Rene Haas: Yes. Thanks, Matt, for the question. I think if you go back to the original design win we had with the hyperscalers, and that was with AWS and Graviton, one of the benefits they talked about specifically in terms of using ARM was performance per dollar. The performance per dollar metric becomes increasingly important as you talk about these large CapEx spends having to manage both the CPU and GPU balance. I think that is candidly also going to be a tailwind for growth with us because not only do you get a better TCO from a chip standpoint in terms of performance per dollar, but again, just launching into the AWS example for a moment, they build a chip called Nitro, which is based on ARM for storage offload. And when you combine a nitro SoC with a Graviton SoC into an EC2 compute rack and then you potentially now configure that for acceleration, that’s going to give you a pretty compelling cost advantage versus the competition.
So I think candidly, the trade off and this is why the question in terms of what’s going on with AI and how we think about market share, I think that’s going to be a tailwind for ARM because not only with the standard devices can you configure something that’s fairly interesting, but you can start to imagine if anyone wants to do a custom implementation to greatly enhance some of those interconnect features I’ve talked about, it gets very, very interesting and only ARM allows that flexibility. There’s no way to do that with any alternative. And not only is there no way to do that with the alternative architecture that is the incumbent today, but more importantly, ARM has done all the work with the partners relative to running the boot code, the system, interface, everything to booting the operating system.
So we are extremely well positioned to do well on that platform. So I think the short summary is, I think everything you described is actually going to be quite good for us, which is why I think the growth numbers for our market share in the data center were probably better than we had originally articulated.
Matt Ramsay: Thank you very much.
Operator: And one moment for our next question. Thank you. Our next question will come from Mehdi Hosseini of Susquehanna International Group. Your line is open.
Mehdi Hosseini: Yes, sir. Thanks for taking my question. Just want to go back to your fiscal year 2025 color and specifically on the licensing. Should I assume that the licensing mix rebounded in the second half of fiscal year? Is that going to be driven by more of the smartphone customers renewing for ARMv9 or is that going to be more broad-based?
Jason Child: I would expect it to be more broad-based. As I mentioned, it’s going to be mostly in Q4. I mean, that’s going to be the biggest license quarter of the year. But definitely with the focus on AI and the focus on AI capability in really all the different end markets that we serve, you should expect it to be quite broad-based.
Mehdi Hosseini: And on the smartphone is going to be — the royalty will kick in with the smartphone shipment in calendar year 2025?
Jason Child: Well, our first subsystems will start to launch in the — basically in the last quarter of the year, so you should see it in our Q4, but I guess it would be in calendar Q1 of 2025.
Rene Haas: Yes. From the time we license the technology to the time we see a royalty, it’s probably two or three years best case, which is why the confidence level that we have in terms of royalty growth is quite high because those contracts are done, we know the rates, we know the market share, et cetera. For the new designs, to Matt’s question earlier and Ross’s, if you’re trying to develop an SoC that’s going to fit in the server and it needs to run Linux and it needs to run cis on Kubernetes, et cetera, et cetera, there’s really only one choice, ARM. If you’re trying to build an SoC to run Windows, there’s only 1 choice, it’s ARM. If you’re trying to build an SoC to run Android or Gemini, there’s only 1 choice, it’s ARM.
So the confidence we have in terms of licensing happening is extremely high. The tricky part is always in terms of the visibility, whether that license is signed on December 15 or January 15, which moves across a quarter boundary. But in terms of the confidence that’s going to happen, it’s extremely high because the choices are rather limited if you want to participate in that market. And when you add in factors on the Windows such as Copilot and things such as Gemini for Android, that’s why we’re seeing an accelerating effort of the licensees to be able to get access to next-generation technology to take advantage of these new AI features.
Mehdi Hosseini: Thank you.
Operator: Thank you. And one moment for our next question. [Operator Instructions] And our next question comes from Charles Shi of Needham & Company. Charles, your line is open.
Charles Shi: Thank you very much. Good afternoon. I have a question, maybe a little bit backward-looking. This was a question I got quite frequently over the last quarter about your royalty revenue growth seen in December quarter. And obviously, you see another sequential — very strong sequential growth in March. So in December quarter, since you already disclosed how much of the royalty revenue coming from related parties, which — that’s a proxy of ARM China, we did notice that ARM China actually was the driver for the royalty revenue growth in December, at least on a sequential basis. Outside of China, it’s probably only like a 4%-ish of the sequential growth. So wonder if you guys can use this opportunity to clarify, what was driving that over 50% sequential China royalty revenue growth in December quarter? And can you kind of give us a breakdown for the March quarter, which one, either China or the non-China, is driving most of the sequential growth? Thank you.
Jason Child: Sure, this is Jason. I’ll take that question. So first, I would say there has been a little bit of recovery in China in the handset market. It was up, what is it, 1.5%, 2% or so year-on-year going back to the December quarter. So a little bit was just the general market. But the bigger impact was, I would say, the mix shift of the Chinese consumer buying from, I would say, OEMs or partners. Our revenues are based out of more than the customers but based on one of the partner who effectively sold the product was. So basically, there was a transfer from Chinese customers buying from Chinese producers versus someone from outside of China. And so that — what that shows up as there from a royalty perspective, a shift from rest of world to related parties.
And by the way, related parties is mostly China, there are other parties in there as well. Now in terms of the March quarter end, you’ll see similar trends. The rest of the world did accelerate. I mean, we saw a pretty significant royalty acceleration from, what was it, 11%, 12% back in Q3, and it was 37% in Q4. So there is broad-based increase across the world. But you are going to see more acceleration also in China for really the same factors that we saw back in Q3 as well.
