ARM: Bluetooth,results,mkt-share on phones, stocksplit, Transmeta
Bloomberg results:ARM 4th-Qtr Profit Quadruples on Chip Design Payments
Nasdag article: INTERVIEW: ARM's competition didn't warrant market jitters, says CFO Brooks
LONDON (AFX) - The threat posed by Transmeta's new super chip 'Crusoe' has been overplayed but the market response was understandable, according to ARM Holdings finance director Jonathan Brooks.
"When you get news like the news from Transmeta -- which doesn't really affect us I don't think -- people get frightened," Brooks said in a telephone interview with AFX News after the release of full-year results that exceeded analysts' expectations.
"A better understanding of ARM's market would help stabilise the share price," he said.
The positive results follow a month of turbulent trading, when ARM's market value fell by one third amid speculation of increasing competition from U.S. group Transmeta.
This drop in value could have been avoided if investors knew more about the
company's core market, according to Brooks.
"It's always difficult in a technology business to try and explain what you do," he said. "We've been trying to explain for two years, and obviously we still have some way to go."
In the wake of recent stock fluctuations, Brooks views the five-for-one stock split announced this morning as a move to make ARM's share price more stable.
He commented: "There's been a lot of volatility recently, which we don't really like. If we have a split the share price will come down to a more usual
level.
"There's only about two other companies on the FTSE that have a higher share level," he said. "If we can get the price down we can hopefully get less volatility and more liquidity."
He also suggested the high share price was discouraging new investors. "We've got 14,000 shareholders now, which is a huge increase from 1000 a year ago," he said. "But it's still not as many as a FTSE company would expect to have."
ARM reported a 91 pct rise in 1999 pretax profits to 18 mln stg, up from 9.4 mln in 1999, and against analysts' forecasts of 15.8-16 mln stg. Revenues increased 47 pct to 62.1 mln stg from 42.3 mln stg, with shipments of ARM-powered products rising 124 mln units to 175 mln units in 1999.
ARM directors believe the unforecasted increase in revenue was largely because of the value of existing licensing deals.
Brooks said: "Royalty revenues were the highest percentage of total revenues that we've had, at 23 pct. And royalties being a bit higher than we'd expected, that pushed the result up, so we exceeded analysts' expectations."
Brooks is confident of repeating this level of growth in the future, but accepts that the company will come under increasing pressure as competition within the semiconductor market intensifies.
However, he believes ARM's standing within the industry gives it an advantage over newcomers.
He explained: "The business model to us is an important defence against new technologies coming in. It's not just the technology that's important, it's our business model and the relationships we've established.
"All of the leading operating systems and tools vendors in this embedded market make sure that what they sell also runs on the ARM architecture, so we develop this huge community. It becomes an enormously simple choice for the end customer."
Brooks stressed that the company's focus must be to continue to develop new products within their existing market sectors.
The wireless telecommunications sector forms the cornerstone of the company, with ARM chips found in around 70 pct of digital mobile phones currently on the market.
This is a market ARM are keeping pace with, according to Brooks, who pointed towards the recent licensing deal with Ericsson to develop applications using the wireless communication protocol Bluetooth.
He explained: "Ericsson is licensing Bluetooth, and we're helping to productise it and deliver it to their licencees. I think it's interesting that Ericsson has chosen us as a way of getting to market.
"I think that this deal shows how ARM is becoming really well-placed in the industry," he continued. "Ericsson is recognising that we're becoming the open standard."
However, ARM's dominance in the mobile phone sector does not mean the company is reliant on it, directors say.
Brooks explained: "We licence our technology generically, so we don't specify the area that the technology is used in.
"Essentially we're selling building-blocks that companies can use. Our technology can be used in a huge range of applications, so it isn't true to say that the more things we get in to the thinner we are spread."
New products such as the ARM10 range will focus on higher performance than previous models. But as chip design gets more complex, development time and expense inevitably increases.
ARM already spends around 27,700 mln stg -- a quarter of its revenues -- in research and development, with this forecast to increase by around 10 mln stg for the forseable future.
However, the longer development time means there is no guarantee of regular product launches to offset this development.
The way to combat this problem is for ARM to be pragmatic about the needs of the marketplace it supplies, according to Brooks.
"If you design more complex processors then it's probably going to take more resource," he said. "But I think we've got to be intelligent about things going forward.
"We've got to develop things that are going to help people in end markets rather than simply getting larger and larger teams to make faster and faster processors."
This means ARM will not be entering the consumer processor market currently dominated by Intel and AMD, as Transmeta are aiming to do. But Brooks stressed that the company will not be ignoring the consumer market, as typified by the StrongARM project which is being co-developed with Intel.
"Intel's a formidable company," he said. "If they put their weight behind Strongarm they'll do very well."
Asked whether they are putting their weight behind Strongarm, he said "We believe so".
Brooks also said ARM have learned lessons from UK high-technology companies such as Acorn and Sinclair, who faded after bright starts.
"All along we've tried not to be too British a company," he said.
"About 25 pct of our staff work overseas. Over 50 pct of our sales are from the U.S., 30 pct from the Far East, the balance from Europe, so already we're different because the UK is not a market to us.
We're not starting from the same point as they did," he concluded. bge/jfb For more information and to contact AFX: www.afxnews.com and www.afxpress.com
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ARM 4th-Qtr Profit Quadruples on Chip Design Payments (Update1)
By Bundeep S. Rangar
ARM 4th-Qtr Profit Quadruples on Chip Design Payments (Update1)
(Updates share price in last paragraph.)
London, Jan. 31 (Bloomberg) -- ARM Holdings Plc, Europe's top
designer of microprocessors for mobile phones and palmtop
computers, said fourth-quarter profit quadrupled on higher revenue
from royalties and license fees.
Net income for the period rose to 8.8 million pounds ($14.27
million), or 4.3 pence per share, from 1.9 million pounds, or 0.9p
a share, a year earlier. Sales rose 52 percent to 18.9 million
pounds.
ARM shares more than tripled in the quarter as demand for its
designs surged on the popularity of cellular phones and hand-held
computers. The shares have fallen 15 percent this year on concern
that rivals, such as Transmeta Corp., will enter the market with
better designs. ARM said it expected more entrants in the market,
and was improving its products.
''The range of products using ARM technology continues to
expand into new areas including automotive applications such as
air bags and braking systems, digital audio solutions and devices
using Bluetooth,'' said Chairman Robin Saxby.
Bluetooth is a type of radio technology that lets electronic
devices such as headsets, phones, digital cameras and palmtop
computers exchange data without being connected by wires.
ARM's margins increased to 25 percent in the quarter compared
with 18 percent in the same period in 1998. Royalties contributed
23 percent of total revenue, from 17 percent in the previous year.
Licenses generated 51 percent of sales.
ARM said its licensees, including Texas Instruments Inc. and
NEC Corp., shipped 131 million units in the third quarter compared
with 32 million units in 1998. The company reports licensee sales
for the previous quarter because it takes time to tally the data.
The company already counts mobile phone makers Nokia Oyj and
Ericsson AB among its biggest clients. Intel Corp., the world's
biggest chipmaker, licenses ARM technology for its StrongArm
processor.
The Cambridge, England-based company's designs are in demand
for their RISC technology, or reduced instruction set computer,
that let microprocessors work faster by using fewer instructions.
RISC chips also use fewer transistors, making them cheaper to
design and produce.
Of the 37 licensees, the number of companies producing chips
ARM designs increased by five to 19. It did not sign up any new
licensees in the quarter.
ARM's shares rose as much as 275 pence, or 8.15 percent, to
3650p.
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