22nd Jul 2015 09:07
LONDON (Alliance News) - ARM Holdings PLC is the second biggest faller on the FTSE 100 Wednesday despite saying it expects to meet market expectations for dollar revenue in 2015 and posting a rise in pretax profit for its first half, as concerns over the slow-down of the smart phone market prevail.
Shares in ARM are trading down 3.1% at 1,007.00 pence Wednesday morning, the third worst FTSE 100 performer.
The chip designer reported a pretax profit of GBP198.1 million for the half year to end-June, up from GBP146.0 million a year before, as revenue rose 22% to GBP456.0 million from GBP373.7 million. In dollar terms revenue rose 15% to USD705.2 million from USD614.8 million.
Within this, licensing revenue rose 7% to GBP95.8 million from GBP89.6 million, whilst royalty revenue rose 41% to GBP113.5 million from GBP80.3 million.
The company has seen a speed-up in licence revenue growth in recent years, a 29% compound annual growth rate between 2010 and 2014, but this growth is now slowing, and ARM continues to guide for licence revenue growth of between 5% and 10% in the medium term.
The company said its group order backlog at the end of the second quarter of the year was up 2%, and based on the medium-term outlook for licence revenue growth, it expects quarterly sequential movements of backlog to be lumpy.
Royalty revenue was driven by an acceleration in growth after a slowdown in previous quarters caused by inventory management in the electronics supply chain, as companies sold off their older 3G handsets ahead of the proliferation of new 4G handsets.
ARM's royalty revenues are realised one quarter behind the industry as a whole, meaning that the industry's second quarter is the shipment period for ARM's third quarter royalties. Industry data indicates a "small sequential increase in industry revenues", ARM said Wednesday.
ARM proposed an interim dividend of 3.15 pence per share, up from 2.52 pence in the previous year.
Since February the company has undertaken a limited share buyback programme, and during the second quarter bought back 4.0 million shares at a total cost of USD45 million.
During the second quarter the company signed 54 processor licences, which it said reflects strong demand for its latest technology across a range of end markets and customers.
The company said it enters its second half with a "robust pipeline of opportunities for licensing".
"Assuming macroeconomic uncertainty does not further impact consumer spending we expect overall group dollar revenues for full year 2015 to be in-line with current market expectations," ARM said in a statement.
Major ARM customer Apple Inc reported Tuesday a 38% rise in profit for its third quarter driven by strong sales of the iPhone and Mac. However its forecast for its fourth quarter fell below analyst expectations, and shares in the technology giant are trading down 4.9% in the US pre-market.
Whilst Apple did not break out the figures for its newly launched Apple Watch product, it said it had seen a "great start".
ARM's results fell short of broker Liberum's estimates for both second quarter dollar revenues and earnings before interest and tax, and Liberum noted that ARM will need a very strong second half to meet its full-year guidance, which it believes is a risk given the recent weakness in the smartphone market. Liberum cited weaker than expected second quarter results for ARM's key partners, including Apple, Samsung Electronics and MediaTek Inc.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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