Q1 2025 Arteris Inc Earnings Call
Speaker Change: Good afternoon, everyone, and welcome to the Arteris' first quarter 2025 earnings call.
Speaker Change: Please note this as follows being recorded and simultaneously webcast. All material contained in the webcast is sole property and copyright of Arteris Inc. with all rights reserved. For opening remarks and introductions, I will now turn to call over to Erica Mannion of Software Investor Relations. Please go ahead.
Speaker Change: Thank you and good afternoon. With me today from Arteris, our Charlie Janac, Chief Executive Officer, and Nick Hawkins, Chief Financial Officer.
Charlie Janac: Charlie will begin with a brief review of the business highlights for the first quarter ended March 31, 2025.
Speaker Change: Nick will review the financial results for the first quarter followed by the company's outlook for the second quarter in the full year of 2025. We will then open the call for questions.
Speaker Change: Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meeting of federal securities laws.
Speaker Change: These statements involve material risk and uncertainties that cause actual results or events to materially differ from those anticipated and you should not place undue reliance on
Speaker Change: Additional information regarding these risks uncertainties and factors that could cause results to differ appear in the press release, Arteris issued today, and in the documents and reports filed by Arteris from time to time with the Securities and Exchange Commission.
Speaker Change: Please note, during this call, we will cite certain non-GAAP measures , including non-GAAP , net loss, non-GAAP , net loss per share, and free cash flow, which are not measures prepared in accordance with U.S. gap.
Speaker Change: The non-GAAP measures are presented as we believe that they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating
Speaker Change: These non-GAAP measures should not be considered a isolation from or as substitutes for or superior to financial measures prepared in accordance with U.S. Gap.
Speaker Change: A reconciliation of these non-GAAP measures , venerous gap measure can be found in the press release for the quarter ended March 31, 2025.
Speaker Change: In addition, for a definition of certain of the key performance indicators used in this presentation such as annual contract value, contract design starts and remaining performance obligations, please see the press release for the quarter end of March 31, 2025.
Speaker Change: Listeners who do not have a copy of the press release for the quarter ended March 31, 2025 may obtain a copy by visiting the Investor Relations section of the company's website.
Speaker Change: In addition, management will be referring to the Q1 2025 earnings presentation, which can be found in the Investor Relations section of the company's website, Under the Events and Presentations tab. Now, I will turn the call over to Charlie.
Charlie Janac: Thank you, Erica, and thanks to everyone for joining us on our call today.
Charlie Janac: In the first quarter of 2025, we achieved another record annual contract value plus royalties.
of 66.8 million.
Charlie Janac: and generated 2.7 million in non-GAAP , positive free cash flow as demand for commercial semiconductor system IP products continues to grow.
Charlie Janac: Our success during the quarter saw steady adoption across enterprise computing communications and automotive semiconductors, driven by growing chiplet and SOC design complexity, as well as proliferation of AI applications.
During the quarter, we had several key design wins.
Charlie Janac: Forkane from top 30 global technology companies, expecting their deployment of Arteris products.
Charlie Janac: The largest wind, including Magilum, SOC Integration Automation Software, as well as Interconnect IP for various applications, including memory controllers and consumer electronic projects.
Charlie Janac: Another of the large winds came from an expanded reorder from a top-fly technology company with products and services, including hyperscale computing and consumer electronics.
Charlie Janac: Also, a major automotive OEM expanded its use of Arteris product portfolio for its next generation of EV vehicles.
Charlie Janac: Another key win in one of the three new Arteris customers in the quarter was with an industry leading Japanese automotive OEM.
Charlie Janac: This customer licensed our products to support their new in-house development of autonomous driving SOCs that include AI and functional safety capabilities.
Charlie Janac: They selected Arteris based on the combination of our product superior performance, lower power area efficiency and high resilience for their mission critical applications.
Charlie Janac: With this latest edition, we now have 10 automotive OEMs as direct Arteris customers.
Charlie Janac: Adoption of our technology also continues to be strong with advanced semiconductor companies.
Charlie Janac: For example, our physically aware FlexKnock IT with AI and a functional safety support was chosen for the development of next-chips, next-generation vision-based ADAS technology to realize the future of autonomous driving with sustainability.
Charlie Janac: We are seeing increased movement from internal system IP solutions to commercial vendors such as Arteris as customers desire resource efficiency, quality and faster solutions delivery.
Charlie Janac: I am pleased to report the penetration of the increasingly complex microcontroller MCU system IP market continues with initial receipt of royalties from the top five MCU manufacturer.
Charlie Janac: This penetration is driven by continued increases in MCU complexity as well as ever more stringent latency and cost requirements.
Charlie Janac: In addition to our customer momentum, we continue to deliver new technology.
Charlie Janac: In the last earning call, we announced FlexGen, our AI-driven smart NOC IP technology, which has the potential to revolutionize semiconductor designs by delivering up to 10X engineering productivity, lowering power consumption and improving overall performance.
Charlie Janac: We now have over 20 customer SOC projects evaluating FlexGen, which is a promising start for this innovative product, which we expect will generate revenue and ACV in a second half of the year.
Charlie Janac: In the first quarter, Arteris also released the latest generation of Magulam Register Management Automation software used for semiconductor hardware and software integration.
Charlie Janac: This latest technology provides a single source of data for development of SOC's and chiplets by chip architects, hardware designers, firmware engineers, verification teams and documentation
Charlie Janac: helping to mitigate the silicon failure risks associated with the unfortunate and quite common instances of out-of-date specifications, interpretation differences across various teams, and user errors.
Charlie Janac: The latest product improves performance and scalability to address the needs of any semiconductor design ranging from simple IoT devices to state-of-the-art complex artificial intelligence and SOCs, FPGAs, and Juppets.
Charlie Janac: I'm also proud to see that our focus on innovation being recognized in three prominent categories in the 23rd Annual American Business Awards out of 3,600 nominations.
Charlie Janac: These included the Gold Award for the most innovative tech company of the year.
Charlie Janac: Another Gold Award for Technical Innovation of the Year for our NCORE-NAKIP, with its support for Armed Risk 5, X86, and Mixed Architectures.
Charlie Janac: and the Civil Award in the Product Innovation Category for our FlexKnock and Encore knock-tiling technology in support of Advanced AI Computing in the Data Center and the Edge.
Charlie Janac: Beyond actively driving in-house innovation, Arteris continues to expand ecosystem collaboration to provide full solutions to our customers.
Charlie Janac: including leveraging our products' physical awareness to support the faster development of advanced electronics, with more predictable power, performance, and area, or PPA for SOC's and chiplets.
Charlie Janac: We recently announced that Arteris joined the Intel Foundry Accelerator Program, becoming members of the IP Alliance enabling silicon designs using Intel's 18A Advanced Process node to collaborate on physically aware knocks of future notes.
and Karel Janac. Thank you. Thank you.
Charlie Janac: Additionally, Arteris also became a founding member of Intel Foundry's new Chiplet Alliance, which aims to create a robust network of ecosystem partners to ensure interoperability and to accelerate creation of a wide range of multi-die silicon applications.
Charlie Janac: and Karel Janac. Thank you. Thank you. Thank you. Thank you.
Speaker Change: Similarly, Arteris also joined the IMAX sponsored automotive chip platform, whose goal is to share insights and ensure industry alignment and interoperability for automotive chiplet-based architectures where our NOC products with ISO 26262 functional safety capabilities will play an increasingly important role moving forward.
Speaker Change: Lastly, we announce the opening of our new engineering and customer support center in Crackout Poland.
Speaker Change: This new location will support the development of network on chip IP and SOC integration automation software for the semiconductor industry.
Speaker Change: Arteris' hundreds of customers worldwide who are supported by workforce across 11 countries.
Speaker Change: The addition of a hub in Poland will expand the company's global footprint and provide Arteris with expanded access to top engineering talent for product development, validation, and customer support.
Speaker Change: We believe the scale and scope of our long-term opportunity remain robust and are supported by our current products and strong product pipeline of new silicon system IP technologies as well as growing relationships with some of the largest and most advanced electronics companies in the world.
Speaker Change: Our customers continue to innovate in exciting high growth areas, such as January of AI, Autonomous Driving, 5G and 6G Communications, using Arteris products and global support.
Speaker Change: We are diligently monitoring the current global economic uncertainty, although this did not lead to any deal cancellations or delays in the first quarter.
Speaker Change: Nevertheless, we do see greater potential for variability in financial outcomes for the year due to this economic uncertainty.
Speaker Change: The clearest impacts are potential short-term headwinds to royalties as a result of veining customer of global confidence and automotive and other tariffs.
Speaker Change: Additionally, our Overseas-based op-ex is likely to increase should the recent weakness of the US dollar that persists or worsens.
Speaker Change: As a potential offsetting factor, we are seeing opportunities for our customer base to accelerate outsourcing of their silicon system IP needs to our terrace, to accelerate their products time to market, reduce their own costs, and increase their operating efficiencies.
Speaker Change: Nick will cover these impacts more when he discusses our guidance. With that, I'll turn it over to Nick to discuss our financial results in more detail.
Thank you, Charlie and good afternoon everyone.
Speaker Change: As our review our first author results today, please note that we're referring to Gap as well as non-GAAP metrics.
Speaker Change: A reconciliation of gap to non-GAAP financial s is included in today's earnings release, which is available on our website.
Speaker Change: Also, as a reminder, I will be referring to the 1 Q2 025 earnings presentation which can be found in the Best Relations section of the company's website on the events and presentations tab.
Speaker Change: Tending to slide five of the presentation, total revenue for the first quarter was $16.5 million up 28% year of the year, benefiting from approximately 0.5 million one-time revenue, and it's exceeding the top end of our guidance range.
Speaker Change: At the end of the first quarter, annual contract value or ACB plus royalties was $66.8 million up 15% year of a year above the mid-point of our guidance range and a record height of the company.
Speaker Change: Remaining performance obligations, or RPO at the end of the first quarter, were $88.9 million, representing 19% year-of-year increase, once again, a new high-trauteris.
Speaker Change: Longat Gross Prophet for the quarter was 15.3 million dollars representing a gross margin of 92%.
Notending to slide six.
Speaker Change: non-GAAP operating expense in the quarter was $18.4 million, up 9% sequentially and 8% higher year-over-year.
Speaker Change: Impracted by the timing of certain non-linear expenses and in part burdened by the U.S. dollar increasing the cost of overseas operations.
Speaker Change: Additionally, we continue to grow the investment in our R&D and field application engineering teams that drive technology innovations and solutions of board.
Speaker Change: Total gap operating expense for the first quarter was $22.7 million, representing a 10% year-of-year increase.
Speaker Change: As we look ahead, we plan to focus spending on strategically critical areas.
Speaker Change: in particular in key people who can help drive private development, enhance customer support through field application engineering and expand the geographic and key account reach of our both the sales team.
Speaker Change: We believe that these ongoing investments can accelerate our top-line growth.
Speaker Change: At the same time, we are driving operating leverage by controlling DNA spending, which has now remained broadly flat on a non-GAAP basis for approximately three years.
Non-Gak operating loss for the first filter was $3.2 million.
Speaker Change: Both of the top end of our guidance range. This represents a $2.1 million or 40% improvement compared to the loss of $5.3 million in a prior year period.
Speaker Change: At operating loss for the first quarter was $7.7 million compared to a loss of $9.1 million in the prior year period.
Speaker Change: non-GAAP net loss in the quarters, $3.6 million or diluted net loss per share of nine cents based on approximately 40.9 million weighted average diluted shares outstanding.
Speaker Change: Yeah, Netloss in the quarter was $8.1 million or diluted netloss per share of 20 cents.
Speaker Change: We ended the quarter with $55.1 million in cash, cash equivalence and investments and we have no financial debt.
Speaker Change: Free cash flow, which includes capital expenditure, was positive $2.7 million for a quarter. Above the top end of our guidance, benefiting from some early customer payments that would do early in the second quarter.
Speaker Change: I would now like to turn to our outlook for the second quarter and full year 2025 and a flair now to slide eight.
Speaker Change: Looking forward, the current economic turbulence has created some mark on certainty for our business and consequently we have revisited our 2025 guidance.
Speaker Change: As a general contextual comment, our viewers, the current economic turbulence presents three key financial considerations for 2025.
Speaker Change: First, the current trade challenges may result in short term reduction for end demand for some of our customers products and in our key market verticals, especially automotive and consumer.
and Karel Janac. Thank you. Thank you.
Speaker Change: It is, however, not yet clear what, if any, in fact there will be a trial role to revenue in 2025.
Speaker Change: The first quarter unit sales outboughts from our customers have generally been better than expected.
Speaker Change: However, it is possible that this is in part resulting from poor forward demand for our customer's products in anticipation of increased tariff costs.
Speaker Change: Constantly, we have not adjusted our overall FY25 revenue guidance at the midpoint, since we believe that the overall net impact will not be materially different from our prior expectations.
Speaker Change: 2nd, since the start of the year, US dollars weakened against most major currency pairs.
Speaker Change: While the significant majority of our revenue is invoiced in US dollars, approximately 40% of our expenses are denominated in foreign currencies, predominantly the Euro, which is appreciated by up to 10% against the US dollar this year.
Speaker Change: In the event that the US dollar exchange rates remain at current levels, we estimate that the annual impact on our terrorist expenses would be approximately $1 million.
Speaker Change: However, due to unrelated, off-scessing expect specters, we are not adjusting our midpoint guidance for non-GAAP operating income and free cash flow for FY 2025.
Bird.
Speaker Change: While Arteris products are not subject to tariffs, there is a potential existential impact of the ongoing trade disputes and collateral economic impacts to our business environment, including factors such as consumer and industrial confidence.
As a result, we have widened our top line guidance ranges.
Speaker Change: This economic turbulence is exogenous to Arteris business operations and it is hard to forecast with certainty of longevity or collateral consequences of changing economic policies.
Speaker Change: But being said, while the industrial markets remain clouded with tariff and geopolitical uncertainty, we see our customers long-term growth and therefore our licence and loyalty revenue remaining robust.
Speaker Change: For the second quarter of 2025, we expect ACV plus royalties of $66 million to $70 million.
Speaker Change: Revenue of $16.1 million to $16.5 million with non-GAAP operating loss of $4 million to $3 million.
Speaker Change: and non-GAAP free cash flow of negative $5 million to zero, which reflects the reverse effect of early customer payments that benefited the first quarter, as I mentioned earlier.
Speaker Change: Therefore, we expect free cash flow for the first half over overall to be positive at
for the full year 2025, our guidance is as follows.
Speaker Change: ACV plus royalties exit 2025 at 71 million dollars to 79 million dollars.
non-GAAP operating loss are between $14 million to $7 million.
Speaker Change: Mungat free cash flow of zero to positive eight million dollars.
and Karel Janac. Thank you. Thank you.
Speaker Change: In spite of the near-term challenges I outlined, we are very encouraged by the continued strong deal pipeline and I would reiterate the point raised earlier by Charlie.
Speaker Change: that we are seeing promising signs of an accelerated interest by some major customers to increase the outsourcing to the commercial market for the system IP products that Arteris specialises in.
Speaker Change: With that, I will turn the call over to the operator and open other questions operator.
Speaker Change: Weedis and gentlemen, we will now begin the question and answer session. Should you have any questions? Please press tar followed by the number one on your touch on phone. You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, please press tar followed by the number two. If you are using a speaker phone, please make sure to lift your handset before pressing any keys.
One moment while we prepare our Accumany roster.
Speaker Change: Your first question comes from the line of Josh Buchalter from TD Cowan. You may now ask your question.
Josh Buchalter: Thank you for taking my questions and congrats on this video results in an interesting backdrop.
Speaker Change: I get the one to hit on the tariff and the trade environment right now. You're being up front with sort of your cautious view. I get so undressed more directly. Are you seeing any changes from your customers?
Speaker Change: and behaviors yet, and in particular on their willingness and desire to invest in there.
Speaker Change: I.P. and S.L.C. roadbaps going forward or is no change yet and you're just being more cautious on the back half.
So, I'm in.
Speaker Change: Semiconductors, so IP and an idiot not through its subject to any tariffs.
and directly, right?
Paul
Speaker Change: We are seeing some replanting of projects in China due to the only tears but also some of the increasing regulations coming from the U.S.
So...
Speaker Change: but on the other hand, what we're also seeing is that
Speaker Change: As the larger companies want to, they're looking at their efficiencies and so there seems to be an increased willingness by those companies to outsource a system IP to a commercial vendors such as Arteris.
Speaker Change: and the Arteris type of companies actually tend to do fairly well in markets. There are just to that, you know, under uncertainty.
Speaker Change: because our customers tend to design their way out of recessions. While there may be some impact on the royalties, which are relative to the small portion of our revenue at this point in time, the licensing activity remains robust.
So, thank you for all our time there.
Speaker Change: and just to add to that, Josh, thanks for the questions. This is Nick speaking.
Speaker Change: So just to reiterate in case anybody missed it, while we're pointing out that there is some economic uncertainty around because things are changing day to day as you know.
Speaker Change: We, the business is still robust. We're not seeing the change in the pipeline. One way or the other. So we think we're well set for the year, which is why we haven't changed our full year midpoint guidance on any of the metrics.
Speaker Change: There is, as you rightly point out, a great deal of uncertainty still.
Speaker Change: So we don't know what the knock-on impacts and what the collateral impacts might be, which is why in common with many other companies, we've just widened our guidance range because we have less certainty right now.
Speaker Change: Okay, make sense. Thank you for the color of both of you. And for my follow-up, I wanted to ask about flexion. It sounds like you're increasingly confident in the success of that platform. Could you maybe elaborate on what's driving the expectations for a revenue and an APB in the second half of the year and where sort of you're seeing initial traction from an application standpoint for flexion? Thank you.
Speaker Change: So, we've been working on flexion for three years. We've been delivering it to the customers since second half of last year. We have right now, at the moment, about 20 projects evaluating flexion. The feedback has been almost universally positive.
Speaker Change: and we have been able to get it to production status, full production status back in February of this year with the release of Flexion 1.2, which is the third release of it.
Speaker Change: and we anticipate that it's going to generate substantial bookings and then revenue which is in a second half. So we're very pleased with the receptional flexion.
Speaker Change: and the applications are fairly broad, right? They range from automotive, data center, enterprise consumers, so it's a pretty broad spectrum of companies that are using it for evaluations
Speaker Change: I'll just add a little bit of color to that as well.
Speaker Change: Josh, as I'm sure you know from previous commentary, the any increase from FlexGen, which is likely to be through its ASP as much as major new customers, is likely to be first or will be mathematically felt first in...
RPO and ACV, because they step up.
Speaker Change: contract by contract immediately. The revenue because of its radical nature of everything is running on a sort of turn after three and a half year contract designed because it's irreversible the impact on revenue.
Speaker Change: from any second half deals signed or even second quarter deals signed will be much more muted.
So, officially the fall of bat in 2026.
Speaker Change: It also may benefit free cash flows, of course, but it to the extent that people pay customers
and Karel Janac. Thank you. Thank you.
Thanks both appreciate it.
Speaker Change: We descend gentlemen as a reminder if you would like to ask a question, please press star followed by the number one on your touchstone phone. If you are using a speaker phone, please make sure to lift your handset before pressing
Speaker Change: and Karel Janac. Thank you. Thank you. Thank you. Thank you.
Speaker Change: Your next question comes from the line of Kevin Garrigan from Rosen last security piece. Please ask her question.
Yeah, hey, Charlie Nick, congrats on the solid results.
Speaker Change: Hey, you guys spoke about accelerated interests from companies that have been sourced. Are you also seeing accelerating decision timelines by customers that are kind of that going from having an initial conversation to, you know, signing the licensing agreement that you've previously seen?
Speaker Change: Not really. People have generally tried to accelerate their designs.
Speaker Change: is really pretty much steady, I would say. You know, steady growth and there is, of course, a number of large companies they're looking to basically what we're seeing is that
Speaker Change: They're saying, okay, so whatever we're doing today, we're going to keep the existing system IP.
Speaker Change: But we're not going to invest in it for the next generation because it's becoming more complex and more difficult and so the next generation tends to get gets outsourced right so you know we're we're pretty pleased with that with that area of the of the business. [inaudible]
Speaker Change: and we think ultimately because of the complexity and new application.
Speaker Change: You know, most of the system IP is going to ultimately get outsourced and we're going to go from
Speaker Change: May be two-thirds of the market being internal to maybe one-third of the market being internal and two-thirds being commercial. So I think this economic uncertainty is actually accelerating that even though we're not seeing much impact on faster sort of decision-making on individual projects.
and Karel Janac. Thank you. Thank you.
Nick: Kevin, thanks for the questions, Nick. Just to add to Charlie's.
Speaker Change: Excellent commentary. There are two key things of driving that.
Nick: One is a pure economic one, which is driven out by the complexity, the increase in complexity of SOC designs.
Nick: and it's becoming tougher for support internal teams which are very expensive, and typically we look at a sort of a 10x payback from taking on Arteris license versus.
Nick: doing the design internally. So pure economics and in times like we have at the moment, that is something that our customers were noticing a supremely focused on, is improving their objects and improving the bottom line.
Nick: and the second is actually just a guest issue, and we've touched on this before. There is a guest, the of, of qualified.
Hardware engineers who are capable of designing networks on check.
Nick: and that is something that actually FlexGen plays into very well because it decreases the amount of education required by a customer's design team.
Nick: to be able to design a knock. So those two factors are quite interesting and almost the inexorable drivers of the move to the commercial market.
Nick: Okay, great. I appreciate the color on that. And then, you know, as a follow-up on your, your joining the Intel Foundry Alliance program, I know it's only been, you know, two weeks or so since the announcement, but have you got seen any increase in interest? And do you think this joint by joining the Alliance, you know, it could help you land a customer too that you might have otherwise thought you wouldn't be able to . . . . . . . . . .
Do you want to capture?
Nick: Yeah, I mean, a lot of this is related to Libu 10, taking over a CEO of Intel, right? And what we're expecting is that Libu is going to be much more open towards commercial solutions, both EDA and on the IP side.
and also that there is a commitment.
Nick: by Intel toward continued investment in the foundry technology and in customer relationships for the Foundry.
Nick: So, we want to make sure that we participate in the 18A sort of process deployment and that we're basically the main system IP partner for that alliance. So, yes, we expect...
Nick: that this will result in some additional business over the next 12 months.
and Karel Janac. Thank you. Thank you.
Speaker Change: Yeah, that makes sense. Okay, great. Thanks guys and congrats again on the results.
and Karel Janac. Thank you. Thank you.
Speaker Change: Your next question is from the line of Gus Richard from Marthland. Please ask a question.
Gus Richard: Yeah, thanks for taking the questions. First of all, was book to Bill approximately one in the quarter? That was kind of what I was coming up with.
Gus Richard: Yeah, so Gus, thanks, but we don't disclose bookings and so I don't really want to comment on that.
Jokehead.
He always got to ask, um, he always got to put him second.
Speaker Change: Charlie, you know, you join two chip little lines, and I'm sorry, I'm Mac and I'm
Speaker Change: Intel, and just wondering a couple of questions around Tiplips. How do you see that evolving? Has the industry coalesced around UCM?
Speaker Change: UCIE, Standard, or, you know, is another interconnect standard competing with that. And, you know, sort of what is the...
Speaker Change: How long is it going to take for things to settle out so people can mix and match triplets is kind of where I'm trying to get at.
Yeah, so...
Chiplets are already in production.
Speaker Change: and so you have multi-die chips like Intel Meteor Lake essentially shipping in very significant volumes.
Speaker Change: Um, what is just now starting to be established is a heterogeneous triplet
environment.
Speaker Change: where the chiplets are coming from different suppliers. They're coming from different processes. They have to be packaged in innovative ways.
Speaker Change: and so this is going to take a number of years, even though people are already investing today, which is kind of why we're very interested in this particular aspect of the system on P-World, because basically, you know, we make...
Speaker Change: Chips communicate on a single die, but now we have to make chips communicate across multiple dies or multiple triplets in a more efficient manner, and that makes the system IP much more complex, and much more...
Speaker Change: and much more valuable. So we're very excited about that. In order to make this work, the industry and the whole ecosystem has to standardize in terms of some standards.
Speaker Change: So clearly you mentioned UCI, Gus, and that seems to be the communication mechanism for cash coherent communication between multiple dies, but we're basically trying to make
Speaker Change: Multiple dies that have multiple processors look like a single programming space to the software, so it's quite complex.
and so you need standards like UCIe.
You need standards like IP exact, just a very long
Speaker Change: and so we expect that over the next couple years, that the industry will call us...
a lot.
based on a few standards in order to lower the cost.
that this is going to really work economically is...
Speaker Change: if these things are repeatable based on certain standards and we're committed to support whatever standards are emerging.
Speaker Change: and so, and the whole ecosystem has to coalesce around the standards in order to make these heterogeneous, multi-dyed blitz S.O.C.'s an economic reality.
and Karel Janac. Thank you. Thank you.
Speaker Change: and effectively, as this happens, you need a Switzerland knock for the chiplets.
Exactly, I...
Speaker Change: and then, you know, you talked about the market being two-thirds internal today, one-third outsourced, roughly what's your estimate on how big the market is today for system IP?
Speaker Change: Okay, so it's about a somewhere between a billion and a billion two. The knock itself is about six.
700 million, something like this.
Speaker Change: There is probably 300 million in the SIA integration software. This is the software that's used to package.
Speaker Change: Connect and Configure the various IP blocks. And then there's about another, probably another 300 million or 250 million in the system IP blocks.
Speaker Change: that are, they don't do any processing, they're used to essentially make the chip function better and communicate better more efficiently and those gone things like last level caches.
Speaker Change: and so on and so forth. Re-order buffers and things that just manipulate the traffic around. So it's about 1.2 billion.
1, 1.2 billion, how about that?
[inaudible]
Speaker Change: I got it. Super helpful. And then the last one for me, you know, talked about your large customers considering outsourcing. And, you know, obviously the next generation be more expensive, more complex, you know, limited resources, etc.
Speaker Change: But my question is, is there some underlying technological change that is making this happen now rather than two years from now or two years ago? So, you know, some of what is prompting people that, okay, we gotta do this.
and Karel Janac. Thank you. Thank you.
Speaker Change: Well, I mean, you know, when Arteris started, which was more than 20 years ago, you had one processor and one, you know, two channels of memory and a couple IOs, right? So it was relatively easy to do this in-house.
Speaker Change: then you started getting multiple multi-core processors so you had to introduce
Speaker Change: The next revolution came with AI, so you have these big AI sections which have their own internal and external data communication requirements.
Speaker Change: and very, very high bandwidth and so on and so forth.
Speaker Change: and now you have the rise of triplets, so which each of these...
Speaker Change: It's becoming more expensive and more difficult to do. So there isn't one single thing where the CFOs and the VTSD piece of engineering of these decouplings wake up and says, oh my God, we gotta, you know, we gotta make a change.
Speaker Change: But with each of these developments, it becomes really, really complex.
Speaker Change: and I know that you went to the Intel Foundry Day as well.
and there was a Kevin O. Buckley slide which talked about
Speaker Change: a chiplet system that was 12 times the size of what's possible with radicals, right, which is about six hundred scale meters, so these were chiplet systems.
12 times the size.
Speaker Change: and so when you start to deal with these kinds of monsters, it gets very, very expensive and that would drive the adoption of commercial IP solutions which can be amortized over many more projects than just one company can do.
Speaker Change: and Karel Janac. Thank you. Thank you. Thank you. Thank you.
Speaker Change: Right, and then last question from AL, I'll step back. You know, you're in a certain position who'll take you so much R&D to get.
to what's needed for, you know, 12x the reticle size.
Speaker Change: You know, sort of what would it take, you know, a company, you know, a large company that does huge SOCs?
to develop something for the Chiplet.
Economy.
Speaker Change: I mean, these large companies, they have very large budgets, right?
and so they can do…
Speaker Change: But as Nick point out, the problem is getting the people, keeping them together for a number of years.
and be able to amortize that investment.
Speaker Change: over relatively few projects. I mean, mostly these companies are doing two to three [inaudible]
Tana 15, like they're doing single die.
Projects, right?
Speaker Change: So their cost is the CFO of those companies who looks at it and says why are we doing that, right?
Charlie Janac: You know, companies like Arteris have a faster learning than any internal team and we can amortize that investment which is starting to be quite large.
against many, many more projects.
Charlie Janac: So, faster learning and basically amortization of the R&D over many more projects is the advantage that we would have against any internal team.
Charlie Janac: and you know it's steady progress in this outsourcing to commercial solutions and you know it's not going to happen overnight but the trend is and the direction and the vector is clear.
and Karel Janac. Thank you. Thank you.
Got it. Thanks a lot. Thanks, your patience.
Speaker Change: Your next question is from the line of Blaine Curtis from Jeffries. Please go ahead.
Speaker Change: Hey guys, thanks for letting me ask a question here. Charlie, I just want to curious what you would point to in terms of the annual forecast you're looking for continued growth on the licensing status. I wonder if you could talk to it by an end-market perspective where you're most hopeful of the range of the year.
Um...
Speaker Change: So clearly the highest growth at the moment is in AI. There's AI projects for data center training, there's AI projects for data center inference.
Speaker Change: There's projects for edge inference, and actually AI is making it into the endpoints like phones and cars.
Speaker Change: So that's the large number of projects and we've I think we're probably we're half of the design starts in the quarter were actually somehow AI related, right?
Speaker Change: We continue to be bullish about automotive. The automotive industry has some cycles, but you know people are designing now automotive chips for six or seven years from now that are going to so that is also pretty robust.
and we're very excited about our microcontroller entry.
Speaker Change: The microcontrollers are now becoming much more complex, so they need network on ship and
Gus Richard: and the software that helps the microcontrollers come together more efficiently. And then there's the usual consumer and enterprise applications which are also steady, right? So, and what's really happening, you know, just sort of asked about the market size, right?
Gus Richard: There's probably about 60, 600, 700 SOTs there being designed a year and we have only 15% of that, right? So there's plenty of growth and each project uses more and more system IP.
and Karel Janac. Thank you. Thank you.
So, um, uh,
and Richard becomes more and more valuable, right? And so...
Gus Richard: So we're very bullish about the opportunity that we have in front of us and our main challenge is to make sure that we remain the main independent neutral player in this particular piece of the world.
and Karel Janac. Thank you. Thank you.
Speaker Change: Gotcha. Thanks. And then just for Nick, I wanted to ask you on the Olympics, you were, I think last quarter is talking about keeping SGNA flat. Obviously, it's at a higher level in the first half. Just kind of curious if the flat is still the right way to think about it.
Speaker Change: So when we talked about foliar guidance last time around blame, we characterised or I characterised 2025 as an up year by about 10%, so roughly half the rate of top line growth, so we've got revenue growing this year, guided at 18%, and we sort of maintaining our view on OPEX.
Speaker Change: at about half of that, so 9% to 10% overall. I think that's still reasonable. Where we're getting all that operating leverage, and this may be what you're recalling, is in GNA, which has now been flat.
for three years, three four years.
Speaker Change: is in R&D sales and field application engineering because they're all driving short, medium and long-term top line growth and we think there's huge opportunities left.
Thank you. Bye.
Thanks for joining us. Thanks, everyone. Thanks, everyone.
Charlie Janac: Can I ask you just to add on to Charlie's point? I was trying to cut in, but I realized I was on mute.
but just to put some numbers around.
that's going really, really nicely.
Charlie Janac: and that, of course, is a horizontal, not a vertical, as you know, the two highest growth rates.
Charlie Janac: the AI story, because that's obviously the backbone of the AI of workload.
Charlie Janac: So that's very exciting and in fact it's also starting, it's our fastest growing royalty segment as well, is enterprise.
Thank you.
Speaker Change: There are no fritter questions at this time. I'd like to turn the call over to Mr. Charlie Janic for closing comments. Sir, please go ahead.
Charlie Janac: Yes, well, thank you for your interest in Arteris. I hope that you're pleased with the results that we've delivered in Q1. And we look forward to meeting with you at the upcoming investor conferences and we're participating in during next couple of months and we look forward to updating you all on our business progress in the course to come. So thank you very much.
Charlie Janac: This concludes today's conference call. Thank you very much for your participation. You may now disconnect.