Arm reports first post-IPO earnings and the stock is down 7%

Semiconductor technology company Arm reported its first post-IPO earnings on Wednesday that beat Wall Street expectations for sales and showed that the company’s lucrative licensing business doubled in size over the past year.

Arm shares fell over 7% in extended trading after the company’s revenue guidance was short of expectations.

Here’s how the semiconductor licensing company did versus LSEG (formerly Refinitiv) consensus expectations for Arm’s second fiscal quarter ended Sept. 30:

• Revenue: $806 million versus $744.3 million expected
• EPS: $0.36 per share, adjusted

Arm said it was expecting earnings per share of between $0.21 and $0.28 on sales of between $720 million and $800 million in the current quarter. That’s a little lighter than what Wall Street was looking for, which was $0.27 cents per share on between $730 million and $805 million in revenue.

Arm reported a net loss of $110 million, or $0.11 cents per share. The company said that the loss was due to over $500 million in one-time share-based compensation triggered by the recent IPO, and that share-based compensation would land between $150 million and $250 million in future quarters.

Total revenue was up 28% on an annual basis during the quarter.

Arm’s intellectual property is in nearly every smartphone, many PCs, and other miscellaneous chips. Arm says that over 7.1 billion Arm-based chips were shipped during the quarter.

It makes money through royalties, or when chipmakers pay Arm for access to build Arm-compatible chips, typically a small percentage of the final chip price. It also sells licenses to more complete chip designs, saving chipmakers time and effort, which are recorded as licensing revenue.

Arm royalty revenue was $418 million, a 5% decline from the same period last year. But Arm licensing sales were $388 million, up 106% from the same period last year. It’s a sign that Arm may be able to sell increasing amounts of technology to its current customers, which is a key metric watched by analysts.

Arm attributed licensing sales to multiple long-term agreements with technology companies, suggesting that the segment’s growth could continue in future quarters, but warned that the broader economy could affect future licensing growth.

Arm went public in an IPO in September. Before that, it was owned by SoftBank, which reached a deal to sell the firm to Nvidia before the transaction was scuttled by regulators in 2022. It was founded in 1990 to develop technology for low-power chips.

Arm said that firms including Google, Meta and Nvidia were developing AI-capable chips with its technology.