ARM Q1 2020 results: licensing revenue down by 12.7 percent

ARM's quarterly earnings are up thanks to delayed revenue from a 2018 deal.
Image: YouTube | CNET

Last week, semiconductor giant ARM Holdings posted its fiscal first-quarter results. Like many component corporations, the firm’s revenue suffered from the effects of the U.S.-China trade war and the ongoing slump in the smartphone market. However, the SoftBank Group subsidiary reported earning $418 million in Q1 2020. This figure is a 9.7 year-on-year increase in revenue thanks to a big-money deal the company struck last year.

Why Did ARM’s Revenue Go Up?

In June 2018, ARM sold 51 percent of its Chinese intellectual property holdings to a consortium of Sino-investors for $775 million. Afterward, the firm established a joint venture with the group to manage the licenses of its Chinese division.

As per the deal, the consortium received “a significant portion” of ARM China’s licensing, royalty, software, and services revenue.

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However, delays in establishing the joint venture meant that ARM didn’t receive the deal’s revenue until the current fiscal year. Due to the hiccup, ARM reported a 47.4 percent increase in year-on-year licensing revenue. While that late-arriving income helped the company avoid a Samsung-scale decline, its soft sales numbers showed the effects of international strife and market stagnation.

Licensing and Royalty Declines

In the quarter ending on March 30, 2019, ARM noted its licensees shipped 4.8 billion chipsets using its designs. As such, that segment of the corporation’s business declined by 12.7 percent year-on-year. The company also experienced an eight percent decline in sales royalties from its technology since this time last year. SoftBank executives attributed those declines to weakness in the mobile device and semiconductor markets.

The firm’s explanation is similar to those offered by rivals like Qualcomm, Samsung, and Broadcom. International trade tensions have caused manufacturers to hoard their essential components since the middle of last year. Plus, the high quality of current generation mobile devices upended the seasonal smartphone sales cycle.

Meanwhile, the Trump administration’s blacklisting of Huawei kept firms like ARM away from a valuable client. Though several component industry executives asked the President for special exemptions to continue trading with the company, their requests have been indefinitely delayed.

Brighter Future

Despite ARM’s recent challenges, SoftBank is optimistic about the subdivision’s future. The company’s leadership predict a rebound in royalty income moving forward as the firm makes entries to the automotive, networking, and Internet of Things markets.

Atop this, market research company IC Insights noted the component sector should undergo a resurgence in 2020. The firm explained that manufacturers should have burned through their semiconductor stock by then, thus prompting a wave of new orders. As video game industry developers favor ARM’s chip designs, the ever-expanding mobile gaming sector will drive demand for its cutting edge GPUs and CPUs.

Like the rest of the component sector, ARM’s quarterly sales were down. However, its revenues were up due to an unconventional licensing deal. Moving forward, the future looks even brighter for ARM and for chipmakers across the industry.