Arm Holdings (ARM) Q1 FY27 earnings call: guidance and Q&A

What gives Arm increased confidence in securing supply for the AGI CPU beyond the initial $1 billion opportunity, given the demand now exceeds $2 billion?

Confidence has increased across all aspects of the supply chain, including wafers, substrates, test capacity, and memory. While the market remains very tight, Arm is more optimistic about securing the necessary supply for the increased demand.

“90 days later, the demand picture has even gotten better, as Jason mentioned, north of $2 billion. But our ability to secure that supply for the north of $1 billion, our confidence has increased in the last 90 days.”

asked by Joseph Quatrochi · answered by Rene Haas

How does the gross margin structure for the AGI CPU change with the increased opportunity, relative to original expectations?

There is no change to the initial gross margin expectations of high 30% to low 40% for the first generation (Q4 FY27 and FY28). The company still expects to reach 50% in a couple of years by bringing more work in-house. Price increases are being evaluated.

“No change at this time. We said that -- I think last quarter, we said there was probably going to be somewhere in the high 30% range, maybe low 40s percent for the first generation for -- really in Q4 of this year as well as for next year.”

asked by Joseph Quatrochi · answered by Jason Child

Given higher memory costs and rising handset prices, how does smartphone market softness impact Arm's royalty revenue outlook for the fiscal year?

Arm has been somewhat isolated from the smartphone market's negative growth due to V9 and CSS penetration, which drives higher royalty rates. However, incremental slowdown due to memory prices affecting all tiers has led to a revised FY27 royalty growth expectation to high teens (from 20%). Cloud AI overperformance is helping to offset this weakness.

“Right now, if I had to guess, that's probably somewhere closer to the high teens right now. But hard to say until we learn more about the next couple of quarters. I'd say right now, the -- we do think royalties will come down a bit in this next quarter, we guided to kind of the low to mid-teens for Q2, and we'll give you a better update next quarter.”

asked by Sebastien Cyrus Naji · answered by Jason Child

What is the demand pipeline for AGI CPU for out years (FY29-FY31), and does the $15 billion projected AGI revenue for '31 account for supply chain constraints?

The initial $100 billion+ CPU TAM estimate from March might have been conservative, with some peers now citing $200 billion+. Increased inference and agentic demand drives CPU demand. Supply chain is tight for FY27/FY28 but expected to loosen/expand significantly in FY29/FY30 with 70-100% wafer capacity increase. Internal targets are higher than external guidance, but supply chain capacity is the current constraint.

“our expectations are -- there certainly is potential to beat the number that we gave out externally. Certainly, internally, we do have higher targets. But until we start to see the supply chain capacity come online, we're mostly focused on just trying to get to the $2 billion number next year, and we'll provide updates, of course, later as we learn more.”

asked by Gary Mobley · answered by Jason Child

Why can't Arm secure more AGI CPU supply given the large market and multiple foundries? Also, how does Arm's CPU-only offering compete with players who co-design CPUs with proprietary accelerators?

The supply chain is extremely tight across all components (memory, test equipment, substrates, TSMC wafers). Arm is more optimistic than 90 days ago but securing supply remains challenging. For accelerators, Arm can integrate (e.g., Google's Axion with TPUs) or leverage platform approaches like NVIDIA's NVLink Fusion, which allows mixing Arm CPUs with proprietary accelerators.

“It is a very, very, very tight market across everything, whether it's memory, whether it's test equipment, whether it's substrates, whether it's TSMC wafers, it's a very, very, very tight world.”

asked by Vivek Arya · answered by Rene Haas

Are AGI CPUs mostly 128 cores, and when can we expect 192/256 core CPUs? When will silicon revenue be broken out separately?

The current Arm AGI CPU is 128-core based, with the direction of travel being towards more cores for agentic workloads (e.g., Graviton5 is 192 cores). The roadmap for future core counts was not disclosed. Silicon revenue will be broken out separately from license and royalties when it reaches 10% of total revenue, which is expected in FY28.

“On the revenue breakout, well, first, as soon as we start shipping, which will be at the end of this year, that's the first milestone. And then once it becomes at least 10% of revenue, we'll break it out separately as a third line. So separate from license, separate from royalties. Lastly, there will be silicon revenue. So I would expect that based on our forecast, that should be broken out then in FY '28.”

asked by Vijay Rakesh · answered by Jason Child