W.016Arm’s licensing grew 50% and carried the quarter. Royalties grew 8%
Arm’s fiscal second-quarter revenue rose 27% to $1.44B, its best second quarter. Licensing rose 50% to $773M while royalties rose 8% to $670M, down from 22% growth the quarter before and below their June-quarter level; Arm said data center royalties doubled. Revenue from related parties, which Arm does not name in its letter (SoftBank is its controlling shareholder), was $424M, 29% of the total. Arm guided to $1.54B for the December quarter.
Licensing moved back ahead of royalties in the September quarter
Arm revenue by type, $M, for the September quarter a year earlier, the June quarter and the September quarter of 2026, from its shareholder letters (in the March 2026 quarter, not shown, licensing was also ahead); and its guidance for the December quarter, which it does not split by type (solid to the low end, outlined to the high end).
Data
| $M | Q2 FY26 | Q1 FY27 | Q2 FY27 |
|---|---|---|---|
| License and other | 515 | 574 | 773 |
| Royalty | 620 | 715 | 670 |
| Revenue | 1,135 | 1,289 | 1,443 |
| Related parties | 422 | 388 | 424 |
| Non-GAAP operating income | 467 | 531 | 638 |
| ACV | 1,600 | 1,732 | 1,790 |
The quarter
Licensing supplied 84% of the growth. Revenue rose $308M on a year earlier: $258M from licensing and $50M from royalties. Against the June quarter, licensing rose 35% and royalties fell 6%. Arm’s letter says royalty growth was partly offset by the effect of memory prices on the smartphone market, while data center royalties doubled year over year; it gives no dollar figure for data center. Royalties came in below the $720.8M analysts expected and licensing above the $625.1M estimate, according to Reuters. In the June quarter, Arm said they had more than doubled. On the call, Arm said licensing came in about $100M above its own expectations because customers pulled commitments forward, according to a MarketBeat summary.
Non-GAAP profit rose faster than revenue. Non-GAAP operating income was $638M, a 44.2% margin, against $467M a year earlier; non-GAAP earnings per share were $0.52, against $0.39 and the $0.47 analysts expected, according to Reuters. GAAP operating income rose 23% to $201M, and GAAP net income fell to $130M from $238M. Free cash flow fell to $110M from $411M. Annualized contract value, Arm’s measure of committed licensing fees excluding royalties, was $1,790M, up 12%.
Royalty growth fell from 22% to 8% in a quarter
Year-on-year growth in Arm’s license and royalty revenue, as reported in each quarter’s shareholder letter.
Who paid, and what comes next
Related parties paid $424M. Arm reports revenue from related parties without naming them or splitting it by type; its controlling shareholder is SoftBank. It was 29% of revenue, against 30% in June and 37% a year earlier. On the call, Arm said its licensing and design services agreement with SoftBank contributed $209M, up 17%, according to the MarketBeat summary; that would be 27% of licensing. Securities.io reported that in October Arm committed to buy $672M of semiconductor products through 2027, with a related-party customer making a matching commitment; 06.ai could not read that note in the filing.
The guide is 7% above the quarter just reported. Arm expects December-quarter revenue of $1.49B to $1.59B and non-GAAP earnings of $0.56 a share, plus or minus $0.04. On the call, according to the summary, Arm expected licensing to grow a little over 50% and royalties to grow in the low single digits. Arm also said it has more confidence in up to $2B of revenue over fiscal 2027–28 from its own AGI CPU, with first commercial deliveries in the March quarter. Its letter in July had said customer demand for the chip exceeded $2B over the same period.
Related parties paid 29% of revenue
Arm revenue from related parties and from everyone else, $M, from its shareholder letters. Arm’s letter does not name the related parties (its controlling shareholder is SoftBank) and does not split this revenue between licenses and royalties.
What this changes on 06.ai
- Series lead: Arm’s royalty growth against its licensing growth, quarterly. Royalties follow chips shipped; licensing follows designs started. The guide implies the gap holds through December.
- Series lead: Arm’s AGI CPU revenue against the up-to-$2B it expects over fiscal 2027–28, starting with the March 2027 quarter.
- Pack lead (AI compute demand): Arm says data center royalties doubled but does not size them; a disclosed figure would let the pack count Arm-based server CPUs directly.
Sources and method
| Item | Figure | Source |
|---|---|---|
| Q2 FY27 | Revenue $1,443M (+27%); license and other $773M (+50%); royalty $670M (+8%); data center royalties doubled year over year; royalty growth partly offset by memory pricing’s effect on smartphones; non-GAAP operating income $638M; non-GAAP EPS $0.52; GAAP operating income $201M; GAAP net income $130M ($238M); free cash flow $110M ($411M); ACV $1,790M (+12%); revenue from related parties $424M ($422M); Q3 guidance revenue $1.54B ± $50M, non-GAAP EPS $0.56 ± $0.04; up to $2B of AGI CPU revenue over FY27–28, first commercial deliveries in Q4 FY27 | Arm shareholder letter, Nov 4 |
| Q1 FY27 | Revenue $1,289M; royalty $715M (+22%); license $574M (+23%); non-GAAP operating income $531M; related parties $388M; data center royalties more than doubled; Q2 guidance $1.38B ± $50M, EPS $0.47 ± $0.04 | Arm shareholder letter, Jul 29 |
| Q2 FY26 | Revenue $1,135M; license $515M (+56%); royalty $620M (+21%); non-GAAP operating income $467M; related parties $422M; ACV $1,600M | Arm shareholder letter, Nov 5, 2025 |
| Estimates | Revenue estimate $1.38B and Q3 estimate $1.53B (LSEG); royalty estimate $720.8M, licensing $625.1M; adjusted EPS estimate $0.47; shares about 1% lower in extended trading | Reuters, via MarketScreener, Nov 4 |
| Call | SoftBank licensing and design services agreement $209M in the quarter, +17%; licensing about $100M above Arm’s own expectations as customers pulled commitments forward; Q3 licensing growth a little over 50%, royalties up low single digits | MarketBeat call summary, via Yahoo Finance, Nov 4 |
| March quarter | Q4 FY26 (March 2026): revenue about $1.49B; licensing $819M; royalty $671M | MarketBeat call summary, May 6 |
| Subsequent event | In October Arm committed to buy $672M of semiconductor products through 2027, with a related-party customer making a corresponding commitment | Securities.io, Nov 4 |
Revenue is license and other plus royalty: Q2 FY26 $515M + $620M = $1,135M; Q1 FY27 $574M + $715M = $1,289M; Q2 FY27 $773M + $670M = $1,443M. Growth rates in chart 2 are as Arm reports them; recomputed from the dollar figures, Q2 FY27 licensing is +50.1% and royalty +8.1%. Share of growth: $258M ÷ $308M = 83.8%. Quarter on quarter: licensing $773M ÷ $574M − 1 = +34.7%; royalty $670M ÷ $715M − 1 = −6.3%.
Related parties: $422M ÷ $1,135M = 37.2%; $388M ÷ $1,289M = 30.1%; $424M ÷ $1,443M = 29.4%; “others” is revenue minus that. SoftBank share of licensing: $209M ÷ $773M = 27.0%, from a call summary, not the letter. Margin: $638M ÷ $1,443M = 44.2%. Guide: $1,540M ÷ $1,443M − 1 = +6.7%. After-hours moves varied between about 1% and 2% lower across reports; Reuters’ figure is cited.
Wire reports are written within hours of the news, on a six-hour schedule. Each lists its sources and shows the arithmetic behind its figures. Not investment advice.