* Q4 royalties revenue $130.4 mln vs forecasts of $137.9 mln
* Company sees royalties up about 19 pct in 2014
* Licensing beat expectations
* Shares fall sharply
By Paul Sandle
LONDON, Feb 4 British chip designer ARM Holdings
said a slowdown in demand for Apple and Samsung
smartphones was behind a smaller than expected rise
in fourth-quarter royalty revenues.
ARM, whose technology is in nearly every smartphone,
reported processor royalties of $130.4 million, up 7 percent,
but short of analyst forecasts of $137.9 million.
The top-end smartphone market has showed signs of reaching
saturation, with Apple and Samsung, both ARM customers, last
month reporting lower than expected sales of the iPhone 5S and
Galaxy S4 phones in the holiday season.
But the Cambridge-based company also said there was strong
demand for licensing its technology across a whole range of
applications from servers to dishwashers, exercise machines and
wearable technology such as smart watches.
ARM said its royalties continued to grow faster than the
broader semiconductor market, but the degree of outperformance
was impacted by slower sales of chips for high-end smartphones
in the second half of the year.
Chief Financial Officer Tim Score said the smartphones,
which provide just under half of ARM's royalty revenue, were
"slowing down" at the very high end, but cheaper devices were
"Overall royalties in 2014 we expect to grow at a similar
rate to the last three years, broadly 19-20 percent," he said.
Royalties make up just over half of ARM's revenues, with
licenses accounting for slightly less than half.
ARM shares fell to a five-month low after the results, and
were down 3.1 percent at 902.5 pence at 1034 GMT.
Score said ARM continued to see strong demand for the
licensing of its energy-efficient technology for new uses in
networking, servers and wearable devices.
Processing licensing revenue rose 26 percent to $107.2
million in the fourth quarter, beating market consensus
expectations of $94.7 million.
"We continue to benefit from the growth of digital
electronics ... from smart consumer electronics such as phones,
tablets and TVs, to energy efficient enterprise networking and
serves to more embedded computing into things like smart sensors
and wearable technology," he said.
10 BILLION CHIPS
Analyst Julian Yates at Investec said: "Royalties were
slightly below expectations due to slower high end smartphone
sales." He said he expected to trim royalty estimates by about 3
percent, having forecast 22 percent year-on-year growth.
But the stronger licensing outlook would compensate, he
said, resulting in no change to his headline numbers, which were
about 5 percent below consensus. He sees 2014 pretax profit of
419.8 million pounds.
ARM licenses its designs to partners, such as Qualcomm Inc
and Samsung and receives a small royalty on every chip
shipped. Some 10 billion ARM-based chips were shipped in 2013,
The chips in the latest smartphones, such as the first
64-bit processors in the iPhone 5S, carry higher royalty rates
than those in simpler phones.
Score said, however, mid and low-tier smartphones, where
most of the growth will come in the next five years, were
incorporating more and more ARM technology, enabling it to stick
to its medium-term forecast of 15-25 percent per year growth in
smartphone royalties over the next five years.
Overall, ARM posted a 19 percent rise in pretax profit to
95.5 million pounds ($156 million) on revenue up 15 percent at
189.1 million pounds, broadly in line with expectations.
The company said it expected to meet analyst forecasts for
2014 revenue, which Score said stood at $1.28 billion.