31st Jan 2014 15:36
LONDON (Alliance News) - ARM Holdings PLC is expected to report revenue, pretax profit and earnings per share ahead of the previous year in its fourth quarter, despite concerns over the slow down of the smartphone market, say analysts.
According to analyst's consensus forecasts provided by the company, revenue is expected to be GBP185.3 million, up from GBP164.2 million. Pretax profit is expected to be GBP96.9 million, up from GBP80.0 million in the previous year, and earnings per share is expected to be 5.5 pence, up from 4.08 pence.
ARM is ubiquitous in the smartphone market, and licenses its advanced chip designs for use in all sorts of devices, from tablets to monitoring equipment in cars.
Although consensus forecasts put ARM ahead of the previous year, concerns about the slow down of the smart phone market are an issue, which could lead to a subsequent slow down in royalty revenues, as ARM reported in its third quarter results in October.
Goldman Sachs lowered its near-term earnings per share forecast below consensus, expecting fourth quarter earnings per share of 5.2 pence, citing continuing inventory correction in smartphones that had been flagged in profit warnings from Samsung Electronics Co. Ltd and HTC Corporation.
Goldman Sachs also noted the potential effect of the recent appreciation of sterling, and its view that the company's licensing pipeline is driving additional hiring, which would increase its operating expenses forecasts.
Credit Suisse also flagged up deceleration in smartphone growth, but re-iterated its outperform rating for ARM, saying it expects to see its top-line and earnings grown 18% and 28% respectively.
UBS also noted the perceived slow down of the high end smart-phone market, and said that new investors would potentially have less visibility into new areas of growth, and would be less certain because of the slow-down. On the other hand, UBS maintained that ARM's key business drivers remained robust, with royalty revenue increasing and new segments like the Internet-of-things trend emerging.
UBS expects ARM's fourth quarter and full-year results to show stronger than expected licensing but weaker royalty revenue. It expects earnings before interest and tax lower than consensus, adjusted for the recent strength of sterling.
An analyst at Liberum, however, expressed less confidence in the prospect of emerging trends such as the internet-of-things and wearable technology. Liberum said that these other areas, "don't really move the needle all the much," compared to smartphones and tablets. The second quarter sales outlook at smartphone giant Apple Inc, a major user of ARM's chips, failed to meet analyst expectations, perhaps lending gravity to the argument that there is a slow down in the top end of the smartphone market.
Liberum expects royalties to slow down, and said that growth in other areas won't be felt more than the slowdown in smartphones. The appreciation of sterling, Liberum said, would add to this.
Shares in ARM were trading up 1.3% at 933.74 pence Friday afternoon. ARM releases its full-year results next Tuesday morning.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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