Speaker 1: Bloomberg Audio Studios, podcasts, radio news now to a major
Speaker 1: company story, Armstock. In the headlines, it's posting record quarterly
Speaker 1: revenue but issuing cautious guidance for the current quarter, citing
Speaker 1: the timing of new licensing deals in particular. Meanwhile, the
Speaker 1: Trump administration pans to roll back Biden Nearer ai Chip
Speaker 1: curbs with a new export control framework in the works,
Speaker 1: and that may impact things too. So joining us now
Speaker 1: to discuss it all as ARMS CEO Renee has along
Speaker 1: with Bloomberg Tech co host Carolyn Hyde.
Speaker 2: Carolyn, thank you.
Speaker 3: Bonnie and Renee. It's always wonderful to welcome you to
Speaker 3: Bloomberg Television. And let's just dwell on your numbers, because
Speaker 3: revenue strong, up thirty four percent for your fiscal fourth quarter.
Speaker 3: We saw more than a billion dollars being brought in
Speaker 3: and indeed a profit beat.
Speaker 1: But investors taken with what seems to be.
Speaker 3: This cautious outlook, how uncertain are things from a demand
Speaker 3: perspective that also perhaps you're not giving that annual target
Speaker 3: that someone had hoped for.
Speaker 4: Yeah a hi, Carolin, and thank you for the the
Speaker 4: kind words. Yes, we just came off an amazing end
Speaker 4: of our fiscal year, the first billion dollar quarter, which
Speaker 4: was a record record royalties over six hundred million dollars,
Speaker 4: record licensing over six hundred million dollars, and then we
Speaker 4: finished the year at four billion dollars, which was also
Speaker 4: a record for the company.
Speaker 2: For Q one, we're looking at very good royalty growth.
Speaker 4: Actually, Caroline, we're projecting anywhere between twenty five to thirty percent.
Speaker 4: On the licensing side, I think, as you know, the
Speaker 4: deals can be a little bit lumpy, So as a
Speaker 4: result of looking forward in terms of whether deals closed
Speaker 4: in the June or July timeframe, we decided to be
Speaker 4: cautious and give the outlook that we did just based
Speaker 4: upon licensing. But the overall health of the business is
Speaker 4: really really good. You know, we have obviously coming off
Speaker 4: a great quarter and we have really good visibility into
Speaker 4: the current quarter.
Speaker 2: On royalties.
Speaker 4: The reason we chose not to give the yearly guidance thing,
Speaker 4: as you know, now vast majority of our businesses increasinglyyalties,
Speaker 4: and that really comes from people who make either the
Speaker 4: end ship or the end equipment, and that in the
Speaker 4: next two to three quarters is a little hard to predict,
Speaker 4: and in fact, we're not seeing that guidance coming from
Speaker 4: our partners.
Speaker 2: So as a.
Speaker 4: Result, given that their visibility isn't as strong as it
Speaker 4: usually is around that we decided not to go forward
Speaker 4: and give a guidance beyond justice first quarter, and.
Speaker 3: Just for the people who always need to be reminded
Speaker 3: of the business model you are designing. Ultimately, people that
Speaker 3: are licensing using these designs, you are not directly impacted
Speaker 3: by tariffs, but of course the people that make the
Speaker 3: smartphones eventually might be. Are you hearing anything about a
Speaker 3: worry on demand in the future. Are you thinking that
Speaker 3: we'll will see a downward trajectory for some of the
Speaker 3: electronics parts that you've diversified the business into.
Speaker 2: Yeah, thank you for pointing that out.
Speaker 4: Yet exactly, we are a provider of the designs that
Speaker 4: go into chips that go into end products like your iPhone,
Speaker 4: your Ford f one fifty, your earbudd it's the AI
Speaker 4: data centers. So we're not directly impacted, but we are
Speaker 4: certainly indirectly impacted, and that would come on the royalty
Speaker 4: side to your question, are we.
Speaker 2: Seeing anything relative to folks?
Speaker 4: Not clear in terms of where the terrorifts are coming from.
Speaker 4: What we're seeing is kind of a lack of clarity
Speaker 4: as opposed to any one indicator or the other. So
Speaker 4: that's just really driving and it's just the lack of
Speaker 4: visibility that our end partners have.
Speaker 2: Ren I have.
Speaker 1: Any plans on changing how you actually charge your royalties,
Speaker 1: maybe you'll move into a per device basis. And also
Speaker 1: how much pricing power do you have in an inflationary environment?
Speaker 4: Yeah, thanks for asking that question. What we have done
Speaker 4: is transition to more comprehensive products what we call our
Speaker 4: compute subsystems, and think of that as a design that
Speaker 4: not only are we licensing the individual blocks of IP,
Speaker 4: but all of the other blocks of IP required to
Speaker 4: make a subsystem that would go on a chip.
Speaker 2: Those command higher royalties.
Speaker 4: Generally double from what we see on traditional individual blocks.
Speaker 4: The benefit to the customers is it really accelerates time
Speaker 4: to market. Chip development time goes down, huge value that
Speaker 4: they see in terms of predictability of the design.
Speaker 2: So that's what.
Speaker 4: We've been shifting to much more in terms of our
Speaker 4: royalty model, which is why the royalty growth has been
Speaker 4: as good as it has been.
Speaker 3: I'm really interested in the AI data center part because
Speaker 3: this has been a real era of focus of growth,
Speaker 3: and I'm interested in the momentum that you're seeing and
Speaker 3: how resilient it is. You're talking about uncertainty when it
Speaker 3: comes to smartphones and electronics in the future. Has there
Speaker 3: been any signal of uncertainty on spending on AI infrastructure.
Speaker 2: Yeah, not that we've seen, Caroline.
Speaker 4: You've got Stargate obviously, a huge program that's being done
Speaker 4: between soft Bank and open Ai, which is all around
Speaker 4: capital and power for data centers. You're seeing large capex
Speaker 4: spending by the major hyperscalers. But probably more important, certainly,
Speaker 4: I think we're nowhere close to really good enough in
Speaker 4: terms of the capability what AI can do. Obviously, the
Speaker 4: advances have been amazing, and if you look at just
Speaker 4: what OpenEye has done with chat Gypt, it's been remarkable,
Speaker 4: but enterprise usage from a mass deployment standpoint is still
Speaker 4: quite modest. A factoid that I like to refer to
Speaker 4: is chat GPT used a petabyte.
Speaker 2: Of data to create the model.
Speaker 4: JP Morgan has one hundred and fifty petabytes of data
Speaker 4: sitting inside their enterprise. In one way, shape or form,
Speaker 4: harnessing that data, turning that data into real valuable information,
Speaker 4: and then helping productivity. There's a lot of white space there,
Speaker 4: and I think still there's a long way to see
Speaker 4: growth here.
Speaker 3: There's been some uncertainty, of course, around ultimately how those
Speaker 3: that use your designs can ultimately sell their chips. And
Speaker 3: we've now got a pullback from the AI diffusion rule
Speaker 3: as it's called here in the United States. It would
Speaker 3: seem that's going to be announced anytime soon by the
Speaker 3: Trump administration. Is that going to be a boost for
Speaker 3: your business? Do you think that leads to most You're
Speaker 3: actually lack of it, because now we have countries having
Speaker 3: to negotiate on a case by case basis.
Speaker 4: Yeah, I don't know that I could predict it. I mean,
Speaker 4: actually seen what the what the outcome looks like. The
Speaker 4: wonderful thing about our jobs these days, CEOs, that we're
Speaker 4: reading the news and hearing that from you at real time.
Speaker 4: I think we'll just have to see, is the short answer.
Speaker 4: I don't think AI demand is a bubble in any way,
Speaker 4: shape or form. And as I said, I don't think
Speaker 4: we've gone anywhere close to reaching its true potential.
Speaker 2: When you think about.
Speaker 4: End devices that will run AI models, everything will run them.
Speaker 4: They'll run in earbuds, they'll run in cars, they'll run
Speaker 4: on mobile phones. They're certainly going to run in the cloud,
Speaker 4: but they won't run exclusively in the cloud. And I
Speaker 4: think we still have a long way to go in
Speaker 4: this area. The progress has been remarkable, shockings in some
Speaker 4: ways just how good the models have become, but there's
Speaker 4: still a long ways to go in terms of I
Speaker 4: think true AGI and then ultimately ASI.
Speaker 1: Ronnie, your top five customers are responsible for sixty percent
Speaker 1: of revenue and are in China twenty percent of that.
Speaker 1: I'm curious as to how you're making an effort to diversify.
Speaker 1: That's a phenomenally concentrated client base, particularly when you consider
Speaker 1: the China. You know, you might have some concerns around China.
Speaker 4: Yeah, the industry that we're in has been seeing, you know,
Speaker 4: quite a bit of consolidation. You know, for quite some time.
Speaker 4: The amount of capital required to make chips is quite
Speaker 4: a bit. So you look at the number of companies
Speaker 4: who are their end products are chips. Its shrink over
Speaker 4: the last number of years. And at the same time,
Speaker 4: you've got large hyperscalers in the Microsoft's, the Metas, the Googles,
Speaker 4: to Amazons that you know, there's not many people have
Speaker 4: that capital. That being said, the number of chips, the
Speaker 4: demand for chips the compute has actually gone way up,
Speaker 4: So I probably don't think so much about the number
Speaker 4: of people who buy. I would get more worried if number,
Speaker 4: if the quantity was going down, and we're not seeing that,
Speaker 4: and why are we not seeing that.
Speaker 2: The insatiable demand for more and more.
Speaker 4: Compute driven by AI, I think again, is we're in
Speaker 4: very early stages of it.
Speaker 2: You also have to.
Speaker 4: Remember that running these AI workloads, you still need to
Speaker 4: run them on top of running a Windows operating system,
Speaker 4: on top of running an iOS operating system, on top
Speaker 4: of running an IBI instrumentation inside a car or autonomous
Speaker 4: So it's not that AI compute replaces traditional compute. It's
Speaker 4: on top of which is a strong demand signal for
Speaker 4: personmic conductors, and I has the m CEO.
Speaker 3: It's going to enjoy having you. Thank you very much.
Speaker 2: Indeed,