ARM Q4 earnings report: Stock price on a roller coaster ride, with coldness in the mobile market persisting, AI data centers becoming the growth lifeline, and in-house chips facing production bottlenecks.

Arm Holdings released its report for the fourth quarter of the 2026 fiscal year ending in March after the market closed on Wednesday. The lackluster growth in the smartphone industry is suppressing the company's key revenue source, but the expansion of the artificial intelligence data center business is expected to offset the decline. The data shows that the company's quarterly revenue increased by 20% year-on-year to $1.49 billion, exceeding the market's expectations of $1.47 billion; net profit reached $641 million; adjusted earnings per share were 60 cents, also exceeding expectations. After the performance was announced, the stock price experienced significant fluctuations, rising by 12.6% at one point, then quickly turning downward, falling by nearly 10% at one point. Looking ahead to the next quarter, the company expects revenue for the first quarter to be around $1.26 billion, slightly higher than analysts' average expectation of $1.25 billion; adjusted earnings per share are expected to be 40 cents, while the market generally expects 36 cents. The seemingly impressive performance did not completely reassure investors. After the financial report was released, Arm's stock price rose by over 12% in after-hours trading, but then quickly reversed course, falling by about 6.03% at the time of writing. Company executives stated in the analyst conference call that they have not yet secured enough supply chain capacity to meet the demand for a new chip, while analysts raised in-depth questions about the costs of its in-house chip business. The market's volatile sentiment reflects the complex judgments of investors on factors such as the sluggish smartphone market, lower-than-expected royalty income, and supply chain risks for in-house chips. Softness in the smartphone market drags down royalty income, with pressure on the low-end but stability in the high-end Arm holds a significant position in the massive handheld device market, with its designs driving almost every smartphone globally. The company's business model heavily relies on the smartphone industry, profiting by collecting royalties from every device shipped. However, this core business is facing challenges, as the shortage of storage chips is putting pressure on the industry, raising prices for consumer electronics and inhibiting sales, which could potentially impact Arm's royalty income. In the fourth fiscal quarter, Arm's royalty income was $671 million, lower than the market's expected $693 million to $697 million. CEO Rene Haas admitted in the conference call that the previous quarter's smartphone shipments growth turned negative, mainly affected by factors such as storage chip shortages, weak consumer electronics demand, and shrinkage of the low-end smartphone market. However, Haas also pointed out that the softness is mainly concentrated in the low-end market, while Arms royalty income depends more on high-end models, so the overall impact is still within a controllable range. Despite this, the structural downturn in the smartphone market has cast a shadow over Arm's short-term performance. Downstream chip manufacturers such as Qualcomm also issued similar warnings earlier. Qualcomm, a smartphone chip design company, gave a pessimistic forecast for quarterly revenue due to storage issues last week, but its stock price rose due to optimistic statements about demand rebounding. Strong demand for AI data centers becomes the core driver of growth In contrast to the weakness in the smartphone business, the strong demand for AI data centers is becoming the most prominent growth driver for Arm. Cloud computing companies are increasing their investments in AI infrastructure, and Arm's architecture, with its advantages of low-power and high performance, is rapidly gaining market share in this area. Haas said, "We are very optimistic about the demand for data centers." He revealed that revenue related to data centers in the current quarter is expected to show "significant growth." Authorized revenue for the fourth fiscal quarter reached $819 million, exceeding the expected $775 million, indicating strong customer interest in adopting Arm technology for AI computing and other scenarios in the future. AMD previously expected that the annual market growth rate for server CPUs could exceed 35%, reaching over $120 billion by 2030. As the underlying architecture licensor, Arm is benefiting deeply from this trend. Arm is currently in a "dual-speed" growth phase, with the traditional smartphone business under pressure, but the AI data center and in-house chips providing strong upward elasticity. In-house chip strategy: huge opportunities and supply chain bottlenecks To further seize the AI computing wave, Arm has extended from a pure design licensing model to the field of in-house chips. The AGI CPU (an AI chip for data centers) released by the company earlier this year is designed to handle large-scale computations required by AI agents that can perform tasks with minimal supervision. Arm expects this product to bring in over $2 billion in revenue between 2027 and 2028, and the company has already announced a $1 billion order. However, in the financial report conference call, Haas admitted that the company has not secured sufficient supply chain capacity for an additional $2 billion order. "We are working closely with the supply chain to meet demand." This statement raised concerns among analysts about the costs and production capacity of in-house chips. Arm's profit model consists of two types: licensing fees (allowing customers to use its designs and standards) and royalties (charged based on the actual number of chips shipped). The sale of proprietary chips is a significant transformation for the company - previously, Arm had always benefited as a neutral technology provider to the entire industry. Balancing the acquisition of higher profits while not disrupting the existing licensing ecosystem will be the test Arm faces. The chip manufacturer, which went public in 2023, is still controlled by SoftBank Group of Japan. In April of this year, SoftBank appointed Haas to take on broader roles within the group, leading international business and supporting founder Masayoshi Son's AI chip manufacturing plans. While continuing as Arm's CEO, Haas will also oversee SoftBank Group's international division headquartered in San Carlos, California, and coordinate collaboration between chip and AI companies within the group. SoftBank currently holds nearly 90% of Arm's shares and has acquired chip companies like Ampere Computing LLC and Graphcore Ltd. in recent years.