Arm CEO Rene Haas says there are tailwinds that will continue to drive the AI and semiconductor growth. This after the company reported strong second quarter results but posted a disappointing sales outlook. He is joined by Bloomberg's Ed Ludlow and Caroline Hyde.
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Moving on to ARM, which has come from what was in the red pre market training to a higher three and a half percent.
Now this is they too.
Really managed to beat out the gate when it comes to the both the top and bottom line.
The company's revenue forecast was a bit of.
A concern nine hundred and twenty million to nine hundred and seventy million, which.
Perhaps just fell short of some expectations.
But they really are maintaining their annual forecast of three point eight to four point one billion dollars in sales.
So let's get into it all a little bit more ed.
Yeah, I think the shares are so interesting.
For maybe it's a company reporting November fifth, and it took time for the market to wake up and read the numbers a little bit.
Who knows. The chip maker did give what was seen as.
A sluggish sales outlook and at first disappointed investors. What has changed. Rene Huss is the CEO of ARM and joins US. Now it's really interesting right in the function of what ARM does on licensing royalties, because sometimes it's not about unit growth. I look at like revenue for example. Well, maybe some evidence renee that the Chinese consumer in particular is buying higher end handsets.
How does that help you benefit?
Well, good morning Ed and Caroline, and we are very happy about the quarter we just reported. Exceeded the high end of the guidance and our royalties were at a record number. And to your question, you know, one of the things that we have seen a huge benefit from with our technology going forward has been our Version nine, which commands a much higher royalty rate than we have in the past. And what that allows us to do is not exactly track the market from a unit standpoint. One of the proof points of that unit sales for smartphones. We're up four percent in the last quarter. Our royalties were up forty percent, so you can get a sense that you're seeing a very big difference. So that's really driven by two factors. One is Version nine, as I said, which commands a high royalty rate. And second, we're just seeing more armed technology inside these smartphones, particularly the premium segment, which also commands a high royalty rene.
A lot of investors, people that I speak to in the world of technology think you're great. You're a great CEO, and you've been embarked on this sort of journey for profit and margin. But is there a ceiling to that, Like, at some point, how do you keep driving those levels? Are you sort of very pricing dependent at this point?
I don't think so. You know, the market that we're addressing is very, very large, and one of the things that has made it even larger has been all things AI. And if you think about what ARM does we do compute, we do the CPU. Every digital device has one, and the fact that you're running all these AI workloads on devices that are already running different applications that they had to in the past, that drives a need for more and more compute capacity, which ends up ending up with ARM. So as a result, we were very very fortunate to have some tailwinds from a technology standpoint driving our growth. So as far as the ceiling, I don't think about it quite that way, But I do think where we are is a market where we just can't get enough compute capacity for all these workloads that are going to be run on every device in your home or your business.
Meanwhile, though perhaps some of the tension around compute and AI has been whether China is going to quote unquote beat out the United States and that suddenly comes into a closer focus, particularly with the results of the US election. Does any of that concern you, particularly around the trade and embroilment and whether that curtails the industry and going forward.
Yeah, a little hard to say, Caroline, relative to what could happen from perspective of tariffs, etc. Etc. I think the one thing that I'm happy about post the election on Tuesday is that here we are on Thursday morning and we have a result. We're not debating about what might happen or could happen or should happen. We at least have a result behind us, which is good for business, it's good for the country. Now going forward, we'll just have to see what goes forward. In terms of the things you mentioned, the China business for US has been very resilient and very strong, both in data center and phones that we've talked about, but also in the oomobile sector. So regarding your question, we'll just have to wait and see.
Talk to us a.
Little bit about the phone part, and in particular whether or not just US replacing less often but with much more expensive phones is going to be able to what makes your numbers resilient going forward? Will that continue to upset the fact that we're just buying fewer on them.
I do, and the reason for that is when you start thinking about all of these AI agents that will increasingly be running on your smartphone, that is going to drive demand for more and more capability on these premium phones. And that's great for ARM because if you think about a next generation smartphone still has to run games, it still has to run apps, it still has to connect to the internet. But now you want to run a large language model or small language model, and you need to interface with a cloud and do security. That all requires a lot of compute, much more than in the past, which is great for ARM because you can't do it without using our technology.
Renee Bloomberg reported that ARM was interested in buying some or all of Intel.
What's the latest for that, please? Yeah, I read that.
I'm not sure exactly where it came from, but I can't really comment on those kind of rumors.
Small recent is a licensed dispute with Qualcomm, a longtime partner and customer of yours. Wouldn't it just make sense for you guys to work it out and settle and get something done so you can both just move forward.
Yeah? So it's an ongoing litigation, as you know ed, and in just the baseline things, it's a.
Pretty straightforward case.
Consent is required anytime one company buys another company that has armed technology. Consent was not granted in this case, and just by way of history, every contract we have has this clause. And in thirty five years, I think we've done one hundred and thirty assignments and one hundred and thirty times consent has been granted. This time it wasn't. We sent a notification to Qualcom that they were in breach of the license. We're very confident in our case. But more importantly, this is about fairness. It's about equity the ecosystem. We have lots of partners who license our technology over the last decades. We need to be fair and equitable, and we just now have a situation, an unprecedented one where consent was not granted, and as a result, we took the action we thought we needed to take.
How is it doing business therefore with what is a key customer but increasingly becoming more of a frenemy.
Well, you know, in terms of the litigations, I said, there's not much more I can add on to it From a financial standpoint, we've made assumptions all along when we've given guidance and forecast to investors that we will not prevail in this case. So we've taken a fairly bearish position on the financial outlook. And that's really about about all I can say on it.
Rene At the end market level and product level, what is the next phase farm, what's the next story you think will carry the company forward?
Yeah, thanks for asking that question. You know, compute subsystems and these are all about taking the pieces of IP, stitching them together together, providing them as a full end solution, which greatly saves engineering time, time to market, time to profit for our partners. That is the direction of the company. We've seen amazing traction. We've had lots of design wins in the data center space. Media Tech just announced their first chip set recently using ARMED compute subsystems for mobile. I see that to be pervasive going forward, and it's going to allow us to not only get great benefits to the customers' markets, but those drive much higher royalties than anything we've ever done in the past, which will drive growth for us.
Just paint the picture of where ARM will be in the ecosystem. Five ten years from now, you're still majority held by soft Bank in terms of your outstanding shares. MASA has some big vision one hundred billion dollars to put in in terms of creating an AI behemoth that complements what you do. But then there's also the element of whether you just stick to the designing part of the business.
Where do you take this business? Renee as a CEO, we.
Have a lot of optionality, Caroline in terms of the things that we do, and these are obviously the things we talk about all the time internally. Which direction do we go, how horizontal do we go, how vertical do we go. I'm not able, unfortunately to talk about unannounced products this morning with you, although I would love to, but I just can't. But we do focus very much. We do focus very much on the vertical and horizontal nature of the products and also AI and the form factors and everything that goes forward. So five to ten years ago, from five dicent years from now, I do know that ARM will be involved in computing in a very large way.
I'm CEO, Rene has We appreciate the time today. Thank you,