Customer Concentration: Qualcomm accounted for approximately 10% of total revenue in FY2024, and Arm's top five customers (including Arm China) represented approximately 54% of net revenue in that year.¹ Apple, while not separately disclosed, is another major contributor via its architecture license and royalties on every iPhone, iPad, and Mac. Any renegotiation, license dispute, or architectural shift by a top-tier customer would have material, near-immediate revenue implications across both licensing and royalty lines.
Qualcomm Counter-Litigation: Although Arm lost its December 2024 trial against Qualcomm and all claims were dismissed in September 2025,²⁹³⁰ Qualcomm subsequently filed a counter-lawsuit alleging breach of contract, improper interference with customer relationships, and conduct suggesting Arm intends to compete directly with its licensees by designing and selling semiconductor chips. If Arm is found liable, or if the litigation destabilizes relationships with other major licensees, it could impair future licensing negotiations.
RISC-V Architectural Disruption: RISC-V's open, fee-free ISA is attracting growing investment. Qualcomm's exploration of a RISC-V partnership with Ventana, with potential first commercial silicon by 2027, illustrates that well-capitalized players are hedging architectural exposure. If RISC-V achieves performance parity in high-volume markets, Arm's pricing discipline on new license agreements could face structural pressure.
China Exposure and Regulatory Risk: China represented 18.7% of FY2025 revenue.¹² Arm's China operations are conducted through Arm China (Zhongxin Tengfei), a separately structured entity Arm does not fully control. An escalation in US export controls on semiconductor IP, or political disruption to the Arm China joint venture structure, could impair a significant and growing revenue stream.
Royalty Lag and Volume Sensitivity: Royalty revenue reflects chips that have shipped, not designs licensed. If smartphone or data center unit volumes contract meaningfully (MediaTek flagged a potential 15% smartphone unit volume reduction from memory supply constraints), royalty collection could lag even while licensing activity remains healthy. The structural lag between licensing momentum and royalty realization can create short-term earnings volatility.¹⁵
GAAP Earnings Quality and SBC: The gap between GAAP and non-GAAP operating margins remains substantial. In FY2024, $1.04 billion in SBC nearly eliminated GAAP operating income on $3.23 billion in revenue.⁵ Management cited a non-GAAP operating margin of approximately 41% in Q3 FY2026, versus a GAAP EBIT margin of approximately 15.4%.²¹⁵ Investors pricing the stock on non-GAAP EPS should note that SBC dilutes shareholders regardless of its exclusion from adjusted metrics.

"Think of CSS last year — it was just kind of approaching double digit. And this year, well into double digit. Think of it as being into the teens."
— Jason Child, CFO, Q3 FY2026 Earnings Call¹⁵

Arm Holdings: Royalty Rate Inflection, Architecture Leverage, and the AI Data Center Shift

The Power Delivery Gap