Arm's FY26Q1 covers April through June 2025.
Arm FY26 Q1 Earnings Highlights:
Revenue $1.05B, up 12% year over year, down 15% sequentially.
GAAP gross margin 97.2%, up 0.7 pp year over year, still unrivaled globally.
GAAP operating income $110M, down 37% year over year. GAAP operating margin 11%, down 8 pp year over year.
Non-GAAP operating income $410M, down 8% year over year. Non-GAAP operating margin 39%, down 9 pp year over year.
GAAP net income $130M, down 42% year over year. GAAP net margin 12%, down 12 pp year over year.
Non-GAAP net income $370M, down 2% year over year. Non-GAAP net margin 36%, down 5 pp year over year.
Despite near-100% gross margin, GAAP operating income remains low, often loss-making historically, mainly due to high R&D, 62% of revenue this quarter. Sales & marketing 25% of revenue. With opex and stock comp ratios rising sharply this quarter, non-GAAP operating margin fell back to 39%.
Business Segments:
License & Other revenue $470M, down 1% year over year.
Signed 1 Arm Total Access (ATA) agreement this quarter. 45 cumulative. ATA annual fee escalates 7% per year. Three-year renewals. Arm Flexible Access (AFA) now has 313 customers, lost 1 sequentially, a novelty.
License revenue benefited this quarter from securing 3 second-gen CSS licenses, a multi-gen GPU agreement through 2030 with a leading smartphone OEM, and a SoftBank IP licensing and design services agreement.
ACV $1.53B, up 28% year over year, up 12% sequentially. Near-term ACV growth constrained by weak smartphone market. Of the 28% ACV growth, 17% driven by the 3 CSS deals, remainder by SoftBank agreement. RPO $2.23B, up 3% year over year, ending three consecutive quarters of year-over-year decline, up slightly sequentially. 27% recognized within 12 months, 15% in months 13-24.
Royalty revenue $590M, up 25% year over year.
Expect ~50% of hyperscaler new server chips to be Arm-based in 2025. Signed 3 CSS licenses this quarter: 2 data center, 1 PC. 16 total CSS customers: 7 mobile/PC, 8 data center, 1 auto. 5 customers already shipping.
Over 70K enterprises now running AI workloads on Arm Neoverse-based data center chips, up 40% year over year, up 14x since 2021. Arm Neoverse CPUs now power the world's most critical AI infrastructure, including NVIDIA Grace, AWS Graviton, Google Axion, and Microsoft Cobalt.
First-gen CSS royalty is 2x Armv9; second-gen higher still. Historically Armv8 royalty ~2.5-3% of chip ASP; Armv9 ~5%; first-gen CSS ~10%; second-gen CSS will exceed 10%.
Royalty revenue grew across all target end markets this quarter: mobile, data center, auto, IoT. By market, FY25 Royalty split: mobile 53%, data center 10%, auto 7%.
Arm FY26 Q1 Call Highlights:
Next-quarter revenue is guided to $1.01B–$1.11B, up 20%–32% year over year; non-GAAP net income is guided to $310M–$400M, down 3% to up 24% year over year.
Due to tariffs and macro, management still not providing FY26 full-year revenue guidance.
Royalty seasonality: typically FQ2 flat sequentially, FQ3 and FQ4 up 10-15% sequentially each.
Arm China continues to show growth consistent with rest of world. Arm China ~21% of revenue this quarter, up from 15% last quarter and 14% a year ago, growing well.
Arm's Core Growth Formula
Management again declined to provide full-year revenue guidance, and more critically, the previously improving margin has been reset. The non-GAAP net income implied by the prior FY27 $6B revenue guide—previously expected to approach $3B—now looks difficult to achieve.