Arm Holdings plc Reports Results for the Fourth Quarter and Fiscal Year Ended 2025

Rhea-AI Summary

Arm Holdings (NASDAQ: ARM) reported strong Q4 FYE25 results with total revenue reaching $1.241 billion, up 34% year-over-year. The company's performance was driven by both royalty revenue of $607 million (up 18% YoY) and license revenue of $634 million (up 53% YoY). Non-GAAP metrics showed robust profitability with a 98% gross margin and 53% operating margin. The company's growth was fueled by increased adoption of Armv9 architecture, AI applications, and Compute Subsystems. Arm reported 30.6 billion chip shipments for FYE25 and expanded its market presence in automotive, cloud, and IoT sectors. For Q1 FYE26, Arm guides revenue between $1.0-1.1 billion and non-GAAP EPS of $0.30-0.38. The company's strategic metrics show growth in licensing programs, with 44 Arm Total Access licenses and 314 Arm Flexible Access licenses.

Positive

• Record Q4 revenue of $1.241B, up 34% YoY
• Strong royalty revenue growth of 18% YoY to $607M
• Impressive license revenue increase of 53% YoY to $634M
• Excellent profitability with 98% non-GAAP gross margin
• High operating margin of 53% (non-GAAP)
• Market share by chip value increased from 43% to 47%
• Expanding presence in AI, automotive, and data center markets
• Growing licensing programs with 44 ATA and 314 AFA licenses

Negative

• Declining RPO (Remaining Performance Obligations) by 4% QoQ to $2.226B
• Negative impact on TTM free cash flow due to post-IPO working capital reversal
• High dependence on smartphone segment (40% of royalty revenue)

Insights

Financial Analyst

Arm delivers exceptional 34% revenue growth with strong margins, driven by AI adoption and compute subsystem strategy boosting royalty rates.

Arm Holdings delivered impressive Q4 results with total revenue reaching $1.241 billion, marking a substantial 34% year-over-year growth. This performance was fueled by strength across both revenue streams - royalty revenue increased 18% to $607 million while licensing revenue surged 53% to $634 million.

The company's profitability metrics are particularly compelling, with a non-GAAP gross margin of 98% and operating margin of 53%, resulting in non-GAAP net income of $584 million. These exceptional margins reflect Arm's capital-light intellectual property business model.

Arm's strategic positioning at the intersection of multiple technology trends is translating into market share gains. The company now commands 47% of market share by chip value, up from 43% in FYE22. This expansion extends beyond smartphones (currently 40% of royalties) into high-growth sectors like cloud computing (10%), IoT (20%), and automotive (8%).

The Compute Subsystem (CSS) strategy represents a transformative evolution in Arm's business model. By providing more complete chip designs rather than just instruction set architectures, Arm captures greater value per chip. The first automotive CSS license with a major OEM signals potential for penetration into the high-value automotive sector.

For investors, Q1 FYE26 guidance suggests continued but moderated growth, with projected revenue between $1.0-1.1 billion. The 15% year-over-year growth in Annualized Contract Value to $1.365 billion provides good visibility into future licensing revenue, though the 4% sequential decline in Remaining Performance Obligations warrants monitoring.

One cautionary note: trailing 12-month free cash flow was only $99 million, significantly impacted by working capital changes related to post-IPO award vesting. This suggests investors should evaluate normalized cash flow generation in upcoming quarters.

Arm Holdings plc (NASDAQ: ARM) announced robust financial results for its fourth quarter and full fiscal year ended March 31, 2025, according to an investor presentation dated May 7, 2025. The company reported record revenues driven by strong demand for its technology, particularly in AI, data centers, and automotive sectors, alongside significant growth in both royalty and licensing streams.

Strong Q4 FYE25 Performance

For the fourth quarter of fiscal year 2025 (Q4 FYE25), Arm reported total revenue of $1.241 billion, a significant increase of 34% year-over-year. This growth was fueled by record performance in both its major revenue categories.

Royalty revenue for Q4 FYE25 reached $607 million, up 18% year-over-year. The company attributed this growth primarily to the continued adoption of its Armv9 architecture, an increasing number of chips based on Arm Compute Subsystems (CSS), and expanded use of Arm-based chips in data centers.

License and other revenue also saw substantial growth, climbing 53% year-over-year to $634 million in Q4 FYE25. Arm stated this increase was due to normal fluctuations in the timing and size of multiple high-value license agreements and contributions from its existing backlog.

On a non-GAAP basis, Arm reported strong profitability for the quarter. Non-GAAP gross margin stood at 98%, with non-GAAP gross profit reaching $1.221 billion. Non-GAAP operating expenses were $566 million, leading to a non-GAAP operating income of $655 million and a non-GAAP operating margin of 53%. The company's non-GAAP net income for Q4 FYE25 was $584 million.

Arm's trailing 12 months (TTM) non-GAAP free cash flow (FCF) was $99 million. The company noted that Q4 FYE24 included a $573 million change in working capital benefit related to awards vesting post-IPO, and the reversal of this benefit negatively impacted FYE25 TTM FCF.

The company's presentation detailed that its non-GAAP financial measures exclude items such as acquisition-related intangible asset amortization, share-based compensation, and other non-recurring or non-cash items. Reconciliations to GAAP measures were provided in the appendix of the presentation.

Innovation and Market Expansion Driving Growth

Arm highlighted several key innovation milestones and market trends contributing to its performance:

• AI on Arm: The company emphasized that "AI on Arm is going everywhere," noting that NVIDIA's Grace Blackwell entered full production in Q4 and Arm announced its first Armv9 compute platform targeting edge AI devices.
• Chip Shipment Volume: Arm-based chips continue to see widespread adoption, with over 310 billion chips shipped cumulatively since 1990. For the fiscal year ended 2025 (FYE25), 30.6 billion Arm-based chips were reported as shipped.
• Compute Subsystem (CSS) Traction: Arm entered into its first license for automotive CSS with a leading global automotive original equipment manufacturer (OEM) designing their first major automotive chip. The company stated that CSS substantially increases Arm's royalty revenue per chip and has 13 CSS licensees to date.
• Growing Ecosystem: Arm boasts a large software ecosystem with over 22 million developers working on or for Arm.

The company is also seeing royalty growth from rising chip complexity, volume expansion, and increasing adoption of "More Arm" through custom silicon development and its subscription business model. Arm reported gaining share in long-term growth markets such as automotive, cloud, and IoT, with its total market share by chip value rising from 43% in FYE22 to 47% in FYE24.

Market diversification is evident in its royalty revenue breakdown for FYE24, with Smartphone APs at 40%, IoT/Embedded at 20%, Consumer Electronics at 15%, Cloud and Networking at 10%, and Automotive at 8%.

Near-Term Guidance for Q1 FYE26

Arm provided the following guidance for the first quarter of fiscal year 2026 (Q1 FYE26), which is the quarter ending June 30, 2025:

• Revenue: Expected to be in the range of $1.000 billion to $1.100 billion.
• Non-GAAP Operating Expense: Projected to be approximately $625 million.
• Non-GAAP Fully Diluted Earnings Per Share (EPS): Forecasted to be between $0.30 and $0.38.

The company stated it is unable to provide a reconciliation of certain non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis without unreasonable effort due to the potential variability and limited visibility of excluded items.

Strategic Metrics

Arm also shared updates on its licensing access programs as of Q4 FYE25:

• Arm Total Access (ATA): Reached 44 extant licenses, an increase of 4 quarter-over-quarter and 13 year-over-year. These licenses target markets including smartphones, AI accelerators, automotive applications, data centers, and embedded computing.
• Arm Flexible Access (AFA): Grew to 314 extant licenses, up 19 quarter-over-quarter and 92 year-over-year, targeting early-stage companies in various advanced technology sectors.

The company's Annualized Contract Value (ACV), a metric for normalized license and other revenue, increased 15% year-over-year in Q4 to reach $1.365 billion. Remaining Performance Obligations (RPO) were $2.226 billion, down 4% quarter-over-quarter.

This article is based solely on information provided in Arm Holdings plc's Q4 FYE25 Investor Presentation dated May 7, 2025. The content is for informational purposes only and does not constitute financial, investment, legal, or tax advice. Stock Titan and its writers make no representations as to the accuracy, completeness, or timeliness of the information. Investors should conduct their own due diligence before making any investment decisions.

Source: Arm Holdings plc

FAQ

What were ARM's Q4 2025 earnings results?

ARM reported Q4 FYE25 revenue of $1.241B (up 34% YoY), with royalty revenue of $607M (up 18%) and license revenue of $634M (up 53%). Non-GAAP operating margin was 53% with net income of $584M.

What is ARM's revenue guidance for Q1 2026?

ARM expects Q1 FYE26 revenue between $1.0-1.1 billion, with non-GAAP EPS guidance of $0.30-0.38.

How many ARM-based chips were shipped in fiscal year 2025?

ARM reported 30.6 billion chip shipments for fiscal year 2025, contributing to over 310 billion chips shipped cumulatively since 1990.

What is ARM's market share in the chip industry?

ARM's total market share by chip value increased from 43% in FYE22 to 47% in FYE24, with strong presence in smartphones (40%), IoT/Embedded (20%), and Consumer Electronics (15%).

How is ARM performing in the AI market?

ARM is expanding in AI with NVIDIA's Grace Blackwell entering full production in Q4 and the announcement of its first Armv9 compute platform for edge AI devices.