21st Apr 2015 09:27
LONDON (Alliance News) - Shares in ARM Holdings PLC Tuesday hit an all-time high as it reiterated its expectations to "at least" meet current market expectations for dollar revenue in 2015, and it posted a rise in pretax profit in the first quarter of the year as royalty revenue continued to grow on strong demand for its customers' mobile devices, particularly 4G smartphone handsets.
Shares in the chip designer, whose chip designs are used by consumer technology giants like Apple Inc and Samsung Electronics and which competes with the likes of Intel Corp, are trading up 6.5% at 1,224.49 pence Tuesday morning, the top gainer on the FTSE 100 and clearing the previous all-time high of 1,205.00p hit last month.
ARM posted a pretax profit of GBP103.4 million, up from GBP78.0 million in the first quarter of 2014, as revenue grew to GBP227.5 million from GBP186.7 million.
Within this, dollar licence revenue was up 3%, as growth in physical IP licenses offset a 2% decline in processor licenses. It signed thirty processor licences during the first quarter, including four licences for processors based on its higher royalty ARMv8-A architecture.
The company continues to expect licence revenue growth of 5 to 10% a year in the medium term, but its order backlog at the end of the quarter was down around 7% sequentially. Based on its medium term outlook for licence revenue growth, it expects quarterly sequential movements of its order backlog to be lumpy.
However, dollar royalty revenue continued to improve, rising 28% whilst shipments of ARM processor-based chips rose 31%, as it saw an increase in the number of chips going into mobile devices, and a strong comparator due to inventory correction in the first half of 2014. The number of ARM-based chips shipped into embedded applications, such as micro-controllers and smartcards, were up 40% compared to the previous year.
Royalty revenue growth began to pick up in the fourth quarter of 2014, where it saw 16% growth, helping to reverse a slowdown in growth in previous quarters caused by seasonal trends and inventory management in the electronics supply chain as companies sold off their older 3G handsets ahead of the proliferation of new 4G-enabled handsets.
The company said that industry data for the first quarter, being the shipment period for its second quarter royalties, indicates a decrease in industry-wide revenues that is broadly consistent with normal seasonality. It expects its second quarter dollar revenue to be in line with current market expectations.
ARM said it expects to benefit from higher royalty percentage per chip from handset manufacturers launching smartphones and tablets using its ARMv8-A and Mali graphics processors compared with previous generations of devices. Production of these smartphones and tablets will ramp up in the second half of the year.
"As the world becomes more digital and more connected, we continue to see an increase in the demand for ARM's smart and energy-efficient technology, which is driving both our licensing and royalty revenues," said Chief Executive Officer Simon Segars in a statement.
Despite the strong results, Liberum reiterated its Sell rating on the company. Liberum noted that strong shipments from Apple Inc in the first quarter boosted ARM's royalty revenue, but said the decline in processor licensing revenue is "significant" as ARM's growth has primarily been driven by licensing over the last five years.
Whilst bulls will argue that royalty revenue growth is accelerating, Liberum said this misses the fact that overall revenue growth in dollars is actually slowing as licensing growth moderates. Additionally, Liberum continues to believe that ARM is overvalued, even if it were able to get 100% share in all of its available markets.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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