Boom forecast after expansion into new markets

(Bloomberg) — Arm Holdings Plc climbed as much as 42% in late trading after the chip designer delivered a surprisingly bullish forecast that showed the move from smartphones is helping fuel growth and profitability.

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Revenue in the three months ending in March will be $850 million to $900 million, Arm said in a statement on Wednesday. This compares with the average analyst estimate of $778 million. Excluding some items, earnings will be about 30 cents, well ahead of the 21-cent estimate.

The upbeat outlook reflects expansion into new areas including server chips by Chief Executive Officer René Haas. The smartphone industry now accounts for about a third of the company’s sales, executives said, underscoring how successful it has been in hedging its bets. And phones now include more Arm technology per device, helping increase royalty payments.

“We are involved in almost every single end market,” Haas said on a conference call with analysts. “And almost every single market is putting more computing into their devices.”

Haas and Chief Financial Officer Jason Child reported that the company’s customers are shifting to V9, the new version of its technology, which offers double the royalty rates of its predecessors. They’re also using more Arm computing cores per device – for example, more than 100 in Microsoft Corp’s new server chips – which increases royalties. Arm is also gaining market share from rival technology in the data-center and automotive markets, he said.

According to Child, Arm’s joint venture in China was also a “nice positive surprise”. It contributed 25% to the total revenue.

The news sparked a surprise surge in Arm shares, with the stock rising to $109.48 in extended trading…

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