Bloomberg Audio Studios, podcasts, radio. News moving on to Arm, which has come from what was in the red pre-market trading to a higher 3.5% now. This as they too really managed to beat out the gate when it comes to both the top and bottom line. The company's revenue forecast was a bit of a concern: $920 million to $970 million, which perhaps just fell short of some expectations, but they really are maintaining their annual forecast of $3.8 to $4.1 billion in sales. So let's get into it all a little bit more.
Ed, yeah, I think the shares are so interesting. Maybe it's a company reporting November 5th and it took time for the market to wake up and read the numbers a little bit. Who knows? The chipmaker did give what was seen as a sluggish sales outlook and at first disappointed investors. What has changed? Rene Haas is the CEO of Arm and joins us now. It's really interesting in the function of what Arm does on licensing royalties because sometimes it's not about unit growth. I look at revenue, for example, and maybe some evidence, Rene, that the Chinese consumer in particular is buying higher-end handsets. How does that help you benefit?
Well, good morning, Ed and Caroline. We are very happy about the quarter we just reported. We exceeded the high end of the guidance, and our royalties were at a record number. To your question, one of the things we have seen a huge benefit from with our technology going forward has been our Version 9, which commands a much higher royalty rate than we have in the past. That allows us to not exactly track the market from a unit standpoint. One proof point: unit sales for smartphones were up 4% in the last quarter, our royalties were up 40%, so you can get a sense that you're seeing a very big difference. That's really driven by two factors: one is Version 9, as I said, which commands a higher royalty rate, and second, we're just seeing more Arm technology inside these smartphones, particularly the premium segment, which also commands a higher royalty.
Rene, a lot of investors and people 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? At some point, how do you keep driving those levers? Are you sort of very pricing dependent at this point?
I don't think so. The market we're addressing is very, very large, and one of the things that has made it even larger has been all things AI. If you think about what Arm does, we do compute. 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 drives a need for more and more compute capacity, which ends up with Arm. As a result, we were very, very fortunate to have some tailwinds from a technology standpoint driving our growth. So as far as a 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 running 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 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 embroilment and whether that derails the industry going forward?
A little hard to say, Caroline, relative to what could happen from the perspective of tariffs, etc. I think one thing 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, 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 as we've talked about, but also in the automobile 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 make your numbers resilient going forward. Will that continue to offset the fact that we're just buying fewer of 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. That's great for Arm because if you think about a next-generation smartphone, it 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 the 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.
Rene, Bloomberg reported that Arm was interested in buying some or all of Intel. What's the latest with that, please?
