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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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£0.068/chip
By Paedric on 7/25/2012 2:53:27 PM , Rating: 2
That's about 7 cents per chip, it doesn't seem a lot for something that is dominating the market.




RE: £0.068/chip
By Marlin1975 on 7/25/2012 2:55:22 PM , Rating: 2
They are not a chipmaker, even though some keep printing that. They just do basic design and let others build on that.
They have very low cost and don't have to worry about yeilds or fighting others. They let others fight with the same weapon, IP from ARM.


RE: £0.068/chip
By Paedric on 7/25/2012 5:28:00 PM , Rating: 2
But don't they own the ARM architecture? Or are they just doing design on something that is open?

If it's the former, couldn't they say : "If you don't agree with our price increase, no ARM processors for you."?
Of course this only works to a certain extents, after which companies will rather use/create another CPU architecture rather than pay exorbitant price.


RE: £0.068/chip
By FATCamaro on 7/25/2012 7:13:48 PM , Rating: 2
ARM is keeping it cheap so that they can get maximum volume to get more software to ARM. Windows 8 ARM would probably never have come to ARM had ARM not been so dominant in mobile. If they make it expensive, people will seek out alternatives. It's cheap enough that no one bothers, yet. Sure to change in the future though.


RE: £0.068/chip
By lennylim on 7/25/2012 7:41:23 PM , Rating: 2
Where did you see the GBP 0.068 per chip figure? From their earnings statement, I read "ARM's average royalty revenue per chip in Q2 2012 was 4.8 cents".


RE: £0.068/chip
By Dribble on 7/26/2012 5:57:53 AM , Rating: 2
That's why they dominate. ARM runs a tight efficient ship - no huge RnD bloat like some companies. It's very cheap to use ARM, combine that with the fact they license their designs so no strong armed IP defence like Intel makes for x86 and you have something that is hard to beat.

Intel can't compete because it can't match what ARM charges for chips and isn't willing to release it's IP stranglehold to let customers make the chips how they want.


RE: £0.068/chip
By Strunf on 7/26/2012 7:58:01 AM , Rating: 2
"Intel can't compete because it can't match what ARM charges for chips and isn't willing to release it's IP stranglehold to let customers make the chips how they want."

I actually see it as an advantage for Intel over ARM, since Intel makes chips the profits per chip are much higher, sure Intel has to pay for the RnD of the hardware but it's their field of expertize and they already do it for all their CPU anyways. Also since there are almost a dozen companies making ARM processors they have to compete on a tight budget hence less profit on a per chip basis.

Being fabless like AMD is not necessarily a good thing, AMD had some problems cause of it and see how often nVIDIA had "paper" launches cause of the yields at TSMC were too low to actually make cards at a fast pace.


RE: £0.068/chip
By wordsworm on 7/26/2012 8:39:19 PM , Rating: 2
There's a huge difference between AMD and ARM. AMD splits profits to have others make their chips for them. ARM shares its technologies with other companies who want to make chips. These companies include nVidia (Tegra), Qualcom (Snapdragon), Apple (iPad, iPhone).

With the huge growth in ARM based programming, I think it's inevitable that ARM will become the dominant chip maker.


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