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No matter who wins the smartphone war, ARM is the (almost) guaranteed victor

Intel Corp. (INTC) is looming on the horizon, threatening the domination of Cambridge, U.K.-based ARM Holdings plc. (LON:ARM) in the smartphone and tablets market.  Intel's early performance has been better than expected, but hasn’t resulted in many design wins.  That could soon change, though, when Intel's ultra-mobile Atom system-on-a-chips (SOCs) shrink next year to the 22 nm node.

But for now, ARM remains king of things mobile and embedded.

I. ARM Continues to Beat Cautious Analyst Expectations

The British chipmaker reported its Q2 earnings today, and it showed very healthy performance.  Despite a smartphone sales miss from Apple, Inc. (AAPL) a key instruction set licensee -- ARM continued to demonstrate that it did not rely on any single licensee, but rather its dominance of the entire market.

iPhone 4S
Weak iPhone sales did not hurt ARM's earnings. [Image Source: PocketLint] 

ARM posted a pre-tax profit of £66.5M ($104.5M USD) on revenue of £135.5M ($213.0 M USD).  That works out to earnings of 3.58 pence/share, or about 5.63 cents/share.  A poll of analysts by The Financial Times reported a consensus expectation of 3.19 pence per share on revenue of £138.5M.

The actual results are interesting, as they mean that ARM made 12.2 percent more profit than expected, despite making 2.2 percent less revenue that expected.

This is the fourth straight quarter for ARM beating analyst expectations.  The company is today one of the largest powers in the chipmaking world, just over two decades after its 1990 spinoff from Apple and the now-defunct UK computer-maker Acorn Computer.

II. New Partners Added to ARM's Stable

The profit surprise was driven by strong sales of 2.0 billion licensed chips for the quarter and the addition of 23 new licensees.  Among those licensees was Advanced Micro Devices, Inc. (AMD), who is pairing with ARM on several efforts.

ARM Holdings CEO Warren East summed up some of his firm's other highlights, stating, "ARM's royalty revenues continued to outperform the overall semiconductor industry as our customers gained market share within existing markets and launched products which are taking ARM technology into new markets.  This quarter we have seen multiple market leaders announce exciting new products including computers and servers from Dell and Microsoft, and embedded applications from Freescale and Toshiba.  In addition, ARM and TSMC announced a partnership to optimise next generation ARM processors and physical IP and TSMC's FinFET process technology.

All of these new products are the result of technology engagements over many years, and ARM's long-term commitment to invest in the development of innovative technology."

ARM chip on penny
ARM continues to add dozens of mobile and embedded licensees, who are eager to get there hands on its power-efficient, high-performance architecture. [Image Source: Digital Trends]

One interesting metric was ARM Holdings' addition of two new Mali licensees.  Mali is ARM Holdings' graphics processing unit (GPU) intellectual property core.  It competes with rival IP core designs from Imagination Technologies Group plc. (LON:IMG), another UK firm.

Q4 2012 will be a pivotal one for ARM as it will mark the launch of the first ARM-powered Windows PCs.

Overall the semiconductor industry is seeing a period of soft demand, down 4 percent from the second calendar quarter of 2011.  But ARM continues to buck that trend, and analyst expectations, shipping 9 percent more chips than it did during last year's second quarter.

Source: ARM Holdings



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RE: No one bought ARM yet?
By Marlin1975 on 7/25/2012 2:52:01 PM , Rating: 3
Market Cap is 11billion right now. Add in another 20-40% on top for a buy out and its not worth it based on 200million in Rev.
Their P/E ratio is above 5000! Thats crazy, even in tech.


RE: No one bought ARM yet?
By Marlin1975 on 7/25/2012 2:53:34 PM , Rating: 2
sorry; supposed to be above 50 P/E, read wrong line. Still high.


RE: No one bought ARM yet?
By MrBlastman on 7/25/2012 3:43:13 PM , Rating: 2
Guys, learn something about earnings reports before you speak. The article may or not have been poorly written (I'm not reading it again) but I can assure you that 200 million in revenue was only for the second quarter of 2012.

In 2011 they did 791 million total in sales. Not 200 million.

The P/E isn't above 5000, 56.41, which, in reality, isn't that high for a growth tech stock. Growth companies in tech can routinely hit 40, 80 or 120.


RE: No one bought ARM yet?
By JasonMick (blog) on 7/25/2012 4:05:55 PM , Rating: 2
Yup....
quote:
The British chipmaker reported its Q2 earnings today...
ARM posted a pre-tax profit of £66.5M ($104.5M USD) on revenue of £135.5M ($213.0 M USD).


Good points on the P/E ratio.

One last point, the $791M USD last year, it's already pocketed appr. $415M this year, and it hasn't even hit Q4, which is always the biggest quarter due to holiday sales.

I would consider it a fairly good bet that pre-tax earnings will hit $1B USD for the year.


RE: No one bought ARM yet?
By aurareturn on 7/25/2012 6:03:50 PM , Rating: 2
Would it be anti-competitive if a company like Apple or Qualcomm buys ARM and then stops licensing its architecture to partners?


RE: No one bought ARM yet?
By FaaR on 7/25/2012 8:15:15 PM , Rating: 2
Duh.

I think you pretty much answered your own question... ;)


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