Arm Stock Falls After Smartphone Memory Pricing Hits Royalties

What happened

Arm reported fiscal second-quarter revenue of $1.443 billion, up 27%, and non-GAAP earnings per share of $0.52, both above analyst estimates. Royalty revenue rose 8% to $670 million, with the company saying memory pricing in the smartphone market partly offset higher royalty rates and data center growth.

Confirmed

Global impact / market context

Arm earns royalties when customers ship products using its technology, so weaker smartphone demand or memory pricing can limit that revenue even when license deals lift quarterly sales. The gap between 27% total revenue growth and 8% royalty growth may matter because royalties are tied to ongoing product shipments.

Analyst inference

The report combines strong headline results and higher guidance with uneven revenue sources: license revenue rose 50%, while royalties grew more slowly. Data center royalties doubled, but free cash flow fell to $110 million from $411 million, giving investors competing signals on growth and cash generation.

Analyst inference

What to watch

1. Watch whether Arm's third-quarter revenue reaches its $1.54 billion guidance, plus or minus $50 million, and whether the $0.56 non-GAAP earnings-per-share target is met. Confirmed
2. Track whether smartphone memory pricing continues to offset higher royalty rates and data center growth, since Arm identified that pressure as a restraint on royalty revenue. Analyst inference
3. Check for updates on first commercial deliveries of Arm AGI CPUs, which Arm says remain on track for fiscal fourth quarter, and its expected revenue across fiscal 2027 and 2028. Confirmed

Evidence

• gurufocus.com