The impact of the AI boom on the semiconductor industry is becoming increasingly mixed. The same factors simultaneously support growth in some segments and increase pressure in others. The report by the British Arm holding company clearly demonstrated this imbalance, and the successes of server architectures have not yet fully compensated for the stagnation in the company’s key smartphone market.
Last quarter, Arm’s revenue grew 26% to $1.24 billion, exceeding market expectations, and earnings per share rose to 43 cents. The forecast for the next period also met analysts’ consensus: $1.47 billion in revenue and up to 58 cents in earnings per share. However, the revenue structure proved less clear-cut. Licensing of architectures brought in only $505 million, which is lower than expected, while royalties provided $737 million and became the main source of growth. In the case of the Discord IPO, investors expect a similar royalty if management approves the initiative. It is noteworthy that in the data center segment, licensing revenue doubled year over year, highlighting growing interest in Arm in the server sector.
According to Arm CEO Rene Haas, the server business will be the main driver of the company’s revenue in the next two years. At the same time, management prefers to adhere to conservative forecasts and avoids long-term commitments, despite demand from server processor developers exceeding internal expectations. Even such cautious formulations did not reassure investors, as Arm shares fell about 8% after the financial statements were published.
The negative background is largely shaped by the problems of the smartphone market, which is suffering from memory shortages and rising component prices. Jason Child, Arm’s chief financial officer, tried to smooth over concerns, saying that the shift in demand toward more expensive models would partially offset the drop in volumes, but this was not enough to change the market mood.
Similar signals have been received from Qualcomm, an S&P 500 player, whose dependence on smartphones remains even more pronounced. The company’s forecast for the current quarter disappointed investors, with expected revenue in the range of $10.2 billion to $11 billion below market expectations, and unit earnings per share falling short of previous guidance. As a result, Qualcomm shares fell by almost 10%.
Qualcomm’s management explicitly points to memory shortages as a key factor in the pressure on the smartphone processor business, especially in China. Demand for flagship models remains high, but manufacturers are forced to reduce production volumes due to component shortages and higher costs. Alternative directions, including IoT, which saw revenue exceed expectations last quarter, can not yet cover the drawdown in the main segment. It is significant that Qualcomm will start delivering server components for the AI infrastructure only next year, and they are still addressing individual customers.
In this context, the news of the departure of two key architects from Qualcomm, namely Gerard Williams III and John “Turbo” Bruno, looks more like an image blow than a strategic blow. Analysts agree that the real consequences, if any, will appear only toward the end of the decade, when chips fully designed by the updated team will enter the market. In addition, the company has strengthened its engineering staff in advance, and current projects have already moved past key architectural decisions.
Taken together, these events highlight an important shift: the growing interest in AI and server solutions is increasingly redistributing attention and capital within the industry, while the smartphone market remains critically important and, at the same time, vulnerable. Arm benefits from diversification and a growing presence in the data center, while Qualcomm is still feeling more pressure from the traditional mobile segment. It is precisely on how quickly companies can increase alternative sources of growth that their sustainability will depend in the face of the ongoing component shortage and structural market changes.
