Arm Holdings plc American Depositary Shares (ARM) Q1 2025 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Arm First Quarter Fiscal Year 2025 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeff Kvaal, Vice-President of Investor Relations. Please go ahead, sir.

Thank you, and welcome to our earnings conference call for the first quarter of the fiscal year ending, March 31, 2025. On the call today are Rene Haas, Chief Executive Officer of Arm; and Jason Child, Arm's Chief Financial Officer. During the call, Arm will discuss forecasts, targets and other forward-looking information regarding the company and its financial results. While these statements represent our best current judgment of future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially. In addition to any risks that we highlight during the call, important risk factors that may affect our future results and performance are described in our registration statement on Form 20-F filed with the SEC on, May 29, 2024. Arm assumes no obligation to update any forward-looking statements, which speak only as of the date they are made. We will refer to non-GAAP financial measures during the discussion. Reconciliation of certain of these non-GAAP financial measures to their most directly comparable GAAP financial measures as well as a discussion of certain projected non-GAAP financial measures that we are not able to reconcile without unreasonable efforts or supplemental financial information can be found in our shareholder letter. The shareholder letter and other earnings related materials are available on our website at investors.arm.com. And with that, I'll turn the call over to Rene. Rene?

Thank you, Jeff, and good afternoon, everyone. I'm pleased to be able to give you an update on our most recent quarter. We had our fourth straight quarter of record results with 39% year-on-year revenue, which exceeded the high-end of the guidance. That was record license revenue, up 70% year-on-year, as companies continue to invest in Arm for AI everywhere. We also had strong royalty revenue, up 17% year-on-year, as the v9 adoption increases. Now our long-term growth drivers remain consistent. Every chip being designed today requires a CPU and these are being designed with Arm in mind with our strong tie into all the world's software. Now that has driven significant royalty revenue growth. More value per chip, v9 up to 25% now royalty revenue overall, that's up 20% from the previous quarter. More importantly, our smartphone royalty revenue was up 50% year-on-year. That's against a single digit increase in units. Now, we are seeing AI everywhere, which is driving demand for Arm's performance and power-efficient compute platform. We had recent announcements in the last quarter of Google's Axion Processor for the cloud, AWS Graviton4 general availability. We were very excited to see the announcement of the brand-new Windows on Arm PCs that run Copilot, True AI PCs, and we also announced the Arm Ethos-U85 for Edge AI. One of the significant strategies that we've been investing in has been compute subsystems. With our recent launch of CSS for client, we now have active CSS engagements in the major markets of mobile, laptop, cloud and automotive. We are seeing demand for this technology everywhere. And this is all driven by the largest software ecosystem on the planet. Now hardware, of course, is nothing without the software, and that's what has made Arm the most ubiquitous processor in history. We now have over 20 million software developers, the largest in the world, and we've added KleidiAI software libraries, which will make it easier for developers to benefit from Arm Compute platform. The future is very bright, and it will be built on Arm going forward. We are extremely pleased over the last four quarters. And again, if I look back to where we were a year ago and talking about whether Arm could be a growth company going forward to have four quarters of consistent growth after being a public company, I could be not -- could not be more proud. And with that, I'll hand it over to Jason.

Thank you, Rene. Q1 was a great start for fiscal year '25. We grew revenue 39% year-over-year to $939 million. This was our highest-ever quarterly revenue and was above the midpoint of our guided range. Licensing revenue rose 72% year-over-year and royalty revenue was up 17%. We also delivered a non-GAAP operating margin of 48%. As always, license revenue is lumpy. We recommend that you look at annualized contract value or ACV to check the underlying growth rate. ACV in Q1 was up 14% year-over-year, consistent with recent quarters. Remaining performance obligations or RPO was up 29% year-on-year and down sequentially, as we recognized revenue from achieving key delivery milestones from contracts signed in prior quarters. Our Q1 royalty revenue growth was driven by continued Armv9 adoption and a recovery in the smartphone market. Royalty revenue from smartphones increased more than 50% year-over-year compared with a mid-single-digit increase in the number of smartphones sold. In addition, we continued to gain share in automotive and cloud service providers, and this is partially offset by continued weakness in IoT and networking equipment given an ongoing inventory correction in the broader industrial market, as has been widely reported by many of our semiconductor peers. Turning to guidance, I will briefly touch on both second quarter and the fiscal year ending, March 31st, 2025. This guidance reflects our current view of our end-markets. For Q2, we expect revenue between $780 million and $830 million, which at the midpoint represents steady year -- steady revenue year-over-year. As previously guided, we expect Q2 revenue to be the low point of the year due to the timing of revenue recognition from licensing. However, we also expect Q2 to be one of our highest bookings quarters of the years. We expect year-over-year royalty revenue growth to accelerate to the low 20% range in Q2. Investments in our compute platforms are on-track and we expect our non-GAAP operating results to be around $500 million. We expect non-GAAP EPS to be between $0.23 and $0.27, which is unchanged from our prior forecast. Looking out to fiscal year '25, we are reiterating our revenue guidance. We expect revenues to be between $3.8 billion and $4.1 billion, which represents an 18% to 27% year-over-year increase. At the midpoint of our revenue guidance, this includes full-year royalty revenue growth in the low 20% range. This is slightly below our prior expectation of the mid 20% range. Feedback from our customers suggest that inventory issues in the industrial IoT and networking seem to be more persistent than originally suggested. We expect the drivers of our healthy royalty revenue growth this year to be continued with v9 adoption, share gains in cloud and automotive and the initial ramp of chips based on our compute subsystems in the second half. We are increasingly optimistic about licensing revenue for the year. At the midpoint of our revenue guidance, we anticipate growth in the low mid -- to low to mid 20% range. We expect Q2 to be the smallest in Q4 to be the largest quarters of the year. We reiterate our outlook for ACV growth in the low-double digits for the year, which reflects durable demand for Arm's latest IP. We have high visibility through a combination of backlog, renewals and the pipeline of new licenses. As a reminder, licensing is a leading indicator of future royalty revenue opportunities. Licenses signed now will generate royalty revenues in two to three years' time. We expect non-GAAP operating expenses to be approximately $2.05 billion, which represents a 19% year-over-year increase. As we continue to invest in R&D to support future growth initiatives, we expect operating expenses to ramp consistently throughout the year. We reiterate our full-year non-GAAP EPS guidance of between $1.45 and $1.65. With that, I'll turn the call back to Jeff.

Thank you, Jason. We'll now move forward with the Q&A portion of the program. Sharon?

[Operator Instructions] And your first question comes from the line of Vivek Arya from Bank of America Securities. Please go ahead.

Thanks for taking my question. Rene, I was hoping you could help us draw a line between the licensing upside of today to the royalty upside of tomorrow. When I look back to during the IPO process, what you suggested for licensing, you have far exceeded that. But when do you think we will see that reflected in royalty upside in some commensurate manner? What is the right way to kind of help look at this conversion factor between licensing and royalties over time? Thank you.

Yes. Thank you for the question. We are super pleased about the growth in the licensing business. The way to think about that growth is really around continued investment in R&D and that is essentially customers who are looking to design their next-generation SSEs using Arm. What we are seeing, particularly with all things AI is an increase in licensing momentum. And maybe one-way to think about that is the AI workloads that some of these chips need to run at the time these chips were conceived, some of the models that they're being taxed to run were never even invented yet, which kind of goes back to your timeline question. From the time that we license a piece of IP to a customer and from the time that they put that into a chip and that chip goes into an end system and then ultimately into the customers' hands can be anywhere between three and four years. And in some cases, even longer. I would say the mobile industry, the smartphones, is probably the fastest at around three years-ish. But when you start looking at other markets like the data center and/or automotive, it can be longer than that. So the way to think about all this increased licensing activity, I think is a very, very good predictor of further royalty growth. Increasingly, we are licensing more and more v9 obviously, but also more and more of these compute subsystems. And both v9 over v8 and then compute subsystems over v9 carry significantly higher royalty rates. So all of this is a very good projection for the future.

Thank you.

Thank you. Your next question comes from the line of Lee Simpson from Morgan Stanley. Please go ahead.

Great. Thanks for fitting me in. Rene, it's noticeable here that you've had a raft of good product releases recently. We've had the new Cortex X925 CPU, we've had Immortalis cores. So there's quite a lot of activity going on here, a lot for you to be licensing. But I think somewhat unnoticed is there's quite a few CPU extensions that you've been putting out to-market as well. So I'm really just trying to understand, do we see more momentum in the CPU extensions? Do we see more of these coming out? Which markets would they address? And how does this drive some of that royalty growth that you've been talking about over the medium-term? Thanks.

Yes, thank you for the question. The way to think about the CPU product line and the GPU product line for that matter, in addition to some of the fabric that goes with it, we're introducing these products annually for the smartphone market and PC market in particular, those are annual beats. For the data center market, more like every couple of years. And similar to that on the automotive side. And all of that is driving a pretty significant growth and demand cycle for Arm technology. One of the things that we see to your question of extensions, if I understand it correctly, is really around taking advantage of more-and-more of the v9 features. There's a lot inside version 9 with security. There's a lot in terms of version 9, in terms of confidential compute. We're seeing increased demand for that across all areas, particularly in the data center. And when we think about the data center growth, one of the benefits we're also getting that's driving increased licensing activity is the fact that these AI data centers are largely custom, meaning that the blades, the racks, the interconnect, everything associated with building an AI data center is different each time, which leads its way to customization, which is good for Arm, because these custom chips require Arm. At the same time, the AI data centers, the power required by them is unprecedented relative to conventional data centers and that's also good for Arm. And so, the areas that I just mentioned around security and confidential compute, particularly these AI data centers become hard requirements.

That's great. Thank you.

Thank you. Your next question comes from the line of Matt Ramsay, TD Cowen. Please go ahead.

Thank you very much. Good afternoon, everybody. Rene, Jason, I had a couple of questions, maybe I'll just ask them at the same time for expediency. But the first one, the licensing business has continued to be really strong for Arm and I think certainly stronger recently than you guys had even forecast through the IPO process and whatnot and maybe some of the, I don't know, upselling to make AI capable devices in certain markets has been part of that and obviously, you talked about some of the platform licenses and whatnot in data center. But there's no doubt some correction going on in certain parts of the semiconductor industry. We've seen that across a number of your licensees in broader-based markets. So I just wonder if you could maybe give some commentary about what you're seeing in the licensing pipeline juxtaposed against some weakness in some parts of the semis industry. And then, I guess the second part, I know you guys don't plan to report royalties or comment on them based on segments or lines of business on a quarterly basis, but you did call out 50% year-over-year growth in smartphone royalties against the total royalty pie growing 17%. So maybe you could talk about the puts and takes in some of the other non-smartphone sectors of the royalty numbers that you just printed. Thanks, guys.

Sure. Thank you, Matt. I'll take the first part of your question and then I'll let Jason address the second part. It's a great question relative to how to think about industry correction, inventory, sell-through as a function of investment in R&D. And in cycles in the past, sometimes you might see the investment in future design be impacted by just what you described. I would say in the current moment of time, that is not the case. What we are not observing is any slowdown in-licensing, as it applies to anything going on in the end-market. And I think what really drives that is when you think about these AI workloads and what's required to go drive them, keep in mind that if a designer is designing an SoC and they're now having to run an AI workload or a small language model at the edge of a device. That is in addition to all of the things that the SoC and the system has to do anyway. So what that is driving is a demand for more compute, more compute capability, more CPU cores, more subsystems, all-of-the-above relative to new SoC starts. So we're not observing anything slowing down. And in fact, as you can see by the numbers and your commentary relative to what we talked about 12 months ago during the IPO, it's probably picked-up. And I think one of the reasons that we're seeing the -- and benefit of that from a revenue standpoint is these are all running off existing platforms that are Arm-based. And one of the things that we continuously say about what drives our demand is this virtuous cycle of the largest number of platforms from a software development standpoint are Arm-based. So the more software that's available to run on Arm, the more companies that are trying to build chips that go into these end-products end up making them Arm-based. So we face very little competition, quite frankly, when the people are considering what is the CPU to use on the new design. And as a result, the availability of additional hardware just makes it easy for the software developers to choose, which hardware to continue to develop on because and it ends up all being on Arm. So long-winded way of saying that on this cycle, not observing any slowdown in terms of R&D investment, even though there might be some slowdown in terms of end-market consumption as you state. I'll turn it over to Jason to answer the second part of your question.

Thanks, Matt. So on royalties, we're going to provide a -- in the accompanying slides, we're going to update that. That will be sent out right when the call ends, but we'll provide an update, as we promised the annual kind of update on what is the mix of our royalties and then what is the kind of update in TAM and kind of market shares. Just at a high-level, I'll provide maybe a little bit of update at kind of some of the key headlines. So first, as we said during the prepared remarks, we did see the mobile phone or smartphone royalty revenues grow by over 50% and so certainly very, very strong growth, as you said, versus the unit growth. In terms of the clients, overall, for the full-year, we saw that grow somewhere kind of in the 20-ish percent range when you factor all the different businesses together and again, we'll provide more color across some of the various sectors where there was maybe some slowdown, specifically in PCs last year was a slow year. Obviously, we expect that to change this year, but last year was pretty slow. For the cloud compute market, we actually saw the strongest growth we've ever seen at say north of 75% growth year-on-year and that's certainly driven by all the projects that we've talked about throughout this last year, certainly strong growth within AWS, but now with some of the projects coming online with both Cobalt from Microsoft and from Axion from Google, we expect to see that number continue to accelerate. On the auto side, we saw that somewhere in the kind of somewhere around 20-ish percent year-on-year growth. And again, that's a little bit different than what you're seeing in some of the other auto semiconductor companies for the most part, really our exposure is primarily on ADAS and IVI, which are kind of the stronger growth parts of that market. And then on IoT, networking, industrial, as mentioned, those categories have been kind of -- we've seen persisting weakness in those categories. So we've seen negative growth in those categories, expecting to see things start to pick-up maybe a little bit at least sequentially this quarter, but last year, definitely, they were in the negative territory. But again, we'll provide a supplement with more detail. And so, if you have other questions after seeing those details, we'll certainly be able to answer questions after that comes out.

Thanks, guys. Really appreciate it.

Thank you. Your next question comes from the line of Mark Lipacis from Evercore. Please go ahead.

Great. Thanks for taking my question. I had a question on the compute side of the business, maybe a two-part question, if I may. On the -- in compute, on the CPU side of the data center, I think for us, it's more easy to track because there's some more obvious deployments there. But I would say on the parallel processing side or the accelerator side, it's not as easy for us to track. And I was wondering if you could give us a sense of where you are in the penetration of that part of the market and if you could comment about how that part of the business compares to the CPU side? And then along these lines, if we -- if we consider the model, my understanding is that you have more core counts per CPU that drives ASP higher and that helps. And I'm wondering, is that same dynamic apply on the accelerator side? Thank you.

Yes, thank you for the question. So when you think about the AI data center and particularly around the accelerator and the CPU that ties into it. Clearly, the lion's share of the market today with accelerators belongs to NVIDIA. NVIDIA, their numbers speak for themselves. But relative to the penetration of Arm in the data center, they had announced Grace Hopper about a 1.5 years ago, which was the Arm-based design, which integrates an Arm-based CPU to a Hopper GPU. The next advanced platform that they announced Grace Blackwell, which is going to be shipping soon, they've just now started initial volumes of that. They -- we expect with that design to have the volumes be higher than it was on Grace Hopper. We think that Grace Blackwell, just given the performance and power will be a very, very good ship for us in the -- in the AI data center, partnering with NVIDIA. When we think about other accelerators that would connect to an Arm CPU, right now, most of those accelerators are custom that are being done in-house and it's still early days in terms of that kind of volume. But back to my earlier comment relative to the AI datacenters and I think Grace Blackwell is a very good example of that. Grace Blackwell is a custom chip that goes into a custom blade, into a custom rack, into a custom system. It is a full system design with incredible complexity and also very unique in terms of its power savings. We expect to see a similar trend with other accelerators that use Arm because the ultimate benefit of using Arm for an AI data center is the customization, i.e., being able to build something that's very, very custom in terms of the interconnect, custom in terms of memory, custom in terms of the overall network and at the same time, will be the most power-efficient CPU architecture out there. So early days still is the short answer in terms of being able to count what the units are in terms of CPU and AI data center, but it's going to be growing rapidly, we expect. And the most obvious indicator of that is Grace Blackwell.

Thank you.

Thank you. Your next question comes from the line of Mehdi Hosseini from Susquehanna International Group. Please go ahead.

Yes. Thanks for taking my question. I want to go back to the commentary on the smartphone. To what extent are you baking in your royalty, any kind of a inventory correction in a smartphone and then this is looking-forward? And then back to licensing, are you still expecting a significant pickup in the Q4 fiscal year, as you were highlighting in the last earnings conference call?

This is Jason. I'll take those questions. So on the smartphone side, this last quarter, I think as Rene highlighted, we basically grew the royalties by about 50% year-on-year, while units only grew in the mid-single digits. Our expectations for this year are that you're going to see pretty similar unit growth, but we expect to be outpacing just like we did in Q1 for the rest of the year, because of the v8 to v9 transition. In fact, in smartphones, we're actually about -- from v9 perspective, about 50% of royalties -- royalty dollars are now v9 dollars. So, we've actually -- we're ahead on our v8 to v9 transition in mobile. Now, we've also said previously that compute subsystems will start to come online at the second half of this year, but specifically in mobile, you'll see it starting in Q4. It will be pretty small, but next year will become, I would say, more material. So overall, we expect our mobile royalty growth to significantly outpace unit growth for this year, next year and I would say even for the next few years, especially because we see the CSS kind of ramp to be not unlike the v8 to v9 ramp, which is it's probably somewhere around a four-year period for the adoption to mature and therefore to provide incremental growth tailwinds during that full-time frame. On the licensing side, yes, we do have -- we do still have the strongest licensing growth from a total revenue perspective expected to be in Q4. And we have a fairly wide range, mostly because we have a large pipeline of deals. As Rene said, the pipeline has been strong. It's actually been -- it's actually -- incrementally, it's actually slightly stronger now than it was even 90 days ago, which is -- which is why even with a little bit of royalty softness, we're actually leaning in ahead a little bit on royalty -- on license. Now those deals do typically large license deals, there are renewals and there are some incremental new deals. Those new deals, in particular typically have a 6 to 9-Month of kind of cycle. And so, it will take us a while to get a better sense on the shape and sizing, which is why we have a relatively large range still for guidance and in particular, it's really on the license side, where that range is most applicable. So, high confidence based on the pipeline and the visibility and the discussions that we've had, we will update you throughout the quarters, as we get more insight and can be a little more refined.

Great. Thanks for the details.

Thank you.

[Operator Instructions] We will now go to the next question. And your next question comes from the line of Vijay Rakesh from Mizuho. Please go ahead.

Yes. Hi, guys. Just a quick question on the handset side. I know you mentioned that you're seeing a with handset CSS on v9. As you look at the handset ecosystem, are you seeing China handset OEM start to license you for the course or AI course, because I think you're seeing the chip ASP start to explore. So just wondering if you're seeing the handset OEMs try to build their own course and if so, when do you start to see licensing loyalties on those? Thanks.

Yes. We don't call out specific licensing deals in China, because we do that through Arm China, who is our design partner. But what I can say is that the macro trends that we see across the world, i.e., growth in data center, growth in automotive, demand for CSS in automotive, demand for CSS, demand for CSS in smartphone, that all applies to China as well. There's nothing unique to what the China market wants to do relative to the rest of the world. And that's really because -- and I can't overemphasize this enough. China runs off the same global software ecosystem that everyone else does. It's all running either, Mac -- iOS, Mac OS, stock Android, Windows, all that runs on Arm. So Arm China is how we quote the revenue in through China. So we don't call our partners specifically, but from macro-level, behaviors are the same.

Thank you. Your next question comes from the line of Charles Shi from Needham & Company. Please go ahead.

Hi, good afternoon, Rene, Jason. Just want to get a -- use this opportunity to ask you about your comment you made at Computex in terms of the 50% PC market-share in 5 years. Just to provide a little bit of context why I still want to ask you this question, my understanding, we already have Arm-based PCs already, right, that the Mac is one, Chromebook, and other some of your peers, I mean X86 peers seems to disagree with what you said about that 50% market-share in five years. And they basically argue whether you have a good AIPC or not, really is not ISA dependent. And wonder if what's your response here and can you provide us a little bit more thoughts on why this time is different, why Arm can really take the market-share up to 50% in a short period of time? Thanks.

Yes, sure. No, thank you for the question. Yes, I would be a little worried if they agreed with my comment that we're going to take 50% in 5 years. So the base of the question is why is this time different? I think first-off, you commented yourself relative to the other operating systems having now Arm-based solutions. One of them Apple's operating system and their environment has moved over 100% and that is obviously a pretty significant indication of the value proposition that they get. I think what's changed this time in the Windows ecosystem, there's a number of things that have changed. First is that the products that are out today are using the most advanced Arm technology. They are optimized with Microsoft for the most effective battery life on the planet. If you look at, for example, Dell's XPS product-line as an example, they're touting over 19 hours of battery life for the Arm-based solution well in excess of what you see from the competition. Additionally, some of the earlier Arm-based PCs for Windows were using technology that A, was designed for phones and B, was three or four years old that had not been updated or upgraded. That's all changed as well to have these products be AIPC compliant. And lastly, ultimately, what you need to get to that kind of market-share are a broadening of the supplier base. You also need the top-to-bottom SKUs to be addressed from the entry all the way to the top-end. We're very confident from everything we're hearing in the ecosystem that that is all going to be filled out over the next number of years. So when you combine a supply base that has multiple vendors, also incredible battery life and then no-compromise performance, I don't see really any reason why what happened in the Mac ecosystem can't happen in the Windows ecosystem. So the Mac ecosystem is virtually 100%. So when we think of 50%, that doesn't seem too lofty for me in five years.

Thank you. We will now take the next question, and it comes from the line of David O'Connor from BNP Paribas. Please go ahead.

Great. Good afternoon and thanks for taking my questions. Just one on my side, maybe for Jason on the royalty seasonality. Just looking there at the second-half, Jason, and particularly when you consider you've kind of a big customer coming with V9 adoption in the fiscal Q3 and then the mobile CSS client kind of kicking-in in fiscal Q4. Can you help us out how to model that kind of second half in terms of royalties, so we get the kind of weightings that are correct? Thank you.

Yes. So the -- there's two things going on. There's the v8 to v9 adoption, there's CSS, but then there's also seasonality. But then lastly, what are we comping from a year ago since we had a kind of a recovery in industry. And so certainly, the bottom was a year-ago last quarter and now we're starting to comp stronger and stronger periods. From a royalty growth, as I said, for full-year, we're expecting kind of low 20-ish percent range year-on-year, down from the 25% that we had previously expected. When you look at the kind of growth on a quarterly basis, we expect it to be roughly, I'd say roughly 10% per quarter from this Q1 to Q2, then again Q2 to Q3 and then Q3 to Q4. And that will get you to kind of roughly in that low 20% year-on-year growth rate.

Very helpful. Thank you.

Thank you. Your next question comes from the line of Andrew Gardiner from Citi. Please go ahead.

Thanks very much for taking the question. I just had another one on the licensing side. I mean, you mentioned guys that it's a lumpy business, certainly is, but fortunately, in practically every quarter since the IPO, it's been lumpy in one direction to the upside. What in the current quarter has driven that upside relative to your visibility? Was it your company is taking more Arm content, did you have more bookings that were able to turn quickly, CSS or was there pull-forward from deals that you might have expected to recognize revenue on in future periods? I'm just trying to understand sort of where the upside is coming from. And also, Jason, on the last call, you've given us sort of the bookings outlook for the year saying that it had been such a strong year last year that you expected about 60% of that level in fiscal '25. I think you touched on it in your prepared comments, but I apologize, I missed it. But what's the expectation for that after the strong first-quarter? Thank you.

Thanks for the question. So overall from -- really from last quarter, we are -- we do see a little bit stronger licensing to account for that slight reduction that we're expecting in royalties. That reduction in royalties is about $75-ish million for the year. So the increase then that we would expect to see on licensing is the same amount. So not a significant difference from what we had last quarter. So in terms of what we saw last quarter versus this quarter, for the most part, we still have strong visibility into our renewals, specifically of some ATAs, which are the biggest drivers of license, bookings and revenue. We do have some, I would say, some newer deals on newer technologies. Those were the ones that are a little harder to forecast and that's why depending on what the final shape and size of those deals look like will help us figure out, which part of the guidance range we'll fall into. And so that -- as time progresses throughout the year, we'll get -- we'll get more clarity on those aspects. But in terms of the fundamentals, as Rene said, it really from the partner side, the demand for Arm designs continues to stay just as durable and as strong, maybe even stronger than it was 90 days ago. So those are all the key drivers and pieces. The one thing I would say about the comment you said about positive to the upside, you're right, except for this -- in this next quarter, you're going to see it go to negative, because we are now starting to comp some of those strong overperformance quarters that we had last year. So you're going to see negative 20-ish percent year-on-year because of what we're comping a year-ago. You'll see get back to kind of more flattish in Q3 or slightly positive and then you'll see strong growth again in Q4. Now, it will all shake-out to be somewhere in-kind of the mid-20% year-on-year range and that's why each quarter is going to look very, very different, but on average, it's going to be not that far from what the ACV growth of roughly 14% looks like. And that's why I would -- I kind of like the ACV growth because of the fact that it's cutting through rev-rec and treating everything ratable, it's a better kind of indicator of what the longer-term growth rate looks like. And so that's how I -- that's how I think about it.

Thanks very much.

Thank you. We will now take our final question for today. And your final question comes from Chris Caso from Wolfe Research. Please go ahead.

Yes. Thank you. The question is just some help on the slope of the Arm v9 ramp outside of handsets. And you talked about v9, I think, penetration was 25% of the total business, obviously a lot higher within handsets. How should we expect that those higher v9 royalties to be layering into the non-handset part of the business over-time?

Yes. Well, as you're forecasting the overall business, I would expect -- you've seen roughly 500 basis points of total royalty mix moving to v9, I would expect that same -- it's now been what, three or four quarters in a row that we've seen that. I would expect that to be the continued trajectory. Our forecast show that it should be pretty close to that if I move around a little bit and when it does, we'll let you know. That's how it works overall. In terms of by category, certainly mobile is well-ahead for a variety of reasons. As Rene said, typically, the timeframe to license to tape-out is faster. They were some of the early adopters on v9, so they will be ahead of others. You should expect probably -- it's really -- say probably the category behind them would probably be infrastructure as the next most, I guess, furthest along behind them, auto and then really lastly, probably IoT. But overall, I forecasted by category, which we also do, I find isn't really that -- doesn't give you a much better of an answer than using that roughly 500 basis points in total, because that seems to be -- that's closest to how our models have worked and we think they will continue to work going-forward.

Got it. Thank you.

Thank you. This concludes the question-and-answer session for today. I will now hand the call-back to Rene Haas for closing remarks.

Thank you. And again, thank you everyone for the great questions. In summary, again, four quarters as a public company, four quarters of record revenue. I do again hearken back to when we were doing our IPO roadshow and testing the waters that Arm being such a quiet company for so many years, we had a lot of education we had to do regarding Arm being a growth company. I'm so pleased that a year later that not only have we shown four quarters of record growth, but I'm even more excited about the future, when it comes from either CSS's or the growth with AI or what seems to be an insatiable need for compute, the world's platforms are all going to be built on Arm and I could not be more excited about the future. Thank you, everyone.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.