Growth Investing -- Still No Wires?
By Nigel Roberts (TMFNigel)
Chippenham, Wiltshire -- In last couple of weeks I have been looking at the Internet revolution, and the impact that the wireless Internet will have. This sector is set for explosive growth over the next few years. In last week's Growth Investing article, "What no wires?" I identified four UK companies that stand to benefit from this growth, and which have the potential to achieve world dominance in the exciting world of the wireless internet, and I promised that this week I would have a look each in a little more detail.
The UK companies that would appear to offer the greatest potential for worldwide dominance include ARM Holdings (LSE: ARM), Vodafone AirTouch (LSE: VOD), Symbian / Psion (LSE: PON) and Baltimore (LSE: BLM) -- if you know of any others please let us know on the Growth Investing message board. I am not going to go into great depth about these companies -- you all probably know and understand them much better that I do -- but I do plan to look at them in relation to the impact that the wireless Internet may have on them in the near future.
ARM Holdings
ARM designs computer chips. Its expertise is in the area of RISC chips. These "Reduced Instruction Set Computing" devices are a form of central processing unit (or CPU, or "processor"), and are gradually taking over from their predecessors, CISC (Complex Instruction Set Computing) CPUs.
ARM targets its chips at the mobile computing market, including handheld computers and smart mobile phones. Critically, ARM chips are at the heart of the hardware specification for the EPOC mobile computing platform being developed by the Symbian alliance. Although ARM is active in more areas than the mobile Internet, it is the link with Symbian that really makes it interesting for this article.
ARM licenses the use of its low-cost, power-efficient microprocessors and system chips for use in an extensive range of applications. The company was established in November 1990 as a joint venture between Acorn, Apple and VLSI. ARM Holdings was first listed on the London Stock Exchange and Nasdaq in April 1998, and its share price performance has been nothing short of spectacular, as this graph shows.
ARM chips are likely to be in almost all of the future mobile Internet devices: indeed, one of our Foolish writers Stuart Watson (TMFTiger) recently posted some figures from a Merrill Lynch research note for ARM dated 20 Dec 1999. This showed some forecasts for the number of ARM chips sold in the future and the share of the market that they were likely to achieve. These made very interesting reading -- as long as you realise that they are no more than guesses of what might happen in the future.
Year to
31 Dec 99 00 01 02 03 04 05
Units(m) 121 245 600 1400 3400 7000 12000
Revenue (œm) 60 86 132 220 404 732 1163
Profit before
tax (œm) 16 24 43 87 178 366 643
In 2005 the 12b chip volume is split:
Hi End Wireless 360m
Low End Wireless 630m
Cars Key ASIC 90m
Cars Distributed 6000m
Digital Still Camera 30m
Home/Office access 100m
Digital Video 132m
Smart Card 2400m
Consumer Appliances 50m
Bluetooth chips 2400m
Mass Storage 45m
Networking 21m
The assumed market shares in the above are:
Wireless 90%
Cars 50%
Smart Card 30%
Bluetooth 80%
If Merrill Lynch are right, and remember this is a very very big if, then ARM will dominate the supply of chips to the wireless/mobile world by 2005. Dominance of world markets is usually a great thing for investors!
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