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The current global trade uncertainties and macro conditions have caused companies to revisit their product supply strategies. According to IDC, the global smartphone market for instance, registered a modest 1% growth in the last quarter. Recently, ARM Holdings (Nasdaq: ARM) announced its own pivot of the chip strategy as it finds a way to accelerate its growth amid these conditions.

ARM’s Financials

For the first quarter of the year, Arm’s revenues grew 12% to $1.05 billion, missing the analyst expectations of $1.06 billion. EPS of $0.35 was in line with market expectations.

By segment, license and other revenues fell 1% to $468 million and royalty revenues grew 25% to $585 million.

For the second quarter, ARM expects revenues of $1.01-$1.11 billion compared with market expectations of $1.05 billion. ARM expects to end the quarter with an EPS of $0.29-$0.37 compared with market estimates of $0.35.

ARM’s Growth Focus

ARM is a big supplier of architecture for making chips that power billions of devices to companies like Apple and Qualcomm. It designs the architecture upon which many chips are built and earns royalty revenue by selling licenses for its designs on each sale ARM’s customers make. According to ARM, 99% of premium smartphones are powered by its technology. With recent reports revealing slower growth rates in smartphone sales, ARM is looking to diversify its portfolio.

Recently, ARM announced plans to move away from designing to consciously build “something, building chiplets or even possible solutions” to address the growth concern. ARM is seeing a growing need among its customers for an advanced starting point for system-on-chip (SoC) development. It is exploring the possibility of developing chiplets that could integrate into a custom chip to help these customers, or even full end-to-end solutions. The market is concerned about ARM’s executing abilities within the chip building market. Chip building requires significant time and resources to become successful. Additionally, if successful, ARM could also end up taking market share away from its customers such as NVIDIA.

But ARM is not too worried. It believes that it has the relevant experience, and the expertise needed to deliver. With its presence across a broad range of computing devices spanning low-power applications to hyperscale data centers, it is confident that it is well equipped to build solutions needed for complex chips.

ARM wants to investigate these possibilities to strengthen its market leadership and respond to evolving design and manufacturing needs within the semiconductor industry. It is already adding talent to the team and recently announced the addition of Rami Sinno, former Amazon AI chip director, to lead its in-house development of complete semiconductor solutions. Earlier this year, it had also added other executives from HPE and Qualcomm to add to its chip design team. ARM did not disclose a timeframe in which the new strategy would translate into profit, or give specifics about potential new products that are part of the initiative.

The market remains cautious. ARM’s stock is trading at $137.78 with a market capitalization of $145.9 billion. It touched a 52-week high of $182.88 in January, and had fallen to a 52-week low of $80 in April.

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