Speaker 1: Now one stock that's going in the other direction is
Speaker 1: the chit design firm ARM. I think we're down around
Speaker 1: fifteen percent as it stands. They smashed it in the
Speaker 1: quarter gone relative to street expectations. But the story around ARM,
Speaker 1: as we bring up the stock here down more than
Speaker 1: fifteen percent, is simply that they resisted the urge to
Speaker 1: boost their outlook, and that raises some questions. The question
Speaker 1: should be answered. Now we have ARMED CEO Renee has
Speaker 1: standing by joining us here on Bloomberg Technology. I mean, Renne,
Speaker 1: good morning to you. That that is the story. What
Speaker 1: were the factors behind you not boosting the outlook? What
Speaker 1: were the factors that made you cautious. Maybe it's specific
Speaker 1: end markets, maybe it's your view of the macro situation
Speaker 1: around the world.
Speaker 2: Yeah, thank you, Ed, and a great question to kick
Speaker 2: off with. The way I think about it is as follows.
Speaker 2: This is our fourth quarter as a public company. It
Speaker 2: is our fourth quarter of record revenues. As you said,
Speaker 2: we smashed at last quarter over nine hundred and thirty
Speaker 2: million dollars of revenue. So super happy about the quarter.
Speaker 2: Last quarter. Ninety days ago, we raised the annual guidance
Speaker 2: about eight to ten percent, So when we looked at
Speaker 2: the outlook for a year ninety days later, coming off
Speaker 2: a great quarter, we just didn't feel the need to
Speaker 2: raise expectations again. So that's really just the backdrop. It's
Speaker 2: quite simple. We raise a guidance for the year last quarter,
Speaker 2: record quarter this quarter, and we're maintaining At this point.
Speaker 1: Rennie, is there anything you can tell me about specific
Speaker 1: markets that you serve where you see some cause or
Speaker 1: some hesitation, but you're also able to see whatever it
Speaker 1: is holding you back working itself out.
Speaker 2: Yeah. Remember ed that we have two components to our business.
Speaker 2: We have the licensing business and the royalty business. The
Speaker 2: licensing business, which is really the forward indicator of demand
Speaker 2: for armed technology, never been stronger. The licensing revenue year
Speaker 2: on year up seventy percent. What's driving that, that's demand
Speaker 2: for building new complex chips, more demand for arm more
Speaker 2: compute capability, so that is a harborger of forward type
Speaker 2: of demand. Royalties were also up a year on year
Speaker 2: almost twenty percent, largely driven by smartphone growth where units
Speaker 2: have been modest, but our new version nine is driving
Speaker 2: high royalty growth. So in general, we're very very optimistic
Speaker 2: about the long term outlook, particularly because of the licensing
Speaker 2: activity being so strong.
Speaker 1: One of the areas you know that I cover a
Speaker 1: bit more deeply is automotive technology, and I'm just trying
Speaker 1: to draw parallels with different names out there understand what's happening.
Speaker 1: Mobili told us this morning, for example, that particularly in China,
Speaker 1: but globally, some of their customers just stop making orders
Speaker 1: for the second half of this year. I understand that.
Speaker 1: From Arm's perspective, it's different, right, you think about the
Speaker 1: pipeline of a specific chip that you're involved in the
Speaker 1: design of. It's much further afield, longer term. But do
Speaker 1: you see in that industry in particular any sort of
Speaker 1: either cyclical process happening or some specific weakness.
Speaker 2: Yeah. I think the way we think about the automotive
Speaker 2: market is we are growing faster in terms of demand
Speaker 2: for our technology than the market itself. So we were
Speaker 2: actually up double digits last quarter in automotive royalties, and
Speaker 2: that's really a function of a gaining market share. But
Speaker 2: more importantly, the quality of the technology that's going in
Speaker 2: is much higher. These are more complex compute platform devices.
Speaker 2: They run a lot of software, whether it's for ibiev autonomous,
Speaker 2: so We're very, very bullish about the long term automotive outlook.
Speaker 2: The near term inventory issues that go back and forth.
Speaker 2: We haven't been impacted by that so much because, as
Speaker 2: I said, we're gaining share and the complexity of our
Speaker 2: own technology being used just keeps going up.
Speaker 1: Rennie, I don't know if you'd agree, but I think
Speaker 1: the common theme of this earning season is capital expenditures
Speaker 1: relating to infrastructure for AI, and my question simply is
Speaker 1: what direct benefit does ARM get from any of that
Speaker 1: process or investment cycle.
Speaker 2: Yeah, thank you for the question. We get a bit
Speaker 2: of a dual benefit. There is a lot of CAPEX
Speaker 2: going into overall infrastructure scale out, there's general purpose compute.
Speaker 2: ARMED benefits there because our low cost, low power processors
Speaker 2: are very very efficient in terms of building data centers.
Speaker 2: You have AWS, you have Microsoft, you have Google. They've
Speaker 2: all announced products based on ARM, and then you have
Speaker 2: the AI data centers, which are very very complex, require
Speaker 2: high degree of customization. Power efficiency even more important there,
Speaker 2: and that's been a great tailwind for our business. Just
Speaker 2: look at what Nvidia announced with Grace Blackwell, a very
Speaker 2: very complex not only chip but platform based on ARM
Speaker 2: using their most advanced GPUs to drive the most complex
Speaker 2: AI data centers. So for US, we brought they view
Speaker 2: this AI capex expenditures as a tailwind for the business.
Speaker 1: Rennie, you mentioned Grace Blackwell, it takes me to one
Speaker 1: of our audience questions. So when I said you were
Speaker 1: coming on the show on social media, I actually got
Speaker 1: quite a number of submissions for you, and one is straightforward.
Speaker 1: Does ARM plan to design its own accelerator to compete
Speaker 1: I guess against some of the partners that you're with
Speaker 1: or out in the marketplace.
Speaker 2: Yeah, no product announcements today, ed, Sorry, We're just here
Speaker 2: to kind of talk about the past quarter and our
Speaker 2: outlook going forward.
Speaker 1: No products announcement that that would indicate from a source
Speaker 1: of I suppose academic or R and D standpoint that
Speaker 1: you at least think about it.
Speaker 2: We think about a lot of things, right, I mean,
Speaker 2: our technology, as broad as it is, as many markets
Speaker 2: as we can play in. My job is to think
Speaker 2: about a lot of things. So I think that's a
Speaker 2: safe statement.
Speaker 1: Away from the sort of scale of infrastructure and data centers.
Speaker 1: I think the AIPC is something that's pretty much dominated
Speaker 1: the news cycle so far in twenty twenty four. One
Speaker 1: of the other audience questions was when do we see
Speaker 1: sort of a truly competitive ARM based Windows product that
Speaker 1: can take on the performance of Max or apple Z
Speaker 1: owned silicon that goes into a Mac. I know that
Speaker 1: you think about this field a lot, But on the
Speaker 1: competition side, what do you make of that question?
Speaker 2: Yeah, so I want to be respectful of my great
Speaker 2: partner Apple and their ecosystem, but there are some great
Speaker 2: products out there today. Dell XPS has some amazing technology.
Speaker 2: The battery life I think I was reading online. In fact,
Speaker 2: I was looking to buy one of them. The advertised
Speaker 2: battery life is nineteen hours now for a Windows machine.
Speaker 2: That's rather unprecedented in terms of battery life. All day
Speaker 2: use don't need a brick. So Dell and Michael and
Speaker 2: his team have done an amazing job developing some great products.
Speaker 2: So I think there are great products out there today.
Speaker 1: For all of the AIPC announcements, are there any examples
Speaker 1: of things that actually sort of translate into revenue for ARM?
Speaker 2: Well, again, when you think about AIPCS running on ARM,
Speaker 2: that's revenue FOREARM, and I think we're you know, the
Speaker 2: way we think about the AIPC windows on our market
Speaker 2: is probably less about the shipments this quarter, but the
Speaker 2: long term trajectory. I think what you're now seeing is
Speaker 2: single suppliers that are in the market today. We've heard
Speaker 2: from a lot of sources that in the upcoming years
Speaker 2: there's going to be more and more vendors building ships
Speaker 2: for the windows on our market. That's just going to
Speaker 2: be great for us because not only does it fill
Speaker 2: out the choices of units for the end market, but
Speaker 2: it's going to drive growth for US. So I said
Speaker 2: a few months ago that I thought ARM could be
Speaker 2: a fifty percent market share in the Windows market in
Speaker 2: five years. I do believe that we're about one hundred
Speaker 2: percent of the Apple operating system, so fifty percent of
Speaker 2: the Windows market doesn't seem too ambitious in five years.
Speaker 1: Four quarters ago, Probably in a number of years ago,
Speaker 1: you and I might have started a conversation talking about
Speaker 1: the smartphone market. So we'll end there. You know what's
Speaker 1: going on in the smartphone market right now and whatever
Speaker 1: is happening as sort of an industry wide level, is
Speaker 1: there anything specific relating to ARM of the high end
Speaker 1: of the smartphone market visa the sort of lower end models,
Speaker 1: the middle market that you can tell me about.
Speaker 2: Yeah, I don't want to sound like a broken record
Speaker 2: saying the trends that are going on in the smartphone
Speaker 2: market are good for ARM, But I'm going to say
Speaker 2: that because what we're seeing in the smartphone market is
Speaker 2: while unit growth has been modest, single digits, there's been
Speaker 2: significant growth in the premium segment, the high end, and
Speaker 2: for ARM that's where we draw the highest level of revenue.
Speaker 2: The reason for that is we use Version nine up
Speaker 2: in that area of the stack. That's a much higher
Speaker 2: royalty rate than the previous version, and those Version nine
Speaker 2: smartphones in the premium space, they use a lot of
Speaker 2: ARMED processors in some cases twelve four, fourteen, sixteen, depending
Speaker 2: on the mix. So it's a true compute platform solution
Speaker 2: which drives growth for us, which is why in the
Speaker 2: last quarter, where units were single digits, our smartphone royalties
Speaker 2: were up fifty percent year on here.
Speaker 1: I had a similar conversation with Lisa Sue of AMD yesterday.
Speaker 1: But is that a reflective of a broad market movement
Speaker 1: or is it something special ARMS doing to outperform in
Speaker 1: the market.
Speaker 2: I think it's a combination of both. You know, a
Speaker 2: number of years ago with version nine, we added some
Speaker 2: significant compute capability that was really to drive performance. Now,
Speaker 2: what we're seeing, particularly in the near term and going forward,
Speaker 2: is the skws that are being built. People are trying
Speaker 2: to put as much compute performance as possible in those phones.
Speaker 2: You know, for example, when you think about the large
Speaker 2: language models such as Lama or Gemini. When those phones
Speaker 2: were developed, those models didn't even exist. So not only
Speaker 2: are you having to run all the complex software the
Speaker 2: camera apps, but now you want to run an AI workload.
Speaker 2: So people are just putting as much compute as possible
Speaker 2: into those high ended ships, which is good for us.
Speaker 1: Rene Haas, CEO of ARM, thank you very much for
Speaker 1: what it's worth. The stock hit session low down sixteen
Speaker 1: point two percent during that conversation, but a lot learned.