Arm CEO Discusses 'Conscious Decision' to Invest Heavily

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There's actually like a lot of granular questions about what you're spending on, whether it's a kind of shift to offer more in the AI domain beyond the core CPU. Could you just explain a little bit of of where that's based? >> Yeah. Uh, happy to. Uh, and good morning, Ed. Thanks, uh, thanks for having me this morning. So, a few things, uh, going on with our business. Uh, we just came off our first quarter. We're uh, in our first fiscal year. We've never actually in the first quarter ever had a billion dollars in revenue. Uh, that was a that's a record. our royalties are are way up uh 25% year-on-year. But also what's fueling uh growth for us are these compute subsystems that that we've talked about. We now have five customers shipping. Uh we had three customers in the last quarter uh that have taken on that product. Uh two in the data center, one in PCs and we also announced our automotive comput subsystems. All of that is fueling demand for more and more ARM technology across the board. uh we expect to be uh at the end of this year uh over 50% market share ARM CPUs in the data center. So as a result of all that we are really uh doubling down on investing in this space. Uh we see huge opportunity for uh growth. We see huge opportunity for ARMbased compute. Uh we're the only AI compute platform that can run from very very small devices such as earbuds millows up in the data center into megawatts and gigawatts. So yes, uh we uh we are investing uh more aggressively than we had anticipated, right? But I'm very confident it's the right thing to do. >> You talked about project Stargate as an opportunity and and that project uses ARM for the core CPU, right? But I think I'm right in saying you you talked about there's a unique opportunity to provide solutions. Is that an expansion of the CPU IP or building on top of it or are we talking about ARM moving into not just AI accelerators but high performance compute systems more generally that would represent quite a shift in in the business model for you Renee? >> Yes. So Stargate is an amazing uh opportunity endeavor. Uh I think as you know I'm I'm not only the CEO of ARM but I sit on the board of SoftBank. So, I'm fairly close to what's going on with uh with Stargate, which is a a joint venture between SoftBank and OpenAI about really bringing uh a huge amount of investment for data centers. Uh we announced a $500 billion investment January. Uh I think when Mossa and Sam were talking a couple weeks ago, Sam had talked about expanding this out to 10 gigawatts over the next number of years. That's a lot of compute. And in a 10 gigawatt uh investment or $500 billion there's a lot of opportunity for innovation. Uh right now all we're talking about is the fact that we are uh the CPU of choice. Uh Grace Blackwell is the device that's being used. I think as you know Grace is based on ARM. So right now that's all we're saying publicly. But you can imagine with that type of investment with those type of demands for for compute and power there's a lot of opportunity for ARM to do even more than we're doing today. But that I think that's what the market's trying to understand if more means more than enhancing the the CPU IP and and moving into more of the stack basically is would that be a fair assessment? >> Yeah, what we what we said on the call yesterday is that we are now exploring those opportunities uh and they can come in lots and ways, shapes or forms. Uh doesn't necessarily need to be uh an end solution. Uh there are things such as chiplets. These are essentially compute subsystems that use ARM IP but delivered in a physical form. Uh one of the things that we see with these data centers that is that customization allows for a lot of opportunity to increase performance and power efficiency. So we have a lot of optionality in terms of what we do there and we're looking at everything right now. >> The the the shares are down more than 11% and at one point in the session on track for their biggest drop since last August. what you said about new licensing activity, which I think appears to have taken a bit of a pause, is that that is a normal fluctuation that you see, but why should investors not be so concerned about that? And I'm I'm just going off off of the share reaction as as we have it to last night's print. >> Yeah. Yeah. you know, as far as the share reaction, you know, really can't comment on that. But one of the things about our licensing activity is that it is uh it's pretty robust and and pretty sticky. Uh what do I mean by that? Uh so these compute subsystems that we're licensing, we're actually now on the second generation of licensing those. That means um customers who have licensed the previous generation are now licensing the next generation. Uh the reason that we have such good continuity in our licensing activity is that the software that runs on ARM uh is so ubiquitous that uh the change to a different uh architecture alternative it's a pretty large lift that consumers really would not see much benefit from. So what we think we see in licensing is from quarter to quarter it may be a little bit lumpy meaning that a deal that could have signed in June may sign in July and that may affect the financials but in terms of the overall health of the trajectory of the license activity uh it's very very strong. We've seen record licensing uh revenue over the last number of years, Ed, and people have just thought, could your licensing revenue really grow given the market share is so high? But we see growth. Renee, some of the math that everyone's trying to do on tariffs is how much of a pull in or pull forward there was in 1H. So, what were you seeing in terms of orders coming in for the first half that may not materialize in the second half if people were trying to frontr run the impact of tariffs in the end markets you work with? Yeah, we're not we're not feeling that very much uh Ed and part of the reason for that is again when we went to our new compute subsystems uh that the royalty rates are much higher than what we traditionally had had seen. We grow much faster than the market. You know what does that mean? Uh we were up 25% yearon-year in terms of royalties. Some of the end markets that we participate in were up single digits in some cases one to two percent. So, uh, we're really not seeing, uh, as far as I can tell, any effect of people pulling ahead orders because of tariffs, etc., etc. I think what we're seeing is our royalty growth re really being fueled by investments we made a number of years ago around these compute subsystems. >> Renee, just bear with me, please, if you will. We've got some breaking news. The president has posted on truth social that he's extended a tariff deal with Mexico for 90 days. uh he had a phone call with Shine Bomb uh and he's extending the the tariff deal with Mexico for 90 days. We'll bring more to our audience on that as we get it and more analysis. Mexico to pay a 50% tariff on aluminum and copper. Um if tariffs is not that that signal for you Renee in the second half of this year, what are the headwinds that you baked into your projections? you know, the geopolitics and tariffs and things of that nature are still, um, something we're all learning about as an industry. So, uh, as a result, uh, we didn't give fullyear guidance. We haven't done didn't do that in the in the last quarter. Uh, so we're trying to get a handle in terms of what the next six months look like, but I would say the fundamentals are very very strong. Uh again when you look at the share that we're gaining in the data center almost 50% by the end of the year all the growth of AI uh Stargate being a huge opportunity for us and ARM being the only compute platform that can address AI from the smallest of devices to the very largest uh we're very very bullish in terms of long-term demand. The quarter quarter tear of things we'll just have to see how those all settle out over the next number of uh months and days. Renee, really really quick. You've made some gains into automotive, which I find absolutely fascinating. Just explain the outlook for that business and and where the traction is. >> Yeah, thank you for asking. It's a it's actually a very uh similar story to some of the other markets that we serve in. And by that, what do I mean? You know, first off, power efficiency really matters, particularly in these EVs where uh the compute requirements for autonomous driving is very, very high. Uh there's a lot of software that's now been ported and written to ARM. Uh if you look at the the players in this area, whether it's Tesla doing their own chips or Nvidia or Qualcomm, all those comput chips are based on ARM. ARM is the compute platform for uh autonomous >> and as more and more uh compute requirements go up, power efficiency being a very very big key, uh that's a very very good trajectory for us in the long run. And again, it follows a very similar formula that we see in other markets. Renee, very quickly, Cristiano Aman is on later in the hour. Investors want you to and are asking when you'll bury the hatchet and go back to being the important long-term partners that you were. >> Uh Qualcomm's a great partner. Uh they do a lot of business with ARM. Uh as you know, we are in a litigation with them that uh is still ongoing, so I can't comment on that, but uh Qualcomm is a long-term partner of ARM and they have a lot of products based on us as you know.