(Reuters) – Arm Holdings forecast first-quarter sales and profit below Wall Street estimates on Wednesday, as global trade tensions threaten revenue from its chip architecture used across the smartphone and data center industries.
While Arm’s fourth-quarter revenue slightly beat analysts’ estimates, companies across the board have provided cautious quarterly forecasts as sweeping global tariffs announced by U.S. President Donald Trump and tighter U.S. curbs on the export of advanced semiconductors to key chip market China have clouded the outlook for semiconductor firms.
Arm shares fell 7.4% in after-hours trading after the forecast.
Arm’s chip technology powers nearly every smartphone in the world, and the UK-based company has attempted to make inroads in data centers and other markets.
The company forecast first-quarter revenue of $1.00 billion to $1.10 billion, with a midpoint below analysts’ average estimate of $1.10 billion.
Arm CEO Rene Haas told Reuters that the below-expectations guidance is due to a large licensing deal that may not close during the fiscal first quarter. Haas said that royalty revenue growth will be between 25% and 30% in the fiscal first quarter, higher than in the fiscal fourth quarter.
“Why are we guiding slightly below consensus – it’s really down to licensing,” Haas said. “We just want to be prudent relative to some large deals that we have visibility on.”
Apple, a major customer, flagged the addition of $900 million to costs this quarter from supply chain shifts to minimize the impact of the ongoing trade war.
Shifting trade policies are likely to hurt consumer demand, bringing on a possible decline in the smartphone market this year, according to research firm Counterpoint.
Arm expects adjusted profit of 30 to 38 cents per share for the first quarter, compared with estimates of 42 cents per share. Haas said that profit forecast was due to the assumption that a licensing deal may not close in the quarter.
Arm makes money via licensing deals for its intellectual property and a royalty charged for each chip sold that uses its technology.
Arm’s revenue in individual quarters can be volatile based on the timing of individual licensing deals.
The company reported fourth-quarter sales of $1.24 billion, slightly above estimates. Adjusted profit of 55 cents per share in that period beat estimates for a profit of 52 cents per share.
Sales in the fourth quarter were “driven by increased deployment of our CSS platforms across AI (artificial intelligence) data centers, cloud compute and mobile,” CEO Rene Haas said in a statement, referring to the company’s comprehensive blueprints for chips.
The company’s chip architecture competes against Intel and AMD’s longstanding x86 stronghold in the server central processor market- a booming area in the AI market where central processing units are used alongside advanced graphics processors in modern data centers.
(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Richard Chang)
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