Expansion into new markets sends Arm soaring, buoying forecasts (Part-1)

In late trading, Arm Holdings Plc surged as much as 42% following the chip designer's unexpectedly optimistic outlook. This indicates that Arm's expansion beyond smartphones is contributing to its growth and profitability.

Arm announced on Wednesday that the company expects revenue of $850 million to $900 million for the three months ending in March. Analysts had predicted $778 million on average. Excluding some things, earnings will be around 30 cents, far more than the 21-cent prediction.

Chief Executive Officer Rene Haas has expanded into new sectors, such as server chips, which is reflected in the optimistic forecast. 

He has been so effective at diversifying the company's bets that executives have estimated that sales in the smartphone market now make up almost a third of the company's total revenue. And with more Arm technology packed into phones than ever before, royalties have been steadily rising.

To analysts, Haas declared, "We are involved in just about every single end market" on a conference call. "And nearly every industry is increasing the amount of processing power built into their products."

The latest V9 version of the company's technology has double the royalty rate of its predecessors, and Haas and Chief Financial Officer Jason Child indicated that clients are transferring to it

 Microsoft Corp.'s latest server processors, for instance, have over a hundred Arm computer cores, so royalties are getting a little heftier. According to them, Arm is also stealing customers away from competing technologies in the automotive and data center industries.

Even Arm's Chinese joint venture was a "nice positive surprise" for Child. Its share of overall revenue was 25%.