Business Context and Reporting Period
Company: Arm Holdings plc
Filing Type: Annual Report on Form 20-F
Reporting Period: Fiscal year ended March 31, 2026
Business Overview: Arm is a global leader in the semiconductor industry, primarily licensing CPU, GPU, and system IP to semiconductor companies, OEMs, and cloud service providers. In March 2026, the company expanded its offerings to include production silicon products with the introduction of the Arm AGI CPU. The company operates as a single segment and is controlled by SoftBank Group Corp., which beneficially owns approximately 86.4% of the outstanding ordinary shares.
Key Financial Metrics
| Metric (in millions, except per share) | Fiscal 2026 | Fiscal 2025 | Fiscal 2024 |
|---|---|---|---|
| Total Revenue | $4,920 | $4,007 | $3,233 |
| Gross Profit | $4,799 | $3,886 | $3,079 |
| Gross Margin | 98% | 97% | 95% |
| Operating Income | $900 | $831 | $111 |
| Operating Margin | 18% | 21% | 3% |
| Net Income | $904 | $792 | $306 |
| Diluted EPS | $0.85 | $0.75 | $0.29 |
| Operating Cash Flow | $1,524 | $397 | $1,090 |
| Cash and Cash Equivalents (End of Period) | $2,751 | $2,085 | $1,923 |
| Total Debt | $0 | $0 | $0 |
Note: The company reported no long-term debt as of March 31, 2026. Operating cash flow increased significantly due to higher net income and favorable changes in working capital.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 23% to $4.92 billion, driven by a 21% increase in royalty revenue and a 25% increase in license and other revenue. Revenue from related parties (primarily Arm China and SoftBank affiliates) surged 82% to $1.5 billion.
- Expense Increases: Research and development (R&D) expenses rose 34% to $2.78 billion, primarily due to investments in next-generation products like the Arm AGI CPU and headcount growth. Selling, general, and administrative (SG&A) expenses increased 13% to $1.12 billion.
- One-Time Gains: The company recognized a pre-tax gain of $131 million from the divestiture of its Artisan foundation IP business to Cadence Design Systems, Inc. in August 2025.
- Equity Investment Volatility: Income from equity investments turned positive ($14 million) compared to a loss of $237 million in the prior year, largely due to the absence of a $246 million fair value loss on the Ampere investment recorded in FY2025.
- Tax Rate: The effective tax rate was 21.9% for FY2026, compared to a benefit rate of (10.0%) in FY2025, driven by changes in withholding taxes and unrecognized tax benefits.
Guidance, Outlook, and Risks
Outlook and Strategy:
- Production Silicon: Arm is transitioning from a pure IP licensing model to include production silicon (Arm AGI CPU), with production expected by the end of calendar year 2026. This introduces new risks related to manufacturing, supply chain, and inventory management.
- AI Focus: The company is reorganizing into three AI domains: Edge AI, Physical AI, and Cloud AI, aiming to capitalize on the growth of AI workloads across all end markets.
- Acquisitions: Arm entered into an agreement in October 2025 to acquire DreamBig Semiconductor, Inc. for approximately $265 million to enhance networking capabilities.
Key Risks and Contingencies:
- Qualcomm Litigation: Arm is engaged in ongoing litigation with Qualcomm and Nuvia regarding breach of contract and IP rights. The case is expected to go to trial in the fourth calendar quarter of 2026. Qualcomm accounted for 9% of total revenue in FY2026.
- China Exposure: Revenue from the PRC (including via Arm China) accounted for approximately 18% of total revenue. Risks include geopolitical tensions, export controls, and the independent operation of Arm China, which Arm does not control.
- Customer Concentration: The top five customers accounted for 57% of total revenue in FY2026. The largest customer, Arm China, accounted for 16%.
- SoftBank Control: SoftBank Group controls the company and has pledged 72% of its equity interest as collateral for a margin loan facility. A margin call or foreclosure could result in a change of control.
Investor Verification Checklist
- Related Party Revenue: Verify the sustainability of the 82% increase in revenue from related parties, specifically the $704 million in licensing/service revenue from SoftBank affiliates and the $791 million from Arm China.
- Qualcomm Litigation Status: Monitor the progress of the Qualcomm lawsuit, as an adverse outcome could impact a significant customer relationship and result in substantial legal costs or damages.
- Production Silicon Execution: Assess the timeline and cost implications of the new Arm AGI CPU production silicon initiative, including potential margin compression and working capital requirements.
- China Geopolitics: Evaluate the impact of evolving U.S. and U.K. export controls on Arm's ability to sell high-performance chips to the PRC market.
- SoftBank Pledge: Review the terms of the SoftBank Group Facility and the risk of a margin call given the pledged 72% equity interest.