Arm Holdings reported first-quarter results that exceeded Wall Street expectations for both revenue and earnings, yet its shares fell nearly 7% in after-hours trading on July 29. The decline followed guidance indicating a drop in smartphone royalties for the next quarter, offsetting the positive quarterly performance.

The company posted first-quarter revenue of $1.29 billion, surpassing the analyst consensus estimate of $1.26 billion. Adjusted per-share earnings came in at 45 cents, beating the expected 40 cents. Royalty revenue rose 22% to $715 million, while licensing revenue increased 23% to $574 million.

Mixed Outlook for Second Quarter

Despite the strong first-quarter finish, Arm Holdings forecast second-quarter revenue of $1.38 billion, which is above the LSEG data consensus of $1.34 billion. Projected adjusted profit for the quarter stands at 47 cents per share, compared to analyst expectations of 43 cents.

Finance chief Jason Child cited memory shortages as a factor for royalty weakness, forecasting smartphone royalty growth of roughly 10% to 15% for the second quarter.

Data Center Growth and New Chips

Arm continues to see significant traction in the data center sector. The company has shipped 1.5 billion Arm cores for data centers over the last six years, with approximately 30% of those shipments occurring in the last nine months. CEO Rene Haas noted: 'The more inference workloads you run, that creates work that only CPUs can do.'

Demand for Arm’s new AGI CPU, an AI data center chip unveiled in March, has surpassed $2 billion across fiscal years 2027 and 2028. Cloud firm Oracle has agreed to purchase the chip. Haas stated the firm secured supply for over $1 billion in chips and added customers in North America and China.

Looking further ahead, Jefferies analysts forecast sales of the new chip could reach $18 billion by fiscal 2031, while Arm’s own projection stands at $15 billion. In the broader market, competitors remain active; Qualcomm launched its C1000 data center chip, which does not yet contribute to Arm’s revenue, and Nvidia introduced its Vera processor for data centers.