Fiscal third-quarter revenue will be about $1.23 billion, the company said Wednesday in a statement. Profit will be 41 cents a share, excluding certain items. Those targets compare with analysts’ average estimates of 35 cents a share on sales of $1.1 billion.
The outlook signals that Arm is beginning to see increasing rewards from investment in new technology aimed at winning a place in data centres that are being built to support artificial intelligence computing. Under Chief Executive Officer Rene Haas, the UK-based company has been transforming itself into a provider of more complete designs, raising its profile and revenue potential.
The transition has required more engineering efforts, and the consequent increase in spending has eaten into profitability. It has also made Arm more of a rival for some of its biggest customers. The company is still involved in a bitter legal dispute with Qualcomm Inc.
“This is a continued strong demand for the technology across the board, in particular in the data centre,” Haas said in an interview.
Revenue from the Arm’s Neoverse product used in data centre computers had doubled, he said.
More broadly, Arm is reporting in an earnings season in which investors are focusing on the returns that companies are getting from their investment in AI, amid increasing concern that current levels of spending are unsustainable. Arm’s majority owner, SoftBank Group Corp., is trying to insert itself into the broader AI narrative, including by participating in OpenAI’s Stargate AI project.
When asked on Wednesday about the Stargate project during a conference call with analysts, Haas said the increasing number of data centres that are part of OpenAI’s plans provide opportunities in computing, networking and the infrastructure that supports that machinery, notably the power delivery. While calling it a “huge” opportunity, he declined to be more specific.
Arm gets paid in two ways: through licenses that let customers use its designs and standards, and through royalties per unit when the resulting chips are shipped.
Arm shares rose about 3.6% in extended trading after closing at $160.19 in New York. While the stock has gained 30% this year, it lags behind a surge in other chip stocks buoyed by optimism about AI demand.
In the fiscal second quarter, revenue increased 34% to about $1.14 billion, the company said. Profit was 39 cents a share in the period, which ran through September.
Licensing revenue was $515 million, compared with an average estimate of $472 million. Royalty contributed $620 million. Analysts, on average, projected $586 million.
ARM’s technology made its breakthrough in mobile devices because it was designed from the ground up to be the basis of chips that can get by in a battery-powered environment. That market has traditionally provided the company with the bulk of its revenue. Now that data centres are increasingly becoming power-constrained, the company believes it has a role in that lucrative business and is increasing design work on behalf of companies such as Amazon.com Inc. and Alphabet Inc.’s Google.
Separately, Haas said Arm intends to acquire DreamBig Semiconductor Inc., which produces the kinds of chips used in networking.
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