Licensing demand helps chip designer ARM beat expectations

Reuters News
Posted: Jul 24, 2013 7:06 AM
Licensing demand helps chip designer ARM beat expectations

By Paul Sandle

LONDON (Reuters) - British chip designer ARM Holdings said it expected continued strong demand for its technology after higher-than-expected licensing of its processors in the second quarter.

The Cambridge-based company reported a 30 percent rise in pretax profit to 86.6 million pounds ($133 million) on Wednesday, beating forecasts.

ARM has outpaced the wider semiconductor market for the past five years or so, helped by the use of its processors in smartphones like Apple's iPhone and tablet computers. It licenses its designs and receives a royalty on every chip shipped by its partners.

Chief Executive Simon Segars, who took over as chief executive from Warren East on July 1, said the firm was continuing to see strong demand for its latest technology for both application processors - the brains in mobile devices - and for graphics technology.

Processor design licensing revenue rose 34 percent year-on-year to 56.9 million pounds, comfortably beating market expectations. Analysts at Liberum expected 18.7 percent growth.

Finance Director Tim Score said he did not see any slowdown in licensing, pointing to a 10 percent increase in the order backlog. "The underpin for future license revenue is looking very strong," he told reporters.

Shares in ARM reached a high of 11.11 pounds in May, exceeding the level they were trading at in the dot-com boom of 2000. They have since come off by about 20 percent, but were up 4.5 percent at 940 pence by 1048 GMT on Wednesday.

Analysts at Investec, who rate the shares a "buy", said the highlight of the results was the exceptional license number, which it said was due to very strong new signings rather than orders taken from the backlog.

ARM's partners signed 25 licenses for its technology in the quarter, including five for its latest Cortex-A designs and seven for its Mali graphics technology.

The company has been increasing its share of the graphics processing market, and on Tuesday Samsung said it had selected Mali for its latest high-end processor, ousting rival Imagination Technologies.


There have been some signs of softness at the top end of the smartphone market, marked by weaker-than-expected sales of Samsung's flagship Galaxy S4 smartphone. Apple, however, comfortably beat forecasts for iPhone sales on Tuesday.

But Score said he expects the smartphone market to remain strong, although the 50 percent-plus growth rates of recent years were easing.

ARM does not rely on the top end of the market, he said. "All smartphones contain more ARM technology than less sophisticated phones and therefore generate higher royalties."

Royalties from chips shipped by partners, such as Qualcomm and Texas Instruments, reported a quarter in arrears, rose 26 percent year-on-year to 77.7 million pounds, broadly in line with expectations.

ARM reiterated its guidance for full-year revenue to at least meet market expectations. Score said he expects analysts revenue forecasts to rise after the second-quarter results, to about $1.09 billion for the year.

Analysts expected the company to report pretax profit of 82.5 million pounds on revenue of 165 million pounds for the quarter, according to a company-supplied consensus. ($1 = 0.6508 British pounds)

(Editing by David Holmes and Elaine Hardcastle)