Arm shares slip as smartphone royalties disappoint

Here's how the company did, compared with estimates from analysts polled by LSEG:Earnings per : 35 cents adjusted vs. 35 cents expectedRevenue: $1.05 billion vs. $1.06 billion expectedThe company said it expects second-quarter revenue in the range between $1.01 billion and $1.11 billion, which was in line with $1.05 billion expected by analysts tracked by LSEG.Net income fell 42% to $130 million, or 12 cents a , from $223 million, or 21 cents a , a year earlier.Arm sells architecture for making chips that power billions of devices, including Apple and Qualcomm's chips

However, CEO Rene Haas said in a Wednesday interview with Reuters that the company was "consciously deciding to invest more heavily" in nology "beyond designs," confirming the company is considering designing its own cessors.Executives told investors on an earnings call that the move could cause "execution risk." Arm already sells nology to nearly every top chip designer, and Arm introducing its own chiplets or semiconductors could make its customers into competitors.Arm's customers include CSPs or cloud service viders Microsoft and Amazon that are custom chips based on Arm

OEMs, or original equipment manufacturers, are companies Apple that design their own computers."One of the things that we're seeing with newer customers, such as CSPs and OEMs and also even traditional customers, has asked for a better starting point," Haas said on Wednesday's earnings call.Hass said that Arm might develop entire chiplets, which could be integrated into a custom chip, or it could develop the entire chip itself."We're looking now at the viability of moving beyond the current platform to additional subsystems, chiplets or possibly full solutions," Hass said.But in the meantime, Arm's largest , royalties for using its most basic nology in smartphone chips, underwhelmed, Arm CFO Jason Child said.Read more CNBC newsApple is facing pressure from Wall Street to figure out its AI strategyBig split? Google to sign EU's AI guidelines despite Meta snubCash App opens up to Apple Pay and Google Pay for the first timeSpotify drops 11% for worst day in two years on weak guidance"The growth wasn't quite as strong in the smartphone sector as maybe we'd expected," Child said.Arm said that because it is primarily a licensing company, it expects "limited direct impact on our royalty and licensing revenues" but that the company has "less visibility into the indirect impact on end demand," in the case that tariffs would slow sales of ducts with Arm nology in them."In licensing, customers have historically invested through near-term slowdowns given lengthy chip development timelines," Child said.For countries that have not negotiated separate trade agreements with the U.S., President Donald Trump said he would ly impose a blanket tariff rate on their exports.SoftBank expanded its licensing agreement with Arm, the company said on Wednesday's earnings call

SoftBank controls 90% of Arm, and took the company public in 2023.When asked the expanded agreement, Child pointed to a $500 billion U.S. plan with OpenAI to build AI infrastructure called Stargate. "Stargate is looking to scale up over the next years," Child said. "That's a lot of compute and huge potential for lots of design opportunities."CNBC's Kif Leswing contributed to this report.