Arm Holdings sees 23% increase in quarterly royalty revenue

Arm Holdings is a key player in the semiconductor industry. Its designs are used in over 99% of smartphones, making it a major competitor to companies like Intel and AMD. Arm does not sell chips directly. Instead, it licenses its designs and earns money from royalties when those products are sold. A significant portion of Arm's revenue comes from these royalties, typically between 60% and 70% each quarter. The company's unique business model helps explain its high stock valuation. It usually takes about 2-3 years before new products generate revenue after a licensing contract is signed. Currently, Arm's royalty revenue may not fully reflect the demand from the growing AI market. To assess Arm's performance, investors should look at revenue growth in both licensing and royalties. Also important are operating margins and earnings per share. A crucial number to watch is the royalty revenue from Arm's recent CPU design, known as V9. This architecture earns a royalty rate twice as high as the previous version, V8. While V9's contribution to total revenue has remained steady at around 25% recently, the overall royalty revenue grew by 23% in the last fiscal quarter. This indicates a rise in demand for Arm's products. Investors should monitor the share of V9 revenue, as it is expected to increase over time, contributing to Arm's long-term growth.