* Q2 pretax profit up 9 pct to 94.2 stg
* Processor licensing revenue up 42 pct, royalty revenue up
* See pick up in royalty growth in second half
* Shares up 4.8 pct
(Adds CFO comments, shares, analyst reaction)
By Paul Sandle
LONDON, July 22 ARM Holdings posted a 9
percent rise in second-quarter profit as licensing of its
processor technology compensated for a slowdown in high-end
smartphone sales that decimated growth in royalties.
The Cambridge-based company, which sells blueprints for chip
designs and receives royalties on every chip shipped by partners
such as industry leader Taiwan Semiconductor Manufacturing Co
, reported pretax profit of 94.2 million pounds ($161
million) on revenue also up 9 percent to 187.1 million pounds,
both beating analysts' expectations.
With the smartphone industry in the doldrums, nearly all of
ARM's revenue growth, measured in dollars, was the result of
chipmakers signing 41 new licences for its processors. That
prompted a 42 percent rise in revenue, to $125.8 million, across
applications from micro-controllers to wearable technology.
Royalty revenue from chips shipped in products like
Samsung's and Apple's smartphones, grew
just 2 percent in dollars, and once translated into sterling
fell 8 percent.
The smartphone market is suffering a period of slowing
growth as penetration rates in some major Western and Asia
markets start to exceed 50 percent, and consumers upgrade their
devices less often.
Samsung, the market leader, said earlier this month that its
second quarter earnings would be hit by a build up of unsold
products in Europe.
Chief Executive Simon Segars said ARM's royalties were hit
by the same seasonal trends and inventory management in parts of
the electronics supply chain.
The smartphone market is however expected to receive a boost
in the third quarter when Apple is widely tipped to release the
successor to the iPhone 5.
ARM's chief financial officer Tim Score said market data
indicated improving semiconductor industry conditions, which
should result in a recovery in royalty growth.
"During the second half we would expect royalty revenue
growth to reaccelerate towards more normal level," he said.
"Whether we get all the way back to the more normal levels in
the high teens we will see."
He said some of the stock that had languished on shelves was
3G smartphones, as consumers increasingly wanted 4G devices.
"Some of the guidance from some of ARM's bigger royalty
shippers is encouraging, we are going to see the roll out of new
technologies - 4G, LTE - which is going to increasingly
incorporate the latest ARM technology, which yield higher
royalty rates for us," he told reporters on Tuesday.
Shares in ARM, which were trading at 12 month lows coming
into the results, were up 4.8 percent to 874 pence by 0858 GMT,
the top riser in the FTSE 100 index.
Analysts at Investec, who have a "buy" rating on the stock,
said headline pretax profit was inline, and the outlook for
full-year revenue intact, but the mix continued to shift towards
"Royalty weakness is not ideal, but it should bounce back as
the 4G cycles kicks in, with licence strength underpinning the
mid-term outlook," they said.
The company, which said it was on track to meet market
revenue expectations of $1.3 billion for the year, increased its
interim dividend by 20 percent to 2.52 pence a share.
Analysts had expected pretax profit of 90.9 million pounds
and revenue of 182.5 million pounds ($312 million), according to
a weighted consensus compiled by Thomson Reuters.
($1 = 0.5855 British Pounds)
(Editing by Kate Holton and Sophie Walker)