Arm became publicly listed again in September after Japan’s SoftBank Group Corp, which still owns more than 90 per cent of the firm, sold some of its shares. One issue that Arm is grappling with is new accounting rules that affect how it must recognise revenue from large, multi-year licence deals.

In a shareholder letter, Arm’s top executives said that “revenue recognition profiles for future agreements are subject to change”.

Analysts said that the unpredictability raises questions about Arm’s valuation, which, at more than US$65 billion after its initial public offering, was far higher relative to its anticipated annual revenue than any other semiconductor company.

“There are still questions about whether there is a sustainable growth narrative for this company,” said Ben Bajarin, chief executive and principal analyst at Creative Strategies. “The quarter looked good, but the guidance didn’t look good – we don’t really understand what the customer cycle looks like.”

Arm chief financial officer Jason Child told Reuters that the below-expectations guidance for the current fiscal third quarter but higher full-year forecast was because the company now expects a major licensing deal to land a quarter later than initially expected.

“These are very, very large deals that require lots of complicated approvals that go to the highest levels and it’s organisations that can take a while and that’s hard for us to predict,” Child said in the conference call Wednesday.

Arm said it forecast a fiscal 2024 revenue range with a midpoint of US$3.02 billion, above analyst expectations of US$2.95 billion, according to data from LSEG. For the current fiscal third quarter, Arm expects a revenue range with a midpoint of US$760 million, below analyst estimates of US$767.84 million, according to LSEG data.

For Arm’s second fiscal quarter ended in September, revenue jumped 28 per cent to US$806 million, ahead of an average estimate of US$744.31 million, according to LSEG data. Adjusted profit of 36 cents per share beat expectations of 26 cents per share.

Arm has been working to expand from its stronghold of mobile phone integrated circuits into other areas such as data centre servers and personal computer (PC) chips. Reuters last month reported that Nvidia plans to use technology from Arm in a major new challenge to Intel in the PC market.

Arm has two primary revenue streams: the upfront licensing fees it charges for access to its chip designs and other IP, and a royalty that it collects on each chip sold that was made with its IP. Arm has said it aims to increase its royalty revenues by moving into parts of the semiconductor market where chips sell for higher average prices.

Arm said that royalty revenue for the fiscal second quarter declined to US$418 million, below analyst expectations of US$420.3 million, according to data from Visible Alpha. Licensing and other revenue for that quarter was US$388 million, above expectations of US$326.9 million, according to data from Visible Alpha.

Child told Reuters that Arm’s second-quarter royalty revenues still reflected a chip glut that affected the semiconductor industry broadly.

“We expect our royalty numbers to flip to positive (growth) this quarter,” Child said.

It reported a net loss of US$509 million in the quarter, driven by employee stock compensation costs. The company said its initial public offering generated a large one-time expense for previously granted shares and that future employee stock compensation costs are expected to be between US$150 million to US$200 million per quarter.