ARM Q3 2026 Earnings Call Summary

Revenue: $1.24 billion, up 26% year-on-year, marking the fourth consecutive billion-dollar quarter.
Royalty Revenue: Reached $737 million, a 27% increase year-on-year, driven by strong performance in AI and data center sectors.
License Revenue: $505 million, up 25% year-on-year, bolstered by high-value licenses for next-generation technologies.
Non-GAAP EPS: $0.43, close to the high end of guidance, supported by increased revenue and slightly lower operating expenses.
Operating Expenses: Non-GAAP operating expenses were $716 million, a 37% increase year-on-year due to higher R&D investment.

ARM has reorganized into three business units: Edge AI, Physical AI, and Cloud AI, to better align with customer deployment of AI technologies.
The Compute Subsystem (CSS) continues to gain traction, with 21 licenses signed and five customers shipping CSS-based chips.
The company is seeing significant growth in data center royalty revenue, which has doubled year-on-year, with expectations that this segment will surpass mobile in the coming years.
ARM's partnerships with major hyperscalers (AWS, NVIDIA, Microsoft, Google) are driving demand for higher core count CPUs, enhancing ARM's position in the data center market.

For Q4 2026, ARM expects revenue of approximately $1.47 billion (±$50 million), representing an 18% year-on-year growth.
Royalty revenue is anticipated to grow in the low teens, while licensing revenue is expected to increase in the high teens.
Non-GAAP operating expenses are projected at around $745 million, with non-GAAP EPS guidance set at $0.58 (±$0.04).
The company expresses confidence in sustained growth due to strong customer demand and a growing base of long-duration contracts.

There are concerns regarding potential demand destruction in consumer electronics due to memory supply chain constraints, which could impact smartphone unit volumes.
ARM anticipates a slight negative impact on royalty revenue growth due to these constraints, estimating a 1-2% overall impact on total royalties.
The company is cautious about the potential for declining royalty growth rates in the future, particularly as it faces tougher year-over-year comparisons.

AI and Data Centers: ARM's role in AI is evolving, with CPUs becoming increasingly important for managing agent-based AI workloads in data centers.
SoftBank's Stake: CEO Rene Haas reassured that SoftBank has no intention of selling ARM shares, emphasizing long-term confidence in the company.
CSS Impact: CSS is expected to significantly increase ARM's royalty revenue mix, potentially reaching upwards of 50% in the coming years.
Memory Supply Issues: While memory constraints are impacting the smartphone market, ARM's focus on high-end devices (where it has higher royalty rates) may mitigate some of the negative effects.
Long-Term Growth: The management remains optimistic about the long-term growth trajectory, driven by the increasing integration of AI across various sectors and devices.

ARM — Arm Holdings plc American Depositary Shares