Dow Jones Business News
ARM Holdings 4Q Revenue GBP34.0 Million
Tuesday January 27, 2:16 am ET
ARM Holdings PLC (NasdaqNM:ARMHY - News)
Year and three months to Dec. 31, 2003
()=Loss/Debit
Figs in GBP'000 and pence (p), unless otherwise stated.
2003 2002
Finals
Revenue 128,070 150,922
Restructuring - (1,960)
Income pre tax 28,359 45,422
Net income 19,416 31,637
Total comprehensive
income 19,970 30,830
EPS - diluted 1.9p 3.1p
EPS ADS (cents) 10.1c 15.0c
Total dividend 0.6p N/a
Three months
Revenues 33,952 32,312
Restructuring - (1,960)
Income pretax 8,913 5,549
Net income 5,969 3,603
Total comprehensive
income 3,729 3,361
EPS - diluted 0.6p 0.4p
EPS ADS (cents) 3.1c 1.7c
Edited Press Release
LONDON -(Dow Jones)- ARM Holdings PLC Tuesday said its revenues for the three months to Dec. 31, 2003 was GBP34.0 million, compared with a year-earlier GBP31.7 million.
Revenues for the year to the same date were GBP128.1 million, compared to GBP150.9 million.
Pretax profit for the three months was GBP8.9 million, up from GBP6.8 million in the third quarter, while pretax profit for the year was GBP28.4 million compared with GBP45.4 million in 2002.
Warren East, chief executive officer, said: "After resetting our cost base at the start of the fourth quarter 2002, 2003 has been a year of operational stability and gradually improving financial performance.
"Our decision to maintain high levels of research and development expenditure during the protracted industry downturn has enabled us to introduce a number of new products in the year based on the innovative technologies we have developed.
"These are already driving license revenue and underpin our confidence for revenue growth during 2004."
Tim Score, chief financial officer, said: "Careful management of our cost base has contributed to sequential improvements in profitability and good cash generation throughout the year.
"The cash generative nature of ARM's business model enables us to address the significant opportunities for ongoing investment in future growth alongside the introduction of annual dividend payments."
Total revenues for the fourth quarter amounted to GBP34.0 million, representing a 7% increase from GBP31.7 million in the third quarter 2003, and a 5% increase over fourth quarter 2002 revenues of GBP32.3 million.
In U.S. dollar terms, fourth quarter revenues of $57.0 million were 13% up on the third quarter 2003 and 13% up on the fourth quarter 2002. The effective U.S. dollar to sterling exchange rate in the fourth quarter was $1.68 compared to $ 1.59 in the third quarter and $1.56 in the fourth quarter 2002.
License revenues amounted to GBP12.9 million representing 38% of revenues, compared to GBP13.1 million or 41% of revenues in the third quarter 2003 and GBP15.8 million or 49% of revenues for the corresponding period in 2002.
In U.S. dollar terms, license revenues of $21.5 million in the fourth quarter 2003 were 3% ahead of the third quarter 2003 ($20.9 million).
ARM signed 16 licenses with partners during the fourth quarter 2003, nine of which were with new partners, bringing the total number of semiconductor partners to 128, after taking into account two per-use licensee partners who have been acquired by other semiconductor companies and one company which had signed a license in previous periods but which is not utilizing the license and no longer has access to ARM technology.
Five existing partners took seven further licenses in the quarter. There were two upgrades, where existing partners took licenses to a new family of cores that they had not previously licensed.
There were four derivatives, where an existing partner took licenses to cores within a family of cores that they had previously licensed.
One per-use partner took a license to further uses of the same core that that it had previously licensed.
Royalty revenues in the fourth quarter were GBP12.8 million accounting for 38% of revenues compared to GBP11.0 million or 35% of revenues in the third quarter of 2003 and GBP7.8 million or 24% of revenues for the corresponding period in 2002.
Sales of development systems were GBP4.0 million, representing 12% of total revenues compared to GBP4.1 million or 13% of total revenues in the third quarter of 2003 and GBP4.4 million or 14% of revenues in the fourth quarter of 2002.
Service revenues were GBP4.3 million, representing 12% of total revenues, comprising consulting fees of GBP0.6 million and support, maintenance and training fees of GBP3.7 million compared to total service revenues of GBP3.5 million in the third quarter of 2003 and GBP4.3 million for the corresponding period in 2002.
Gross margins for the fourth quarter were 91%, down from 92% in the third quarter 2003, reflecting the increased proportion of license revenues earned from strategic relationships with Imagination Technologies and Superscape.
The share of revenues attributable to Imagination and Superscape is accounted for within cost of revenues. The total amount of revenue recognized in the fourth quarter from these relationships was GBP1.6 million.
Total operating expenses in the quarter were GBP23.2 million compared to GBP23.6 million in the third quarter of 2003 and GBP23.5 million (excluding restructuring costs of GBP2.0 million) in the fourth quarter 2002.
Research and development expenses were GBP11.4 million in the fourth quarter 2003 representing 34% of revenues. This compares to GBP12.7 million or 40% of revenues in the third quarter 2003. The decrease is due primarily to the reversal of an accrual for bonus payments and a reduction in the cost of electronic design automation tools in the quarter.
Sales and marketing costs for the fourth quarter were GBP6.0 million or 18% of revenues compared to GBP5.9 million or 19% of revenues in the third quarter of 2003.
Operating margins were 22.3% for the fourth quarter of 2003 compared to 17.7% for the third quarter of 2003, reflecting the increased revenues in the quarter.
Net cash inflow from operating activities of GBP13.0 million was generated in the fourth quarter, measured under U.K. GAAP. Cash, cash equivalents and short term investments increased by GBP8.4 million in the quarter to GBP159.8 million.
Edited Press Release
Total revenues for the 12 months ended Dec. 31, 2003 amounted to GBP128.1 million, a decrease of 15% from total revenues of GBP150.9 million in the 12 months ended Dec. 31, 2002.
The actual average dollar exchange rate in 2003 was $1.64 (compared to the effective average exchange rate for ARM of $1.61) compared to $1.50 in 2002. This has had the effect of reducing total reported revenues by approximately GBP9.6 million.
Licensing revenues in 2003 were GBP50.8 million, being 40% of total revenues, compared to GBP83.0 million or 55% of total revenues, in the 12 months to Dec. 31, 2002.
Royalty revenues were GBP44.3 million, representing 34% of total revenues, in the 12 months to Dec. 31, 2003, compared to GBP26.8 million or 18% of total revenues, in the 12 months to Dec. 31 2002.
Sales of development systems were GBP17.9 million, being 14% of total revenues, in 2003 compared to GBP23.1 million or 15% of total revenues, in 2002. Service revenues, which include consulting services and revenues from support, maintenance and training, were GBP15.1 million in 2003, representing 12% of total revenues compared to GBP18.0 million or 12% of total revenues, in 2002.
Gross margins for the 12 months to Dec. 31, 2003 were 91%, the same level as in 2002.
Total operating expenses in 2003 were GBP93.4 million compared to GBP94.5 million in 2002 (net of restructuring costs of GBP2.0 million).
Research and development expenses in 2003 were GBP48.1 million, representing 38% of revenues compared to GBP47.3 million or 31% of revenues, in 2002.
Sales and marketing costs decreased from GBP24.7 million or 16% of revenues in the twelve months to Dec. 31 2002 to GBP23.0 million or 18% of revenues in 2003.
Operating margins decreased from 27.4% in the 12 months to Dec. 31 2002 to 18.5% for 2003 when measured under U.S. GAAP.
Net cash inflow from operating activities of GBP43.7 million was generated in the year, measured under U.K. GAAP. Cash, cash equivalents and short term investments increased by GBP29.5 million to GBP159.8 million at Dec. 31, 2003.
In light of the group's strong financial position and the cash generative nature of its business, the directors intend to introduce an annual dividend commencing with effect from the 2003 financial year.
Recognizing that ARM has significant opportunities to invest in the business, both organically and via "bolt-on" acquisitions, the directors recommend a combined interim and final dividend in respect of the year to Dec. 31, 2003 of 0.6 pence per share.
From 2004 onwards, the directors intend that an interim dividend will be paid in October of each year (commencing in October 2004) and a final dividend will be paid in May of each year (commencing in May 2005). The interim dividend is likely to represent approximately 40% of the total dividend for the year.
The Board intends to adopt a progressive dividend policy which will take into account both the opportunity for continued investment in the business going forward and the underlying operational performance of the group.
Edited Press Release
Activity levels in the semiconductor industry and recent industry data indicate more favorable trading conditions and an improved outlook for 2004.
It remains uncertain, however, as to how quickly these improved conditions will feed through to sustained levels of higher licensing activity for ARM.
In the meantime, the broadening of the ARM11 family of products and other new product introductions made in 2003 are expected to continue to result in incremental licensing opportunities for ARM in 2004.
In the fourth quarter, ARM maintained the higher level of licensing activity seen in the third quarter and achieved record royalty results, both in terms of revenues and unit shipments.
As a consequence of the stronger licensing performance in the second half, the backlog (defined as the aggregate value of contracted business not yet recognized in the profit and loss account) at the end of 2003 was higher than at the start of the year and at a similar level to the end of the third quarter 2003.
With approximately 90% of ARM's revenues being earned in U.S. dollars and costs being predominantly sterling denominated, the ongoing weakness of the U.S. dollar continues to impact reported results. The effective average exchange rate in the fourth quarter was $1.68 compared to $1.59 in the third quarter, thereby having a negative impact of approximately GBP1.9 million on ARM's fourth quarter revenues when translated into sterling.
The number of new products available for licensing and the momentum behind ARM's royalty revenues give the company confidence that 2004 will see meaningful year-on-year dollar revenue growth. In the short term, dollar revenues in the first quarter are expected to be similar to those achieved in the seasonally strong fourth quarter.
If the recent further weakening of the U.S. dollar against sterling persists, however, this will inevitably have a further negative impact on first quarter revenues when these are translated into sterling, and when compared with fourth quarter revenues.
The gradual pick up in licensing activity seen in the third quarter continued in the fourth quarter. Taking into account the 16 licenses for microprocessor cores that were signed in the fourth quarter, a total of 51 licenses for microprocessor cores were signed in 2003, comprising 25 multi-use licenses and 26 per-use licenses. 26 new companies joined the ARM partnership in the year, bringing the total number of semiconductor partners at the end of 2003 to 128. Of the 26 new partners signed in 2003, 7 took multi-use licenses and 19 took per-use licenses.
Licensing opportunities in 2004 and beyond are underpinned by the introduction in 2003 of new products incorporating new technology features. Two new ARM11 family cores, which include a number of these new technology features, were launched in October 2003 and are available for licensing now with delivery scheduled for the first half of 2004.
ARM is encouraged by the rate of adoption of ARM11 technology following delivery of the first ARM11 product just over one year ago. Seven partners have taken a total of 10 licenses to date.
The Foundry Programme continues to be a good entry point for those companies licensing ARM technology for the first time. ARM anticipates that the momentum behind this
Revenues from non-CPU licensing, which comprised 17% of total license revenues in 2003 compared to 15% in 2002, are now earned from a broad range of activities. As well as licensing platforms, models, application software and other peripheral IP products, revenues are now being earned from the strategic collaborations with both Superscape Group, and Imagination Technologies.
In July 2003, ARM acquired Adelante Technologies NV, now known as ARM Belgium. Product development is on schedule and is yielding results that exceed initial expectations.
ARM has entered into an agreement to acquire Triscend Corp., a company specializing in ARM core-based microcontrollers, for cash of $13.2 million plus further cash consideration of up to a maximum of $1.8 million depending on the achievement of certain revenue targets in the first 12 months after completion. Triscend is based in Mountain View, California and currently has 41 employees.
Following the acquisition of Triscend, ARM will seek to accelerate its proliferation as the architecture of choice for these next-generation, 32-bit microcontrollers.
Royalty revenues earned in 2003 were GBP44.3 million on 782 million units shipped, up 65% and 71% respectively on 2002. Royalty revenues recognized in the quarter ended Dec. 31, 2003 were GBP12.8 million on 236 million units shipped, up 64% and 86% respectively on the same period a year ago.
A further five partners began shipping ARM core-based products in the quarter to Sep. 30, 2003, bringing the total number of licensees shipping to 60. Average royalty rates reported in the fourth quarter were similar to those in the previous quarter (9.15 cents per unit compared to 9.17 cents).
Of the total reported unit shipments in the fourth quarter, 15% related to units based on ARM9 technology.
In the third quarter ARM partners shipped some 80 million units into end markets other than wireless. The wireless market remained the largest end market using ARM technology in the third quarter, accounting for approximately 66% of unit shipments.
Lawrence Tesler will be retiring from the board at the AGM on April 26, having served two three year terms as a non-executive director. Jeremy Scudamore, CEO of Avecia Group, will be appointed as a non-executive director immediately following the AGM.
At the end of 2003 ARM had 740 full time employees compared to 721 at the end of 2002, the net increase being primarily due to the addition of 25 people with the acquisition of ARM Belgium in July. |
