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2012 looks bright for ARM, even as competitors drop off

ARM Holdings plc (LON:ARM) is an innovator who's been to hell and back.  Born from the 1984 Acorn RISC Machine project, ARM grew under the financial investment Apple, Inc. (AAPL) and its UK parent Acorn Computers.  But mounting financial troubles at Acorn -- and to a lesser extent -- Apple threatened to sink ARM Holdings as the 90s approached.  A bold spinoff ultimately saved the profitable unit.  Divestment of stakes in the spinoff saved Apple, although it was not enough to stop Acorn from sinking.  

I. Apple's Record Profits Mean Big Profits for ARM

The brave little castaway grew from a glorified R&D project into a giant of the electronics world.  From modest beginnings in hard drive and appliance microcontrollers, ARM would go on to define itself as the mobile processor architecture of choice.  Virtually every smartphone and tablet sold today carries a chip that either uses ARM's proprietary core designs, or at the very least licenses ARM's instruction set.  Today there are by far more ARM CPUs in the wild than any other kind of CPU -- including Intel Corp.'s (INTC) traditional PC chips.

2011 was a landmark year of ARM.  While ARM has yet to wholly knock Intel out of the game, it's done its best over the last few years to marginalize it, as people have turned away time-wise from the traditional personal computer and flocked to its mobile evolution, the smartphone.

ARM Powers every smartphone on the market today, and almost all the tablets, as well.  From Android to iPhone, they all use ARM.  [Image Source: Esquire]

2011 saw Android surge out to a big lead, and then slow slightly.  Towards the end of the year, in Q4 2011, ARM's old ex-investor Apple charged back with the iPhone 4S.  But all of these phones had at least one important thing in common -- they all use ARM CPUs and they all funneled royalties/license fees to ARM Holdings.

ARM Holdings reported its Q4 results on Monday afternoon, and once again it blew past analyst estimates.  It pulled in 137.8M £ ($218.4M USD) in revenue -- up 20.9 percent over last year's total of 113.95M £ ($180.61M USD).  The company's pre-tax profit was 69M £ ($109M USD), up 45 percent from 47.6M £ ($75.4M USD) in Q4 2010.  The net profit was 33.1M £ ($52.5M USD) up from 29.7M £ ($47.1M USD).

British Pounds
[Image Source: World of Stock]

Analysts estimated that the company would deliver a revenue of 123.6M £ ($195.9M USD) and a pre-tax profit of 55.8M £ ($88.4M USD).

Warren East, Chief Executive Officer cheers, "In Q4 and throughout 2011 ARM has seen strong licensing growth, driven by market-leading semiconductor companies increasing their commitment to ARM technology, and more new customers choosing ARM technology for the first time. We have also seen our royalty revenue continue to grow faster than industry revenues as the ARM Partnership gains share in our target markets..."

II. Record Run Expected to Continue as ARM Attacks New Markets

Smartphones proved the biggest boost for ARM Holdings.  In a phone conference Chief Financial Officer Tim Score said that a single smartphone could earn ARM as much revenue as five to ten feature (voice-only) phones.

Over 2.2 billion ARM CPUs shipped in Q4 2011, and the company shows no signs of slowing down.  It added 25 new licensees in Q4 2011.  Among them is Hewlett-Packard Comp. (HPQ) who is cooking up the world's first ARM-based servers.  ARM also looks to invade the laptop segment, with the launch of Microsoft Corp.'s (MSFTARM-friendly Windows 8.

Windows Laptops
ARM will power Windows laptops and tablets later this year.  After sluggish delivery by Intel, Microsoft finally opened the gates to ARM and its partners with the new OS.
[Image Source: DailyTech/Jason Mick]

Even as chipmakers like Intel have slashed their outlets due to sluggish sales expectations for 2012, ARM is posting bold predictions.  It expects revenue to rise to 126.2M £ ($200M USD) or more in calendar Q1 2012.  And it expects a total revenue of 542.6M £ ($860M USD)  for the the year.

The future looks truly bright for ARM as it maintains its ubiquitous dominance of the mobile space and begins to expand into new markets.

Sources: ARM, WSJ [Analyst estimates]

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RE: That is one fat profit margin
By Fritzr on 2/1/2012 9:09:08 PM , Rating: 2
Let a FINFET licensee build an ARM chip and you could see some ultralow power consumption. Once the FINFET patent expires it will be available to anyone. Though by then it will likely be obsolete and vastly exceeded in efficiency :P

Intel needs to do what seems to be impossible. Build a chip with the power draw of an ARM that executes the full x64 instruction set.

Remember there was a time that 1000 nanometer process was considered the practical limit. These 'limits' are not barriers, they are research targets :)

RE: That is one fat profit margin
By Hector2 on 2/1/2012 9:31:18 PM , Rating: 2
Everyone is already working on FinFETs. Patents aren't the issue. Intel has the secret sauce for their process and is 2 years or more ahead of everyone else having FinFETs in production. That's a huge advantage. And a lot of what they have are trade secrets that aren't patented. Getting the right recipe is just the first step. Getting it out of the lab and into production is hard --- and very expensive.

With 22nm, Intel's power drops way down and the die size is very small, making it a lot cheaper. Yes, ARM on 22nm FinFET is lower power than Intel on 22nm FinFET, but so what if ARM has a battery life of 4 weeks and Intel is "only" 2 weeks ? Is that really a problem ? And when ARM is on FinFET (14nm at the earliest), Intel will be on 10nm or 8nm FinFET. Intel already has 14nm FinFET owrking in the lab.

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