October 25, 2011 / 10:08 AM / 8 years ago

Strong licensing helps ARM defy weak markets

LONDON (Reuters) - Britain’s ARM Holdings ARM.L said strong licensing of its chip designs would shore up revenue in the absence of the usual uptick in royalties from sales of holiday-season electronic goods.

The company, whose processor architecture powers Apple’s (AAPL.O) iPad and new iPhone 4S, said the sale of 28 licences in the third quarter helped it beat analysts’ forecasts, offsetting weaker-than-forecast royalty revenue.

Chief Financial Officer Tim Score said chipmakers, such as Texas Instruments TXN.N and Samsung (005930.KS), were licensing ARM’s low-energy chip designs for a broadening range of applications ranging from smartphones to toys.

Cambridge-based ARM licenses its designs and collects a royalty, one quarter in arrears, on each chip shipped. Some 1.9 billion ARM-based chips were shipped in the three months to end-September.

The semiconductor industry had a tough third-quarter as high U.S. unemployment and European economic turmoil hit consumer spending. ARM licensees Texas Instruments and STMicroelectronics have both warned of weak demand.

Score said the industry’s gloom meant ARM would not see the usual rise in royalty revenue of about $10 million (6 million pound) between the third and fourth quarters, although it would show some growth.

“The below seasonal growth within the semiconductor industry in Q3 may have an impact on ARM’s Q4 royalty revenues, but we have a high level of order backlog and a strong opportunity pipeline for licensing,” he told reporters on a conference call.

“Taking these together we expect the group dollar revenues for the full year will be in line with current market expectations of around $763 million.”

Shares in ARM, which hit a 10-year high of 652 pence in February, were 0.7 percent lower at 571.5 pence by 9:47 a.m.

HIGH RATING

Analysts at Espirito Santo Investment Bank said the third-quarter beat came from licensing, and royalties were in fact slightly below consensus.

They said given the weak outlook from semiconductor companies and weakness in non-mobile end-markets, there was limited scope for the continuous upgrades needed to justify the company’s 2012 price-earnings ratio of 41 times.

Numis, however, which has a “buy” rating on the stock, took a more positive view.

“The market may be a bit disappointed that there are unlikely to be upgrades to 2011 EPS (estimates) today, however the 41 percent licensing growth is the most indicative of ARM’s long-term prospects,” its analysts said.

ARM said 14 new companies had licensed its technology in the quarter, demonstrating the growing influence of its architecture beyond its traditional stronghold of mobile phones.

The group recently unveiled its new Cortex-A7 processor, which it said will use five times less energy than today’s top-end processors in smartphones from 2013 and keep it ahead of U.S. company Intel (INTC.O) in the mobile sector.

ARM reported a 44 percent rise in pretax profit to 55.8 million pounds on revenue up 20 percent at 120.2 million pounds.

Both were ahead of analysts’ consensus of 51.1 million pounds and 116.5 million pounds respectively. Earnings per share of 3.05 pence also delivered a beat.

Editing by Jon Loades-Carter

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