22nd Jul 2014 11:12
LONDON (Alliance News) - ARM Holdings PLC Tuesday raised its interim dividend as it saw pretax profit rise in the half year to end-June, driven by a strong performance from its licensing operations which offset weaker royalty revenues.
The chipmaker proposed an interim dividend of 2.25 pence, up 7.1% from 2.1 pence in the previous year.
The company said it enters the second half of the year with a healthy pipeline of opportunities, and expects to see its royalty revenue grow in the second half as the semiconductor industry improves. As a result of this improvement, it expects to meet market expectations for US dollar revenues for the full year.
Excluding costs for acquisitions, restructuring, share-based payment costs and other exceptional items, ARM posted a pretax profit of GBP191.3 million, up from GBP176.0 million in the previous year, as revenue rose to GBP373.7 million from GBP341.5 million. Including these costs pretax profit was GBP146.0 million, up from GBP82.1 million.
ARM posted a restructuring charge of GBP8.4 million during the year as it cut around 130 people following a review of skills and capabilities across the business. ARM said it was reinvesting new skills and capabilities to further strengthen its organisation for future growth; at the end of the first half it had grown net headcount by 211, it said.
In the second quarter the company saw royalty revenues decline to GBP80.3 million from GBP88.1 million, which ARM attributed to seasonal trends and inventory management in parts of the electronics supply chain, as companies sold off older 3G handsets ahead of the take up of new 4G enabled handsets.
Average royalty revenue per chip was 4.6 cents, down from 5.0 cents in the second quarter, as lower cost ARM-based microcontrollers and smartcards grew faster than high-value chips into smartphones and tablets.
Licence revenues rose 36% to GBP89.6 million from GBP66.1 million in the previous year. Order backlog at the end of the quarter was down around 10%, it said, although it expects its licensing opportunity pipeline to growth this backlog in the second half.
ARM signed 41 processor licenses across mobile computing, consumer electronics and embedded intelligent devices during the half year, taking its total number of licenses signed to over 1,100. The new licences also included further licences for its ARMv8-A and Mali processor technology, which "bodes well for growth in ARM's medium and long term royalty revenues," Chief Executive Simon Segars said in a statement.
ARM shipped 2.7 billion chips during the half year, and of its processor units, 43% of these chips were shipped into mobile applications.
Accendo Market's analyst Michael van Dulken noted that whilst the market had initially reacted negatively to the results, shares in the company have since been trading up due to the raised dividend and positive outlook.
"Results were helped by a strong handheld device market and higher chip shipments giving a 42% boost to licensing revenues, which bodes well for future royalties whose growth is already seen improving in the second half," van Dulken said.
Liberum retained its Sell rating for ARM, saying that whilst ARM's overall results were in line with its forecasts and market expectations, it continues to believe that the long-term consensus forecasts for the company's royalties are too optimistic.
Whilst Liberum agrees with ARM's expectation that royalty revenues are likely to accelerate in the second half, it continues to believe it will be at a rate below market expectations. ARM's royalty revenues are still heavily skewed to the slowing smartphone and tablet markets, Liberum said, and tablet royalties also have been hit by market share losses to the US's Intel Corp.
Whilst ARM is making progress in other segments, none of them are large enough to compensate for the slowing of smartphones, Liberum explained.
"Though some acceleration is likely on the back of the expected launch of the iPhone 6, we do not expect this on its own to reverse the weakening royalty trend," Liberum said.
Shares in ARM were at the top of the FTSE 100 Tuesday afternoon, trading up 5.0% at 875.50 pence, having dropped to 811.00 pence earlier in the day.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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