The chip maker initially plummeted six per cent to 970p a share in the morning before recovering to close at 1,004p, down 3.4 per cent.
Its results were largely positive with a 36 per cent rise in profit to £92.6m, on revenue 27 per cent higher at £184m, beating expectations of £175.8m in revenue.
But the strong performance was overshadowed by weaker royalty profits, which rose 16 per cent to £78.7m, missing expectations of £83.5m.
Arm licences its chip designs to partners, and receives a royalty payments on every chip shipped that includes its technology. Arm gave no forecast that royalty payments would recover following weaker smartphone demand over the summer.
On royalty payments, chief executive Simon Segars remained bullish.
“With more customers choosing to deploy Arm technology in their products and Arm’s royalty revenues outperforming the overall semiconductor industry, this has been another quarter that underpins Arm's long-term growth opportunity,” he said.
Analysts remained upbeat on Arm’s results, due in part to the company’s 48 new licencing.
“The bears will focus on the royalty progression and while the company was at pains to temper royalty expectations at the last results update, consensus has drifted upwards,” said Investec analyst Julian Yates. “The licence result is the key metric that will drive future royalty performance and as such suggests a strong outlook ahead.”