• Second-quarter pre-tax profits beat analysts' forecasts, rising 25%
• ARM warns sales of electronic goods are subject to 'uncertainties'
The British chip designer ARM Holdings sounded a note of caution about electronic goods sales this Christmas, even as it announced a better than expected second quarter in which its technology, already dominant in smartphones and tablets, was licensed for more and more uses.
Pre-tax profits rose by 25% to £54.2m on revenues up 18% to £117.8m, comfortably beating analyst forecasts, and the Cambridge-based company signed 29 new processor licences during the quarter. A total of 1.1bn of its chips were used in mobile phones and tablets, and 800m in other consumer and "embedded digital devices" such as set-top boxes.
ARM's processor designs have been licensed for manufacture by Apple and Microsoft, and are used by Samsung Electronics, Qualcomm and Texas Instruments. Every smartphone uses three or four ARM chips, rather than the one or two in older "feature phones" – which means the company is benefiting as consumers and businesses switch to the more powerful phones.
Industry revenue in the second quarter, which drives third-quarter royalties, was expected to tick up quarter-on-quarter, ARM said. But it kept forecasts for the year unchanged, indicating that it was less confident about sales ahead of the key Christmas period.
However, it expects the second half of the year to broadly match expectations as smartphone makers such as Samsung and Apple gear up for the Christmas rush.
"There are obviously a number of broad macroeconomic uncertainties that make us cautious as to whether the normal seasonal uptick you see at the end of the year, ahead of Christmas, is as significant as it had been in some other years," finance director Tim Score said.
The shares closed down 19.5p, or 3.17%, at 596.5p as investors digested the worries about consumer spending.
Analyst Paul Morland at Peel Hunt called the results "excellent", but said that with the shares trading at 54 times this year's earnings, they were vulnerable to a set of quarterly results that did not meet the market's high expectations.
Score said that the strong licence sales would drive future royalties as ARM chips were designed into products ranging from cars, air conditioners and running machines to smartphones and computers. "We are building that installed licence base quicker than we ever have done in the past," he said.
But while consumers' appetite for Apple's iPhone and iPad is stronger than ever, growth at competing handset makers such as Nokia, Research In Motion and LG has faltered.
Score said that increased competition among smartphone makers would be good for ARM even if average selling prices of chips fell.
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Source: http://www.guardian.co.uk/business/2011/jul/26/arm-holdings-christmas-sales
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