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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: £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.

"What would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997

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