Arm Holdings plc American Depositary Receipt

Company Overview

Business Model: Arm Holdings plc architects, develops, and licenses its high-performance, energy-efficient Arm compute platform, which includes CPU, GPU, NPU accelerators, interconnect, and other products. The Company generates revenue primarily through licensing its designs for a fee and receiving per-unit royalties on substantially all chips shipped that incorporate its IP. Licensing models include Arm Total Access, Arm Flexible Access, Technology Licensing Agreements, and Architecture License Agreements. The Company is expanding its product offerings to include RTL-based Compute Subsystems (CSSs), GDSII-based CSSs, chiplets, and complete end chip solutions.

Market Position: Arm Holdings plc is a global leader in the semiconductor industry, with its compute platform being the most pervasive architecture globally. It boasts best-in-class performance per watt and leadership in AI from the edge to the cloud. The Company's platform supports over 20 million developers, and cumulatively, over 310 billion Arm-based chips have been reported as shipped.

Recent Strategic Developments: The Company completed a corporate reorganization in September 2023, making Arm Limited a wholly owned subsidiary of Arm Holdings plc. Its American Depositary Shares began trading on the Nasdaq Global Select Market on September 14, 2023, following an IPO where the Company received no proceeds. Strategically, Arm Holdings plc is expanding its product offerings to include RTL-based CSSs, GDSII-based CSSs, chiplets, and complete end chip solutions, alongside continued investment in AI. In April 2025, the Company agreed to sell its Artisan foundation IP business to Cadence Design Systems, Inc. for approximately $150.0 million, with the transaction expected to close in the second quarter of the fiscal year ending March 31, 2026.

Geographic Footprint: Arm Holdings plc maintains a significant global presence with its headquarters in Cambridge, U.K., occupying approximately 418,793 square feet of leased office space. The Company operates global R&D centers across the U.K., Europe, North America, India, and Asia-Pacific. It also leases facilities in Belgium, Canada, China, Denmark, France, Germany, Hungary, India, Ireland, Israel, Japan, Norway, Poland, Slovenia, South Korea, Sweden, Taiwan, the U.K., and the U.S.

Cross-Border Operations: The Company's international operations include various subsidiaries such as Arm Israel and Arm France SAS. A key component of its international strategy is its relationship with Arm Technology (China) Co. Limited ("Arm China"), which acts as the exclusive IP distributor in the People's Republic of China (including Hong Kong and Macau, excluding Taiwan) under an Intellectual Property Licensing Arrangement (IPLA) with an initial term through April 23, 2048. Arm Holdings plc holds a 10% non-voting interest in Acetone Limited, which represents an approximate 4.8% indirect ownership interest in Arm China. The Company also has equity method investments in entities like Arm IOT Fund LP (Taiwan), Kigen, and Ampere Computing Holdings LLC. Arm Holdings plc is subject to a complex web of regulations across the U.K., European Union, U.S., and PRC, covering areas such as export controls, anti-corruption, and data protection.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 97.0% (FY25)
• Operating Margin: 20.7% (FY25)
• Net Margin: 19.8% (FY25)

Investment in Growth:

• R&D Expenditure: $2,071 million (51.7% of revenue) in FY25, an increase of 5% from FY24.
• Capital Expenditures: Purchases of property and equipment were $219 million in FY25, and purchases of intangible assets were $20 million in FY25.
• Strategic Investments: Equity investments totaled $565 million as of March 31, 2025. The Company invested an additional $5.0 million in Kigen in September 2024 and $1.4 million in April 2025, increasing its ownership to approximately 15.2%. A fair value loss of $246.4 million was recognized on the investment in Ampere Computing Holdings LLC in FY25, prior to SoftBank Group's agreement to acquire Ampere.

Currency Impact Analysis:

• The impact of foreign exchange rates on revenue was immaterial for FY25.
• A hypothetical 10% weakening of the U.S. dollar could increase operating expenses by up to 4%.
• A hypothetical 10% increase or decrease in the relative value of USD to British Pound Sterling, Eurozone Euros, and Chinese Yuan Renminbi would have an approximate $6 million, $5 million, and $8 million, respectively, (positive or negative) effect on other non-operating income (loss), net for FY25.
• The Company uses foreign currency forward contracts to mitigate exposure from foreign currency risk in operating expenses, predominantly British Pound Sterling. These contracts are designated as cash flow hedges and were highly effective for FY25, FY24, and FY23. The Company's functional and reporting currency is the U.S. dollar, while most international operations use local currency as their functional currency.

International Operations & Geographic Analysis

Revenue by Geography:

International Business Structure:

• Subsidiaries: Arm Limited is a wholly owned subsidiary of Arm Holdings plc. Other key international subsidiaries include Arm Israel and Arm France SAS.
• Joint Ventures: The Company holds equity method investments in various entities, including Arm IOT Fund LP (Taiwan), Accelerator Advisory Limited, HOPU-ARM Holding Company Limited, DeepTech Labs Fund 1 LP, and Socratic Partners I LP.
• Licensing Agreements: Arm China operates as the Company's exclusive IP distributor in the PRC under an IPLA, which has an initial term through April 23, 2048, with automatic 10-year renewals.

Cross-Border Trade:

• Export Markets: The Company's Neoverse V series processors meet or exceed performance thresholds under U.S. and U.K. export control regimes, triggering export license requirements for the PRC. Recent U.S. and U.K. government updates to export control rules (September 2024, December 2024, January 2025, May 2025) impact advanced computing chips, services, Gate All-Around Field-Effect Transistor (GAAFET), High Bandwidth Memory (HBM) technologies, and semiconductor manufacturing equipment.
• Import Dependencies: Not explicitly detailed in the filing.
• Transfer Pricing: The Company entered into a Tax Sharing Agreement with SoftBank Group in April 2025 regarding the U.K. Top-up Tax, which ensures multinational entities in the United Kingdom pay a minimum 15% effective tax rate.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: Not explicitly detailed in the filing.
• Dividend Payments: Arm Holdings plc does not currently intend to pay dividends.
• Dividend Yield: Not applicable.
• Future Capital Return Commitments: Not explicitly detailed in the filing.

Balance Sheet Position:

• Cash and Equivalents: $2,085 million as of March 31, 2025.
• Total Debt: Not explicitly stated as a single line item in the filing.
• Net Cash Position: Not explicitly stated in the filing.
• Credit Rating: Not disclosed in the filing.
• Debt Maturity Profile: Not disclosed in the filing.

Cash Flow Generation:

• Operating Cash Flow: $397 million in FY25, a decrease of 64% from $1,090 million in FY24.
• Free Cash Flow: Approximately $158 million in FY25 (calculated as operating cash flow less purchases of property and equipment and purchases of intangible assets).
• Cash Conversion Metrics: Not explicitly detailed in the filing.

Currency Management:

• Cash holdings by major currencies: Not explicitly detailed in the filing.
• Natural hedging through operational diversification: Not explicitly detailed in the filing.
• Financial hedging instruments and strategies: The Company uses foreign currency forward contracts to mitigate exposure from foreign currency risk in operating expenses.

Operational Excellence

Production & Service Model: Arm Holdings plc's operational philosophy centers on architecting, developing, and licensing its high-performance and energy-efficient compute platforms. The Company's revenue model is based on licensing its IP for a fee and collecting per-unit royalties on shipped chips. Service delivery methods include professional services such as training and design, recognized as performed or over time, and support and maintenance services recognized straight-line over the contract period.

Global Supply Chain Architecture: Key Suppliers & Partners:

• Cloud Computing/Data Centers: The Company contracts with various third-party service providers for cloud computing web services and data centers.
• Software/Licenses: Engages third-party providers for software and licenses.
• Technology Partners: Linaro Limited, a not-for-profit entity of which Arm Holdings plc is a member, focusing on open-source software development for the Arm architecture.

Facility Network:

• Manufacturing: Not explicitly detailed in the filing.
• Research & Development: Arm Holdings plc operates global R&D centers in the U.K., Europe, North America, India, and Asia-Pacific. Approximately 83% of its 8,330 global employees as of March 31, 2025, are engaged in engineering activities, reflecting a significant investment in R&D. The Company also receives government grants to compensate for research activities.
• Distribution: Not explicitly detailed in the filing.

Operational Metrics:

• Capacity utilization, efficiency measures, and quality indicators are not explicitly disclosed in the filing.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Arm Holdings plc licenses its products directly to customers.
• Channel Partners: Arm China serves as the exclusive IP distributor for the Company in the PRC market.
• Digital Platforms: Not explicitly detailed in the filing.

Customer Portfolio: Enterprise Customers:

• Tier 1 Clients: The Company's top five customers (including Arm China) collectively accounted for approximately 56% of its total revenue for the fiscal year ended March 31, 2025.
• Strategic Partnerships: The IPLA with Arm China is a critical strategic partnership for accessing the PRC market.
• Customer Concentration: Arm China was the largest customer, accounting for approximately 17% of total revenue in FY25. Qualcomm Inc. accounted for 10% of total revenue in FY25. As of March 31, 2025, the largest customer represented 26% of total accounts receivable, the second largest 19%, and the third largest 12%.

Regional Market Penetration:

• Mobile Applications Processors: Royalty revenue from mobile applications processors constituted approximately 46% of the Company's total royalty revenue for FY25.
• PRC: Revenues from the PRC accounted for approximately 19% of total revenue in FY25, increasing by 7% compared to the prior fiscal year.
• Growth Markets: The Company continues to evaluate investments and partnerships to develop new technologies and advanced products, including AI, CSS, chiplets, and end chip solutions, which are likely targeted at growth markets.

Competitive Intelligence

Global Market Structure & Dynamics

Industry Characteristics: Arm Holdings plc operates as a global leader in the semiconductor industry, characterized by rapid technological changes and intense competition. The industry relies on limited manufacturers concentrated in certain geographic regions.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• x86 architecture: A long-standing competitor in various computing segments.
• RISC-V architecture: An emerging competitive threat, with some customers supporting its development.

Regional Competitive Dynamics: The competitive landscape varies by region, with the Company facing challenges from alternative architectures and the need to adapt to local market conditions and customer preferences.

Risk Assessment Framework

Strategic & Market Risks

Global Market Dynamics: The Company's demand for products is highly dependent on the health of the semiconductor and electronics industries and customer product demand. It faces risks from intense competition, potential market share loss, and the need for continuous innovation to respond to rapid technological changes. Technology Disruption: Failure to adequately fund research and development efforts or to develop new products in response to rapid technological changes could impair competitiveness. The development of new compute subsystems (CSS), chiplets, and complete end chip solutions may subject the Company to new risks. Customer Concentration: A significant portion of total revenue comes from a limited number of customers. The top five customers (including Arm China) collectively accounted for approximately 56% of total revenue in FY25. Arm China alone accounted for 17% of total revenue, and Qualcomm Inc. accounted for 10% of total revenue in FY25. Geographic Concentration: Concentration of revenue from the People’s Republic of China (PRC) market (19% of total revenue in FY25) makes the Company susceptible to economic and political risks, exacerbated by U.S./U.K. tensions with the PRC.

Operational & Execution Risks

Global Supply Chain Vulnerabilities: The semiconductor industry relies on limited manufacturers concentrated in certain geographic regions, posing potential supply chain risks. Regional Disruptions: Business and future operating results may be materially affected by global economic conditions and events outside the Company's control. Trade Restrictions: International operations expose the Company to risks and potential negative impacts from export restrictions and trade barriers. The Company's Neoverse V series processors require U.S. and U.K. export licenses for the PRC, and recent updates to export control rules in 2024-2025 further complicate operations.

Financial & Regulatory Risks

Currency & Financial Risks: The Company is exposed to fluctuations in foreign currency exchange rates, interest rates (a hypothetical 1% change could impact operating results by approximately $20 million for FY25), and equity investment values (e.g., a $246.4 million fair value loss on Ampere Computing Holdings LLC in FY25). Regulatory & Compliance Risks: The Company's multi-jurisdictional operations subject it to a broad range of regulations in the U.K., European Union, U.S., and PRC, covering labor, telecommunications, IP, tax, economic sanctions, export controls, anti-corruption, national security, foreign investment, foreign exchange controls, cash repatriation, privacy, data protection (GDPR, U.K. GDPR, CCPA), security, cybersecurity, data localization, anti-competition, environmental, health and safety, financial reporting, and public sector contracts. Tax Regulations: The Company is a Controlled Foreign Corporation (CFC) and benefits from the U.K.’s research and development expenditure credit (RDEC) regime (20% tax credit) and the “patent box” regime (10% effective corporation tax rate). U.K. legislation implementing Pillar Two (effective January 1, 2024) did not have a material impact on FY25 financials.

Geopolitical & External Risks

Country-Specific Risks: The Company's reliance on its commercial relationship with Arm Technology (China) Co. Limited to access the PRC market is a significant risk, particularly as neither Arm Holdings plc nor SoftBank Group Corp. controls Arm China’s operations. Geopolitical tensions between the U.S./U.K. and the PRC, along with evolving export control regulations, pose substantial risks. Economic Risk: Global economic conditions and events outside the Company's control can materially affect business and future operating results. Regulatory Changes: Recent U.S. Department of Treasury rules on investments in PRC sensitive technology (effective January 2, 2025), increased U.S. tariffs (April 2, 2025) with exemptions for semiconductors, and a U.S. Bureau of Industry and Security (BIS) Section 232 investigation into semiconductor imports (April 2025) highlight an evolving and potentially restrictive regulatory environment.

Innovation & Technology Leadership

Research & Development Focus: Global R&D Network: Arm Holdings plc maintains a world-class research and development team, with approximately 83% of its 8,330 global employees as of March 31, 2025, engaged in engineering activities. The Company operates global R&D centers across the U.K., Europe, North America, India, and Asia-Pacific. Innovation Pipeline: The Company is making significant investments in R&D to develop next-generation products, including new Compute Subsystems (CSSs), chiplets, and complete end chip solutions, with a strong focus on AI workloads. Intellectual Property Portfolio: As of March 31, 2025, Arm Holdings plc owned or co-owned approximately 8,150 issued patents and had approximately 2,500 patent applications pending worldwide. Approximately 98% of its active patent portfolio is solely or jointly owned with subsidiaries, underscoring a prolific invention strategy. Technology Partnerships: The Company is a member of Linaro Limited, a not-for-profit engineering organization focused on open-source software development for the Arm architecture.

Leadership & Governance

Executive Leadership Team

International Management Structure: The Company's management structure includes regional leadership, though specific details on autonomy and centralized oversight are not explicitly provided. The CEO, Rene Haas, serves on the board of Arm Technology (China) Co. Limited, indicating direct involvement in key international operations.

Board Composition: The Board of Directors includes Masayoshi Son (Chairman, also Chairman and CEO of SoftBank Group Corp.), Ronald D. Fisher (Senior Advisor at SoftBank Investment Advisors), Jeffrey A. Sine (Co-Founder and Partner of The Raine Group LLC), Karen E. Dykstra (Audit Committee Chair, "audit committee financial expert," independent), Rosemary Schooler (independent), Paul E. Jacobs, PhD (former CEO and Executive Chairman of Qualcomm Inc.), and Young Sohn (Chairman of the Semiconductor Advisory Board of Samsung Electronics Co., Ltd., independent). As of May 20, 2025, SoftBank Group Corp. beneficially owns approximately 87.1% of the Company's total issued and outstanding share capital, granting it significant rights to designate candidates for election to the Board.

Regulatory Environment & Compliance

Multi-Jurisdictional Regulatory Framework: Primary Regulatory Environments: Arm Holdings plc is subject to a comprehensive array of governmental regulations across the U.K., European Union, U.S., and PRC. These regulations encompass intellectual property, tax, economic sanctions, export controls, anti-corruption, national security, foreign investment, foreign exchange controls, cash repatriation, privacy and data protection (including GDPR, U.K. GDPR, and CCPA), security, cybersecurity, data localization, anti-competition, environmental, health and safety, financial reporting, and public sector contracts. Cross-Border Compliance: The Company's operations are significantly impacted by export controls, particularly those imposed by the U.S. and U.K. governments on advanced computing chips and related technologies destined for the PRC. The Neoverse V series processors, for instance, require export licenses for the PRC. The Company has adopted an Insider Trading Policy. International Tax Strategy:

• Transfer Pricing: Not explicitly detailed in the filing.
• Tax Treaties: The Company benefits from the U.K.’s research and development expenditure credit (RDEC) regime, providing a 20% tax credit on qualifying R&D expenditure, and the “patent box” regime, which taxes certain patented product profits at an effective corporation tax rate of 10%. In April 2025, the Company entered into a Tax Sharing Agreement with SoftBank Group Corp. regarding the U.K. Top-up Tax, implementing the OECD framework for Pillar Two to ensure a minimum 15% effective tax rate for multinational entities.
• BEPS Compliance: The U.K. legislation implementing Pillar Two, effective January 1, 2024, did not have a material impact on the Company's financial statements or results of operations for FY25.

Environmental & Social Impact

Global Sustainability Strategy: Environmental Commitments: The Company's climate strategy is subject to evolving regulatory landscapes, such as the SEC's climate-related disclosure rules (March 2024), which were stayed in April 2024, making their effective date uncertain. Carbon Neutrality: Not explicitly detailed in the filing. Renewable Energy: Not explicitly detailed in the filing.

Regional Sustainability Initiatives:

• Supply Chain: Not explicitly detailed in the filing.

Social Impact by Region:

• Community Investment: Not explicitly detailed in the filing.
• Labor Standards: The Company reports good employee relations, with no work stoppages. Employees in France and Hungary are represented by works councils. As of March 31, 2025, the Company had 8,330 global employees, with approximately 83% engaged in engineering activities.

Currency Management & Financial Strategy

Multi-Currency Operations: Currency Exposure: The Company's functional and reporting currency is the U.S. dollar. However, for most international operations, the local currency is the functional currency. This exposes the Company to foreign currency risk, particularly in operating expenses, which are predominantly denominated in British Pound Sterling. Hedging Strategies:

• Transaction Hedging: The Company uses foreign currency forward contracts to mitigate exposure from foreign currency risk arising in operating expenses. These contracts are designated as cash flow hedges, with a maximum hedging period of 18 months.
• Translation Hedging: Not explicitly detailed in the filing.
• Economic Hedging: Not explicitly detailed in the filing.