Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Shares of UK chip designer Arm fell after its revenue forecast for the current quarter left Wall Street underwhelmed, in its first earnings report since going public in September.
Arm on Wednesday forecast revenue of between $720mn-$800mn for the quarter, falling short of analyst expectations. It anticipates between $2.96bn-$3.08bn in full-year revenue.
The shares were 6.8 per cent lower in after-market trading following the earnings release, taking them below the $51 a share initial public offering price.
The Cambridge-based company reported a $110mn loss in the three months ending September 30, as it revealed it had to pay out more than $500mn of remuneration costs following its listing in New York. When it went public, Arm had to settle shares that had been previously granted to employees.
Arm’s one-time expense offset better than expected revenue during the quarter as a result of its long-term licensing agreements with tech groups, as well as increased royalties on its intellectual property.
Arm’s revenue rose 28 per cent from a year ago to $806mn in the quarter, beating expectations of $746.5mn by analysts polled by Bloomberg.
Increased investment in artificial intelligence by Arm’s customers helped drive license revenue up 106 per cent year over year, the company said.
The company’s IPO in September was the largest US listing in two years and raised almost $5bn, a move that fuelled hopes of a resurgence in the flagging listings market. Since then its shares have fluctuated.
SoftBank holds more than 90 per cent of shares in Arm. It acquired the business for $32bn in 2016.
Arm is hoping a boom in AI will help fuel higher revenues as it seeks to shift away from its dependency on the cyclical smartphone market.
On a call with investors following the earnings release, Arm chief executive Rene Haas credited an “AI R&D supercycle” for a boost in licensing revenues during the quarter, as smartphone and PC makers chase the computing power needed to offer AI products.
“A few years from now we won’t talk about the percentage of devices that have AI in them, it will be sort of table stakes that they all do,” Haas said.
He also said the latest wave of US government restrictions on AI chip exports to China “did not impact Arm”, as many of the chips that it designs were not covered by the current restrictions, while other higher-end chips were designed outside the US.
Grocery delivery platform Instacart, which also went public in September and reported earnings on Wednesday, recorded a $2bn post-tax loss in the third quarter that it said was driven by a $2.6bn accounting charge triggered by its listing and linked to the vesting of restricted stock options. Instacart said stock based remuneration would continue to weigh on post-tax earnings.
Additional reporting by Camilla Hodgson in San Francisco
