Arm's FY25Q4 covers January through March 2025.
Arm FY25Q4 Earnings Highlights:
Revenue $1.24B, up 34% year over year, up 26% sequentially, single-quarter revenue exceeded $1B for the first time, reaching a record high; FY25 revenue $4.0B, up 24% year over year, below the upper end of prior guidance;
GAAP gross margin 97.7%, continuing to lead globally;
GAAP operating income was $410M, up 1,764% year over year and 134% sequentially, setting a new record high; GAAP operating margin was 33%.
Non-GAAP operating income $660M, up 68% year over year, up 48% sequentially, reaching a record high, Non-GAAP operating margin 53%, among the global semiconductor leaders;
GAAP net income $210M, down 6% year over year, down 17% sequentially, GAAP net margin 17%; FY25 GAAP net income $790M, up 159% year over year;
Non-GAAP net income $580M, up 55% year over year, up 40% sequentially, again reaching a record high, Non-GAAP net margin 47%, among the global semiconductor leaders; FY25 Non-GAAP net income $1.7B, up 28% year over year, below the upper end of prior guidance;
Even with a near-100% gross margin, Arm's GAAP operating income has been low, often even loss-making, primarily due to high R&D expenses, accounting for 44% of revenue this quarter, and sales and marketing expenses at 21% of revenue; after a notable decline in the proportion of the three expense categories and stock-based compensation this quarter, Non-GAAP operating margin reached a record 53%, with some expenses deferred to next quarter.
Business Segments:
License & Other revenue $630M, up 53% year over year, up 57% sequentially;
This quarter signed 4 Arm Total Access (ATA) agreements, bringing the cumulative total to 44, covering half of the top 30 customers; ATA annual fees increase 7% per year, renewed every three years; Arm Flexible Access (AFA) now has 314 customers, with 19 added this quarter.
This quarter License revenue benefited from a multi-year AI cooperation agreement with the Malaysian government, aimed at accelerating sovereign chip development for the country's startups.
ACV $1.37B, up 15% year over year, up 7% sequentially; ACV long-term growth target is mid-to-high single digits; RPO $2.23B, down 10% year over year, declining year over year for the third consecutive quarter, down 4% sequentially, of which 25% will be recognized in the next 12 months and 19% in months 13-24.
Expecting next quarter License revenue year-over-year change of -17% to +9%; management noted a high year-ago comparison base.
Royalty revenue $610M, up 18% year over year, up 5% sequentially;
Arm V9-related revenue as a proportion of Royalty revenue rose to 30%+, ending a two-quarter stagnation; going forward may no longer provide penetration rate quarterly; this quarter Royalty growth was mainly driven by V9 penetration improvement from CSS customer chip volume ramps; all CSS customers have adopted V9; first-generation CSS royalty rate is 2x V9, second-generation CSS will be higher; currently 13 CSS customers total, of which 6 are mobile or PC, 6 are data center, 1 is automotive.
By market, this quarter mobile revenue grew 30% year over year despite mobile shipments growing only 2% year over year; cloud revenue grew high double digits year over year, expecting 50%+ of hyperscalers' new server chips in 2025 to be Arm-based, with full-year related revenue maintaining that growth rate; networking revenue declined year over year previously, now bottomed; automotive revenue continues to grow double digits year over year, benefiting from ADAS and IVI share gains; signed first automotive CSS license this quarter; IoT revenue weak, recovery timing unknown.
Expecting next quarter Royalty revenue up 25-30% year over year.
Arm FY25Q4 Earnings Call Highlights:
Next-quarter revenue is guided to $1.0B–$1.1B, up 6%–17% year over year; non-GAAP net income is guided to $320M–$400M, down 16% to up 6% year over year.
Due to tariff and macroeconomic impacts, visibility from partners and customers is not as good as before; management not providing FY26 full-year revenue guidance this quarter;
Royalty seasonality: typically FQ2 flat sequentially, FQ3 and FQ4 up 10-15% sequentially each.
For Arm, the future custom silicon customer market opportunity is larger than the traditional fabless customer market;
Arm's Core Growth Formula
It has long been emphasized that Arm's biggest problem is growth that is too low, while its greatest strength is high predictability. Management's decision not to provide full-year guidance has shaken market confidence (management cited fear of providing too wide a range). Based on typical seasonal patterns, a normal outcome would be similar to Arm's prior FY26 and FY27 guides: with margins improving over recent quarters and the prior FY27 $6B revenue guide, non-GAAP net income could challenge $3B, implying a fair valuation of $100B–$150B. Given the limited float, Arm's share price has always been volatile.