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Ubiquitous chipmaker beats the street expectations

In his company's quarterly earnings call ARM Holdings Plc. (LON:ARM) Chief Financial Officer Tim Score gushed about his company sterling 25 percent rise in royalty revenues.  By contrast, other intellectual core licensers saw a more anemic 4 percent industry average.

I. The Spoils of Victory

But ARM is hardly average. With royalty revenue now at $121.1M USD, it's pulling in almost half a billion a year in just royalties.  That's the upside to being the maker of the world's most-used mobile instruction set; a set that is licensed by virtually every smartphone and tablet chipmaker.

While many partners merely leverage its instruction set and system-on-a-chip optimization IP, ARM has also been quietly growing its intellectual property core licensing business.  ARM sells GPUs (Mali) and CPUs (the Cortex-Axx series) to third-party chipmakers, which can then incorporate those units into their designs.

A survey of 17 analysts by The Financial Times showed an expectation of £144.63M ($230.41M USD) for the revenue and a pre-tax profit of £67.4M ($107.4M USD).  ARM hit the revenue mark almost precisely £144.6M ($230.36M USD), while beating the profit with a deliver pre-tax result of £68.1M ($108.5M USD).

Shipments of partner-licensed ARM Cortex-A cores rose from 5 percent of the total ARM-architecture chips sold, to 9 percent, on the back of growing smartphone/tablet consumption.  Royalty revenue for Cortex-A now accounts for 35 percent of ARM's total royalties, with the chip architect tacking on seven new Cortex-A licensees for the quarter.  ARM also signed three new Mali licensees.

ARM Cortex A15
Cortex-A licensing drove ARM earnings to new heights. [Image Source: ARM Holdings]

Mr. Score told reporters, "ARM is sensitive to some strong growth areas, like smartphones and tablets, and those of course are the parts of the industry that are growing much faster than the average.  We would expect full-year consensus revenue to go up somewhere around $10 million to $885 to $890 (million)."

That target indicates ARM Holdings' creeping progress towards the $1B USD mark in terms of annual revenue.

II. Windows RT Could Drive New Gains in Q4

The company only makes around 4.5 to 4.9 cents off each chip sold, as it does not produce full-fledged system-on-a-chip (SoC) designs and does not fabricate (or contract someone to fabricate) chips itself.  But the pure licensed architecture approach has allowed ARM Holdings to stay lean and enjoy massive profit margins on its product.

As ARM charges into the world of Windows with the launch of Windows RT this Friday, ARM could see further gains, at the expense of traditional PC-SoC veterans like Intel Corp. (INTC).  

Still, ARM Holdings' earning targets are cautious, based largely on a low-single digit holiday sales spike in mobile devices (versus an average rate of 10 percent for the holiday season).

Watch for it to likely beat that cautious prophesy in calendar Q4 2012.

Sources: ARM, Reuters, FT [analyst estimates]

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Why can't AMD shift to the ARM model
By vision33r on 10/23/2012 8:39:09 PM , Rating: 2
AMD is just bleeding red every quarter going toe to toe with Intel. You can't beat the house with their games and rules.

AMD needs to invent their own tech and branch away from Intel.

ARM is just kicking ass right now, soon there will be more active ARM processors in use than Intel ones.

By mackx on 10/24/2012 10:36:25 AM , Rating: 2
there already are i think. by an order of magnitude. ARM is in every low power device isn't it? well, ARM and OMAP. calculators, fridge/freezer/microwave etc. possibly STBs too

By Jeffk464 on 10/24/2012 8:48:33 PM , Rating: 2
But could AMD compete with Qualcomm? They seem to be doing a fantastic job, although I'm not thrilled with qualcomm software.

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