Arm Holdings Q3 2026 Arm Holdings PLC Earnings Call | AllMind AI Earnings | AllMind AI
Q3 2026 Arm Holdings PLC Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the Arm Q3 fiscal year 2026 webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, 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. To withdraw your question, please press star one and one again. 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 Kvaal, Head of Investor Relations. Please go ahead.
Operator: Good day, and thank you for standing by. Welcome to the Arm Q3 fiscal year 2026 webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, 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. To withdraw your question, please press star one and one again. 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 Kvaal, Head of Investor Relations. Please go ahead.
Speaker #1: Good day, and thank you for standing by. Welcome to the ARM third-quarter fiscal year 2026 webcast and conference call. At this time, all participants are in a listen-only mode.
Speaker #1: session. To ask a question during the presentation, there'll be a question and answer After the speaker's session, you will need to press star one and hear an automated message advising your hand is raised.
Speaker #1: To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now today, Jeff Kvaal, Head of Investor Relations.
Speaker #1: Please go
Speaker #1: ahead. Thank you very
Jeff Kvaal: Thank you very much, and welcome to our Q3 fiscal 2026 earnings call. On the call are Rene Haas, Arm's Chief Executive Officer, and Jason Child, Arm's Chief Financial Officer. During the call, Arm will discuss forecasts, targets, and other forward-looking information about the company and its financial results. While these statements represent our best current judgment about future results, our business is subject to many risks and uncertainties that could cause actual results to differ materially. In addition to any risks that we highlight during this call, important risk factors that may affect our future results or performance are described in our registration statement on Form 20-F filed with the SEC. Arm assumes no obligation to update any forward-looking statements. We will refer to non-GAAP financial measures during this discussion.
Jeff Kvaal: Thank you very much, and welcome to our Q3 fiscal 2026 earnings call. On the call are Rene Haas, Arm's Chief Executive Officer, and Jason Child, Arm's Chief Financial Officer. During the call, Arm will discuss forecasts, targets, and other forward-looking information about the company and its financial results. While these statements represent our best current judgment about future results, our business is subject to many risks and uncertainties that could cause actual results to differ materially. In addition to any risks that we highlight during this call, important risk factors that may affect our future results or performance are described in our registration statement on Form 20-F filed with the SEC. Arm assumes no obligation to update any forward-looking statements. We will refer to non-GAAP financial measures during this discussion.
Speaker #2: much, and welcome to our third-quarter fiscal '26 earnings call. On the call are Rene Haas, ARM's Chief Executive Officer, and Jason Child, ARM's Chief Financial Officer.
Speaker #2: During the call, ARM will discuss forecasts, targets, and other forward-looking information about the company and its financial results. While these statements represent our best current judgment about future results, our business is subject to many risks and uncertainties that could cause actual results to differ materially.
Speaker #2: In addition to any risks that we highlight during this call, important risk factors that may affect our future results and performance are described in a registration statement on Form 20F filed with the SEC.
Speaker #2: ARM assumes no obligation to update any forward-looking statements. We will refer to non-GAAP financial measures during the discussion. Reconciliations of certain of these non-GAAP financial measures to their most directly comparable GAAP measures can be found in our shareholder letter, as can a discussion of certain projected non-GAAP financial measures that we are not able to reconcile without unreasonable effort and supplemental financial information.
Jeff Kvaal: Reconciliations of certain of these non-GAAP financial measures to their most directly comparable GAAP measures can be found in our shareholder letter, as well as in a discussion of certain projected non-GAAP financial measures that we are not able to reconcile without unreasonable effort, and supplemental financial information. Our earnings materials are available at investors.arm.com. With that, I'll turn the call to Rene.
Jeff Kvaal: Reconciliations of certain of these non-GAAP financial measures to their most directly comparable GAAP measures can be found in our shareholder letter, as well as in a discussion of certain projected non-GAAP financial measures that we are not able to reconcile without unreasonable effort, and supplemental financial information. Our earnings materials are available at investors.arm.com. With that, I'll turn the call to Rene.
Speaker #2: Our earnings materials are available at investors.arm.com, and with that, I'll turn the call to
Speaker #2: Rene. Thank you,
Rene Haas: Thank you, Jeff, and welcome everyone. Arm delivered a record third quarter. Revenue grew 26% year-over-year to $1.24 billion, our fourth consecutive billion-dollar quarter. Royalties increased 27% to a record $737 million, driven by record units with strength across AI and general purpose data center. Our data center royalty revenue has grown more than 100% year-over-year, and we expect in a few years our data center business to be our largest business, larger than mobile. Licensing revenue was $505 million, up 25% year-over-year, as more leading companies signed high-value licenses for next-generation technologies. That performance lifted our non-GAAP EPS to $0.43, even as we continue to increase R&D investment.
Rene Haas: Thank you, Jeff, and welcome everyone. Arm delivered a record third quarter. Revenue grew 26% year-over-year to $1.24 billion, our fourth consecutive billion-dollar quarter. Royalties increased 27% to a record $737 million, driven by record units with strength across AI and general purpose data center. Our data center royalty revenue has grown more than 100% year-over-year, and we expect in a few years our data center business to be our largest business, larger than mobile. Licensing revenue was $505 million, up 25% year-over-year, as more leading companies signed high-value licenses for next-generation technologies. That performance lifted our non-GAAP EPS to $0.43, even as we continue to increase R&D investment.
Speaker #3: Jeff, and welcome, everyone.
Speaker #2: ARM delivered a record third quarter. Revenue grew 26% year-on-year to $1.24 billion, our fourth consecutive billion-dollar quarter. Royalties increased 27% to a record $737 million, driven by record units with strength across AI and general-purpose data center.
Speaker #2: Our data center royalty revenue has grown more than 100% year-on-year, and we expect in a few years our data center business to be our largest business.
Speaker #2: Larger than mobile. License revenue was $505 million, up 25% year-on-year. As licenses for next-generation more leading companies signed high-value technologies. That performance lifted our non-GAAP EPS to $0.43, even as we continue to increase R&D investment.
Speaker #2: Our performance this quarter reinforces the strength of the Arm platform and our continued commitment to investing in innovation across a broad spectrum of compute technologies.
Rene Haas: Our performance this quarter reinforces the strength of the Arm platform and our continued commitment to investing in innovation across a broad spectrum of compute technologies. The fundamentals of the Arm business have never been stronger. AI is changing how compute is built and where it runs across cloud infrastructure, edge devices, and physical systems. The industry requires platforms that deliver high performance, energy efficiency, and flexibility across a broad range of power envelopes and use cases. Only Arm's compute platform can address these demands, supporting AI workloads ranging from milliwatts to gigawatts. To align with how our customers deploy AI, we've organized ourselves around three business units: Edge AI, Physical AI, and Cloud AI. Edge AI comprises the smartphone and IoT businesses. Physical AI includes automotive and robotics, and Cloud AI encompasses data center and networking. A key driver of our royalty momentum is Compute Subsystems, or CSS.
Rene Haas: Our performance this quarter reinforces the strength of the Arm platform and our continued commitment to investing in innovation across a broad spectrum of compute technologies. The fundamentals of the Arm business have never been stronger. AI is changing how compute is built and where it runs across cloud infrastructure, edge devices, and physical systems. The industry requires platforms that deliver high performance, energy efficiency, and flexibility across a broad range of power envelopes and use cases. Only Arm's compute platform can address these demands, supporting AI workloads ranging from milliwatts to gigawatts. To align with how our customers deploy AI, we've organized ourselves around three business units: Edge AI, Physical AI, and Cloud AI. Edge AI comprises the smartphone and IoT businesses. Physical AI includes automotive and robotics, and Cloud AI encompasses data center and networking. A key driver of our royalty momentum is Compute Subsystems, or CSS.
Speaker #2: The fundamentals of the ARM business stronger. AI is changing how compute is have never been built, and where it runs across cloud infrastructure, edge devices, and physical systems.
Speaker #2: The industry requires platforms to deliver high-performance energy efficiency and flexibility across a broad range of power envelopes and use cases. Only Arm's compute platform can address these demands.
Speaker #2: Supporting AI workloads ranging from milliwatts to gigawatts. To align with how our customers deploy AI, we've organized ourselves around three business units: Edge AI, Physical AI, and Cloud AI.
Speaker #2: Edge AI compromises comprises the smartphone and IoT businesses. Physical AI includes automotive and robotics, and cloud AI encompasses data center and networking. A key driver of our royalty momentum is compute subsystems, or CSS.
Speaker #2: We launched CSS nearly two and a half years ago, and demand continues to exceed expectations. This quarter, we signed two additional CSS licenses for edge AI tablets and smartphones, bringing us to 21 companies.
Rene Haas: We launched CSS nearly 2.5 years ago, and demand continues to exceed expectations. This quarter, we signed two additional CSS licenses for Edge AI tablets and smartphones, bringing us to 21 CSS licenses across 12 companies. Five customers are now shipping CSS-based chips, including two shipping a second-generation platform, and the top four Android smartphone vendors are shipping CSS-powered devices. CSS helps customers get to market faster by lowering integration risk and complexity. As demand scales, it increases the value that Arm delivers per chip, creating a significant tailwind to royalties. In Cloud AI, the shift towards inference is reshaping data center design, and increasingly, that inference is agent-based. These workloads are persistent, always on, and power-constrained. This is a fundamental change in how AI systems operate. This is because agent-based AI requires coordination across many agents running continuously, and that the CPU can only do coordination.
Rene Haas: We launched CSS nearly 2.5 years ago, and demand continues to exceed expectations. This quarter, we signed two additional CSS licenses for Edge AI tablets and smartphones, bringing us to 21 CSS licenses across 12 companies. Five customers are now shipping CSS-based chips, including two shipping a second-generation platform, and the top four Android smartphone vendors are shipping CSS-powered devices. CSS helps customers get to market faster by lowering integration risk and complexity. As demand scales, it increases the value that Arm delivers per chip, creating a significant tailwind to royalties. In Cloud AI, the shift towards inference is reshaping data center design, and increasingly, that inference is agent-based. These workloads are persistent, always on, and power-constrained. This is a fundamental change in how AI systems operate. This is because agent-based AI requires coordination across many agents running continuously, and that the CPU can only do coordination.
Speaker #2: Five customers are now shipping CSS-based chips. CSS licenses across 12, including two shipping a second-generation platform. And the top four Android smartphone vendors are shipping CSS-powered devices.
Speaker #2: CSS helps customers get to market faster, by lowering integration risk demand scales, it increases the value that and complexity. ARM delivers per chip. Creating a As AI, the shift towards inference is reshaping data center design.
Speaker #2: And increasingly, that inference is royalties. In cloud, agent-based. These workloads are persistent, always on, and power-constrained. This is a fundamental change in how AI systems operate.
Speaker #2: This is because agent-based AI requires coordination across many agents running do coordination. As this model scales, customers need CPU chips with higher core counts and better power efficiency to operate continuously within tight power and cost constraints.
Rene Haas: As this model scales, customers need CPU chips with higher core counts and better power efficiency to operate continuously within tight power and cost constraints. This trend directly benefits Arm. Arm-based CPU chips deliver industry-leading performance per watt, enabling customers to scale core counts and run always-on AI workloads. We are now seeing this trend play out in the market where Neoverse CPUs have surpassed 1 billion cores deployed, and Arm's share among the top hyperscalers is expected to reach 50%. Leading hyperscalers are launching new products with increased core counts to address this opportunity. AWS launched its 5th generation Graviton processor with 192 cores, doubling the core count from Graviton4, and delivering 25% higher performance and up to 33% lower latency versus Graviton4. NVIDIA's next generation Vera CPU features 88 Arm-based cores, up from 72 cores in the Grace CPU generation.
Rene Haas: As this model scales, customers need CPU chips with higher core counts and better power efficiency to operate continuously within tight power and cost constraints. This trend directly benefits Arm. Arm-based CPU chips deliver industry-leading performance per watt, enabling customers to scale core counts and run always-on AI workloads. We are now seeing this trend play out in the market where Neoverse CPUs have surpassed 1 billion cores deployed, and Arm's share among the top hyperscalers is expected to reach 50%. Leading hyperscalers are launching new products with increased core counts to address this opportunity. AWS launched its 5th generation Graviton processor with 192 cores, doubling the core count from Graviton4, and delivering 25% higher performance and up to 33% lower latency versus Graviton4. NVIDIA's next generation Vera CPU features 88 Arm-based cores, up from 72 cores in the Grace CPU generation.
Speaker #2: This trend directly benefits ARM. ARM-based CPU chips deliver industry-leading performance per watt, enabling customers to score to scale core counts and run workloads. We are now seeing this trend play out in the market where newer CPUs have surpassed $1 billion cores deployed and ARM's share amongst the top hyperscalers is expected to reach 50%.
Speaker #2: Leading hyperscalers are launching new products with increased core counts to address this opportunity. AWS launched its fifth-generation Graviton processor with 192 cores. Doubling the core count from Graviton4.
Speaker #2: And delivering 25% higher performance and up to 33% lower latency versus Graviton4. NVIDIA's next-generation VERA CPU features 88 ARM-based cores, up from 72 cores in the previous generation.
Rene Haas: Microsoft introduced Cobalt 200, built on the higher performance Arm Neoverse CSS V3 with 132 cores, up from 128 cores in Cobalt 100, which was based on the prior Neoverse N2 platform. Google previewed its second Arm-based server processor, with Axion-powered N4A instances delivering up to 2x better price performance and 80% better performance per watt than the comparable x86 offerings. Google has now migrated over 30,000 applications to the Arm instruction set. We are also seeing more integrated platform designs to improve system efficiency, often translating to more AI output or more tokens per watt within the same power envelope.
Rene Haas: Microsoft introduced Cobalt 200, built on the higher performance Arm Neoverse CSS V3 with 132 cores, up from 128 cores in Cobalt 100, which was based on the prior Neoverse N2 platform. Google previewed its second Arm-based server processor, with Axion-powered N4A instances delivering up to 2x better price performance and 80% better performance per watt than the comparable x86 offerings. Google has now migrated over 30,000 applications to the Arm instruction set. We are also seeing more integrated platform designs to improve system efficiency, often translating to more AI output or more tokens per watt within the same power envelope.
Speaker #2: Microsoft introduced COBOL 200, built on the higher-performance ARM NeoVerse CSS v3 with cores in COBOL 100, which was based on the 132 cores, up from 128 prior NeoVerse N2 platform.
Speaker #2: And Google previewed its second ARM-based server processor with Axion-powered M4A instances delivering up to 2x better price performance and 80% better performance per watt than the comparable x86 over 30,000 applications to the ARM instruction set.
Speaker #2: Offerings are also seeing more integrated platform designs to improve system efficiency. Google has now migrated, often translating to more AI output or more tokens per watt within the same power envelope.
Speaker #2: AWS integrates Graviton with ARM-based Nitro DPUs and Trainium accelerators, and NVIDIA pairs GPUs with ARM-based Gray CPUs and ARM-based BlueField DPUs, with its transition to VERA delivering a 6x increase in DPU compute capability over the prior generation.
Rene Haas: AWS integrates Graviton with Arm-based Nitro DPUs and training accelerators, and NVIDIA pairs GPUs with Arm-based Grace CPUs and Arm-based BlueField DPUs, with its transition to Vera, delivering a 6x increase in DPU compute capability over the prior generation. Together, these trends make clear that as AI inference becomes more agent-based, the importance of CPUs is only increasing, and as a result, Arm's role at the center of the modern data center architecture continues to grow rapidly. Outside the data center, AI is now moving to everyday devices. The edge and physical AI markets are opening up new growth opportunities. These systems operate in real time under strict power, safety, and reliability constraints, where efficient and predictable general-purpose compute is essential.
Rene Haas: AWS integrates Graviton with Arm-based Nitro DPUs and training accelerators, and NVIDIA pairs GPUs with Arm-based Grace CPUs and Arm-based BlueField DPUs, with its transition to Vera, delivering a 6x increase in DPU compute capability over the prior generation. Together, these trends make clear that as AI inference becomes more agent-based, the importance of CPUs is only increasing, and as a result, Arm's role at the center of the modern data center architecture continues to grow rapidly. Outside the data center, AI is now moving to everyday devices. The edge and physical AI markets are opening up new growth opportunities. These systems operate in real time under strict power, safety, and reliability constraints, where efficient and predictable general-purpose compute is essential.
Speaker #2: Together, these trends make it clear that as AI inference becomes more agent-based, the importance of CPUs is only increasing. And as a result, ARM's role at the center of the modern data center architecture continues to grow rapidly.
Speaker #2: Outside the data center, AI is now moving to everyday devices. The edge and physical AI markets are opening up new growth opportunities. These systems operate in real time, under strict power, safety, and reliability constraints, where efficient and predictable general-purpose compute is essential.
Speaker #2: ARM's strengths—power efficiency, predictable latency, and always-on operation—are best suited to on-device agents that continually monitor inputs, provide tests, and invoke models when needed to preserve battery life.
Rene Haas: Arm strengths, power efficiency, predictable latency, and always-on operation are best suited to on-device agents that continually monitor inputs, prioritize tasks, and invoke models when needed to preserve battery life. Our common software foundation across devices, vehicles, and robotics lets customers scale deployments without rebuilding software stacks. We now see that momentum in customer innovation. Rivian announced its third generation autonomy computer based on the Arm-based Rivian Autonomy Processor, the first production vehicle based on a custom Arm chip and the first to deploy Armv9 in production car. Tesla's upcoming Optimus humanoid robot is also powered by a custom Arm-based AI processor, and platforms from leading silicon providers like NVIDIA's Jetson Thor and Qualcomm's Dragonwing platforms are scaling Arm-based solutions across robotics and autonomous systems. To close, AI is moving to every environment and every power envelope.
Rene Haas: Arm strengths, power efficiency, predictable latency, and always-on operation are best suited to on-device agents that continually monitor inputs, prioritize tasks, and invoke models when needed to preserve battery life. Our common software foundation across devices, vehicles, and robotics lets customers scale deployments without rebuilding software stacks. We now see that momentum in customer innovation. Rivian announced its third generation autonomy computer based on the Arm-based Rivian Autonomy Processor, the first production vehicle based on a custom Arm chip and the first to deploy Armv9 in production car. Tesla's upcoming Optimus humanoid robot is also powered by a custom Arm-based AI processor, and platforms from leading silicon providers like NVIDIA's Jetson Thor and Qualcomm's Dragonwing platforms are scaling Arm-based solutions across robotics and autonomous systems. To close, AI is moving to every environment and every power envelope.
Speaker #2: Our common software foundation across devices, vehicles, and robotics lets customers scale deployments without rebuilding software stacks. We now see that momentum in customer innovation.
Speaker #2: Rivian announced its third-generation autonomy computer based on the ARM-based Rivian Autonomy processor. The first production vehicle based on a custom ARM chip and the first to deploy ARM v9 in production car.
Speaker #2: powered by a custom ARM-based AI, Tesla's
Speaker #1: And platforms from leading silicon providers like Nvidia—processors such as Jetson—and Qualcomm platforms are solutions for robotics across platforms like Thor, scaling autonomous robotics based on ARM.
Speaker #1: And solutions—our systems to close. AI is moving to environment and power envelope shift that spans milliwatts to gigawatts, a developer ecosystem.
Rene Haas: Arm provides the foundation for that shift, a platform that spans milliwatts to gigawatts and a developer ecosystem over 22 million developers, more than 80% of the global total. We are now seeing the results of strategies we put in place years ago, focusing on the data center, power efficiency, and compute subsystems. As a result, as more and more applications move to agentic AI, Arm will be the compute platform connecting cloud, edge, and physical AI use cases. With that, I'll now hand it over to Jason.
Rene Haas: Arm provides the foundation for that shift, a platform that spans milliwatts to gigawatts and a developer ecosystem over 22 million developers, more than 80% of the global total. We are now seeing the results of strategies we put in place years ago, focusing on the data center, power efficiency, and compute subsystems. As a result, as more and more applications move to agentic AI, Arm will be the compute platform connecting cloud, edge, and physical AI use cases. With that, I'll now hand it over to Jason.
Speaker #1: Over 22 million developers , every more than . We seeing the platform results of we put strategies years ago , focusing on center in place power efficiency the data and compute scaling ARM .
Speaker #1: As a result, as more and more of those applications move to 80% of the global AI, Arm will be the compute platform connecting edge and cloud physical AI use cases.
Speaker #1: And with that , foundation I'll now hand it over to Jason . Renee Thank you .
Jason Child: Thank you, Rene. We have delivered another strong quarter. Total revenue grew 26% year-over-year to a record $1.24 billion, marking our fourth consecutive quarter above a billion dollars. Royalty revenue exceeded our expectations, growing 27% year-over-year to a record $737 million. The biggest growth contributors were smartphones with higher royalty rates per chip, and in the data center, where our revenues continue to grow triple digits year-over-year, as we see ongoing share gains from custom hyperscaler chips. Royalty revenue from edge AI devices, such as smartphones, continues to grow much faster than the market. All the major Android OEMs are now ramping smartphones with chips based on both Armv9 and CSS.
Jason Child: Thank you, Rene. We have delivered another strong quarter. Total revenue grew 26% year-over-year to a record $1.24 billion, marking our fourth consecutive quarter above a billion dollars. Royalty revenue exceeded our expectations, growing 27% year-over-year to a record $737 million. The biggest growth contributors were smartphones with higher royalty rates per chip, and in the data center, where our revenues continue to grow triple digits year-over-year, as we see ongoing share gains from custom hyperscaler chips. Royalty revenue from edge AI devices, such as smartphones, continues to grow much faster than the market. All the major Android OEMs are now ramping smartphones with chips based on both Armv9 and CSS.
Speaker #2: We another delivered strong quarter . Total revenue grew have 26% year on year to record $1.24 billion , a marking our fourth consecutive quarter above $1 billion royalty exceeded our revenue expectations , growing 27% year on year to $737 million .
Speaker #2: The biggest growth record contributors were smartphones a with higher rates And in the per data center , where our revenues continue digits triple to grow , year on we see chip .
Speaker #2: gains year , as from custom hyperscaler , royalty ongoing share revenue AI such as devices from edge smartphones continues to grow chips market .
Speaker #2: the major Android OEMs are now ramping All smartphones with chips based on both Armv9 and CSS cloud , AI . data In center royalty revenue continues to double year on year , with the ramp of ARM based chips by major all hyperscaler We are getting a further benefit companies .
Jason Child: In cloud AI, data center royalty revenue continues to double year-on-year, with the ramp of Arm-based chips by all major hyperscaler companies. We are getting a further benefit as the build-out of these new AI data centers are driving increased deployment of networking chips, particularly DPUs and SmartNICs, where Arm has a very high market share. In physical AI, the automotive market grew double digits year-on-year and contributed to our strong royalty performance. Overall revenue, royalty revenue growth continues to reflect Arm's increasing royalty per chip and rising market share. Turning now to licensing. License and other revenue was $505 million, up 25% year-on-year. Growth was driven by strong demand for next-generation architectures and deeper strategic engagements with key customers.
Jason Child: In cloud AI, data center royalty revenue continues to double year-on-year, with the ramp of Arm-based chips by all major hyperscaler companies. We are getting a further benefit as the build-out of these new AI data centers are driving increased deployment of networking chips, particularly DPUs and SmartNICs, where Arm has a very high market share. In physical AI, the automotive market grew double digits year-on-year and contributed to our strong royalty performance. Overall revenue, royalty revenue growth continues to reflect Arm's increasing royalty per chip and rising market share. Turning now to licensing. License and other revenue was $505 million, up 25% year-on-year. Growth was driven by strong demand for next-generation architectures and deeper strategic engagements with key customers.
Speaker #2: build out of these as the new AI data centers are driving increased deployment networking chips of , particularly Dpus and Smartnics , where ARM has a market share in physical AI .
Speaker #2: build out of these as the new AI data centers are driving increased deployment networking chips of , particularly Dpus and Smartnics , where ARM has a market share in physical very high The automotive market grew double digits year on year and contributed strong royalty to our overall revenue , royalty growth continues to reflect ARM's increasing royalty for chips and rising market share .
Speaker #2: Turning now to , license and other licensing revenue was $505 million , year . Growth was driven by 25% year on demand for next generation and deeper strategic engagements , with key customers .
Jason Child: We signed 2 new Arm ATA, or Arm Total Access agreements, during the quarter and 2 new CSS licenses, both with leading smartphone handset OEMs. These agreements reflect the continued investment by our customers in our next-generation Arm technology. Of the $505 million of license revenue, our agreement with SoftBank, or tech, or Technology Licensing and Design Services, contributed $200 million. SoftBank has become an increasingly important customer as they build out their AI compute strategy, including their recent acquisitions such as Ampere and Graphcore. We believe that the revenues we are receiving from SoftBank are durable as they relate to current generations that will continue as SoftBank executes on its roadmap. As always, licensing revenue varies quarter to quarter due to the timing and size of high-value deals.
Jason Child: We signed 2 new Arm ATA, or Arm Total Access agreements, during the quarter and 2 new CSS licenses, both with leading smartphone handset OEMs. These agreements reflect the continued investment by our customers in our next-generation Arm technology. Of the $505 million of license revenue, our agreement with SoftBank, or tech, or Technology Licensing and Design Services, contributed $200 million. SoftBank has become an increasingly important customer as they build out their AI compute strategy, including their recent acquisitions such as Ampere and Graphcore. We believe that the revenues we are receiving from SoftBank are durable as they relate to current generations that will continue as SoftBank executes on its roadmap. As always, licensing revenue varies quarter to quarter due to the timing and size of high-value deals.
Speaker #2: We signed two new Arm, ATA Total Access agreements, two new CSS licenses this quarter, both with leading smartphone handset architectures. These agreements reflect the investment by our customers and our next generation Arm.
Speaker #2: Technology . the $505 million of license revenue , agreement with our or tech or technology licensing and design Services contributed 200 million . SoftBank has become an increasingly important customer as they build out their compute strategy , including AI recent acquisitions such as Ampere and Graphcore .
Speaker #2: We believe that the revenues we are receiving from SoftBank are durable as they relate to current generations that will continue as SoftBank executes on its roadmap .
Speaker #2: As always, licensing as revenue varies—timing and size of quarter—high value due to the deals. So we will focus on quarter to annualized value, or continue to, as a key of the underlying trend.
Speaker #2: always , licensing As revenue varies timing and size of quarter high value due to the deals . So we will focus on quarter to annualized value or continue to as a key of the underlying trend licensing indicator 28% year on year , maintaining strong momentum following the 28% year on year growth we reported in Q2 and Q1 .
Jason Child: So we will continue to focus on annualized contract value, or ACV, as a key indicator of the underlying licensing trend. ACV grew 28% year-on-year, maintaining strong momentum following the 28% year-on-year growth we reported in Q2 and Q1. This continues to be above our long-term expectation of mid to high single digit growth for license revenue. Turning to operating expenses and profits. Non-GAAP operating expenses were $716 million, up 37% year-on-year, due to strong R&D investment. These investments in R&D reflect ongoing engineering headcount expansion to support customer demand for more Arm technology, including innovation and next generation architectures, compute subsystems, and into our exploration into chiplets and complete SoCs. Non-GAAP operating income was $505 million, up 14% year-on-year. This resulted in non-GAAP operating margin of about 41%.
Jason Child: So we will continue to focus on annualized contract value, or ACV, as a key indicator of the underlying licensing trend. ACV grew 28% year-on-year, maintaining strong momentum following the 28% year-on-year growth we reported in Q2 and Q1. This continues to be above our long-term expectation of mid to high single digit growth for license revenue. Turning to operating expenses and profits. Non-GAAP operating expenses were $716 million, up 37% year-on-year, due to strong R&D investment. These investments in R&D reflect ongoing engineering headcount expansion to support customer demand for more Arm technology, including innovation and next generation architectures, compute subsystems, and into our exploration into chiplets and complete SoCs. Non-GAAP operating income was $505 million, up 14% year-on-year. This resulted in non-GAAP operating margin of about 41%.
Speaker #2: This continues to be above our long term expectation of mid to high digit growth for license revenue . Turning to single operating expenses and profits , non-GAAP contract operating .
Speaker #2: Operating expenses were up 37% year on year due to strong $716 million investment. These R&D expenses reflect ongoing engineering investments in headcount expansion to meet customer demand for more support of Arm technology, including innovation and next-generation architectures.
Speaker #2: Compute subsystems and into our Chiplets and complete SoCs . non-GAAP operating income exploration into $505 million , up was year . This non-GAAP resulted in operating margin of non-GAAP about 41% .
Jason Child: Non-GAAP EPS was $0.43, close to the high end of our guidance range, driven by both higher revenue and slightly lower OpEx than expected. Turning now to guidance. Our guidance reflects our current view of our end markets and our licensing pipeline. For Q4, we expect revenue of $1.47 billion ±$50 million. At the midpoint, this represents revenue growth of about 18% year-on-year. We expect royalties to be up low teens year-on-year, and licensing to be up high teens year-on-year. We expect our non-GAAP operating expense to be approximately $745 million, and our non-GAAP EPS to be $0.58 ±$0.04.
Jason Child: Non-GAAP EPS was $0.43, close to the high end of our guidance range, driven by both higher revenue and slightly lower OpEx than expected. Turning now to guidance. Our guidance reflects our current view of our end markets and our licensing pipeline. For Q4, we expect revenue of $1.47 billion ±$50 million. At the midpoint, this represents revenue growth of about 18% year-on-year. We expect royalties to be up low teens year-on-year, and licensing to be up high teens year-on-year. We expect our non-GAAP operating expense to be approximately $745 million, and our non-GAAP EPS to be $0.58 ±$0.04.
Speaker #2: was EPs $0.43 , close to the high end of our range , driven by both higher revenue and slightly opex than lower expected .
Speaker #2: guidance Turning now to guidance . Our guidance reflects our 14% year on our end markets and current our licensing pipeline view of . Q4 , For we expect revenue of $1.47 billion , plus at the -50 million This revenue growth of about midpoint .
Speaker #2: . expect We royalties to be up low teens year on year , and licensing to be up high teens year on year or our non-GAAP expect to be $745 million , approximately and our non-GAAP EPs expense be $0.58 , plus or -$0.04 .
Jason Child: The strength of customer demand we are seeing today, combined with a growing base of long duration contracts at structurally high higher royalty rates, provides increasing confidence in our future revenue profile. This confidence allows us today to invest in next generation architectures, compute subsystems, and silicon that are needed to enable higher performance, greater efficiency, and more AI use cases. We believe this virtuous cycle of customer demand and ambitious investment positions Arm for sustained growth, sustained growth over the long term. Just before we get into the Q&A portion of the call, as you will have seen, Arm is hosting an event on 24 March, and I'm sure there will be interest about what we are planning to announce. There will be a million ways of asking what we may or may not be announcing.
Jason Child: The strength of customer demand we are seeing today, combined with a growing base of long duration contracts at structurally high higher royalty rates, provides increasing confidence in our future revenue profile. This confidence allows us today to invest in next generation architectures, compute subsystems, and silicon that are needed to enable higher performance, greater efficiency, and more AI use cases. We believe this virtuous cycle of customer demand and ambitious investment positions Arm for sustained growth, sustained growth over the long term. Just before we get into the Q&A portion of the call, as you will have seen, Arm is hosting an event on 24 March, and I'm sure there will be interest about what we are planning to announce. There will be a million ways of asking what we may or may not be announcing.
Speaker #2: The strength of customer demand we , combined today with a are seeing base of growing contracts long at structurally high royalties , higher royalty rates provides increasing confidence future revenue in our profile confidence allows .
Speaker #2: …us today to invest in this next generation of compute architectures, silicon, and subsystems that are needed to enable higher performance, greater efficiency, and more AI use cases.
Speaker #2: We believe this virtuous cycle of customer demand and ambitious investment positions arm for sustained , sustained growth , growth over the long sustained term .
Speaker #2: Just before we get into the Q&A portion of the call, as you’ve seen, ARM has an event on March 24th, and I'm sure there will be interest about what we are planning to host then. There will be an announcement.
Speaker #2: be a million ways of asking what we may not be Please be or may patient as we won't be providing any details announcing .
Jason Child: Please be patient, as we won't be providing any details ahead of the event. With that, I'll turn the call back to the operator for the Q&A portion of the call.
Jason Child: Please be patient, as we won't be providing any details ahead of the event. With that, I'll turn the call back to the operator for the Q&A portion of the call.
Speaker #2: ahead of the
Speaker #2: . With turn the call back to the that , I'll operator for the Q&A portion of the call .
Operator: 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. To withdraw your question, please press star one and one again. We will now take the first question. One moment, please. Your first question today comes from the line of Joe Quatrochi from Wells Fargo. Please go ahead.
Operator: 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. To withdraw your question, please press star one and one again. We will now take the first question. One moment, please. Your first question today comes from the line of Joe Quatrochi from Wells Fargo. Please go ahead.
Speaker #3: Thank you . ask a question , you will need to press star one on one on your telephone and wait for to be announced .
Speaker #3: To withdraw question , please your your name
Speaker #3: the One moment question . please first We will now . To first question . Today comes from the of Joe line from Wells Fargo .
Joe Quatrochi: Yeah, thanks for taking the question. Rene, you touched upon in the prepared remarks, so I was kind of curious if you could just maybe give us a little more detail on just how you view Arm's role and the role of the CPU in AI and cloud data centers, and just how does that change as we start to see, you know, more proliferation of AI agents?
Joe Quatrochi: Yeah, thanks for taking the question. Rene, you touched upon in the prepared remarks, so I was kind of curious if you could just maybe give us a little more detail on just how you view Arm's role and the role of the CPU in AI and cloud data centers, and just how does that change as we start to see, you know, more proliferation of AI agents?
Speaker #3: Please go ahead .
Speaker #4: Yeah . Thanks for taking the questions . You touched upon in prepared remarks . I was kind of curious if you could just the maybe give us a little more detail on just how you view arms role and the role of the CPU in AI and cloud data centers .
Speaker #4: And just how does that, as we change, see more proliferation agents?
Jason Child: Yeah, thank you for the question. There is a number of shifts taking place in the data center, as I mentioned in the opening remarks. You know, first off, as the shift moves away from exclusively training to predominantly inference, that is a workload that launches a number of different solution paths. One of them that we're seeing is around Agentic AI. And the agents that are actually talking to other agents or having to control workflows such as service tickets or other work streams, those are very, very well suited for CPUs because CPUs are very, very power efficient, always on, very, very fast latency. And what we are seeing is already an increased deployment of CPUs to address that problem.
Rene Haas: Yeah, thank you for the question. There is a number of shifts taking place in the data center, as I mentioned in the opening remarks. You know, first off, as the shift moves away from exclusively training to predominantly inference, that is a workload that launches a number of different solution paths. One of them that we're seeing is around Agentic AI. And the agents that are actually talking to other agents or having to control workflows such as service tickets or other work streams, those are very, very well suited for CPUs because CPUs are very, very power efficient, always on, very, very fast latency. And what we are seeing is already an increased deployment of CPUs to address that problem.
Speaker #1: Yeah . Thank you for the question . There
Speaker #1: a number of shifts taking place in the data center . As I mentioned in the opening remarks . You know , first off , as the shift moves away from exclusively training of AI to predominantly inference is a workload , that that launches a number of solution different paths .
Speaker #1: One of them that we're seeing is around agentic AI agents that are, and the talking to other agents, actually, or having to control workflows such as service tickets or other work streams.
Speaker #1: Those are very , very well suited for CPUs because CPUs are very , very power efficient , always on very , very fast .
Speaker #1: And what latency seeing is already an increased deployment of CPUs to we are problem . Now it's CPUs that are good for address that that problem .
Jason Child: Now, it's just not CPUs that are good for that problem; it's the number of CPUs you have, and obviously, given the power constraints inside the data center, the efficiency of those CPUs. So for all those reasons, that's a very positive tailwind for Arm, and in particular, we're seeing those proof points now, as I mentioned, where the latest generation of CPU chips from the hyperscaler providers and also NVIDIA have increased the number of cores, and we think that only continues.
Rene Haas: Now, it's just not CPUs that are good for that problem; it's the number of CPUs you have, and obviously, given the power constraints inside the data center, the efficiency of those CPUs. So for all those reasons, that's a very positive tailwind for Arm, and in particular, we're seeing those proof points now, as I mentioned, where the latest generation of CPU chips from the hyperscaler providers and also NVIDIA have increased the number of cores, and we think that only continues.
Speaker #1: It's just not the number of CPUs you have . And obviously , given the power constraints inside the data center , efficiency of the those CPUs .
Speaker #1: for all So those that's a very positive reasons , tailwind for ARM . And in particular , we're seeing those points . Now , as I mentioned , proof where the latest of generation CPU chips from the providers Hyperscaler and also Nvidia increased a number of cores .
Speaker #1: And we think continues have .
Joe Quatrochi: Thanks for that. And just as a follow-up, one more for Jason. You know, I know you're not giving fiscal 2027 commentary today, but just how do we think about the flips and takes of just royalty revenue growth and the risks that are associated with the potential, like, demand destruction that we're seeing, you know, in consumer electronics, potentially from memory?
Joe Quatrochi: Thanks for that. And just as a follow-up, one more for Jason. You know, I know you're not giving fiscal 2027 commentary today, but just how do we think about the flips and takes of just royalty revenue growth and the risks that are associated with the potential, like, demand destruction that we're seeing, you know, in consumer electronics, potentially from memory?
Speaker #4: Thanks for that . as a And just for me , one for Jason , I know
Speaker #4: giving you're not fiscal 20 . commentary today , but Seven how do just we think the puts and takes about of just royalty growth and the risks that that only are associated with the potential , like demand destruction that we're seeing ?
Speaker #4: You in consumer electronics, potentially from memory?
Jason Child: Yeah. Yeah, that's a great question and something we spend a lot of time looking at. So in particular, you know, I think MediaTek, last night, talked about something like around a 15% reduction in unit volume for next year. You know, and that's pretty consistent with what we've heard from other smartphone and handset providers around what they think the memory supply chain constraints could provide.
Jason Child: Yeah. Yeah, that's a great question and something we spend a lot of time looking at. So in particular, you know, I think MediaTek, last night, talked about something like around a 15% reduction in unit volume for next year. You know, and that's pretty consistent with what we've heard from other smartphone and handset providers around what they think the memory supply chain constraints could provide.
Speaker #2: Yeah . Yeah . That's a it's a great question . And it's something we spend a lot of time So in particular , you know I think MediaTek last night talked about something like around a looking at .
Speaker #2: in unit volume for year , next you know , and and that's pretty consistent with what we've heard other from smartphone handset and providers around what they the think memory supply chain constraints could , could .
Jason Child: We've done our own kind of analysis of it, and what's interesting is, we're hearing from, from our various partners that they're really trying to make sure that they protect the high end of the market, so the premium and flagship portion of the market, which is great for us because that's where all of our CSS and v9 royalties are, so the, the highest, by a significant margin. And then on the very bottom end of the segment, that's where most of the, the supply chain constraints will probably be felt. For us, that's v8 and even older generations that are dramatically smaller royalties. So, I think, if you were to say, what if there's a 20% reduction in volumes next year?
Jason Child: We've done our own kind of analysis of it, and what's interesting is, we're hearing from, from our various partners that they're really trying to make sure that they protect the high end of the market, so the premium and flagship portion of the market, which is great for us because that's where all of our CSS and v9 royalties are, so the, the highest, by a significant margin. And then on the very bottom end of the segment, that's where most of the, the supply chain constraints will probably be felt. For us, that's v8 and even older generations that are dramatically smaller royalties. So, I think, if you were to say, what if there's a 20% reduction in volumes next year?
Speaker #2: And so we've done our own kind provide of analysis of it . And what's interesting is we're hearing from from a various partners that they're really trying to make they protect the high end of the market .
Speaker #2: So the premium and flagship portion of the market , sure that because that's for us our where all of which is great CSS V9 and royalties are .
Speaker #2: So the highest by significant a margin . then on the very bottom end of the that's where most of the the supply chain constraints will felt for us .
Speaker #2: segment , and even That's older are dramatically smaller royalties . So so I you were think if to say generations that what if there's 20% reduction in volumes next year for us , that would translate to probably somewhere a around 2 or 4% at worst a smartphone royalties .
Jason Child: For us, that would translate to probably somewhere around a 2 or 4% at worst impact on smartphone royalties. If you then project that across the whole business, it'd be a 1, maybe 2%, negative impact on total royalties. The good news is, because as Rene mentioned, the cloud AI or infrastructure business has been continuing to grow ahead of our expectations. It's actually growing at a level that's more than compensating for those kind of risks on the memory and mobile side. So I think we have a very good setup for next year, and not too concerned about at least the royalty revenue impacts that we might see from these unit volume and supply chain constraints.
Jason Child: For us, that would translate to probably somewhere around a 2 or 4% at worst impact on smartphone royalties. If you then project that across the whole business, it'd be a 1, maybe 2%, negative impact on total royalties. The good news is, because as Rene mentioned, the cloud AI or infrastructure business has been continuing to grow ahead of our expectations. It's actually growing at a level that's more than compensating for those kind of risks on the memory and mobile side. So I think we have a very good setup for next year, and not too concerned about at least the royalty revenue impacts that we might see from these unit volume and supply chain constraints.
Speaker #2: If you then project that across the whole business , it'd be a one , maybe 2% negative impact on total royalties . The good news is , because mentioned , , as Renee the the cloud AI or infrastructure business has been continuing to grow ahead of our expectations .
Speaker #2: It's actually at a growing level that's more than compensating for those kind of risks. On, and mobile memory. So I think we have a very good set-up for next year.
Speaker #2: side . And and not to concerned for at least the revenue impacts that we might the see from these royalty volume and supply chain constraints .
Operator: Helpful. Thank you.
Joe Quatrochi: Helpful. Thank you.
Jason Child: You bet.
Jason Child: You bet.
Operator: Thank you. Your next question today comes from the line of Simon Leopold from Raymond James. Please go ahead.
Operator: Thank you. Your next question today comes from the line of Simon Leopold from Raymond James. Please go ahead.
Speaker #4: Helpful . Thank you .
Speaker #2: You bet .
Speaker #3: you Thank . Your next question today comes from the line of Simon Leopold from Raymond James . Please go ahead .
Simon Leopold: Great. Thank you. Appreciate you taking the question. First one is, I'm hoping you're able to shed some light on this, but wondering what your thoughts on are, whether or not SoftBank will potentially need to sell some of the Arm stock that it holds to finance some of the investments it's talked about making, and how we should think about the implications for your shares. Then I've got a quick follow-up.
Simon Leopold: Great. Thank you. Appreciate you taking the question. First one is, I'm hoping you're able to shed some light on this, but wondering what your thoughts on are, whether or not SoftBank will potentially need to sell some of the Arm stock that it holds to finance some of the investments it's talked about making, and how we should think about the implications for your shares. Then I've got a quick follow-up.
Speaker #5: Great . Thank you . Appreciate you taking the question . The first one is I'm hoping you're able to shed some light on this , but thoughts on are wondering what not SoftBank your will potentially need to sell some of the ARM stock that it holds to some of the investments talked about making how we and should think about the implications for your shares .
Jason Child: Sure. Yeah, thank you for the question. You know, that's one that we read a lot about, and there's a lot of speculation on chat boards and whatnot about that. I can tell you from talking to Masa about this, and I would quote him directly, he is not interested in selling one share of Arm stock. And that doesn't mean two shares or three shares. That means any shares. He's very long on the company. He's very, very bullish, as am I, about our long-term prospects, and he has no interest in selling. There's been a lot of writing about it, but I can tell you from a direct conversation and direct conversations, plural, that I've had with him, that's just not the case.
Rene Haas: Sure. Yeah, thank you for the question. You know, that's one that we read a lot about, and there's a lot of speculation on chat boards and whatnot about that. I can tell you from talking to Masa about this, and I would quote him directly, he is not interested in selling one share of Arm stock. And that doesn't mean two shares or three shares. That means any shares. He's very long on the company. He's very, very bullish, as am I, about our long-term prospects, and he has no interest in selling. There's been a lot of writing about it, but I can tell you from a direct conversation and direct conversations, plural, that I've had with him, that's just not the case.
Speaker #5: Then I've got a quick follow up .
Speaker #1: Sure . Yeah . Thank thank you for the . You know question that that's we one that we lot about . read a And there's a lot of
Speaker #1: chat boards and whatnot about that . I can tell you from talking to masa about this and , and I would quote him directly , he is not interested in selling one share of ARM stock .
Speaker #1: And that doesn't mean two shares or three shares . That means any any shares . He's very long on the company . He's very , very bullish , as am I , about our long term prospects .
Speaker #1: And he has interest in selling . There's been a lot of no writing about it , but I can tell you from a direct conversation and direct conversations , plural , that I've had that's just not the with them , case .
Simon Leopold: And then, just as a follow-up, you've provided a forecast for some deceleration in the royalty revenue growth. I'm just wondering if you could elaborate on the trend. Is it more difficult comps, or is there something else shifting that we should be considering?
Simon Leopold: And then, just as a follow-up, you've provided a forecast for some deceleration in the royalty revenue growth. I'm just wondering if you could elaborate on the trend. Is it more difficult comps, or is there something else shifting that we should be considering?
Speaker #5: And then just as a follow up , you've provided a forecast for some deceleration in the royalty revenue growth . I'm just wondering if you could finance elaborate on the trend .
Speaker #5: Is it more difficult comps, or is there something else shifting that we should be considering? Thank you.
Jason Child: Yeah, I'll-- This is Jason, I'll take that. I would say the royalty trends for next year are pretty consistent in absolute dollars, maybe a little bit lighter, just because of what you're now seeing on the memory shortage side. Like I said, maybe 1 or 2% impact, largely due to that. The growth percentage is down a bit because of the overperformance that we saw last quarter and expecting to see again this quarter. So we are, you know, coming off of a stronger comp. Now, you know, the obvious question then is, because you've had stronger growth both in Q3, you know, we thought we'd grow about 20%, we grew 27%, so, you know, a $30 million beat or more.
Jason Child: Yeah, I'll-- This is Jason, I'll take that. I would say the royalty trends for next year are pretty consistent in absolute dollars, maybe a little bit lighter, just because of what you're now seeing on the memory shortage side. Like I said, maybe 1 or 2% impact, largely due to that. The growth percentage is down a bit because of the overperformance that we saw last quarter and expecting to see again this quarter. So we are, you know, coming off of a stronger comp. Now, you know, the obvious question then is, because you've had stronger growth both in Q3, you know, we thought we'd grow about 20%, we grew 27%, so, you know, a $30 million beat or more.
Speaker #2: Yeah , this is Jason . that . I would the I'll take say royalty trends for are next year consistent . pretty Absolute dollars , maybe a little bit lighter .
Speaker #2: Just because of what you're now seeing on the memory shortage side . Like I said , maybe 1 or 2% impact largely due to that .
Speaker #2: The the growth percentage is down a bit because of the overperformance that we saw last quarter . And expecting to see again this quarter .
Speaker #2: So we are , you know , coming off of a stronger comp now , obvious you know , the question then is because you've had stronger growth both in Q3 .
Speaker #2: know , we You thought we'd grow about 20% . We grew 27 . So you know , $30 million beat or more . And now seeing some of that flow through into Q4 , will that flow into next year as well ?
Jason Child: And now seeing some of that flow through into Q4, will that flow into next year as well? Right now, I'd say too hard to say. You know, there's a lot of talk about memory and even wafer shortages, and so, you know, that stuff doesn't affect us as much as, you know, many of the full fabless semiconductor companies. But so I'd say right now, we'll give you updates as we learn more. But overall, the absolute magnitude of royalties for next year, I expect to be pretty close to what we were thinking, what we said earlier this year. But, you know, we'll see if this recent strength continues and allows us to take things up as we proceed into next year.
Jason Child: And now seeing some of that flow through into Q4, will that flow into next year as well? Right now, I'd say too hard to say. You know, there's a lot of talk about memory and even wafer shortages, and so, you know, that stuff doesn't affect us as much as, you know, many of the full fabless semiconductor companies. But so I'd say right now, we'll give you updates as we learn more. But overall, the absolute magnitude of royalties for next year, I expect to be pretty close to what we were thinking, what we said earlier this year. But, you know, we'll see if this recent strength continues and allows us to take things up as we proceed into next year.
Speaker #2: Right now ? Two , I'd say too hard to say . You know , there's a lot of talk about and even memory wafer shortages .
Speaker #2: And so , you know , that stuff doesn't affect us much as as many of the fabulous semiconductor companies . But so I'd say right now , we'll give you updates as we learn more .
Speaker #2: But but overall , the absolute magnitude of royalties for next year , I expect to be pretty close to what we were thinking , what we said earlier this year .
Speaker #2: But , you know , we'll see if this recent strength and allows us to take things up as we proceed into next year .
Speaker #2: But , you know , we'll see if this recent strength and allows us to take things up as we proceed into next year continues
Simon Leopold: Very helpful. Thank you.
Simon Leopold: Very helpful. Thank you.
Jason Child: You bet.
Jason Child: You bet.
Speaker #5: Very helpful . Thank you .
Operator: Thank you. In the interest of time, please limit yourselves to one question only, and rejoin the queue for any follow-up questions. We will now go to the next question. Your next question today comes from the line of Vivek Arya from Bank of America. Please go ahead.
Operator: Thank you. In the interest of time, please limit yourselves to one question only, and rejoin the queue for any follow-up questions. We will now go to the next question. Your next question today comes from the line of Vivek Arya from Bank of America. Please go ahead.
Speaker #2: You bet .
Speaker #3: Thank you . In the interest of time , please limit yourself to one question only and rejoin the queue for any follow up questions .
Speaker #3: We will now go to the next question and your next question . Today comes from the line of Arya from Vivek Bank of America .
Vivek Arya: Thanks for taking my question. I actually just had two clarifications. One is, I was hoping you could quantify the exact amount of data center revenue. I know you said that it doubled, but how much is it, so we can get a sense for, right, what the magnitude is versus the overall company sales? And then, the other clarification I had was, I think you mentioned SoftBank contributed $200 million. I somehow recall the original expectation was about $178, $180 million, and if you could clarify that, and what are you embedding for March and onwards, from that contribution? Thank you.
Vivek Arya: Thanks for taking my question. I actually just had two clarifications. One is, I was hoping you could quantify the exact amount of data center revenue. I know you said that it doubled, but how much is it, so we can get a sense for, right, what the magnitude is versus the overall company sales? And then, the other clarification I had was, I think you mentioned SoftBank contributed $200 million. I somehow recall the original expectation was about $178, $180 million, and if you could clarify that, and what are you embedding for March and onwards, from that contribution? Thank you.
Speaker #3: Please go ahead .
Speaker #6: Thanks for taking my question. I actually just had two clarifications. One is, I was hoping you could quantify the exact amount of data center revenue.
Speaker #6: I know you said that it doubled, but how much is it? So we can get a sense for the, right?
Speaker #6: What magnitude is versus the overall company sales then . And the clarification the other clarification I had was I think you mentioned SoftBank contributed 200 million .
Speaker #6: I somehow recall the original expectation was about 178 180 million . And if you could clarify that and what what are you embedding for March and onwards from contribution ?
Speaker #6: that you .
Jason Child: Yeah, well, the $178 last quarter, it was, it was, so no new deals were signed. It's just the deals from last quarter. It was $178 for the quarter. The full quarter's impact now is about $200, so, so nothing new, it's just a full quarter impact. I would expect that $200 going forward, is the, is the right run rate going forward.
Jason Child: Yeah, well, the $178 last quarter, it was, it was, so no new deals were signed. It's just the deals from last quarter. It was $178 for the quarter. The full quarter's impact now is about $200, so, so nothing new, it's just a full quarter impact. I would expect that $200 going forward, is the, is the right run rate going forward.
Speaker #2: Yeah . The well the 178 last quarter it was was so no new it last quarter . It was 178 for the quarter .
Speaker #2: The full quarter as the impact about 200 . So so nothing new . It's just a full quarter impact . I would expect that 200 going forward is the is the right run rate going forward .
Vivek Arya: The data center revenue?
Vivek Arya: The data center revenue?
Jason Child: Yeah, data center revenue, we provide the details on that once a year. I think at the beginning of this year, we said it had just hit double digits, and because it's growing so much faster than the rest, assume it's going to be, you know, somewhere in kind of the teens to probably getting closer to 20%. As Rene said, over the next, yeah, 2 to 3 years, you should expect to see it get similar or maybe even larger than smartphone business, which is in the, you know, kind of 40 to 45% of total business. Thank you.
Jason Child: Yeah, data center revenue, we provide the details on that once a year. I think at the beginning of this year, we said it had just hit double digits, and because it's growing so much faster than the rest, assume it's going to be, you know, somewhere in kind of the teens to probably getting closer to 20%. As Rene said, over the next, yeah, 2 to 3 years, you should expect to see it get similar or maybe even larger than smartphone business, which is in the, you know, kind of 40 to 45% of total business. Thank you.
Speaker #6: And the data center revenue ?
Speaker #2: Data center Yeah . revenue . We provide the details on that once a year . I think at the beginning of this year , we just hit double digit .
Speaker #2: said it had And faster than the because it's much growing so rest , assume it's going to be somewhere teens . in kind The to probably getting closer to Rene 20% .
Speaker #2: said , As over the next 2 to 3 years , you should expect to see it get similar or maybe even larger than smartphone the business , which is in the , you kind of 40 to 45% of total business .
Operator: Thank you. Your next question comes from the line of Mehdi Hosseini from Susquehanna Financial. Please go ahead.
Operator: Thank you. Your next question comes from the line of Mehdi Hosseini from Susquehanna Financial. Please go ahead.
Speaker #6: Thank you .
Speaker #3: Thank you . Your next question comes from the line of Mehdi Hosseini from Susquehanna Financials . Please go ahead .
Mehdi Hosseini: Yes, just, thank you. Thank you for taking the question. Just as a follow-up to the smartphone topic, how should I think about the migration to the v9 higher royalty is going to help offset lower smartphone units?
Mehdi Hosseini: Yes, just, thank you. Thank you for taking the question. Just as a follow-up to the smartphone topic, how should I think about the migration to the v9 higher royalty is going to help offset lower smartphone units?
Speaker #7: Just Yes . a thank you . Thank you for taking the question . Just as a follow up to the smartphone topic should I think about the migration to the V9 higher to how royalty is going to help offset lower smartphone units .
Rene Haas: Yeah. So I'll, I'll let Jason provide the detail, but, again, as a reminder, with the way that we handle v9 for smartphones, particularly v9 CSSes, every smartphone cycle, we deliver a brand-new CSS. Each time we deliver the brand-new CSS, the royalty rates are generally increased, year on year. So when we think about v9 in smartphones, the appropriate way to think about it is, it's all CSS, it's all moving to CSS now, and as a result of that, we get priced every year with the royalty increase year on year.
Rene Haas: Yeah. So I'll, I'll let Jason provide the detail, but, again, as a reminder, with the way that we handle v9 for smartphones, particularly v9 CSSes, every smartphone cycle, we deliver a brand-new CSS. Each time we deliver the brand-new CSS, the royalty rates are generally increased, year on year. So when we think about v9 in smartphones, the appropriate way to think about it is, it's all CSS, it's all moving to CSS now, and as a result of that, we get priced every year with the royalty increase year on year.
Speaker #1: Yeah . So I'll let Jason provide the detail , but again , as a reminder , with the way that we handle V9 smartphones , for particularly V9 smartphone , every cycle , we deliver a brand new CSS each time we deliver the brand new CSS .
Speaker #1: royalty The rates are generally increased year year , when we think on so about v9 in smartphones , the appropriate way to think about it is it's all CSS .
Speaker #1: It's all moving to CSS now, and as a result of that, we get priced every year with the royalty increase year on year.
Jason Child: Yeah, and in terms of the guidance, kind of, that I just gave in terms of if there's a minus, you know, 20% unit impact, there's at most a kind of 4% to 6% revenue impact, just specifically within smartphones. That would be incorporating the higher royalty rate per unit, that's already been contractually agreed to, and that we assume will be shipping later in the year.
Jason Child: Yeah, and in terms of the guidance, kind of, that I just gave in terms of if there's a minus, you know, 20% unit impact, there's at most a kind of 4% to 6% revenue impact, just specifically within smartphones. That would be incorporating the higher royalty rate per unit, that's already been contractually agreed to, and that we assume will be shipping later in the year.
Speaker #2: Yeah . And in terms of guidance the that I just gave in terms of if there's a minus 20 degree unit impact , there's at most a kind of 4 to 6% revenue impact , just specifically within smartphones that would that would be incorporating the higher royalty rate per unit .
Speaker #2: That's already been contractually agreed to , and that we assume will be shipping later in the year .
Mehdi Hosseini: Okay, thank you.
Mehdi Hosseini: Okay, thank you.
Operator: Thank you. Your next question comes from the line of Vijay Rakesh from Mizuho. Please go ahead.
Operator: Thank you. Your next question comes from the line of Vijay Rakesh from Mizuho. Please go ahead.
Speaker #7: Thank Okay . you .
Speaker #3: Thank you . Your next comes from the line of Vijay . Rakesh from Mizuho . Please go ahead .
Vijay Rakesh: Yeah, hi, Rene and Jason. Just a quick question on your partnerships. As your partner, SoftBank, executes on its AI roadmap, should we be expecting, like, an Arm custom ASIC down the road, given the substantial partnership that you have with them, with the $200 million a quarter NRU that you're getting? How should we look at that, the timing, and how that'll impact fiscal 2027, let's say?
Vijay Rakesh: Yeah, hi, Rene and Jason. Just a quick question on your partnerships. As your partner, SoftBank, executes on its AI roadmap, should we be expecting, like, an Arm custom ASIC down the road, given the substantial partnership that you have with them, with the $200 million a quarter NRU that you're getting? How should we look at that, the timing, and how that'll impact fiscal 2027, let's say?
Speaker #5: Yeah . Hi .
Speaker #6: Jason . Just a quick question on the on your partnerships . As your partner SoftBank executes on its AI roadmap . Should we be expecting like an arm custom ASIC down the road given the substantial partnership that you have with them , with the 200 million a quarter that you're getting , how at that ?
Speaker #6: Should we look at the timing and how that will impact fiscal '27, let's say?
Rene Haas: Yeah, nothing... Hi, Vijay. Nothing we can say specific about any products that you're, you're asking about. So, unfortunately, not much more we can say there.
Rene Haas: Yeah, nothing... Hi, Vijay. Nothing we can say specific about any products that you're, you're asking about. So, unfortunately, not much more we can say there.
Speaker #1: Yeah , nothing , nothing we can say specific about any products that you're asking about . So unfortunately not much more we can say there .
Vijay Rakesh: Got it. Thank you.
Vijay Rakesh: Got it. Thank you.
Operator: Thank you. Your next question today comes from the line of Krish Sankar from TD Cowen. Please go ahead.
Operator: Thank you. Your next question today comes from the line of Krish Sankar from TD Cowen. Please go ahead.
Speaker #6: Got it. Thank you.
Speaker #3: Thank you. Your next question today comes from the line of Chris Sancha from TD Cowen. Please go ahead.
Krish Sankar: Yeah, hi, thanks for taking my question. Rene, I just wanted to find out a little bit about how to think about Arm's IP penetration rate or percentage rate in AI data center semis today, and where do you think that evolves over the next 3 to 5 years?
Krish Sankar: Yeah, hi, thanks for taking my question. Rene, I just wanted to find out a little bit about how to think about Arm's IP penetration rate or percentage rate in AI data center semis today, and where do you think that evolves over the next 3 to 5 years?
Speaker #8: for taking Hey , thanks my question . I just find out a little bit about wanted to how do you think about arms IP percentage rate penetration rate in AI data center today ?
Speaker #8: And where do you think that, over the next 3 to 5 years?
Rene Haas: It's a wonderful question. I think what we're gonna next three years is a evolving of how these data center chips are built out. And what do I mean by that? You know, today you've got a classic architecture where you've got a CPU which connects into an accelerator. The CPU does some work, the GPU does some work. I think what we're gonna start to see over time is a morphing of the workloads that the CPU takes, that the GPU used to do. And as I mentioned, you go to agentic inference, that's gonna mean more CPUs, which could be more different custom chips that are CPU-based.
Rene Haas: It's a wonderful question. I think what we're gonna next three years is a evolving of how these data center chips are built out. And what do I mean by that? You know, today you've got a classic architecture where you've got a CPU which connects into an accelerator. The CPU does some work, the GPU does some work. I think what we're gonna start to see over time is a morphing of the workloads that the CPU takes, that the GPU used to do. And as I mentioned, you go to agentic inference, that's gonna mean more CPUs, which could be more different custom chips that are CPU-based.
Speaker #1: It's a wonderful question. I think what we're going to see next, in three years, is an evolving of how these data center chips are built out.
Speaker #1: And what do I mean by that? You know, today you've got a classic architecture where you've got a CPU, which interconnects with an accelerator.
Speaker #1: The CPU does some work, the GPU does work. I think what we're going to start to see over time is a morphing of the workloads that the CPU takes and the GPU.
Speaker #1: Used to do . And as I mentioned , you go to a genetic inference that's going to mean more CPUs , which could be more different custom chips that are CPU based .
Rene Haas: In addition, the inference workloads, which are dominated by two pieces of area of work, specifically prefill and decode, you could see some specific solutions around that that continue to extend things like what a Groq has done, for example. You could still see more kind of innovation across that area. I also think, you know, you asked about the data center, but I think we're gonna start to see a lot of that migrate to the smaller form factors, where different combinations of IP and solutions are gonna be needed to address areas where power is much more constrained, particularly around physical AI and then the lower edge devices.
Rene Haas: In addition, the inference workloads, which are dominated by two pieces of area of work, specifically prefill and decode, you could see some specific solutions around that that continue to extend things like what a Groq has done, for example. You could still see more kind of innovation across that area. I also think, you know, you asked about the data center, but I think we're gonna start to see a lot of that migrate to the smaller form factors, where different combinations of IP and solutions are gonna be needed to address areas where power is much more constrained, particularly around physical AI and then the lower edge devices.
Speaker #1: In addition , the inference are workloads , which dominated by two pieces of area of work , specifically Prefill and decode , you could see some specific solutions around that that continue to to extend things like what a what a grok has done .
Speaker #1: For example still see , you could more kind of innovation across that area . I also think , you know , you asked about the data center , but I think we're going to start to see a lot of that migrate to the smaller form factors where different combinations of IP and solutions are going to be needed to address areas where power is much more constrained , particularly around physical AI .
Rene Haas: So, I think there's a lot of innovation to come in solving the AI problems, because one thing that's clear is that these AI workloads are going to be running on every single piece of hardware that has compute. And because the vast majority of the compute platforms out there today are already Arm-based, gives us a gigantic opportunity to mold where that goes.
Rene Haas: So, I think there's a lot of innovation to come in solving the AI problems, because one thing that's clear is that these AI workloads are going to be running on every single piece of hardware that has compute. And because the vast majority of the compute platforms out there today are already Arm-based, gives us a gigantic opportunity to mold where that goes.
Speaker #1: And then the lower edge devices. So I think there's a lot of innovation to come in solving the AI problems, because one thing that's clear is that these AI workloads are going to be running on every device that has compute.
Speaker #1: And because the vast majority of the platforms out compute there today are already arm based us a gigantic , gives opportunity to mold where that goes .
Krish Sankar: Got it. Thanks, Rene.
Krish Sankar: Got it. Thanks, Rene.
Operator: Thank you. Your next question comes from the line of Harlan Sur from J.P. Morgan. Please go ahead.
Operator: Thank you. Your next question comes from the line of Harlan Sur from J.P. Morgan. Please go ahead.
Speaker #8: Thanks very . .
Speaker #3: Thank you. Your next question comes from the line of Harlan from JP Morgan. Please go ahead.
Jason Child: Good afternoon, and thanks for taking my question. On compute subsystems, obviously, you continue to drive solid momentum with two more licenses added in the quarter. The value out of CSS that we hear from your customers is resonating extremely well, right? It improves their productivity, it improves their overall system performance. They're willing to pay a higher licensing fee and higher royalty fee for that value add, as you mentioned. I'm curious to know, what percentage of the royalty mix is CSS today, and what proportion of the royalty revenue could it become, over the next two to three years?
Harlan Sur: Good afternoon, and thanks for taking my question. On compute subsystems, obviously, you continue to drive solid momentum with two more licenses added in the quarter. The value out of CSS that we hear from your customers is resonating extremely well, right? It improves their productivity, it improves their overall system performance. They're willing to pay a higher licensing fee and higher royalty fee for that value add, as you mentioned. I'm curious to know, what percentage of the royalty mix is CSS today, and what proportion of the royalty revenue could it become, over the next two to three years?
Speaker #8: Good afternoon . Thanks for .
Speaker #5: Taking my question .
Speaker #8: On compute subsystems . Obviously , you continue to drive solid momentum with two more licenses added in the quarter . The value out of CSS that we hear from your customers is resonating well , right .
Speaker #8: It extremely improves their productivity. It improves their overall system performance. They're willing to pay a higher licensing fee and higher royalty fee for value add.
Speaker #8: that As you mentioned , I'm curious to know what percentage of the royalty mix is CSS today and what proportion of royalty revenue could it become over the next 2 to 3 years ?
Rene Haas: Yeah, thank you, Harlan. I'll let Jason take that.
Rene Haas: Yeah, thank you, Harlan. I'll let Jason take that.
Speaker #1: Yeah . Thank you . Harlan , I'll I'll let Jason take that .
Jason Child: Yeah. So, Harlan, yeah, a lot of progress on CSS with the, you know, the five CSSes that have actually already been, you know, turned into silicon and actually something that we're receiving royalties on. It's had a material impact. Think of CSS last year, I think it was just kind of approaching double digit, and this year it's well into double digit. Think of it as being into the teens. And then I would say, you know, over the next couple of years, I expect it to, you know, to probably... It could be upwards of 50%... but, you know, we'll have to see.
Jason Child: Yeah. So, Harlan, yeah, a lot of progress on CSS with the, you know, the five CSSes that have actually already been, you know, turned into silicon and actually something that we're receiving royalties on. It's had a material impact. Think of CSS last year, I think it was just kind of approaching double digit, and this year it's well into double digit. Think of it as being into the teens. And then I would say, you know, over the next couple of years, I expect it to, you know, to probably... It could be upwards of 50%... but, you know, we'll have to see.
Speaker #2: Yeah . So , Harlan . Yeah , a lot progress on of CSS with you know , the , have CSS that actually already been , you know , turned into to silicon and actually something we're receiving royalties on .
Speaker #2: It's it's had a material impact , I think , of CSS last year . I think it was just kind of approaching double digit .
Speaker #2: And this year it's well into double digits . Think of it as being into the teens . And then I would say , you know , over the next couple of years , I expect it to , you know , to to probably it could be upwards 50% .
Speaker #2: of But you know , we'll have to see . I think , you know , the primary drivers for acceleration of CSS has really been mostly around our customers needing to shorten the cycle time and CSS , you know , typically that cycle time about and a half .
Jason Child: I think, you know, the primary drivers for acceleration of CSS has really been mostly around our customers needing to, you know, shorten the cycle time, and CSS, you know. Mm-hmm. It cuts that cycle time about in half. And so, you know, stay tuned, but I would expect to continue to see that acceleration occur and to continue to see. I think right now, every CSS customer that's had a chance to, you know, sign up for the next version or kind of renew for the next generation has all done that. So, that's certainly a really key indicator of the value that, as you said, customers are seeing from it. Yeah, absolutely. Thank you. Thank you.
Jason Child: I think, you know, the primary drivers for acceleration of CSS has really been mostly around our customers needing to, you know, shorten the cycle time, and CSS, you know. Mm-hmm. It cuts that cycle time about in half. And so, you know, stay tuned, but I would expect to continue to see that acceleration occur and to continue to see. I think right now, every CSS customer that's had a chance to, you know, sign up for the next version or kind of renew for the next generation has all done that. So, that's certainly a really key indicator of the value that, as you said, customers are seeing from it. Yeah, absolutely. Thank you. Thank you.
Speaker #2: And so , you stay tuned . know , But I would to to see that expect continue acceleration occur . And to continue to see I now think right , every CSS that's customer had a chance to , you know , sign up for the next or version kind of renew for the next generation has all has all done that .
Speaker #2: that's So certainly a indicator of the really key value that , as you said , customers are seeing from it .
Speaker #8: Yeah , absolutely . Thank you .
Operator: Thank you. Your next question comes from the line of Charles Shi from Needham & Company. Please go ahead.
Operator: Thank you. Your next question comes from the line of Charles Shi from Needham & Company. Please go ahead.
Speaker #9: Thank you .
Speaker #3: Thank you . Your next question comes from the line of Charles Chu from Needham and Company . Please go ahead .
Charles Shi: Hey, guys. Thanks for taking my question. I think it's going back, maybe it was one year. You guys kind of soft guided FY26 and FY27 growth should be around 20%. You're definitely delivering that FY26, we definitely will see how you think about FY27 in about a quarter. But any early view you guys can provide on FY28? I know I'm asking N+2 year here, but you guys did do that going back about a year. And I was hoping if you can provide any early view into the outer year. Thank you.
Charles Shi: Hey, guys. Thanks for taking my question. I think it's going back, maybe it was one year. You guys kind of soft guided FY26 and FY27 growth should be around 20%. You're definitely delivering that FY26, we definitely will see how you think about FY27 in about a quarter. But any early view you guys can provide on FY28? I know I'm asking N+2 year here, but you guys did do that going back about a year. And I was hoping if you can provide any early view into the outer year. Thank you.
Speaker #8: Thanks my question . Yeah . I think going back a maybe it was one year . You guys kind of saw the guided FY 26 and FY 27 growth should be around 20% .
Speaker #8: You're definitely delivering that FY 26 . We definitely will see how you think about FY 27 . But a quarter . But any early view you guys can provide FY 28 I no I'm .
Speaker #8: N plus two year here. Asking you, but do that guys did going back about a year. And I was kind of hoping if you could provide any early view into the outer year.
Jason Child: Yeah. I would say for 2026, as you said, we, we'd said at least 20%, and I think now we're guiding to 22% at the midpoint. So as you said, you know, exceeding that target. For 2027, not guiding on full year, but in terms of, you know, kind of at a high level, the 20% growth rate, I think certainly is very reasonable, and not anything that we'd back away from. In terms of 2028, we haven't thrown anything out there yet. I'd say maybe stay tuned. You know, there are opportunities as we contemplate, you know, other possible offerings and what that could do to our numbers is still something we're working through.
Jason Child: Yeah. I would say for 2026, as you said, we, we'd said at least 20%, and I think now we're guiding to 22% at the midpoint. So as you said, you know, exceeding that target. For 2027, not guiding on full year, but in terms of, you know, kind of at a high level, the 20% growth rate, I think certainly is very reasonable, and not anything that we'd back away from. In terms of 2028, we haven't thrown anything out there yet. I'd say maybe stay tuned. You know, there are opportunities as we contemplate, you know, other possible offerings and what that could do to our numbers is still something we're working through.
Speaker #8: Thank you .
Speaker #2: Yeah, I would say for '26, as you said, we'd said at least 20%. And I think now we're guiding to 22% at the midpoint.
Speaker #2: So as you said , you know , exceeding that target for 27 , not guiding on full year , but but in terms of , you know , kind of at a high level , the 20% growth think certainly is very reasonable and not anything that we'd back away from in terms of 28 .
Speaker #2: We haven't thrown anything out there yet . I'd say maybe . Stay tuned . You know , there are opportunities as we contemplate , you know , other possible offerings that could do to and what our is numbers still something we're working through .
Jason Child: So, we'll give you an update on '28 sometime down the road.
Jason Child: So, we'll give you an update on '28 sometime down the road.
Speaker #2: So , so we'll we'll give you update on on 28 sometime down the road .
Charles Shi: Thank you. I appreciate that.
Charles Shi: Thank you. I appreciate that.
Operator: Thank you. Your next question today comes from the line of Srini Pajjuri from RBC. Please go ahead.
Operator: Thank you. Your next question today comes from the line of Srini Pajjuri from RBC. Please go ahead.
Speaker #8: Thank you I appreciate that .
Speaker #3: Thank you. Next question comes from the line of Sweeny from RBC. Please go ahead.
Srini Pajjuri: Thank you. A couple of clarifications, guys. On the memory impact, I guess you talked about, you quantified that impact, but, Jason, the outlook for the next quarter on the royalties being up low teens, do you think memory is already having an impact on the smartphone volumes? Is that why it's only up low teens? And then, to add to that, you talked about CSS accelerating. I'm just curious, given the pressure on the bill of materials, do you anticipate or are you seeing any impact in terms of the adoption of CSS and V9, I guess, as you, as you look into the next few quarters, given the bill of materials challenges? Thank you.
Srini Pajjuri: Thank you. A couple of clarifications, guys. On the memory impact, I guess you talked about, you quantified that impact, but, Jason, the outlook for the next quarter on the royalties being up low teens, do you think memory is already having an impact on the smartphone volumes? Is that why it's only up low teens? And then, to add to that, you talked about CSS accelerating. I'm just curious, given the pressure on the bill of materials, do you anticipate or are you seeing any impact in terms of the adoption of CSS and V9, I guess, as you, as you look into the next few quarters, given the bill of materials challenges? Thank you.
Speaker #6: Thank you . A couple of clarifications , guys , on the memory impact . I guess you talked about quantified impact , but that Jason , the outlook for the next quarter on the royalties being up low , teens , do you think memory already is having an impact on the smartphone volumes ?
Speaker #6: Is that the only reason why it's up in the teens? And then, to add to that, you talked about CSS accelerating. I'm just curious, given the pressure on the bill of materials, do you anticipate—or are you seeing—any impact in terms of the adoption of CSS and v9, I guess, as you look into the next few quarters, given the bill of materials challenges? Thank you.
Jason Child: Yeah. Thanks for the question. I'll take the second part first, and then Jason will take the first part on memory. Question was regarding CSS pricing impacting bill of materials. No, we're not seeing any of that at all. What we are seeing is that the value gained by accelerating time to market outweighs anything that customers are considering. Given the complexity of building these chips, the increased cycle times through the fabs, going from 5 nanometer to 3 nanometer to 2 nanometer, means that the design windows are really short, and missing the first few months of shipment or having any kind of delay would be critical to profits. So based on that, we've really not had many discussions with anyone regarding the BOM impact.
Rene Haas: Yeah. Thanks for the question. I'll take the second part first, and then Jason will take the first part on memory. Question was regarding CSS pricing impacting bill of materials. No, we're not seeing any of that at all. What we are seeing is that the value gained by accelerating time to market outweighs anything that customers are considering. Given the complexity of building these chips, the increased cycle times through the fabs, going from 5 nanometer to 3 nanometer to 2 nanometer, means that the design windows are really short, and missing the first few months of shipment or having any kind of delay would be critical to profits. So based on that, we've really not had many discussions with anyone regarding the BOM impact.
Speaker #1: Yeah . Thanks for the question . I'll take the second part first and then Jason , I'll the first part take on on memory .
Speaker #1: Was there a question regarding CSS pricing impacting bill of materials? No, we're not seeing any of that at all. What we are seeing is that the value gained by accelerating time to market outweighs anything that customers are considering. Given the complexity of building these chips, the increased cycle times through the fabs going from five nanometer to three nanometer to two nanometer means that the design windows are really short, and missing them is a big issue.
Speaker #1: The first few months of shipment , or having of any kind delay is was critical to profits . So based on that , we really not had many discussions with anyone regarding the bomb impact .
Jason Child: The value that we create relative to profits gained by the customer is what really drives the decision point. And then regarding the memory impact on the next quarter, I'll let Jason address that. Yeah. The memory impact very minimal, I would say. And that's not really the driver of the guidance on the growth. The absolute growth in royalties has much more to do with, you know, typically seasonality. Our Q4 or calendar Q1 is always one of the slower quarters. And you know, the one thing that happened a year ago is we did have a MediaTek chip come out in Q4 of a year ago or Q... Yeah, our Q4, calendar Q1 of a year ago, which was unusual timing. So we are lapping that.
Rene Haas: The value that we create relative to profits gained by the customer is what really drives the decision point. And then regarding the memory impact on the next quarter, I'll let Jason address that.
Speaker #1: The value that we create relative to profits gained by the customer is what drives the really decision point . And then regarding the memory impact on on the on the next quarter , I'll let address that .
Jason Child: Yeah. The memory impact very minimal, I would say. And that's not really the driver of the guidance on the growth. The absolute growth in royalties has much more to do with, you know, typically seasonality. Our Q4 or calendar Q1 is always one of the slower quarters. And you know, the one thing that happened a year ago is we did have a MediaTek chip come out in Q4 of a year ago or Q... Yeah, our Q4, calendar Q1 of a year ago, which was unusual timing. So we are lapping that.
Speaker #1: Jason
Speaker #2: Yeah . The memory impact of very minimal , I would say . And that's not really the driver of the guidance on the growth , the absolute growth in royalties has much more to do with typically seasonality .
Speaker #2: Our calendar Q4 or Q1 is always one of the quarters and , you know , the one thing that happened a year ago is we did have MediaTek chip come out in Q4 of a year ago or Q yeah , r Q4 calendar Q1 of ago , which was a year unusual timing .
Jason Child: So it's much more about kind of what we're comping, and to some extent, seasonality. But overall, you know, full year royalties, I would expect to be in that north of, you know, 20% range, which is kind of what we were expecting early in the year, and still expect Q4 or calendar Q1 to be stronger than what we previously expected. So, it's really the year-on-year growth piece is really more of a seasonality/comping, kind of, an unusual one-time release from a year ago.
Jason Child: So it's much more about kind of what we're comping, and to some extent, seasonality. But overall, you know, full year royalties, I would expect to be in that north of, you know, 20% range, which is kind of what we were expecting early in the year, and still expect Q4 or calendar Q1 to be stronger than what we previously expected. So, it's really the year-on-year growth piece is really more of a seasonality/comping, kind of, an unusual one-time release from a year ago.
Speaker #2: So we are lapping that . So it's much more about kind of what we're comping and to some extent , seasonality . But but overall , you know , full year royalties , I would expect to be in north of , 20% range , which is kind of what we were expecting early in the year and still expect Q four or calendar Q1 to be stronger than what previously expected .
Speaker #2: we So it's really the year on year is really growth piece more of a seasonality slash comping , a kind of an unusual one time release from a year ago .
Operator: Thank you. We will now go to the next question. Your next question comes from the line of Andrew Gardner from Citi. Please go ahead.
Operator: Thank you. We will now go to the next question. Your next question comes from the line of Andrew Gardner from Citi. Please go ahead.
Speaker #3: Thank you. We will now go to the next question. And your next question comes from the line of Andrew Gardner from Citi.
Speaker #3: Please go ahead .
Andrew Gardiner: Good afternoon. Thanks for taking my question as well. Jason, perhaps one for you on the OpEx side. You know, we've clearly seen significant investment in the business, particularly in R&D, given everything that you guys are doing.
Andrew Gardiner: Good afternoon. Thanks for taking my question as well. Jason, perhaps one for you on the OpEx side. You know, we've clearly seen significant investment in the business, particularly in R&D, given everything that you guys are doing.
Speaker #10: Good afternoon . Thanks for taking my question as well , Jason . Perhaps one for you on the OpEx side . You know , we've clearly seen significant investment in the particularly in R&D , given everything that are doing .
Timm Schulze-Melander: ... You, you've given us a bit of a steer on fiscal 27 revenue growth. Clearly, R&D has been growing at a faster rate than revenue in the current period. Is that something we can expect to continue into fiscal 27, given everything that you guys have got in front of you? Or, will we actually start to see R&D growth slow relative to the revenue? Thank you.
Andrew Gardiner: ... You, you've given us a bit of a steer on fiscal 27 revenue growth. Clearly, R&D has been growing at a faster rate than revenue in the current period. Is that something we can expect to continue into fiscal 27, given everything that you guys have got in front of you? Or, will we actually start to see R&D growth slow relative to the revenue? Thank you.
Speaker #10: Given us a bit of a steer on fiscal '27 revenue growth. Clearly, R&D has been growing at a faster rate than revenue in the current period.
Speaker #10: Is that something we can expect to continue into fiscal '27, given everything that you guys have got in front of you, or will we actually start to see R&D growth slow relative to the revenue?
Rene Haas: Sure. So, a little early to talk full year. I can tell you right now, our expectation is that the Q4 to Q1 step up will be similar to last year. I think last year it was, you know, low double digit sequential growth, and you should see the same kind of sequential growth as a year ago. Right now, I would say the growth after Q1 is probably gonna moderate, more so than it did this year. We did see pretty significant step-ups throughout the year. I don't expect there to be quite as significant step-ups for next year. But as we, you know, progress more into next year, we'll give you a little more color, but that's the high level, I'd say, modeling approach I would take right now.
Jason Child: Sure. So, a little early to talk full year. I can tell you right now, our expectation is that the Q4 to Q1 step up will be similar to last year. I think last year it was, you know, low double digit sequential growth, and you should see the same kind of sequential growth as a year ago. Right now, I would say the growth after Q1 is probably gonna moderate, more so than it did this year. We did see pretty significant step-ups throughout the year. I don't expect there to be quite as significant step-ups for next year. But as we, you know, progress more into next year, we'll give you a little more color, but that's the high level, I'd say, modeling approach I would take right now.
Speaker #10: Thank you .
Speaker #2: Sure . So a little early to talk full tell you year . I can right now our expectation is that the Q4 to Q1 step up will be similar to last year .
Speaker #2: Year it was, I think you know, low double-digit sequential. And you should see the same kind of sequential growth as a year ago.
Speaker #2: I right now , I would say the growth after Q1 is probably going to moderate more so than it did year . this We did see pretty significant step ups throughout the year .
Speaker #2: I don't expect there to be quite as significant step ups for next year , but as we , you know , progress more into next year , we'll give you a little more color .
Speaker #2: But that's the high level. I'd say modeling approach I would take right now.
Timm Schulze-Melander: Thank you.
Andrew Gardiner: Thank you.
Operator: Thank you. We will now take the next question, and the question comes from the line of John DiFucci from Guggenheim Securities. Please go ahead.
Operator: Thank you. We will now take the next question, and the question comes from the line of John DiFucci from Guggenheim Securities. Please go ahead.
Speaker #10: Thank you .
Speaker #3: Thank you. We will now take the next question. And the question comes from the line of John from Guggenheim Securities. Please go ahead.
John DiFucci: Thank you. Rene, you've seen a lot in technology over the years, so I'm gonna ask a question that's kind of a little bit self-serving here. I'm curious how you'd characterize what's happening in the stock market recently as it pertains to the software sector. If you might, since you're at least partially a software company, how does AI affect your business other than driving demand? In other words, how, how should we think of how you'll leverage AI in the design of chips and systems? Thank you.
John DiFucci: Thank you. Rene, you've seen a lot in technology over the years, so I'm gonna ask a question that's kind of a little bit self-serving here. I'm curious how you'd characterize what's happening in the stock market recently as it pertains to the software sector. If you might, since you're at least partially a software company, how does AI affect your business other than driving demand? In other words, how, how should we think of how you'll leverage AI in the design of chips and systems? Thank you.
Speaker #11: Thank you . Renee , you've seen a lot in technologies in technology over the years . So I'm going to ask a question kind of a that's little bit self-serving here .
Speaker #11: I'm curious how you'd characterize what's happening in the stock market recently as it pertains to the software sector. And, if you might, since you're at least partially a software company, how does AI affect your business other than driving demand?
Speaker #11: In other words , how should we think of how you'll leverage AI in the design of chips and systems ? Thank you .
Rene Haas: Yeah, well, regarding the stock market's reaction to software companies, if I had a great answer for that, I'd probably be in a different position than the one that I have. I'm not sure I can... I'm in a great position to discuss what the near-term impacts are to the stock market. But what I can say after, you know, watching and being in technology my entire career, we do see these kind of things time to time, where investors or the market gets jittery around what the broad impacts are when we're in the midst of fairly significant technology disruptions.
Rene Haas: Yeah, well, regarding the stock market's reaction to software companies, if I had a great answer for that, I'd probably be in a different position than the one that I have. I'm not sure I can... I'm in a great position to discuss what the near-term impacts are to the stock market. But what I can say after, you know, watching and being in technology my entire career, we do see these kind of things time to time, where investors or the market gets jittery around what the broad impacts are when we're in the midst of fairly significant technology disruptions.
Speaker #1: Yeah , well , regarding the stock market's reaction to software companies , I had a great answer for that . I'd probably be in a different position than the one that I have .
Speaker #1: I'm not sure I can . I'm a great position to to discuss what the near-term impacts are to the stock market , but what I can say after , you know , watching and being in my technology , entire career , we do see these kind of things time to time where we're investors or the market gets jittery around what the broad impacts are when we're in the midst fairly of significant technology disruptions .
Rene Haas: I can say for our business, you know, given the fact that we are an intellectual property provider that goes into physical things, chips, AI is not gonna replace a physical chip anytime soon. They're kind of linked at the hip, if you will, relative to you need the hardware to run the software. I think there's just enormous opportunity, however, still for growth in the overall sector, because when I think about where AI actually is operating truly inside the enterprise, it's very, when I think about our own company and things like our payroll systems or purchase order systems or our SAP systems, there's some AI going on there, but not nearly enough to be massively transformative yet.
Rene Haas: I can say for our business, you know, given the fact that we are an intellectual property provider that goes into physical things, chips, AI is not gonna replace a physical chip anytime soon. They're kind of linked at the hip, if you will, relative to you need the hardware to run the software. I think there's just enormous opportunity, however, still for growth in the overall sector, because when I think about where AI actually is operating truly inside the enterprise, it's very, when I think about our own company and things like our payroll systems or purchase order systems or our SAP systems, there's some AI going on there, but not nearly enough to be massively transformative yet.
Speaker #1: I can say for for our business the fact that we , you know , given are an intellectual property provider that goes into physical things , chips AI is not going to replace a physical chip anytime soon .
Speaker #1: They're kind of linked at the hip, if you will, in that you need the hardware to run the software. I think there's just enormous opportunity.
Speaker #1: However , still for growth in the overall sector , because when I when I think about where AI actually is operating , truly inside the enterprise , it's very when I think about our own company and things like our systems or payroll purchase our order systems or our SAP systems , there's some going on AI there , but not nearly enough to be massively transformative .
Rene Haas: I think part of that is just the complexity of integrating these large systems and changing software workloads. So I think we're in super early days, to be quite frank, and having, you know, been in technology, again, my entire career and have seen lots of technology disruptions. This one feels a little bit like the final frontier in terms of the amount of productivity and change that AI can benefit, and we're still all trying to get our arms around it. If you just even look at the numbers of spend, I heard earlier today, Google, or Alphabet, announcing a $180 billion CapEx spend. That used to be what semiconductor companies used to spend a year on fabs, times a few.
Rene Haas: I think part of that is just the complexity of integrating these large systems and changing software workloads. So I think we're in super early days, to be quite frank, and having, you know, been in technology, again, my entire career and have seen lots of technology disruptions. This one feels a little bit like the final frontier in terms of the amount of productivity and change that AI can benefit, and we're still all trying to get our arms around it. If you just even look at the numbers of spend, I heard earlier today, Google, or Alphabet, announcing a $180 billion CapEx spend. That used to be what semiconductor companies used to spend a year on fabs, times a few.
Speaker #1: Yet . And I think part of that is just the the complexity of integrating these large systems and changing software workloads . So I think we're in super early days , having quite frank .
Speaker #1: to be been And in technology again my entire career have seen lots of technology disruptions , this one feels a little bit like the final frontier in terms of of the amount of productivity and change that AI can And we're benefit .
Speaker #1: still all trying to get arms our around it . If you just even look at the the numbers of spend . I heard earlier today , Google or Alphabet announcing $180 billion CapEx spend that used to be what semiconductor companies used to spend a year on times , fabs times a few .
Rene Haas: So we're in uncharted waters, and maybe that's why you're seeing some jittery numbers relative to how the market reacts. But from where we sit, there's just huge demand for compute, and that's what Arm does. And so I think in the long game, I'm super excited about the opportunity for us.
Rene Haas: So we're in uncharted waters, and maybe that's why you're seeing some jittery numbers relative to how the market reacts. But from where we sit, there's just huge demand for compute, and that's what Arm does. And so I think in the long game, I'm super excited about the opportunity for us.
Speaker #1: So we're we're in uncharted waters . And maybe that's why you're seeing some jittery numbers relative to how the market reacts . from where we But sit , there's just huge demand for compute .
Speaker #1: And that's what Arm does. And so, I think in the long game, I'm super excited about the opportunity for us.
John DiFucci: Really appreciate your thoughts, Rene. Thank you.
John DiFucci: Really appreciate your thoughts, Rene. Thank you.
Speaker #11: Really appreciate your thoughts, Renee. Thank you.
Operator: Thank you. We will now take our final question for today, and the final question comes from the line of Timm Schulze-Melander from Rothschild & Co. Please go ahead.
Operator: Thank you. We will now take our final question for today, and the final question comes from the line of Timm Schulze-Melander from Rothschild & Co. Please go ahead.
Speaker #3: Thank you . We will now take our final question for today and the final question comes from the line of Schultz Tim from Co .
Timm Schulze-Melander: Yeah, hi there. Thanks for taking my question. It's a two-parter for Rene, please. You've talked a lot about inference in the AI future. You just referenced the Groq architecture, and I really wanted to ask you, what are your thoughts, or how should we think about SRAM, SRAM at the edge, some of these different memory structures and what they could mean for your business? And then the second part is just the cadence of power efficiency for Arm. Is there something that we should think about in terms of the average annual or per V8 to V9 energy for compute efficiency that you see going forward? Thank you so much.
Timm Schulze-Melander: Yeah, hi there. Thanks for taking my question. It's a two-parter for Rene, please. You've talked a lot about inference in the AI future. You just referenced the Groq architecture, and I really wanted to ask you, what are your thoughts, or how should we think about SRAM, SRAM at the edge, some of these different memory structures and what they could mean for your business? And then the second part is just the cadence of power efficiency for Arm. Is there something that we should think about in terms of the average annual or per V8 to V9 energy for compute efficiency that you see going forward? Thank you so much.
Speaker #3: Please go ahead .
Speaker #12: there . Thanks Yeah . Hi for question taking my . It's a two parter for Renee . Please . You've talked a lot about inference in the AI You future .
Speaker #12: You just referenced the Grok architecture, and I really wanted to ask you: what are your thoughts, or how should we think about SRAM—SRAM at the edge?
Speaker #12: Some of these different memory structures and what that could mean for your business. And then the second part is just the cadence of power efficiency for ARM.
Speaker #12: Is there something that we should think about in terms of the average annual or per V8-to-V9 energy for compute efficiency that you see going forward?
Rene Haas: Yeah. So I'll take the latter part first, because it kind of bridges into the, into the first. We look at how to address power efficiency 24/7. And the reason for that is, increasingly, as you get into these smaller form factors, the one thing that you don't get much liberty on is battery life and space. So as a result, we have to always think about operating in a constrained environment, where you're adding more and more demand of compute. When you add AI onto something that already has to drive a display or open an app or recognize the voice, it's a constant thing that we think about and worry about. I think we're very well positioned to address it because we are the incumbent in many of these platforms.
Rene Haas: Yeah. So I'll take the latter part first, because it kind of bridges into the, into the first. We look at how to address power efficiency 24/7. And the reason for that is, increasingly, as you get into these smaller form factors, the one thing that you don't get much liberty on is battery life and space. So as a result, we have to always think about operating in a constrained environment, where you're adding more and more demand of compute. When you add AI onto something that already has to drive a display or open an app or recognize the voice, it's a constant thing that we think about and worry about. I think we're very well positioned to address it because we are the incumbent in many of these platforms.
Speaker #12: Thank you so much .
Speaker #1: Yes , take the latter part I'll first because it kind of bridges into into the first . We we we look at how to address power efficiency 24 seven .
Speaker #1: And the reason for that is, you get increasingly, as you go smaller into these form factors, the one thing that you don't get much liberty on is battery life.
Speaker #1: And space. So as a result, we have to always think about operating in a constrained environment where you're adding more demand, more and more compute.
Speaker #1: When you add when add AI you onto something that already has to drive a or open an display app or the voice , recognize it's it's constant thing that we think about and worry about .
Speaker #1: I think we're I think we're very well positioned to address it because we we are the incumbent in many of these platforms . So it is something we spend time and a lot of energy on .
Rene Haas: So it is something we spend a lot of time and energy on. To your first part of the question on SRAM and different memory technologies, absolutely, that's something we're highly involved in. To oversimplify a computer, a CPU needs memory, and memory needs a CPU, period, and stop. So when you're designing a piece of hardware, the two go very much hand in hand, and there is a lot of work and research being done about not just SRAM, but alternative memory technologies and solutions that can address these increasing demands on AI.
Rene Haas: So it is something we spend a lot of time and energy on. To your first part of the question on SRAM and different memory technologies, absolutely, that's something we're highly involved in. To oversimplify a computer, a CPU needs memory, and memory needs a CPU, period, and stop. So when you're designing a piece of hardware, the two go very much hand in hand, and there is a lot of work and research being done about not just SRAM, but alternative memory technologies and solutions that can address these increasing demands on AI.
Speaker #1: To first part of the question on on Sram and different memory technologies . Absolutely . That's something we're highly involved in . To oversimplify , a computer , a CPU needs memory , and memory needs a CPU period , and and stop .
Speaker #1: So when you're designing a piece of hardware, the two go very much hand in hand. And there is a lot of work and research being done about not just SRAM, but alternative memory technologies and solutions that can address these increasing demands on SoC AI.
Rene Haas: So again, to the question prior to yours, in terms of the overall broad opportunity, you know, what people in our space tend to worry about is that there isn't hard problems to go think and work on and develop new technologies for. We don't have that problem. Every single end application is gonna be impacted by AI. We believe every end application will run AI through Arm, so we're spending a lot of time and energy, and you can see by our investments, to come up with innovative ways to address that.
Rene Haas: So again, to the question prior to yours, in terms of the overall broad opportunity, you know, what people in our space tend to worry about is that there isn't hard problems to go think and work on and develop new technologies for. We don't have that problem. Every single end application is gonna be impacted by AI. We believe every end application will run AI through Arm, so we're spending a lot of time and energy, and you can see by our investments, to come up with innovative ways to address that.
Speaker #1: again , to question , prior to yours , in terms of the the overall broad opportunity and what people in our space tend to worry about is that there isn't hard problems to think and work go on .
Speaker #1: And develop new for . We technologies don't have that problem every single end application is impacted going to be by AI . We believe every end application will run AI through ARM , so we're spending a lot of time and energy , and you can see by our investments come up with to innovative ways to address that .
Operator: Great. Thank you so much. Thank you. I will now hand the call back to Rene for closing remarks.
Timm Schulze-Melander: Great. Thank you so much.
Operator: Thank you. I will now hand the call back to Rene for closing remarks.
Speaker #12: Great. Thank you so much.
Speaker #3: Thank you. I will now hand the call back to Renee for closing remarks.
Rene Haas: Yeah, thank you, and thank you for all the thoughtful questions. We could tell by the range of the questions; we were talking about memory prices inside the quarter and then what alternative memory technologies could look like years from now. I think that's a very good way to sort of describe the current quarter, but how we're very, very bullish about Arm long term. We delivered the best quarter in our history. We delivered the best quarter in our history on royalties, which is really an indicator for the strategies we have going forward, and we have a huge amount of customers shifting to Arm in a big way with more CPU counts. That being said, the quarters that we're most excited about are the ones ahead of us.
Rene Haas: Yeah, thank you, and thank you for all the thoughtful questions. We could tell by the range of the questions; we were talking about memory prices inside the quarter and then what alternative memory technologies could look like years from now. I think that's a very good way to sort of describe the current quarter, but how we're very, very bullish about Arm long term. We delivered the best quarter in our history. We delivered the best quarter in our history on royalties, which is really an indicator for the strategies we have going forward, and we have a huge amount of customers shifting to Arm in a big way with more CPU counts. That being said, the quarters that we're most excited about are the ones ahead of us.
Speaker #1: Thank you . And
Speaker #1: thank you for thoughtful . Yeah . questions . And we could tell by the by the range of the we were prices quarter about memory questions talking inside the and then what alternative memory technologies could look like years from now ?
Speaker #1: I think that's a very good way to sort of describe the current quarter. But we're very, very bullish about Arm long term.
Speaker #1: We delivered the best quarter in our history. We delivered the best quarter in our history on royalties, which is really an indicator for the strategies we forward have going.
Speaker #1: And we have a huge amount of customers shifting to Arm in a big way, with more CPU counts. That being said, the quarters that we're most excited about are the ones ahead of us.
Rene Haas: We think we have huge opportunity, as I mentioned, in the new areas of physical AI, cloud AI, and edge AI, and we intend to do everything we can to make Arm the compute platform of choice for all AI workloads. Thank you.
Rene Haas: We think we have huge opportunity, as I mentioned, in the new areas of physical AI, cloud AI, and edge AI, and we intend to do everything we can to make Arm the compute platform of choice for all AI workloads. Thank you.
Speaker #1: We think have we huge opportunity . As I mentioned in the new areas of physical AI , cloud , AI , and edge AI , and we we intend to do everything we can to make ARM the compute platform of choice for all AI workloads .
Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
