Arm expands business: cash production under market scrutiny

In the age of Artificial Intelligence (AI), high-tech stocks are often punished after the publication of quarterly figures. The slightest deviation from expectations and estimates is enough for the market to sell off. This was also the case for Advanced RISC machine Holding (Arm). The British group, a global leader in the design of microprocessor architectures, lost 13.4 per cent in a single session after the announcement of the latest quarterly figures (first of the 2025-2026 financial year). Among other things, the weak outlook for the second quarter weighed in. The non-GAAP diluted EPS is expected to be between USD 0.29 and 0.37. An estimate - which in the median value - is below analysts' expectations.

However, according to several experts, the real reason for the downturn is a different one: the fact that Arm has announced a major change: the group has decided to break away from its business model, which up to now has been based solely on the sale of the rights to use its intellectual property, and has announced its entry into physical chip design: 'We are not becoming a chip company in the classic sense,' the company said, 'but we will go deeper into silicon to accelerate customer adoption. The change has a clear objective: to shorten development time for users and increase the share of value captured by Arm in each project.

Tutto facile come bere un bicchiere d’acqua, quindi? Non proprio. Gli investitori, per l’appunto, hanno nell’immediato reagito male. Secondo CFRA Research «la nuova strategia aumenta il profilo di rischio e riduce la visibilità sui margini». Non solo. Alcuni operatori parlano di «una mossa che potrebbe mettere Arm in potenziale competizione con vari clienti». Lo stesso Barron’s ha, poi, rimarcato come «il gruppo entri in un territorio non familiare, con costi più elevati e ritorni differiti nel tempo». In un simile contesto, sono arrivate - per l’appunto - le vendite. Successivamente, però, il titolo si è un po’ ripreso. «Attualmente - spiega l’analista tecnico indipendente Silvio Bona - le azioni sono inserite in un movimento laterale». Guardando agli ultimi due mesi e mezzo, la quotazione è scesa fino al «supporto in area 130 dollari e, di lì, è rimbalzata». Evidentemente, gli operatori sono in standby e meditano (anche) sulla nuova strategia del gruppo. «Più sul lungo perio

So far, some suggestions regarding quotations and new approaches. But what is the focus of the group, from a strategic point of view? To answer this, it is useful, first of all, to recall how Arm generates revenue. The model is based on licences and royalties, transferring (until now) only the rights to use the intellectual property. Each contract includes an initial fee, called up-front, paid at the moment of signing. The amount varies according to the extent of the licence. The sum covers access to digital designs, development software and technical support. Once the licence is obtained, the customer can design and produce chips incorporating Arm technology. When production starts, the royalty comes into play. This is a percentage applied to the unit value of the chip sold, generally between 0.5% and 2%. The rate depends on the type of intellectual property, the end market and the year of the contract.

In principle, the target is to increase the average revenue from each microprocessor, a goal that is pursued - primarily - through four avenues. The first is to push customers to migrate to more advanced architectures. Armv9, the successor to Armv8, is already the platform of choice for smartphones, data centres and the automotive industry. Each technological leap increases complexity, performance and also the royalty rate. The new generations are worth more and cost more. For manufacturers, it is a necessary investment: better performance and reduced power consumption, but also access to an ever-expanding software ecosystem.