Chip architecture design company Arm announced its first fiscal quarter (ending June 30) earnings and profit guidance for the entire fiscal year on Wednesday (July 31) local time. Subsequently, the company's stock price plummeted in after-hours trading, falling more than 13% at one point.
The company's first-quarter performance actually far exceeded analysts' expectations. Adjusted earnings per share were 40 cents, expected to be 34 cents; total revenue was US$939 million, a year-on-year increase of 39%, and expected to be US$902.7 million; net income for the quarter was US$223 million, or earnings per share of 21 cents, compared with US$105 million in the same period last year, or earnings per share of 10 cents.
Among them, royalties revenue was US$467 million, a year-on-year increase of 17%, analysts expected US$487 million; licensing and other income was US$472 million, a year-on-year increase of 72%, analysts expected US$418 million.
However, Arm's full-year revenue outlook disappointed investors. The company maintained its forecast for full-year adjusted earnings per share of $1.45 to $1.65, with revenue of $3.8 billion to $4.1 billion. This is basically in line with analysts’ expectations, which predict Arm’s full-year adjusted earnings per share of $1.58 and revenue of $4.02 billion.
In addition, for the second fiscal quarter, Arm expects adjusted earnings per share of 23-27 cents and revenue of $780-830 million. Analysts surveyed had expected revenue of 27 cents per share and $804.1 million. This means that there is no increase in the middle value of the forecast interval given by Arm.
Arm Chief Financial Officer Jason Child said on a conference call with analysts that the midpoint of the revenue guidance range takes into account a 20-24% increase in royalties, which is lower than the roughly 25% expected in April.
In addition, the company said it will no longer report the number of chips based on the Arm architecture shipped. This may also have hit Arm's share price.
Arm CEO Rene Haas said, "We previously used the number of chips shipped by customers as a key performance indicator because it represented the acceptance of our products by companies that use the chips in their products."
"Today, as we shift our focus to higher-value, lower-volume markets such as data center servers, artificial intelligence accelerators and smartphone application processors, reported chip shipments are not representative of our performance because the growth in royalty revenue is concentrated on fewer chips."
In the fourth quarter of the last fiscal year, Arm's chip shipments were 7 billion, a year-on-year decrease of 10%. Management previously blamed the trend on inventory adjustments in industrial IoT chips, which are plentiful but relatively low in value.
Before Arm announced its results, the company's stock price had risen 93% so far this year, much higher than the S&P 500 index, which had risen 16% during the same period.