January 31, 2012 / 9:46 AM / 6 years ago

Smartphones boost profit at Apple supplier ARM

LONDON (Reuters) - ARM Holdings ARM.L, the British chip designer whose technology powers Apple’s (AAPL.O) iPad and iPhone, posted a 45 percent rise in quarterly profit and said its growth would continue to outstrip the industry as its designs were used in ever more devices.

“We have benefited from the rapid growth of smartphones, tablets and smart TVs, and many of these devices contain multiple ARM chips,” Finance Director Tim Score told reporters on Tuesday.

The Cambridge-based company, which designs the low-energy processors found in nearly all mobile phones, tablets and a host of other devices, said fourth-quarter pretax profit rose to 69 million pounds ($108 million) on revenue up 21 percent to 138 million.

ARM shares rose as much as 7 percent to 640 pence, the top gain in London's blue-chip FTSE 100 index .FTSE, after the numbers soundly beat forecasts and the group gave a bullish outlook.

Analyst Lee Simpson at brokerage Jefferies said the results handsomely beat expectations and the company was well placed to deliver a solid performance this year and next.

Noting strong royalties and a high backlog of licensing deals, Simpson said: “We see ARM in very good shape for 2012 and 2013 whatever the weather.”

ARM counts royalties a quarter in arrears, so its fourth-quarters numbers do not fully capture last year’s holiday season demand, including Apple’s blow-out sales.


The group’s processor designs are licensed to chipmakers such as Texas Instruments Inc (TXN.O), Qualcomm Inc (QCOM.O) and Nvidia Corp (NVDA.O), and in return it receives a royalty for every chip shipped.

A record 2.2 billion chips based on ARM’s technology were shipped in the fourth quarter, Score said.

Royalty revenue grew 21 percent in 2011 as a whole, outstripping an 8 percent rise for the industry, the company said, as its technology was used in devices ranging from tablets to dishwashers.

Smartphones, however, continue to be one of the group’s biggest drivers of growth, and Score said he expected demand to remain strong in 2012.

“The smarter the phone, the more ARM technology you will find on it, and typically we would earn royalties somewhere between 5 to 10 times the level we would from a voice-only phone,” he said.


    Chief Executive Warren East said ARM had also seen strong licensing growth in 2011 as more new customers choose its technology for the first time, and the market share gains looked set to continue in 2012 as its partners introduced new chips.

    The 25 processor licenses signed in the quarter were for the group’s advanced Cortex and Mali graphics technology, ARM said, and two partners had licensed its v8-based architecture, aimed at servers and high performance computing -- sectors dominated by Intel (INTC.O).

    The U.S. group, however, is retaliating with an assault on smartphones with its Medfield chip, and has signed up Motorola Mobility (MMI.N) and Lenovo (0992.HK) to try to gain a foothold in the fast growing market.

    Score said Intel had been planning to enter the market for years. “But we continue to introduce new technology that is higher performance and lower power at the same time,” he said.

    Given ARM’s very strong license revenue in Q4, East said he expected group dollar revenue for the first quarter to be in line with market expectations of around $200 million.

    ARM, which is generally conservative in its guidance, also said it would at least meet market consensus of just over $860 million in revenue for 2012.

    Analysts were expecting fourth-quarter pretax profit of 55.8 million pounds on revenue of 123.6 million, according to a company-supplied poll of 30 analysts.

    ($1 = 0.6377 British pounds)

    Editing by David Holmes and Mark Potter

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