UPDATE 2-ARM Q1 dollar sales fall, misses profit forecast

* Revenue measured in U.S. dollars down 10 pct

* Adjusted pretax and earnings per share miss forecast

* Expects year revenue in dollars to be in line

* Shares drop 1.5 pct

(Adds company comments, reaction, shares)

By Paul Sandle

LONDON, April 29 (Reuters) - British chip designer ARM Holdings (ARM.L) posted a 10 percent fall in dollar sales in the first quarter, though it outperformed a 30 percent slump in the market, and said industry activity continued to slow.

The group reported sales of $120.9 million on Wednesday, which, thanks to the strong dollar, translated into a 18 percent rise in revenue in pounds of 79.9 million.

Analysts, however, were looking for 81.9 million pounds, according to Reuters data.

ARM, whose chip designs are in cell phones such as Apple's (AAPL.O) iPhone and Nokia's (NOK1V.HE) N-Series, reported adjusted pretax profit of 23.9 million pounds for the quarter, short of expectations of 25.6 million, and earnings per share of 1.38 pence, against a 1.45 pence forecast.

"Overall semiconductor industry activity continued to slow in Q1 2009, and whilst there are early signs of improving visibility in some sectors, the near term remains uncertain," the company said in a statement.

The uncertainty in the industry was echoed by chipmaker Wolfson Microelectronics (WLF.L) on Wednesday, which said market visibility remained poor. [ID:nLT841183]

Cambridge-based ARM said, however, it expected group dollar revenue for the full year to be at least in line with market expectations, unless the industry decline was more severe than generally anticipated.

Finance Director Tim Score said in a call with reporters he expected full-year revenue measured in dollars to fall "in the mid teens: 16-17 percent", which is in line with analyst forecasts of about $460 million.

Shares in the group, which have rallied 35 percent since the start of the year, had fallen 1.5 percent to 114.25 pence by 0916 GMT, as analysts saw little sign of certainty in ARM's outlook.

"Whilst ARM's position licensing key technology across the full-range of integrated digital devices remains assured, the outlook for its end-user markets, such as mobile devices (note Nokia's Q1 shipments down 19.2 percent overall) remains weak," said Daniel Stewart analyst Mike Jeremy.

SMARTPHONES BOOST

ARM recognised royalty revenue a quarter in arrears, Score said, so the 8 percent drop in the first quarter should be viewed in the context of a 20 percent drop in industry revenue in the final quarter.

"For a very long time, we have been gaining market share in the consumer market," he said.

ARM, which receives revenue from licensing its designs to chip makers such as Texas Instruments TXN.N, STMicroelectronics (STM.PA) and Toshiba (6502.T) and from royalties on each chip shipped, said it was benefiting from the growth in smartphones.

Score said smartphone sales would keep growing in 2009, albeit at a slower rate than in 2008, and would help counter an overall decline in the mobile market of 10-15 percent. (Editing by Simon Jessop)