Shares of the U.K.-based chip designer Arm Holdings Plc were heading south in late trading today after it offered a forecast for the current quarter that came in below analysts’ expectations.

The lower guidance followed some strong numbers from the company’s fourth-quarter results. It reported earnings before certain costs such as stock compensation of 55 cents per share, beating the 52-cents-per-share consensus estimate. Revenue for the period rose 34% from a year earlier, to $1.24 billion, edging past the analysts’ target of $1.23 billion.

It was impressive revenue growth, but it didn’t do much to bolster Arm’s bottom line, for the company reported lower net income than a year ago. Its profit came to $210 million, down from a $224 million profit in the year-ago period.

In any case, Wall Street seemed far more concerned with Arm’s forecast for the first quarter of fiscal 2026. Officials said they’re looking for revenue of between $1 billion and $1.1 billion, but the middle of that range is below the Street’s target of $1.1 billion.

Arm also called for earnings of between 30 and 38 cents, trailing the analyst forecast of 42 cents.

In a letter to shareholders, Arm Chief Executive Rene Haas (pictured) said the company delivered “record-breaking results” in the quarter, both in terms of its overall revenue, and by breaking the $1 billion in sales milestone for the first time.

“We achieved record licensing revenue and, in a clear signal we are increasing royalty per chip, delivered record royalty revenue exceeding $600 million,” he said. “AI is continuing to drive demand for Arm’s energy-efficient compute.”

Arm, which went public in 2023 but remains majority-owned by SoftBank Group Corp., designs the fundamental architecture on which a huge portion of the world’s computer chips are built. It sells licenses for other chipmakers to use its designs, with some of its biggest customers being Apple Inc., Qualcomm Inc. and Nvidia Corp., and also charges royalties on each of their sales.

The company’s latest and most powerful chip architecture is called Armv9, and it’s said to generate higher royalties than its previous-generation Armv8 design. Its designs are widely used by smartphone and other mobile device chipmakers, with the company claiming that 99% of all smartphones are powered by its technology. It’s also making inroads in the data center, with high-end cloud server processors designed by the likes of Microsoft Corp. and Amazon Web Services Inc.

During the last quarter, royalty revenue increased 18%, to $607 million, attributed to the growing adoption of Armv9 and higher usage of its data center chips. Growth in Arm’s “license and other revenue” segment was even more impressive, with sales up 53% to $634 million, driven by what the company termed as “multiple high-value license agreements” and contributions from its order backlog.

Haas said in the shareholder letter that the company saw growth in all of its target end markets, including the data center, automotive, smartphones and the internet of things.

“License revenue was driven by revenue recognition of major deals signed in prior quarters and by new licenses signed in the quarter, such as a large multi-year agreement with the Malaysian government to accelerate the development of an Arm-based AI ecosystem,” he added.

Holger Mueller of Constellation Research Inc. said Arm-based chips are becoming more popular in enterprise data centers, so the company’s 30% revenue growth is not a surprise, though it’s still an achievement. “This is only the second quarter since early 2023 where royalty revenue was eclipsed by license revenue,” he said. “It shows that the company is becoming more diversified from the days when it was all about smartphones, and therefore more resilient.”

Unfortunately for Arm, the increased resilience was not enough to convince Wall Street, which was clearly alarmed by the lower-than-expected guidance. Arm’s stock fell more than 11% in late-trading, erasing a small gain of just over a percentage point during the regular trading session.

There may also be concerns about the uncertainty regarding any tariff-related impacts on Arm’s business. On a conference call, Arm Chief Financial Officer Jason Child said the company doesn’t expect to see much impact from tariffs on chip royalties, but he admitted there is “less visibility” on what the tariffs will mean for end market demand.

The sweeping tariffs imposed by U.S. President Donald Trump have so far not affected the semiconductor industry, but White House officials have previously said they’re working on introducing a special tariff for the chipmaking industry. If tariffs are imposed, they will likely make it more expensive for companies to manufacture chips, which could affect Arm.

With that uncertainty in mind, Arm declined to offer full-year guidance. Nonetheless, Arm has managed to weather the storm around tariff volatility better than most others in the semiconductor industry, and today’s after-hours drop means its stock is down just over 1% in the year to date.

Photo: Arm/YouTube