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ARM shrugs off smartphone slowdown as newer designs win share

Reuters
Updated

By Paul Sandle

LONDON (Reuters) - Britain's ARM Holdings said more than half of all smartphones shipped in the fourth quarter contained its most powerful processor technology, helping it grow revenue even as demand cools in markets such as China.

The company's v8 architecture, which analysts say commands 30 percent higher royalties than its forerunner, has filtered down from devices like Apple's iPhone at the beginning of the year to become the industry standard.

Chief Financial Officer Chris Kennedy said that a 14 percent rise in revenue in the fourth quarter, ahead of expectations, was driven by strong royalties.

Processor royalty revenues rose 24 percent, defying a 3 percent drop in industry revenue for chips in smartphones, although they were boosted by a $9 million late payment.

"We expect chips based on our latest version 8 technology will continue to replace older ARM technology in mobile markets, and gain share in networking infrastructure and servers," Kennedy said.

"It will end up in every phone, even down in the low end."

ARM reported a 17 percent rise in pretax profit to 138.7 million pounds on revenue, measured in dollars, up 14 percent to $407.9 million, for the three months to end-December.

Kennedy said based on current market conditions revenues for 2016 would be "broadly in line" with expectations, which stand at about $1.64 billion.

Shares in the company fell 5 percent to 893.5 pence in early deals, as analysts at Liberum said adjusted earnings had just missed forecasts, once the one-off royalty catch-up payment was excluded.

They also said that the outlook sounded a note of caution. "ARM does not typically use the word broadly," they said.

Some of ARM's biggest customers have raised concerns about demand in China.

Apple, which analysts at Goldman Sachs estimate provides about 5 percent of ARM's revenue, forecast its first revenue drop in 13 years last month as the Chinese market showed signs of weakening.

"Clearly China is an issue for businesses globally," Kennedy said. "For ARM, given our diversification, it's something we focus on but it's not something we are overly worried about."

(Editing by Kate Holton and Louise Heavens)