Arm Holdings shares closed 5.28% lower on Wednesday November 4 after the company gave a revenue forecast that barely beat Wall Street estimates. Investors felt disappointed as they hoped for a bigger payoff from AI data centres. The firm now faces pressure as it tries to grow beyond its smartphone roots.
Arm Holdings Plc forecast third-quarter revenue marginally ahead of Wall Street estimates on Wednesday November 4, disappointing investors who had hoped its push into artificial intelligence (AI) data centres would deliver a bigger payoff.
The company said in a statement that sales would be about $1.54 billion in the quarter running through December, plus or minus $50 million. Analysts surveyed by Bloomberg had expected $1.53 billion on average, although some projections neared $1.7 billion.
The company also expected adjusted earnings of 56 cents a share, plus or minus 4 cents, for the quarter. Its shares fell about 1% in extended trading as the call with analysts began.
The muted reaction underlined the pressure on Arm, which had become a favourite among AI investors as data centre operators and their suppliers spent more on its designs and licences. Under Chief Executive Officer Rene Haas, the UK-based company was transforming itself from a provider of chip designs and licences into a full-fledged chipmaker.
It unveiled its own central processing unit (CPU), designed to help run AI data centres, and expected it to generate up to $2 billion in revenue in fiscal 2027 and 2028. Haas told Reuters, that Arm had worked with Taiwan's TSMC and other chip suppliers to secure enough raw materials to produce the $2 billion.
In the second quarter, revenue rose 27% to $1.44 billion, beating Wall Street's projection of $1.38 billion. Adjusted profit was 52 cents a share against expectations of 47 cents. Licensing sales rose 50% to $773 million, while royalty sales climbed 8% to $670 million.
Arm faced a slowdown in the smartphone market, its biggest source of revenue, where memory chip shortages hurt production and raised handset prices. Qualcomm, hit by higher component costs, gave a lacklustre profit forecast on Wednesday, and its shares fell.
Last month, a Delaware jury found Arm breached parts of its licensing agreement with Qualcomm but awarded only $2 in damages.
The shares of Arm Holdings PLC - ADR closed 5.28% lower at the end of trade on the NASDAQ, on Wednesday, The company's shares had gained 67.8% in the year-to-date period and gained 19.33% in the trailing 12-month period.