Print 17 comment(s) - last by chizow.. on Feb 2 at 12:48 PM

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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2.2B ARM shipped is accurate???
By chizow on 2/2/2012 12:06:34 AM , Rating: 2
If so color me unimpressed with ARMs financials. 2.2B ARM chips shipped in Q4 and only $218M in revenue means they are licensing each chip for roughly $.10 a pop. You can't buy ANYTHING nowadays for a dime anymore, yet ARM happily licenses their chip for that much?

Honestly ARM needs to get some more skin in the game because right now, they are still on fragile footing. Tiny company could easily get gobbled up by a big fish like Samsung, I'm surprised no one has made a push yet.

RE: 2.2B ARM shipped is accurate???
By B3an on 2/2/2012 2:18:40 AM , Rating: 3
This is actually pretty normal in the world of these type of small mobile chips and competing companies. And this is one major reason why ARM do so well. The second is because they make chip designs far better than any American company can (Intel and especially AMD).

If ARM didn't license so cheap the chip design alone likely wouldn't make them have more CPU's out there than any other company, and be so attractive to so many hardware makers. This also gives them an advantage for Windows 8, because it's looking like ARM tablets will be way cheaper than any Intel powered alternatives. And being as ARM W8 tablets wont run x86 software, ARM need this large price advantage.

By chizow on 2/2/2012 12:48:36 PM , Rating: 2
I don't have a problem with their strategy, its obviously working great. I just have a problem with their return, assuming that figure is accurate of course.

Does no one else find the .10 cents per chip licensing fee incredibly low? I mean the technology that's changing the world in front of our eyes is being licensed out for a dime. Doesn't seem right.

RE: 2.2B ARM shipped is accurate???
By Calin on 2/2/2012 6:16:33 AM , Rating: 2
On the other hand, cheap ARM chips for cheap phones sell for maybe $10, out of which 90% or more is cost. Now, getting a tenth of the profits from what somebody makes is quite good in my oppinion

By chizow on 2/2/2012 12:45:21 PM , Rating: 2
I don't know where you're getting that 90% cost figure, I highly doubt its that high given firms like Intel and Nvidia are routinely posting 50% or higher margins on their silicon.

Obviously ARMs don't command the same price as these huge ASICs but they're also exponentially smaller and generally don't use the cutting fab processes, meaning further savings and yield benefits. For example, Tegra 3 is only 40nm, while the rest of the GPU industry is moving to 28nm now and the CPU industry is about to go to 22nm.

RE: 2.2B ARM shipped is accurate???
By A11 on 2/2/2012 6:40:52 AM , Rating: 2
"Over 2.2 billion ARM CPUs shipped in Q4 2011"

Somehow I doubt this figure is correct.

Apple and Samsung shipped what? ~100 million ARM units in total. Exactly where did the other 2.1 billion units end up?

By chizow on 2/2/2012 12:40:23 PM , Rating: 2
You have really mundane products like host controllers you'd find on HDDs or simple chips you'd find on home appliances nowadays. 2.2B is REALLY a crazy number though, but like I said, the amount they are getting on each part just seems really low.

I mean we thought the licensing #s on console hardware was low....

"I f***ing cannot play Halo 2 multiplayer. I cannot do it." -- Bungie Technical Lead Chris Butcher

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