ARM's Strong Outlook in Automotive and AI Markets

ARM's fourth quarter revenue hit a record high, with strong demand for new complex chips and a positive long-term outlook, particularly in automotive and AI infrastructure.

### ARM CEO Discusses Strong Q4 Performance and Market Outlook
* 💼  ARM's CEO, Renay G, attributes the decision not to raise guidance to the **record-breaking performance in the previous quarter**, maintaining the **annual guidance increase of 8-10%**.
* 💹  The licensing business, a forward indicator of demand for ARM technology, saw a **70% year-on-year increase**, driven by the demand for **building new complex chips**.
* 🚗  Despite potential industry-wide challenges, ARM's automotive royalties were up **double digits** last quarter, reflecting **market share gains** and the **increasing complexity of ARM technology** used in vehicles.
* 🧠  ARM benefits from the current trend of capital expenditures in AI infrastructure, with its **low-cost, low-power processors** being efficient for building data centers.
* 🖥️  While ARM is not making any product announcements regarding accelerators, the company is positioned well in the AI data center market, with partners like **AWS, Microsoft, and Google** using ARM-based products.
* 🍏  When asked about competitive ARM-based Windows products, Renay G points out that there are already great products in the market, such as Dell XPS, with **impressive battery life and performance**.
* 📱  ARM's revenue growth in the smartphone market is driven by the **significant growth in the premium segment**, where ARM's **version 9 processors** are used in compute-intensive devices.
* 💻  Renay G believes ARM could achieve a **50% market share in the Windows market in five years**, leveraging the **increasing number of vendors building chips for the ARM-based Windows ecosystem**.

What were the factors behind you not boosting the outlook? What were the factors that made you cautious, maybe at specific end markets, maybe it's your view of the macro situation around the world. Yeah.
Thank you, Ed, and great question. To the kick off with the way I think about it is as follows. This is our fourth quarter as a public company. It is our fourth quarter of record revenues.
As you said, we smashed it last quarter over $930 million of revenue. So super happy about the quarter. Last quarter, 90 days ago, we raised the annual guidance about 8 to 10%. So when we looked at the outlook for the year, 90 days later coming off a great quarter, we just didn't feel the need to raise expectations again. So that's really just the backdrop. It's quite simple. We raised the guidance for the year last quarter, record quarter this quarter.

and we're maintaining at this point.
Renay, is there anything you can tell me about specific markets that you serve,
where you see some caution or some hesitation, but you're also able to see
whatever it is, holding back, working itself out?
Yeah. Remember, Ed, that we have two
components to our business. We had the licensing business and the
royalty business. The licensing business, which is really
the forward indicator of demand for ARM technology,
never been stronger. The licensing revenue year on year up
70%. What's driving that?
That's demand for building new complex chips, more demand for ARM, more compute
capability. So that is a harbinger of a forward type
of demand. Royalties were also up year on year,
almost 20%, largely driven by smartphone growth, where units have been modest.
But our new version nine is driving high royalty growth.
So in general, we're very, very optimistic about the long term outlook,
particularly because of the licensing.

activity being so strong.
One of the areas when I you know, that I cover a bit more deeply is automotive
technology. And I'm just trying to draw parallels
with different names out there. Understand what's happening.
Mobileye told us this morning, for example, that particularly in China, but
globally, some of their customers just stop making orders for the second half
of this year. I understand that from mom's
perspective, it's different, right? You think about the pipeline of a
specific chip that you're involved in the design of.
It's much further afield longer term, but do you see in that industry in
particular, any sort of either cyclical process happening or some specific
weakness? Know, I think the way we think about the
automotive market is we are growing faster in terms of demand for our
technology than the market itself. So we were actually up double digits
last quarter in automotive royalties and

that's really a function of gaining market share. But more importantly, the quality of the technology that's going it is much higher. These are more complex compute platform devices. They run a lot of software, whether it's for IBD Autonomous. So we're very, very bullish about the long term automotive outlook, the near-term inventory issues that go back and forth. We haven't been impacted by that so much because, as I said, we're gaining share in the complexity of our technology being used just keeps going up. I don't know if you'd agree, but I think the sort of common theme of this earnings season is capital expenditures relating to infrastructure for AI. And my question simply is what direct benefit design get from any of that process or investment cycle? Yeah. Thank you for the question. We get a bit of a dual benefit. There is a lot of CapEx going into overall infrastructure scale out.

There's general purpose compute ARM benefits there because our low cost, low power processors are very, very efficient in terms of building data centers. You have AWB, you have Microsoft, you have Google, they've all announced products based on ARM, and then you have the A.I. data centers, which are very, very complex, require a high degree of customization, power, efficiency. Even more important there, and that's been a great tailwind for our business. Just look at what anybody announced with Grace Blackwell. A very, very complex not only CHIP but platform based on ARM using their most advanced GPUs to drive the most complex A.I. data centers. So for us, we broadly view this A.I. CapEx expenditures as a as a tailwind for the business. You mentioned Grace Blackwell. It takes me to one of our audience questions. When I said you were coming on the show on social media. I actually got quite a number of

submissions for you, and one is
straightforward. Does plan to design its own accelerator to compete, I guess,
against some of the partners that you're with or out in the marketplace?
Yeah. No, no product announcements today.
Ed, sorry, we're just here to kind of talk about the past quarter and our
outlook going forward. When no products announcement that would indicate from a
sort of, I suppose, academic or R&D standpoint that you at least think about
it. We think about a lot of things, right?
I mean, our technology, as broad as it is, as many markets as we can play in,
my job is to think about a lot of things.
So I think that's a safe statement away from the sort of scale of infrastructure
in data centers. I think the IPC is something that's
pretty much dominated the news cycle so far in 2020.
For one of the other audience questions was when do we see sort of a truly
competitive ARM-based Windows products.

that can take on the performance of Macs
or Apple's own silicon that goes into a Mac?
I know you think about this field a lot. On the competition side, what do
you make of that question? Yeah. So I want to be respectful of my
great partner, Apple, and their ecosystem.
But there are some great products out there today.
Dell XPS has some amazing technology. The battery life, I think I was reading
online. In fact, I was looking to buy one of
them. The advertised battery life is 19 hours
now. For a Windows machine, that's rather unprecedented in terms of battery life
all day. You don't need a brick.
So Dell and Michael and his team have done an amazing job developing some
great products. So I think they're a great product out
there today. For all of the PC announcements, are
there any examples of things that actually sort of translate into revenue
for ARM?

Well, again, when you think about APC's running on ARM, that's revenue for ARM. And I think we're, you know, the way we think about the APC windows on our market is probably less about the shipments this quarter. But the long-term trajectory, I think what you're now seeing is single suppliers are in the market today. We've heard from a lot of sources that in the upcoming years, there is going to be more and more vendors building chips for the windows on our market. That's just going to be great for us because not only does it fill out the choices of units for the end market, but it's going to drive growth for us. So I said a few months ago that I thought ARM could be a 50% market share in the Windows market in five years. I do believe that we're about 100% of the Apple operating system. So 50% of the Windows market doesn't seem too ambitious.

And five years, four quarters ago, probably a number of years ago, you and I might have started a conversation talking about the smartphone market. So we'll end there. You know, what's going on in the smartphone market right now and whatever is happening is sort of an industry-wide level. Is there anything specific relating to ARM at the high end of the smartphone market vis-a-vis sort of lower-end models, the middle market that you can tell me about? Yeah. I don't want to sound like a broken record saying the trends that are going on in the smartphone market are good for ARM. But I'm going to say that because what we're seeing in the smartphone market is while unit growth has been modest single digits, there's been significant growth in the premium segment, the high end and for ARM, that's where we draw the highest level of revenue. The reason for that is we use version nine up in that area, the stack, that's

a much higher royalty rate than the
previous version. And those version nine smartphones in
the premium space. They use a lot of ARM processors. In some cases 12, four, 14,
16, depending on the mix. So it's a true compute platform solution,
which drives growth for us. Which is why in the last quarter where units were
single digits, our smartphone royalties were up 50% year on year.
I had a similar conversation with Lisa Su of AMD yesterday, but is that
reflective of a broad market movement or is it something special ARM's doing to
outperform in the market? I think it's a combination of both.
You know, a number of years ago with version nine, we added some significant
compute capability that was really to drive performance.
Now, what we're seeing, particularly in the near term and going forward, is the
SKUs that are being built. People are trying to put as much compute
performance as possible in those phones.

You know, for example, when you think about the large language models such as Lana or Gemini, when those phones were developed, those models didn't even exist. So not only are you having to run all the complex software, the camera apps, but now you run want to run an A.I. workload. So people are just putting as much compute as possible. And with those high-end chips, which is good for us.

Arm Slides After Sticking With Tepid Sales Forecast

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Bloomberg Technology

The company had a record-breaking fourth quarter with over $930 million in revenue, leading to a decision not to raise expectations for the year.

They are experiencing strong demand in the licensing business, indicating a promising future for ARM technology.

The automotive market shows double-digit growth in demand for their technology, outpacing the market's growth.

There is confidence in the long-term outlook, especially due to the strength of the licensing business.

The Impact of Technology Advancements on Automotive Outlook

The automotive industry is experiencing a positive outlook due to the increasing complexity and quality of technology in compute platform devices.

The rising capital expenditures relating to AI infrastructure are providing a dual benefit to the industry, particularly in terms of infrastructure scale out and the efficiency of building data centers.

ARM's low-cost, low-power processors are playing a significant role in the development of AI data centers, driving the business forward.

Company's Focus and Product Development Discussion

The company is not making any product announcements at the moment and is focused on discussing past performance and future outlook.

They are open to considering various possibilities for their broad technology, including infrastructure in data centers.

The speaker is respectful of their partner, Apple, and acknowledges the great products available from other companies, with a specific mention of Dell's impressive technology and product development.

ARM's Revenue Growth from APCs and Smartphone Market

ARM is expecting a boost in revenue from APCs running on ARM architecture, with an anticipation of dominating 50% of the Windows market in the next five years.

The company also foresees significant revenue growth in the high-end smartphone market, driven by the increasing demand for premium segment devices using ARM's v9 architecture.

This shift towards higher-end smartphones is projected to positively impact ARM's revenue stream.

The Impact of ARM Processors in the Smartphone Market

ARM's smartphone royalties have increased by 50% year on year, driven by the use of a high number of ARM processors in premium smartphones.

The demand for high compute performance in phones, especially for AI workloads, is a key factor in ARM's growth.

The company's addition of significant compute capability in version nine has contributed to outperforming in the market.