, you know, kind of, we've seen persisting weakness in those categories. So we've seen negative growth in those categories, expecting to see
Speaker Change: Things start to pick up maybe a little bit at least sequentially this quarter, but last year Definitely they were in the negative territory But again, we'll provide a supplement with more detail And so if you have other questions after seeing those details, we'll certainly be able to answer questions after that comes out
Jason Child: But again, we'll provide a supplement with more detail. And so if you have other questions after seeing those details, we'll certainly be able to answer questions after that comes out.
Mark Lipacis: Thanks, guys. Really appreciate it. Thank you.
Jason E. Child: So we've seen negative growth in those categories, and we're expecting to see things start to pick up maybe a little bit, at least sequentially, this quarter, but last year, definitely, they were in the negative territory. But again, we'll provide a supplement with more detail. And so if you have other questions, after seeing those details, we'll certainly be able to answer questions after that comes out. Thanks guys. Really appreciate it.
Mark Lepakis: Thank you. Your next question comes from the line of Mark Lepakis from Evercore. Please go ahead.
Mark Lipacis: Your next question comes from the line of Mark Lipacis from Evercore. Please go ahead. Great, thanks for taking my question. I had a question on the compute side of the business, maybe a two-part question, if I may. On the, in compute on the CPU side of the data center, I think for us it's more easy to track because there's more obvious deployments there. But I would say on the parallel process inside or the accelerator side, it's not as easy for us to track. And I was wondering if you could give us a sense of where you are in the penetration of that part of the market.
Speaker Change: Thanks guys, really appreciate it.
Speaker Change: Thank you. Your next question comes from the line of Mark Lepakis from Evercore. Please go ahead.
Rene Haas: Great. Thanks for taking my question. I had a question on the compute side of the business, maybe a two-part question, if I may. In compute, on the CPU side of the data center, I think for us, it's easier to track because there are more obvious deployments there. But I would say on the parallel processing side or the accelerator side, it's not as easy for us to track.
Mark Lepakis: Great. Thanks for taking my question. I had a question on the compute side of the business, maybe a two-part question.
Speaker Change: If I may, on the in-compute, on the CPU side of the data center, I think for us it's more easy to track because there's...
Speaker Change: More obvious deployments there, but I would say on the
Rene Haas: And I was wondering if you could give us a sense of where you are in the penetration of that part of the market, and if you could comment on how that part of the business compares to the CPU side. And then along these lines, if we consider the model, my understanding is that you have more core counts for the CPU that drives ASP higher, and that helps. And I'm wondering, does that same dynamic apply on the accelerator side?
Speaker Change: On the parallel processing side, or the accelerator side, it's not as easy for us to track. And I was wondering if you could give us a sense of where you are in...
Mark Lipacis: And if you could comment about how that part of the business compares to the CPU side. And then along these lines, if we consider the model, my understanding is that you have more core counts for CPU that drives ASP higher and that helps. And I'm wondering, does that same dynamic apply on the accelerator side? Thank you.
Speaker Change: In the penetration of that part of the market, and if you could comment about how that part of the business compares to the CPU side. And then along these lines...
Speaker Change: If we consider the model, my understanding is that you have more core counts for CPU that drives ASP higher, and that helps. And I'm wondering, does that same dynamic apply on the accelerator side? Thank you.
Rene Haas: Yeah, thank you for the question. So when you think about the AI data center and particularly around the accelerator and the CPU that ties into it, clearly the lion's share of the market today with accelerators belongs to Nvidia. Nvidia, their numbers speak for themselves, but relative to the penetration of Arm in the data center, they had announced Grace Hopper about a year and a half ago, which was the Arm-based design, which integrates an Arm-based CPU to a Hopper GPU. The next advanced platform that they announced, Grace Blackwell, which is going to be shipping soon. They just now started initial volumes of that they expect with that design to have the volumes be higher than it was on Grace Hopper.
Rene Haas: Thank you. Yeah, thank you for the question. So when you think about the AI data center, and particularly around the accelerator and the CPU that ties into it, clearly the lion's share of the market today with accelerators belongs to NVIDIA, and NVIDIA, their numbers speak for themselves, but relative to the penetration of ARM in the data center, they had announced Grace Hopper about a year and a half ago, which was the ARM-based design, which integrates an ARM-based CPU to a Hopper GPU.
Speaker Change: Thank you for the question. So when you think about the AI data center and particularly around the accelerator and the CPU that ties into it,
Speaker Change: Clearly, the lion's share of the market today with accelerators belongs to NVIDIA.
Speaker Change: NVIDIA, their numbers you know speak for themselves but
Speaker Change: Relative to the penetration of ARM in the data center, they had announced Grace Hopper about a year and a half ago, which was the ARM-based design, which integrates an ARM-based CPU.
Rene Haas: The next advanced platform that they announced, Grace Blackwell, which is going to be shipping soon, they've just now started initial volumes of that. We expect volumes with that design to be higher than they were on Grace Hopper. We think that Grace Blackwell, just given the performance and power, will be a very, very good ship for us in the AI data center, partnering with NVIDIA. When we think about other accelerators that would connect to an ARM CPU, right now, most of those accelerators are custom that are being done in-house, and it's still early days in terms of that kind of volume, but back to my earlier comment about AI data centers. And I think Grace Blackwell is a very good example of that.
Speaker Change: to a hopper.
Speaker Change: GPU, the next advanced platform that they announced, Grace Blackwell, which is going to be shipping soon.
Speaker Change: They've just now started initial volumes of that.
Speaker Change: They, we expect with that design to have the volumes be higher.
Rene Haas: We think that Grace Blackwell, just given the performance and power, will be a very, very good ship for us in the AI data center partnering with Nvidia. When we think about other accelerators that would connect to an Arm CPU right now, most of those accelerators are custom that are being done in house, and it's still early days in terms of that kind of volume. But back to my earlier comment relative to the AI data centers. And I think Grace Blackwell is a very good example of that. Grace Blackwell is a custom chip that goes into a custom blade, into a custom rack, into a custom system. It is a full system design with incredible complexity and also very unique in terms of its power savings.
Speaker Change: than it was on Grace Hopper. We think that Grace Blackwell, just given the performance and power, will be a very, very good ship for us in the AI data center, partnering with NVIDIA.
Speaker Change: When we think about other accelerators that would connect to an ARM CPU,
Speaker Change: Right now, most of those accelerators are custom that are being done in-house, and it's still early days.
Speaker Change: In terms of
Speaker Change: that kind of volume. But back to my earlier comment relative to the AI data centers.
Rene Haas: Grace Blackwell is a custom chip that goes into a custom blade, into a custom rack, into a custom system. It is a full system design with incredible complexity and also very unique in terms of its power savings. We expect to see a similar trend with other accelerators that use ARM because the ultimate benefit of using ARM for an AI data center is the customization, i.e., being able to build something that's very, very custom in terms of the interconnect, custom in terms of memory, custom in terms of the overall network, and at the same time, will be the most power efficient CPU architecture out there.
Grace Blackwell: And I think Grace Blackwell is a very good example of that. Grace Blackwell is a custom chip that goes into a custom blade, into a custom rack, into a custom system. It is a full
Speaker Change: system design with incredible complexity and also very unique in terms of its power savings.
Rene Haas: We expect to see a similar trend with other accelerators that use Arm because the ultimate benefit of using Arm for an AI data center is the customization, i.e. being able to build something that's very, very custom in terms of the interconnect, custom in terms of memory, custom in terms of the overall network. And at the same time, will be the most power-efficient CPU architecture out there. So early days still is the short answer in terms of being able to count what the units are in terms of CPU and AI data center, but it's going to be growing rapidly, we expect, and the most obvious indicator that is Grace Blackwell.
Speaker Change: We expect to see a similar trend with other accelerators that use ARM, because the ultimate benefit of using ARM for an AI data center is the customization.
Speaker Change: i.e. being able to build something that's very very custom in terms of the interconnect.
Speaker Change: Custom in terms of memory, custom in terms of the overall network.
Speaker Change: and at the same time will be the most power efficient CPU architecture out there.
Rene Haas: So early days still is the short answer in terms of being able to count what the units are in terms of CPU and AI data centers, but it's going to be growing rapidly, we expect, and the most obvious indicator of that is Grace Blackwell.
Speaker Change: So, early days still is the short answer in terms of being able to count what the units are in terms of CPU and AI data center, but it's going to be growing rapidly, we expect, and the most obvious indicator of that is Grace Blackwell.
Mehdi Hosseini: Thank you. Your next question comes from the line of Mehdi Hosseini from Susquehanna International Group. Please go ahead. Yes, thanks for taking my question. I want to go back to the commentary on the smartphone. To what extent are you bacon in your royalty? Any kind of inventory correction in a smartphone, and then this is looking forward and then back to licensing. Are you still expecting the significant pickup in the Q4 fiscal year as you were highlighting in the last earning conference call?
Mehdi Hosseini: Thank you. Your next question comes from the line of Mehdi Hosseini from Susquehanna International Group; please go ahead. Yes, thanks for taking my question. I want to go back to the commentary on the smartphone.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Mehdi Hosseini from Susquehanna International Group. Please go ahead.
Jason E. Child: To what extent are you baking in your royalty? Any kind of inventory correction on a smartphone? And then this is looking forward. And then back to licensing, are you still expecting a significant pickup in the Q4 fiscal year as you were highlighting in the last earnings conference call? This is Jason. I'll take those questions.
Mehdi Hosseini: Licensing, are you still expecting a significant pickup in the Q4 fiscal year as you were highlighting in the last earnings conference call?
Jason Child: This is Jason. I'll take those questions. So, on the smartphone side, this last quarter, I think it's Renee highlighted. We basically grew the royalties by about 50% year on year, while units only grew in the mid single digits. Our expectations for this year are that you're going to see pretty similar unigrove, but we expect to be outpacing just like we did in Q1 for the rest of the year because of the V8 to V9 transition. In fact, in smartphones, we're actually about, from a V9 perspective, about 50% of royalties; royalties are now V9 dollars. So we've actually were ahead on our V8 to V9 transition in mobile.
Jason E. Child: So on the smartphone side, this last quarter, you know, I think, as Rene highlighted, we basically grew the royalties by about 50% year on year, while units only grew in the mid single digits. Our expectations for this year are that you're going to see pretty similar unit growth. But we expect to be outpacing, just like we did in Q1, for the rest of the year because of the V8 to V9 transition.
Jason E. Child: This is Jason. I'll take those questions. So on the smartphone side, this last quarter, you know, I think as Rene highlighted, we basically grew the royalties by about 50% year-on-year, while units only grew in the mid-single digits.
Speaker Change: Our expectations for this year are that you're going to see pretty similar unit growth, but we expect to be outpacing just like we did in Q1 for the rest of the year because of the V8 to V9 transition.
Jason E. Child: In fact, in smartphones, we're actually about, from a V9 perspective, about 50% of royalties, royalty dollars, are now V9 dollars. So we've actually, we're ahead on our V8 to V9 transition in mobile. Now we've also said previously that compute subsystems will start to come online in the second half of this year, but specifically in mobile, you'll see it starting in Q4. It'll be pretty small, but next year will become, I would say, more material.
Jason E. Child: in fact, in smartphones.
Jason E. Child: we're actually about, from a B9 perspective, about 50% of royalties
Jason E. Child: ROTC dollars are now V9 dollars. So we've actually, we're ahead on our V8 to V9 transition in mobile. Now, we've also said previously that compute subsystems will start to come online at the end of the year.
Jason Child: Now, we've also said previously that compute subsystems will start to come online at the second half of this year, but specifically in mobile, you'll see it starting in Q4. It'll be pretty small, but next year it'll become, I would say, more material. So overall, we expect our mobile royalty growth to significantly outpace unit growth for this year, next year, and I would say even for the next few years, especially because we see the CSS ramp to be not unlike the V8 to V9 ramp, which is probably some around a four-year period for the adoption to mature, and therefore to provide incremental growth tailwind during that full-time frame.
Jason E. Child: second half of this year, but specifically in mobile, you'll see it starting in Q4. It'll be pretty small, but next year will become, I would say, more material. So overall, we expect our mobile royalty growth to
Jason E. Child: Significantly outpaced Unicros.
Jason E. Child: for this year, next year, and I would say even for the next few years.
Jason E. Child: especially because we see the CSS kind of ramp to be not unlike the v8 to v9 ramp, which is it's probably somewhere around a four-year period for the adoption, you know, to mature and therefore to provide incremental growth tailwinds during that full time frame.
Jason E. Child: [inaudible] On the licensing side, yes, we do still have the strongest licensing growth from a total revenue perspective expected to be in Q4. You know, we have a fairly wide range, mostly because, you know, we have a large pipeline of deals. As Rene said, the pipeline has been strong.
Jason Child: On the licensing side, yes, we do still have the strongest licensing growth from a total revenue perspective expected to be in Q4. We have a fairly wide range, mostly because we have a large pipeline of deals, as Renee said. The pipeline has been strong. It's actually incrementally; it's actually slightly stronger now than it was even 90 days ago, which is why, even with a little bit of royalty softness, we're actually leaning ahead a little bit on license. Now, those deals do typically large license deals. There are renewals, and there are some incremental new deals. Those new deals, in particular, typically have a six- to nine-month cycle.
Jason E. Child: On the licensing side, yes, we do still have the strongest licensing growth from a total revenue perspective expected to be in Q4.
Jason E. Child: You know, we have a fairly wide range, mostly because, you know, we have a large pipeline of deals, as Rene said.
Jason E. Child: It's actually been, it's actually, you know, incrementally, it's actually slightly stronger now than it was even 90 days ago, which is, which is why even with a little bit of royalty softness, we're actually leaning ahead a little bit on royalty, on licensing. Now, those deals do, you know, typically these large license deals, there are renewals, and there are some incremental new deals. Those new deals, in particular, typically have a six to nine month kind of cycle.
Rene Haas: The pipeline has been strong. It's actually been, it's actually, you know,
Rene Haas: Incrementally, it's actually slightly stronger now than it was even 90 days ago, which is why, even with a little bit of royalty softness, we're actually leaning ahead a little bit on license.
Rene Haas: Now, those deals do, you know, typically these large license deals, you know, there are renewals and there are some incremental new deals.
Jason E. Child: Those new deals, in particular, typically have a six to nine-month period.
Jason Child: It will take us a while to get a better sense on the shape and sizing, which is why we have a relatively large range still for guidance, and in particular, it's really on the license side where that range is most applicable. High confidence based on the pipeline and the visibility and the discussions that we've had. We will update you throughout the quarters as we get more insight and can be a little more refined.
Jason E. Child: And so it will take us a while to get a better sense of the shape and sizing, which is why we have a relatively large range still for guidance. And in particular, it's really on the license side where that range is most applicable.
Jason E. Child: And so it will take us a while to get a better sense on the shape and sizing, which is why we have a relatively large range still for guidance. And in particular, it's really on the license side where that range is.
Jason E. Child: So, high confidence based on the pipeline and the visibility and the discussions that we've had. We will update you throughout the quarters as we get more insight and can be a little more refined. Great, thanks for the details.
Jason E. Child: is most applicable. So high confidence based on the pipeline and the visibility and the discussions that we've had. We will update you throughout the quarters as we get more insight and can be a little more refined.
Jason Child: Great, thanks for details. Thank you.
Speaker Change: Great, thanks for the details.
Unknown Executive: As a reminder, please limit yourself to one question only and rejoin the queue for any follow-up. We'll now go to the next question.
Speaker Change: Thank you.
Speaker Change: Thank you. As a reminder, please limit yourself to one question only and rejoin the queue for any follow-ups.
Vijay Rakesh: And your next question goes to the line of Vijay Rakesh from Missouri.
Operator: Thank you. As a reminder, please limit yourselves to one question only and rejoin the queue for any follow-up. We'll now go to the next question. And your next question comes from the line of Vijay Rakesh from Missouri. Please go ahead.
Speaker Change: We'll now go to the next question.
Speaker Change: And your next question comes from the line of Vijay Rakesh from Missouri. Please go ahead.
Rene Haas: Please go ahead. Yeah, hi guys. Just a quick question on the handset side. I know you mentioned there, you're seeing a wrap with handset CSS on V9. Actually, look at the handset ecosystem. Are you seeing China handset oeums start to license you for the across the course or AI course? Because I think you're seeing the TPST start to explore.
Vijay Raghavan Rakesh: Yeah. Hi guys. Just a quick question on the handset side. I know you mentioned that you're seeing a wrap with handset CSS on V9. As you look at the handset ecosystem, are you seeing other Chinese handset OEMs start to license you for the app processor course or AI course? Because I think you're seeing the chip ASP start to explore. So just wondering if you're seeing the handset OEMs try to build their own courses. And if so, when will you start to see licensing royalties on those?
Vijay Raghavan Rakesh: Yeah, hi guys. Just a quick question on the handset side. I know you mentioned that you're seeing a rack with handset CSS.
Vijay Raghavan Rakesh: on V9. As you look at the handset ecosystem, are you seeing China handset OEMs start to license U4?
Rene Haas: Unknown Executive, Rene Haas
Rene Haas: So, just wondering if you're seeing the handset oeums start to build their own course, and if so, when do you start to see licensing varieties on this? Yeah, we don't call out specific licensing deals in China because we do that through Arm China, who is our design partner. But what I can say is that the macro trends that we see across the world, i.e. growth in data center, growth in automotive, demand for CSS, in automotive, demand for CSS, demand for CSS and smartphone, that all applies to China as well. There's nothing unique to what the China market wants to do relative to the rest of the world.
Rene Haas: Yeah, we don't call out specific licensing deals in China because we do that through ArmChina, who is our design partner. But what I can say is that the macro trends that we see across the world, i.e. growth in the data center, growth in the automotive industry, demand for CSS in the automotive industry, demand for CSS, demand for CSS in the smartphone industry, that all applies to China as well. There's nothing unique to what the Chinese market wants to do relative to the rest of the world.
Rene Haas: Yeah, we don't call out specific licensing deals in China because we do that through Arm China, who is our design partner.
Speaker Change: But what I can say is that the macro trends that we see across the world, i.e. growth in the data center, growth in the automotive,
Rene Haas: Demand for CSS in automotive, demand for CSS, demand for CSS in smartphone. That all applies to China as well. There's nothing unique to what the China market wants to do relative to the rest of the world. And that's really because, and I can't overemphasize this enough,
Rene Haas: And that's really because, and I can't emphasize this enough, China runs off the same global software ecosystem that everyone else does. It's all running either Mac iOS, Mac OS, stock Android, Windows, all of which run on ARM. So, Arm China is how we quote revenue coming in through China. So we don't call our partners specifically, but our macro-level behaviors are the same. Thank you. Your next question comes from the line of... Charles Shee from Needham & Company. Please go ahead. Hi, good afternoon, Rene, and Jason.
Rene Haas: And that's really because, and I can't over-emphasize this enough, China runs off the same global software ecosystem that everyone else does. It's all running either iOS, macOS, stock Android, Windows, all that runs on Arm. So, Arm China is how we quote the revenue in through China, so we don't call out partners specifically, but from macro level, behaviors are the same.
Rene Haas: China runs off the same global software ecosystem that everyone else does, it's all running either
Rene Haas: Mac, iOS, Mac OS, stock Android, Windows, all that runs on ARM, so
Rene Haas: Arm China is how we quote the revenue in through China, so we don't call our partners specifically, but for macro level behaviors are the same.
Charles: Thank you. Your next question comes from the line of Charles; she, for need of a company, please go ahead. Hi, good afternoon, Renee Jason. I just want to get a use this opportunity to ask you about your comments you made at a compute tax in terms of the 50% PC market sharing five years. Just to provide a little bit of context, why I still want to ask you this question, my understanding, we already have ARM-based PCs already, right? That the Mac is one, Chromebook another, some of your peers, I mean the x86 peers, it seems to disagree with what you said about that 50% market sharing in five years.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Charles Shee from Needham & Company, please go ahead.
Charles Shee: Just want to use this opportunity to ask you about the comment you made at Computex in terms of the 50% PC market share in five years. Just to provide a little bit of context about why I still want to ask you this question. My understanding is that we already have ARM-based PCs already, right, that the Mac is one, Chromebook another. Some of your peers, I mean, the x86 peers, seem to disagree with what you said about that 50% market share in five years. And they basically argue that whether you have a good AI PC or not is really not ISA dependent.
Charles Shee: Hi, good afternoon, Rene, Jason.
Charles Shee: I want to use this opportunity to ask you about your comment you made at Computex in terms of the 50% PC market share in five years.
Charles Shee: Just to provide a little bit of context of why I still want to ask you this question. My understanding, we already have ARM-based PCs already, right? That the Mac is one, Chromebook another.
Speaker Change: Some of your peers, I mean the x86 peers, seems to disagree with what you said about that 50% market share in five years.
Charles: And they basically argue whether you have a good AIPC or not; it really is not ISO dependent.
Speaker Change: They basically argue whether you have a good AIPC or not. It really is not ISA dependent. And wonder if what's your response here? And can you provide us a little bit more thoughts on why this time is different? The wire arm can really take the market share up to 50%-ish.
Rene Haas: And wonder what your response here is and can you provide us with a little bit more thoughts on why this time is different, but why ARM can really take the market share up to 50% in a short period of time? Thanks. Yeah, sure. No, thank you for the question. Yeah, I would be a little worried if they agreed with my comment that we're going to take 50% in five years. So, the base of the question is, why is this time different?
Rene Haas: And I wonder what's your response here, and can you provide a little bit more thoughts on why this time is different, the why ARM can really take the Mac is yet up to 50% is in short period of time. Thanks. Yeah, sure. Now, thank you for the question. Yeah, I would be a little worried if they agreed with my comment that we're going to take 50% in five years.
Charles Shee: in a short period of time. Thanks.
Speaker Change: Yeah, sure. No, thank you for the question. Yeah, I would be a little worried if they agreed with my comment that we're going to take 50% in five years. So, the base of the question is why is this time different?
Rene Haas: I think, you know, first off, you commented on the other operating systems now having ARM-based solutions. One of them, Apple's operating system, and their environment has moved over 100%. And that is obviously a pretty significant indication of the value proposition that they get. I think what's changed this time in the Windows ecosystem is that there are a number of things that have changed. The first thing to say is that the products that are out today are using the most advanced Arm technology. They are optimized with Microsoft for the most effective battery life on the planet.
Rene Haas: So the basic question is: why is this time different? I think, first off, you commented yourself relative to the other operating systems having now ARM-based solutions. One of them, Apple's operating system and their environment, has moved over 100%. And that is obviously a pretty significant indication of the value proposition that they get. I think what's changed this time in the Windows ecosystem; there's a number of things that have changed. First is that the products that are out today are using the most advanced ARM technology; they are optimized with Microsoft for the most effective battery life on the planet.
Speaker Change: I think, first off, you commented yourself relative to the other operating systems having now ARM-based solutions. One of them, Apple's operating system, and their environment has moved over 100%.
Charles Shee: And that is obviously a pretty significant indication of the value proposition that they get. I think what's changed this time in the Windows ecosystem, there's a number of things that have changed.
Speaker Change: First is that the products that are out today are using the most advanced arm technology. They are optimized with Microsoft for the most effective battery life on the planet.
Rene Haas: If you look at, for example, Dell's XPS product line as an example. Their touting over 19 hours of battery life for the arm-based solution, well in excess of what you see from the competition. Additionally, some of the earlier Arm-based PCs for Windows were using technology that A was designed for phones and B was three or four years old that had not been updated or upgraded. That's all changed as well to have these products be AI PC compliant.
Rene Haas: If you look at, for example, Dell's XPS product line as an example, they're touting over 19 hours of battery life for the ARM-based solution, well in excess of what you see from the competition. Additionally, some of the earlier ARM-based PCs for Windows were using technology that A, was designed for phones, and B, was three or four years old and had not been updated or upgraded.
Speaker Change: If you look at, for example, Dell's XPS product line as an example.
Speaker Change: They're touting over 19 hours of battery life for the ARM-based solution, well in excess of what you see from the competition.
Speaker Change: Additionally, some of the earlier ARM-based PCs for Windows were using technology that A, was designed for phones, and B, was three or four years old and had not been updated or upgraded. That's all changed as well to have these products be AIPC compliant.
Rene Haas: That's all changed as well to have these products be AIPC compliant. And lastly, ultimately, what you need to get to that kind of market share is a broadening of the supplier base. You also need the top to bottom SKUs to be addressed from the entry all the way to the top end.
Rene Haas: And lastly, ultimately what you need to get to that kind of market share are broadening of the supplier base. You also need the top-to-bottom skews to be addressed from the entry all the way to the top end. We're very confident from everything we're hearing in the ecosystem that that is all going to be filled out over the next number of years. So when you combine a supply base that has multiple vendors, also incredible battery life. And then no compromise performance. I don't see really any reason why what happened to me. In the Mac ecosystem, can't happen in the Windows ecosystem.
Speaker Change: And lastly...
Speaker Change: Ultimately what you need to get to that kind of market share are a broadening of the supplier base. You also need the top-to-bottom SKUs to be addressed from the entry.
Rene Haas: We're very confident from everything we're hearing in the ecosystem that that is all going to be filled out over the next number of years. So when you combine a supply base that has multiple vendors, also incredible battery life, and then no compromise performance, I don't see any reason why what happened in the Mac ecosystem can't happen in the Windows ecosystem.
Speaker Change: all the way to the top end, we're very confident from everything we're hearing in the ecosystem that that is all going to be filled out over the next number of years.
Speaker Change: So, when you combine a supply base that has multiple vendors, also incredible battery life, and then no-compromise performance.
Speaker Change: I don't see really any reason why what happened in the Mac ecosystem can't happen in the Windows ecosystem. So, the Mac ecosystem is virtually 100%, so when we think of 50%, that doesn't seem too lofty for me in five years.
Rene Haas: So the Mac ecosystem is virtually 100%. So when we think of 50%, that doesn't seem too lofty for me in five years. Thank you.
Rene Haas: So the Mac ecosystem is virtually 100%. So when we think of 50%, that doesn't seem too lofty for me in five years. Thank you. We will now take the next question, and it comes from David O'Connor from BNP Paribas. Please go ahead.
David O'Connor: You will now take the next question, and it comes from the line of David O'Connor from BNP Paribas. Please go ahead. Great. I could ask you then. Thanks for taking my questions. Just one on my side, maybe for Jason on the royalty seasonality. Just looking there at the second half, Jason, and particularly when you consider you kind of a big customer coming with B9 adoption in the fiscal Q3 and then the mobile CSS client kind of kicking in in fiscal Q4. Can you help us? How to model that kind of second half in terms of the royalties?
Speaker Change: Thank you.
Speaker Change: We will now take the next question and it comes from the line of David O'Connor from BNP Paribas. Please go ahead.
David O'Connor: Great. Good afternoon, and thanks for taking my questions. Just one on my side, maybe for Jason, on royalty seasonality.
David O'Connor: Great, good afternoon and thanks for taking my questions. Just one on my side, maybe for Jason on the royalty seasonality.
Jason E. Child: Just looking there at the second half, Jason, and particularly when you consider you've got kind of a big customer coming with V9 adoption in fiscal Q3, and then the mobile CSS client kind of kicking in in fiscal Q4. Can you help us out how to model that kind of second half in terms of royalties to get the kind of weightings there correct? Thank you. Yeah, so there are, you know, there's two things going on. There's the V8 to V9 adoption, there's CSS, but then there's also seasonality.
Speaker Change: You know just looking there at the second half Jason
David O'Connor: and particularly when you consider you've kind of a big customer coming with v9 adoption in the fiscal q3 and then the mobile css client kind of kicking in in fiscal q4. Can you help us out how to model that kind of second half in terms of royalties so you get the kind of weightings there correct? Thank you.
Jason Child: So you get the kind of weightings there, correct? Thank you. Yeah, so there's two things going on. There's the VATB9 adoption, there's CSS, but then there's also seasonality.
Jason E. Child: But then lastly, what are we comping from a year ago since we had a, you know, kind of recovering industry? And certainly, you know, the bottom was a year ago last quarter, and now we're starting to comp stronger and stronger periods.
Speaker Change: Yeah, so, um, the, you know, there's, there's two things going on. There's, there's the V8 to V9 adoption, there's CSS, but then there's also, uh, seasonality. But then lastly, what are we comping from a year ago since we had a, you know, kind of a recovering industry?
Jason Child: But lastly, what are we comping from a year ago since we had a kind of a recovering industry. And so certainly, you know, the bottom was a year ago last quarter, and now we're starting to comp stronger and stronger periods from a royalty growth. As I said for full year, we're expecting kind of low 20% range year on year, down from the 25 that we had previously expected. When you look at the kind of growth on a quarterly basis, we expected to be roughly say roughly 10% per quarter from this Q1 to Q2, then again, Q2 to Q3, and then Q3 to Q4.
Jason E. Child: From a royalty growth perspective, as I said, for full year, we're expecting kind of a low 20% range year on year down from the 25 that we had previously. When you look at the kind of growth on a quarterly basis, we expect it to be roughly, I'd say roughly 10% per quarter from this Q1 to Q2, then again from Q2 to Q3, and then Q3 to Q4. And that'll get you to kind of roughly in that low 20% you're on your growth rate. Very helpful; thank you.
Speaker Change: And so certainly, you know, the bottom was a year ago last quarter.
Speaker Change: and now we're starting to comp stronger and stronger periods. From a royalty growth, as I said, for full year we're expecting kind of low 20-ish percent range year-on-year down from the 25 that we had previously expected.
Speaker Change: When you look at the...
Speaker Change: kind of growth on a quarterly basis.
Speaker Change: We expect it to be roughly, I'd say roughly 10% per quarter.
Speaker Change: from this Q1 to Q2, then again Q2 to Q3, and then Q3 to Q4. And that'll get you to kind of roughly in that low 20% you're on your growth rate.
Jason Child: And that'll get you to kind of roughly in that low 20% year-on-year growth rate. Thank you.
Speaker Change: Very helpful, thank you.
Andrew Gardner: Your next question comes from the line of Andrew Gardner from City, please go ahead. Thanks very much for taking the question. It's had another one on the licensing side. I mean, you mentioned, guys, that it's a lumpy business. Certainly is, but you know, fortunately, in practically every quarter, since the idea, it's been lumpy in one direction for the upside. What in the current quarter, you know, has driven that upside relative to your visibility? Was it companies taking more arm content? Did you have more bookings that were able to turn quickly? The CSS or, you know, was that pulled forward from deals that you might have expected to recognize revenue on in future periods?
Speaker Change: Thank you.
Jason E. Child: Thank you. Your next question comes from the line of Andrew Gardiner from City. Please go ahead. Thanks very much for taking the question. I just had another one on the licensing side.
Speaker Change: Your next question.
Speaker Change: Comes from the line of Andrew Gardiner from City, please go ahead.
Andrew Michael Gardiner: Thanks very much for taking the question. I just had another one on the licensing side. I mean, you mentioned, guys, that it's a lumpy business. It certainly is, but you know, fortunately,
Andrew Michael Gardiner: I mean, you mentioned, guys, that it's a lumpy business. It certainly is, but fortunately, in practically every quarter since the IPO, it's been lumpy in one direction to the upside. What in the current quarter, you know, has driven that upside relative to your visibility? Was it companies taking more on content? Did you have more bookings that were able to turn quickly?
Andrew Michael Gardiner: In practically every quarter since the IPO it's been lumpy in one direction to the upside What in the current quarter, you know has driven that Upside relative to your visibility was it your company's taking more on content? Did you have more bookings that were able to turn quickly?
Jason E. Child: CSS, or, you know, was there pull forward from deals that you might have expected to recognize revenue on in future periods? I'm just trying to understand where the upside is coming from. And also, Jason, on the last call, you gave us sort of the bookings outlook for the year, saying that it had been such a strong year last year that you expected about 60 percent of that level in fiscal 25. I think you touched on it in your prepared comments, but I apologize. I missed it.
Rene Haas: Unknown Executive, Rene Haas
Andrew Gardner: I'm just trying to understand where the upside is coming from.
Jason Child: And also Jason, and the last call you've given us sort of the bookings outlook for the year, saying that it had been such a strong year last year that you expected about 60% of that level in fiscal 25. I think you touched on it in your prepared comments, but I apologize. I missed it. What's the expectation for that after the strong first quarter? Thank you.
Rene Haas: Unknown Executive, Rene Haas
Jason E. Child: What's the expectation for that after the strong first quarter? Thank you. Thanks for the question. Overall, from really from last quarter, we are, you know, we do see a little bit stronger licensing to account for that slight reduction that we're expecting in royalties. That reduction in royalties is about 75-ish million for the year.
Jason Child: Thanks for the question. So, overall, from really from last quarter, we are, we do see a little bit stronger licensing to account for that slight reduction that we expected in royalties. That reduction in royalties is about 75-ish million for the year, so that increase then that we would expect to see on licensing is the same amount. So not a significant difference for what we had last quarter. So, in terms of what we saw last quarter, over this versus this quarter, for the most part, we still have strong visibility into our renewals, specifically of some ATAs, which are the biggest drivers of license, bookings, and revenue.
Jason E. Child: So that increase that we would expect to see on licensing is the same amount, so not a significant difference from what we had last quarter. So in terms of what we saw last quarter versus this quarter, for the most part, you know, we still have strong visibility into our renewals, specifically of some ATAs, which are, you know, the biggest drivers of license bookings and revenue. We do have some, I would say, some newer deals on newer technologies; those are the ones that are a little harder to forecast.
Rene Haas: Thanks for the question. So, overall from, really from last quarter,
Rene Haas: We are...
Speaker Change: Yeah, we do see a little bit stronger licensing to account for that slight reduction that we're expecting in royalties.
Speaker Change: That reduction in royalties is about $75-ish million.
Speaker Change: for the year. So the increase then that we would expect to see on licensing is the same amount. So not a significant difference from what we had last quarter. So in terms of what we saw last quarter versus this quarter, for the most part, you know, we still have
Jason E. Child: And that's why, you know, depending on what the final shape and size of those deals look like will help us figure out which part of the guidance range will fall into. And so that, you know, as time progresses throughout the year, we'll get, you know, we'll get more clarity on those aspects. But, you know, in terms of the fundamentals, as Rene said, it really, from the partner side, the demand for arm designs continues to stay just as durable and as strong, maybe even stronger than it was 90 days ago. So, those are all the key drivers and pieces.
Speaker Change: Strong Visibility into our renewals, specifically some ATAs, which are, you know, the biggest drivers of license bookings and revenue. We do have some
Jason Child: We do have some, I would say some newer deals on newer technologies; those are the ones that are a little harder to forecast, and that's why depending on what the final shape and size of those deals look like will help us figure out which part of the guidance range will fall into. And so that, as time progresses throughout the year, we'll get more clarity on those aspects. But in terms of the fundamentals, as Rene said, it really, from the partner side, the demand for ARM designs continues to stay just as durable and as strong, maybe even stronger than it was 90 days ago.
Speaker Change: I would say some newer deals on newer technologies, those are the ones that are a little harder to forecast. And that's why.
Speaker Change: Depending on what the final shape and size of those deals look like will help us figure out which part of the guidance range we'll fall into. And so that, you know, as time progresses throughout the year, we'll get...
Rene Haas: You know, we'll get more clarity on on those aspects.
Rene Haas: But, you know, in terms of the fundamentals, as Rene said, it really, you know, from the partner side, the demand for arm designs continues to
Jason E. Child: The one thing I would say about the comment you said about positive on the upside, you're right, except for this next quarter, you're going to see it go to negative because we are now starting to compare some of those strong overperformance quarters that we had last year. But on average, it's going to be not that far from what the ACV growth of roughly 14% looks like. And that's why I would, you know, I kind of like the ACV growth because of the fact that it's cutting through rev rec and treating everything ratable, it's a better kind of indicator of what the longer-term growth rate looks like. And so that's how I think about it.
Jason Child: So those are all the key drivers and pieces. The one thing I would say about the comment you said about positive to the upside, you're right, except for this in this next quarter, you're going to see it go to negative, because we are now starting to comp some of those strong overperformance quarters that we had last year. So you're going to see negative 20% year on year because of what we're comp in a year ago. You'll see get back to, you know, kind of more flatish in Q3 slightly positive and then you'll see strong growth again in Q4.
Rene Haas: Stay just as durable and as strong, maybe even stronger than it was 90 days ago. So those are all the key drivers and pieces.
Speaker Change: The one thing I would say about the comment you said about positive to the upside, you're right, except for in this next quarter, you're going to see it go to negative.
Rene Haas: Because we are now starting to comp some of those strong over performance quarters that we had last year. So you are going to see negative 20% year on year because of what we're comping a year ago. You'll see get back to, you know, kind of more flattish in Q3, slightly positive. And then you'll see strong growth again in Q4.
Jason Child: Now, it'll all shake out to be somewhere in kind of the mid 20% year-on-year range. And that's why each quarter is going to look very, very different. But on average, it's going to be not that far from what the ACV growth of roughly 14% looks like. And that's why I would, you know, I kind of like the ACV growth because of the fact that it's cutting through revrec and treating everything ratable. It's a better kind of indicator of what the longer-term growth rate looks like. And so that's how I, that's how I think about it.
Rene Haas: Now, it'll all shake out to be somewhere in kind of the mid-20% year-on-year.
Rene Haas: range, and that's why.
Rene Haas: Each quarter is going to look very, very different, but on average, it's going to be not that far from what the ACV growth of roughly 14% looks like. And that's why I kind of like the ACV growth because of the fact that it's cutting through REV-REQ and treating everything routable, it's a better kind of indicator of what the longer term growth rate looks like.
Rene Haas: And so that's how I, that's how I think about it.
Jason Child: Thank you.
Jason E. Child: Thank you very much. Thank you. We will now take our final question for today, and your final question comes from Chris Cardo from Wolf Research. Please go ahead.
Unknown Executive: We will now take our final question for today. And your final question comes from Chris Cardo from Wolf Research. Please go ahead. Yes, thank you. The question is just some help on the slope of the Rm V9 ramp outside of handsets. And you talk about V9. I think penetration was 25% of the total business; obviously, a lot higher within handsets. You know, how should we expect that being those these higher V9 royalties to be layering into the non-handset part of the business over time? Yeah, well, as you're forecasting the overall business, I would, you've seen roughly 500 basis points of, you know, total royalty mixed moving to V9.
Speaker Change: Thanks very much.
Speaker Change: Thank you. We will now take our final question for today and your final question comes from Chris Caso from Wolf Research. Please go ahead.
Chris Cardo: Yes, thank you. The question is just for some help on the slope of the ARM V9 ramp outside of the handsets. And you talked about V9. I think penetration was 25% of the total business, obviously, a lot higher within handsets. You know, how should we expect those higher V9 royalties to be layering into the non-handset part of the business over time? Yeah, well, as you're forecasting the overall business, you've seen roughly 500 basis points of total royalty mix moving to V9.
Christopher Caso: Yes, thank you. The question is, just some help on the slope.
Christopher Caso: of the Arm V-9 ramp outside of handsets.
Speaker Change: And you talked about V9, I think penetration was 25% of the total business, obviously a lot higher within handsets. How should we expect those higher V9 royalties to be layering into the non-handset part of the business over time?
Speaker Change: Yeah, well, as you're forecasting the overall business, I would expect...
Chris Cardo: I would expect that same... It's now been, what, three or four quarters in a row that we've seen that. I would expect that to be the continued trajectory. Our forecast showed that it should be pretty close to that. I might move around a little bit, and when it does, we'll let you know.
Speaker Change: You've seen roughly 500 basis points of total royalty mix moving to V9. I would expect that same, you know, it's now been, what, three or four quarters in a row that we've seen that. I would expect that to be the continued trajectory. Our forecast showed that it should be pretty close to that. I might move around a little bit, and when it does, we'll let you know.
Jason Child: I would expect that same. You know, it's now been what, three or four quarters in a row that we've seen at. I would expect that to be the continued trajectory. Our forecast shows that it should be pretty close with that. I might move around a little bit when it does. We'll, we'll let you know. That's how it works overall in terms of, you know, by category. You know, certainly mobile is well ahead for a variety of reasons. As Renee said, typically the timeframe to license to tape out is faster. They were some of the early adopters on V9.
Jason E. Child: That's how it works overall. In terms of by category, certainly Mobile is well ahead for a variety of reasons. As Rene said, typically, the timeframe to license, to tape out is faster. They were some of the early adopters on V9, so they will be ahead of others. You should probably expect that it's really...
Speaker Change: That's how it works overall, in terms of, you know, by category, you know, certainly Mobley is...
Rene Haas: well ahead for a variety of reasons. As Rene said, typically, the timeframe to license to tape out is faster. They were some of the early adopters on B9, so they will be ahead of others. You should expect probably, it's really
Jason Child: So, so they will be ahead of others. You should expect probably it's really.
Jason Child: So it's probably the category behind them would probably be infrastructure as the next most, I guess, for this along behind them auto and then really lastly probably IoT. But overall, you know, I forecasted by category which we also do. I find isn't really that doesn't give you much better of an answer than using that roughly 500 basis points in total because that seems to be that's closest to how our models are. And we think they will continue to work on forward.
Jason E. Child: So probably the category behind them would probably be infrastructure as the next most, I guess, furthest along behind them, auto, and then really lastly, probably IoT. But overall, I forecasted by category, which we also do, and I find that it doesn't really give you a much better of an answer than using that roughly 500 basis points in total, because that seems to be that's closest to how our models have worked.
Rene Haas: So probably the...
Rene Haas: The category behind them would probably be infrastructure as the next most.
Speaker Change: I guess furthest along.
Speaker Change: Behind them, Otto, and then...
Rene Haas: Really, lastly, probably IoT.
Rene Haas: But overall, you know, I forecasted it by category, which we also do, I find isn't really that, doesn't give you a much better of an answer than using that roughly 500 basis points in total, because that seems to be, that's closest to how our models have worked and we think they will continue to work going forward.
Jason Child: Thank you.
Jason E. Child: And we think they will continue to work on forward. Got it. Thank you. Thank you. This concludes the question and answer session for today. I will now hand the call back to Rene Haas for his closing remarks. Thank you. And again, thank you, everyone, for the great questions. In summary, again, Four Quarters is a public company, four quarters of record revenue. I do again hearken back to when we were doing our IPO roadshow and testing the waters, that Arm being such a quiet company for so many years, we had a lot of education to do regarding Arm being a growth company.
Unknown Executive: This concludes the question-and-answer session for today.
Speaker Change: Got it. Thank you.
Rene Haas: I will now hand the call, but the red day has to close in remarks. Thank you. And again, thank you everyone for the great questions.
Speaker Change: Thank you. This concludes the question and answer session for today. I will now hand the call back to Rene Haas for closing remarks.
Rene Haas: In summary again, four quarters of the public company, four quarters of record revenue. I do, again, harken back to when we were doing our IPO road show and testing the waters that Arm, being such a quiet company for so many years, we had a lot of education we had to do regarding Arm being a growth company. I am so pleased that a year later that not only have we shown four quarters of record growth, but I'm even more excited about the future. When it comes from either CSS's or the growth with AI or what seems to be an insatiable need for compute, the world's platforms are all going to be built on ARM and I could not be more excited about the future.
Rene Haas: Thank you. And again, thank you everyone for the great questions. In summary, again,
Speaker Change: Four Quarters is a public company.
Speaker Change: four quarters of record revenue.
Speaker Change: I do again hearken back to when we were doing our IPO roadshow and testing the waters.
Speaker Change: that Arm being such a quiet company for so many years, we had a lot of education we had to do regarding Arm being a growth company.
Jason E. Child: I'm so pleased that a year later, not only have we shown four quarters of record growth, but I'm even more excited about the future. When it comes to either CSS, or the growth of AI, or what seems to be an insatiable need for compute, the world's platforms are all going to be built on Arm, and I could not be more excited about the future.
Speaker Change: I'm so pleased that a year later that not only have we shown four quarters of record growth, but I'm even more excited about the future. When it comes from either CSSs or the growth with AI or what seems to be an insatiable need for compute,
Rene Haas: the world's platforms are all going to be built on ARM, and I could not be more excited about the future. Thank you, everyone.
Unknown Executive: Thank you, everyone.
Unknown Executive: Thank you.
Rene Haas: Thank you, everyone. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.
Unknown Executive: This concludes today's conference call. Thanks for participating.
Unknown Executive: You may now disconnect because please standby. Thank you.
Speaker Change: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers please stand by.
Rene Haas: [inaudible]
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