Charles Shi: Got it. May I ask a quick clarification, Jason? When you talk about acceleration of the percentages, you mean year-on-year or Q-on-Q? Thank you.
Jason Child: Q-on-Q.
Charles Shi: Okay. Thank you.
Operator: One moment for our next question. Our next question will come from Toshiya Hari of Goldman Sachs. Your line is open.
Toshiya Hari: Hi, thank you so much for taking the question. I had a relatively short term question on the June quarter outlook for your royalty business, maybe 1 for Jason. Based on your comments, I think for royalty, you’re assuming something like a 7% sequential decline in revenue. Given the v8 to v9 transition, I would assume — I would think your blended royalty rate continues to grow nicely. So units must be down maybe double digits, again, Q-over-Q. I think typical seasonality is up, sequentially, if I look at your business over the past couple of years. So I guess the question is, what’s driving that sequential decline? I know you’re coming off a really high base, but curious what you’re assuming, whether it be the smartphone market or some of the other big drivers? Thank you.
Jason Child: Sure. So the driver of the 7% sequential decline is really us looking at the combination of what are we seeing all of our partners forecast either through good faith estimates or what they’ve actually just disclosed publicly. And so when I look across — I mean, all the big players. When I look across all of those different markets, I’m basically seeing pretty significant declines or weakness, specifically in, I would say, networking and industrial and loT. I think on the mobile side, things will be pretty consistent. And so, our growth overall will still be very, very much positive in the kind of 20-ish percent range. But because we’re coming off of the kind of the bottom out from over a year ago, the year-on-year will look a little less significant than it did last quarter.
But we’ll see if our partners end up seeing different impacts, which, of course, flow through our royalties, there perhaps may be upside. But that’s what we’re seeing right now, and we’ll obviously let you know what we see at the end of the quarter.
Toshiya Hari: And Jason, just to clarify, is it fair to say that automotive and IoT are relative underperformers into June and client and infrastructure should be relatively resilient. Is that a fair statement?
Jason Child: Yes, I think it’s generally right.
Toshiya Hari: Okay. Thank you.
Jason Child: Thank you.
Operator: One moment for our next question. And our next question will come from Ananda Baruah of Loop Capital. Your line is open.
Ananda Baruah: Yes, good afternoon, guys. Thank you for taking the question. I guess, Rene, maybe Rene, I’d love to get your thoughts on PC potential over the next few years, and perveance in clients, given all the work with various folks in the ecosystem that you’ve been doing, there seems to be a lot of really interesting reciprocity going on. So just any thoughts on the potential would be great. Thanks.
Rene Haas: Yes, thanks for the question. We’ve been obviously working on the Windows ecosystem for a long time. The Apple ecosystem has completely converted over. So when we think about our growth, we’re talking about Windows. I think over the next number of years, we are very positive about the growth potential. I think one of the things that’s needed for the PC industry to grow, particularly the Windows on ARM segment, is going to be a diversification of the supplier base to provide multiple units, multiple SKUs, multiple price points, and multiple experiences for end consumers. Everything I’m hearing says that there are going to be multiple suppliers to serve that market over the next 12 to 36 months. And with that, we think now will be the time, over the next two, three years, where the ARM ecosystem will take a significant level of market share, primarily because of the level of experience that we’ve seen in the other ecosystem, the fantastic performance, the great battery life, the fact that you can build a high-performance machine minus a fan.
I think all those things are going to add up for significant growth. So I think once the vendor base diversifies, I think we’re going to see that growth start to kick in over the next 12 to 36 months.
Ananda Baruah: Yes, it’s really great comment sense. Thanks a lot. Really appreciate it.
Rene Haas: You’re welcome.
Operator: And one moment for our next question. Our next question will come from Gary Mobley of Wells Fargo Securities. Gary, your line is open.
Gary Mobley: Hey guys, thanks for taking my question. Do you — when fiscal year 2025 is done, you will have grown your licensing revenue 20% — a 20% rate for the prior two years and that’s well above what you were predicting during the IPO roadshow, and seemingly you’re predicting long-term 10% growth. So is that the new long term target we should think about in terms of license revenue growth? And related to that, you highlight how you converted half of your top 30 customers into ATA licensees. How hard will it be to convert the other half?
Rene Haas: So thanks for the question. The way I think about the licensing revenue, and you’re right, it’s a nice upside that has been — continue to be very, very strong. The indications that we get looking forward is that we don’t see anything that would stop the licensing activity being a positive momentum. The reason for that is what I mentioned before. If you’re trying to enter any of these markets, that are: A, requiring more and more AI; B, require the rich application ecosystem support; and C, broad OS support, the only logical choice that partners have is ARM. And for that reason, we’re very confident that we continue to maintain and sustain that level of momentum. I think in terms of what percentage of customers ultimately move over to an ATA, my estimation is that probably 80% of the customer base at some point in time can be on that, and which will give us a lot of increased predictability in terms of license renewals, not so much the if they’ll renew but the win, which is probably something we work going forward.
So Jason, I’ll divert to you on the second part of that question.
Jason Child: Well, let’s see, on ATA, so we did — I’m not sure if you caught in the notes, we did increase our ATA partners from 27 to 31, so we added four more, so a little over roughly half of our, I’d say, at least of the top 20 are there now. But I would say what we’re happy about is when we look into next year, even versus what we thought at IPO, we thought that we would probably have closer to 30% year-on-year growth in royalties, and we were all expecting kind of full industry kind of correction. It turns out that the industrial IoT and networking aren’t quite there. And so even though we are taking down royalty a little bit, we’re able to take up license by even more than that royalty reduction mostly because of what Rene just talked about, specifically this demand for additional licensing capabilities very much related to AI.
