Shares of UK chip designer Arm fall following disappointing revenue forecast

The shares of UK chip designer Arm dropped after its revenue projection for the current quarter disappointed Wall Street in its first earnings release since it went public in September.

Arm forecast revenue between $720mn and $800mn for this quarter, which was below analyst expectations. It expects to generate between $2.96bn and $3.08bn of revenue for the full year.

After the earnings announcement, the shares fell 6.8% in the after-market trades. They now stand below the price of $51 per share.

The Cambridge-based firm reported a loss of $110mn in the three months ended September 30. It revealed that it had to pay more than $500mn in remuneration after its New York listing. Arm was forced to settle shares previously given to employees when it went public.

Arm’s unexpected expense was offset by better-than-expected revenue in the third quarter due to its long-term license agreements with tech companies, as well increased royalties from its intellectual property.

Arm’s quarterly revenue increased by 28 percent compared to the same period last year, reaching $806mn. This was higher than analysts’ expectations of $746mn.

The company reported that increased investment by Arm customers in artificial intelligence helped to drive license revenues up 106 percent year-over-year.

The company’s IPO was the largest US listing for two years, raising almost $5bn. This move fueled hope of a resurgence on the sagging listings market. Since then, its shares have fluctuated.

SoftBank owns more than 90% of Arm. In 2016, it acquired the company for $32 billion.

Arm hopes that a surge in AI can help it generate higher revenues, as it attempts to move away from its dependence on the smartphone market.

Rene Haas, the chief executive of Arm, said that a “supercycle in AI R&D” was responsible for the increase in licensing revenue during the third quarter. This is because smartphone and PC manufacturers are chasing the computing power required to offer AI products.

Haas stated that in a few years, we will not be talking about the percentages of devices with AI. It will just be a given that all of them have it.

He said that the recent restrictions by the US government on AI chip exports from China “didn’t impact Arm” as many of its chips are not included in the restrictions and other high-end chips are designed outside of the US.

Instacart’s grocery delivery platform, which went public also in September, reported its earnings on Wednesday. It recorded a post-tax loss of $2bn in the third quarter, a figure it attributed to a $2.6bn charge related to restricted stock options that was triggered by the listing. Instacart stated that stock-based compensation would continue to impact earnings after tax.