Now one stock that's going in the other direction is the chit design firm ARM. I think we're down around fifteen percent as it stands. They smashed it in the quarter gone relative to street expectations. But the story around ARM, as we bring up the stock here down more than fifteen percent, is simply that they resisted the urge to boost their outlook, and that raises some questions. The question should be answered. Now we have ARMED CEO Renee has
standing by joining us here on Bloomberg Technology. I mean, Renne, good morning to you. That that is the story. What were the factors behind you not boosting the outlook? What were the factors that made you cautious. Maybe it's specific end markets, maybe it's your view of the macro situation around the world.
Yeah, thank you, Ed, and a great question to 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 at last quarter over nine hundred and thirty million dollars of revenue. So super happy about the quarter.
Last quarter. Ninety days ago, we raised the annual guidance about eight to ten percent, So when we looked at the outlook for a year ninety 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 raise a guidance for the year last quarter, record quarter this quarter, and we're maintaining At this point.
Rennie, is there anything you can tell me about specific markets that you serve where you see some cause or some hesitation, but you're also able to see whatever it is holding you back working itself out.
Yeah. Remember ed that we have two components to our business. We have the licensing business and the royalty business. The licensing business, which is really the forward indicator of demand for armed technology, never been stronger. The licensing revenue year on year up seventy percent. What's driving that, that's demand for building new complex chips, more demand for arm more compute capability, so that is a harborger of forward type
of demand. Royalties were also up a year on year almost twenty percent, 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 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. Mobili 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 Arm'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.
Yeah. 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 a gaining market share. But more importantly, the quality of the technology that's going in is much higher. These are more complex compute platform devices.
They run a lot of software, whether it's for ibiev 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 and the complexity of our own technology being used just keeps going up.
Rennie, I don't know if you'd agree, but I think the common theme of this earning season is capital expenditures relating to infrastructure for AI, and my question simply is what direct benefit does ARM 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. ARMED benefits there because our low cost, low power processors are very very efficient in terms of building data centers. You have AWS, you have Microsoft, you have Google. They've all announced products based on ARM, and then you have the AI data centers, which are very very complex, require
high degree of customization. Power efficiency even more important there, and that's been a great tailwind for our business. Just look at what Nvidia 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 AI data centers. So for US, we brought they view this AI capex expenditures as a tailwind for the business.
Rennie, you mentioned Grace Blackwell, it takes me to one of our audience questions. So 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 ARM 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 product announcements today, ed, Sorry, We're just here to kind of talk about the past quarter and our outlook going forward.
No products announcement that that would indicate from a source of I suppose academic or R and 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 and data centers. I think the AIPC is something that's pretty much dominated the news cycle so far in twenty twenty four. One of the other audience questions was when do we see sort of a truly competitive ARM based Windows product that can take on the performance of Max or apple Z owned silicon that goes into a Mac. I know that you think about this field a lot, But 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 nineteen hours now for a Windows machine. That's rather unprecedented in terms of battery life. All day
use don't need a brick. So Dell and Michael and his team have done an amazing job developing some great products. So I think there are great products out there today.
For all of the AIPC announcements, are there any examples of things that actually sort of translate into revenue for ARM?
Well, again, when you think about AIPCS running on ARM, that's revenue FOREARM, and I think we're you know, the way we think about the AIPC 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 that are in the market today. We've heard from a lot of sources that in the upcoming years there's going to be more and more vendors building ships
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 fifty percent market share in the Windows market in five years. I do believe that we're about one hundred percent of the Apple operating system, so fifty percent of the Windows market doesn't seem too ambitious in five years.
Four quarters ago, Probably in 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 as sort of an industry wide level, is there anything specific relating to ARM of the high end of the smartphone market visa the 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 of 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 ARMED processors in some cases twelve four, fourteen, sixteen, 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 fifty percent year on here.
I had a similar conversation with Lisa Sue of AMD yesterday. But is that a reflective of a broad market movement or is it something special ARMS 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 skws 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 Lama 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 want to run an AI workload. So people are just putting as much compute as possible into those high ended ships, which is good for us.
Rene Haas, CEO of ARM, thank you very much for what it's worth. The stock hit session low down sixteen point two percent during that conversation, but a lot learned.