Shares of Arm Holdings (NASDAQ: ARM) fell more than 9% in pre-market trading on Thursday after the chip design firm issued disappointing guidance for the current quarter, overshadowing stronger-than-expected fourth-quarter results.
For the fiscal fourth quarter, Arm posted earnings per share of $0.55 on revenue of $1.24 billion. Both figures exceeded analyst expectations, which had called for EPS of $0.52 and revenue of $1.23 billion.
The company, which licenses chip designs to manufacturers and earns royalties on each semiconductor unit shipped, reported an 18% year-over-year increase in royalty revenue, reaching $607 million. License and other revenue surged 53% to $634 million.
However, remaining performance obligations (RPO)—a key metric reflecting unearned revenue and future billings—dropped 4% from the previous quarter, totaling $2.23 billion. Arm expects to recognize approximately 25% of this RPO as revenue in the next 12 months, 19% in the following 13 to 24 months, and the remainder thereafter.
Looking ahead, Arm guided for non-GAAP earnings of $0.30 to $0.38 per share on revenue of $1 billion to $1.1 billion in the current quarter. That fell short of Wall Street expectations for $0.42 per share on $1.09 billion in revenue. The weak outlook weighed on investor sentiment, despite solid quarterly performance.
Adding to investor unease, Morgan Stanley recently replaced Arm with Cadence Design Systems (NASDAQ: CDNS) as its top pick in the semiconductor design and IP sector. The firm cited Cadence’s strong operating leverage, high recurring revenues, and record backlog, while noting challenges facing Arm, including litigation risks, slow adoption of its v9 chip architecture, and uncertainty over demand from China, as reasons for the change. In addition, the investment bank lowered its price target for the stock from $175 to $150.
As of the latest update, Arm Holdings (NASDAQ: ARM) shares are down 9.49%, trading at $112.41.
Salman Akhtar is a finance, stocks, and technology journalist with years of experience across various news organizations. He has contributed his expertise to outlets such as 24NewsHD, TrimFeed, The Voice Pakistan, and TheTechBasic. Salman is passionate about making complex topics accessible to a broad audience. His dedication to delivering accurate and timely information has established him as a trusted voice in the industry. Read Full Bio
