Analysis: Arm Holdings PLC announces Q2 FY2025 financial results

Arm Holdings PLC has announced Q2 FY2025 financial data, with a record Q2 revenue. Year-on-year, revenue increased 4.7% to $844 million, of which royalty revenue increased 23% to $514 million. The most interesting aspect of these results is the growth in data centre opportunities and the possible size of a future market.

Background

Arm Holdings PLC reported financial data for Q2 FY2025 (the period ended 30 September 2024) on 6 November 2024. Total revenue increased by 4.7% compared to Q2 FY2024, although the sequential growth was down 10.1%. By category, Licence and Other Revenue declined by 14.9%, while Royalty revenue increased by 23%. Arm attributes the decline in Licence revenue to the expected specific timings of high-value licence renewals. The company declared a profit for the period of $64 million, compared to a loss in Q2 FY2024 of $156 million.

We present the data in four graphs labelled Figures 1 to 4.

Growth

The investor presentation accompanying the financial results provides some additional insight into the future of the business. The ratio of architectures in use, for example, is steadily trending towards greater adoption of Armv9. However, there is still significant growth opportunity, as this is the architecture used in public cloud data centres. This segment of the market only accounts for 10% of current revenue, with the majority still derived from smartphones and consumer electronics (see Figures 5 & 6).

In the public cloud, Arm claims an increase in market share between FY2022 and FY2024 from 9% to 15% and “market value” rising from $16 billion to $21 billion (based chip value).

In October 2024, Microsoft announced general availability for Cobalt 100 Arm-based virtual instances in Azure, while Google announced Axion for GCP back in April 2024. A key measure of the industry will be the take-up of these efficient Arm-based instances, compared to x86 from Intel and AMD.

Elsewhere, Apple recently announced new Mac systems with M4 processors based on Arm, while Qualcomm announced Snapdragon X and a raft of products from partners back in May 2024. There is plenty of opportunity for growth in the coming years.

Ecosystem

One interesting development to watch is the growth of customers using Arm CSS (Compute Subsystem), essentially a predefined set of validated architectural blueprints that reduces the time to market for customers. Note also that Arm has once again increased headcount by 18% year-on-year to a total of 7,320 employees, of which 83% are classed as engineers. We believe that Arm is investing heavily in the ecosystem of products and designs to help customers adopt Arm and bring products to market.

The Architect’s View®

We have been consistent in our positive view of the Arm processor market as it continues to grow and displace x86 in traditional use cases, including Consumer and Data Centre. As demand increases, Arm is assisting customers with pre-validated designs through the Compute Subsystem strategy, reducing the time and effort to bring products to market.

However, there are some headwinds. Arm has reportedly cancelled Qualcomm’s licences, which will end up in court in December 2024. There are also challenges from RISC-V in a market where US regulators are increasingly hostile towards China. It is possible that RISC-V designs will gain traction in non-Western markets, while hyper-scale platforms such as AWS could lead a migration towards RISC-V now that Arm-based instances are proven to be practical and possible.

In the short term we don’t see any significant issues with Arm’s revenue growth. The threat of RISC-V is there, but potentially at least 5-10 years down the line for existing growth markets. In the meantime, the enterprise and consumer use of Arm devices will continue to grow as the market looks for efficiencies at scale. In that respect, the future designs from Intel and AMD will be looked at even more closely as indicators of market success for all the processor vendors.

Background

Growth

Ecosystem

The Architect’s View®

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