Arm's Debut Post-IPO Report: Revenue Soars, Net Loss at $110M

On the 9th of November, Arm Corporation released its financial report for the second quarter of the fiscal year 2024, concluding on September 30th. The company achieved a milestone with a revenue of $806 million, representing a substantial 28% year-over-year increase and marking the first instance of surpassing $800 million in a single quarter. Despite an initial net loss of $110 million, adjusted figures reveal a profit of $380 million.

Following the financial disclosure, Arm's stock witnessed a 1.57% decline, settling at $54.4 per share on Wednesday. Post-announcement, the stock experienced a significant after-hours drop of over 7%, attributed to lower-than-expected third-quarter performance projections.

In terms of Non-GAAP metrics, Arm's second-quarter net profit surged to $380 million, indicating an impressive 113% year-over-year growth. Operating profit also demonstrated a robust performance, reaching $381 million with a noteworthy 92% year-over-year increase and an operating profit margin of 47.3%. Diluted earnings per share stood at $0.36, reflecting a substantial 112% increase from the previous year.

Under the General Accepted Accounting Principles (GAAP), Arm reported a net loss of $110 million in the second quarter. This contrasts with a net profit of $114 million in the corresponding period of the previous year, marking a significant turnaround. Diluted loss per share was recorded at $0.11, compared to earnings of $0.11 per share in the same period last year.

The reported loss was primarily attributed to one-time stock compensation payments to employees following the company's Initial Public Offering (IPO), amounting to nearly $500 million. Projections indicate that similar expenses will range between $150 million and $200 million per quarter in the future.

During the quarter, Arm's patent license revenue experienced a decline to $418 million, a 5% year-over-year decrease, falling slightly below the market expectation of $420 million. Global chip shipments based on Arm architecture totaled 7.1 billion in the three months ending September 30th, reflecting a decrease of nearly 400 million compared to the same period last year. Arm's CFO noted that these figures suggest an oversupply in the global chip market, anticipating a return to growth in the third quarter.

As the industry witnesses an increased focus on in-house chip development by various companies and cloud providers, Arm is positioned as a notable factor of disruption, with licensing fees emerging as a critical indicator of its growth potential. The total of Arm's licensing fees and other income in the second quarter reached $3.88 billion, showcasing an impressive 206% year-over-year increase, surpassing the market expectation of $3.3 billion.

Arm's core business revolves around chip design, with the company licensing its intellectual property to a diverse client base exceeding 500 companies, including technology giant Apple. Furthermore, Arm's architecture is pervasive, powering 95% of global smartphones.

Simultaneously, Arm anticipates future competition from the open-platform RISC-V. Over the next five to ten years, RISC-V is projected to gain prominence rapidly, presenting a significant competitive challenge to Arm. However, at present, Arm maintains its dominance in mainstream applications.