UPDATE: ARM To Boost 2H R&D After 2Q Strength
DOW JONES NEWSWIRES
July 19, 2004
Nic Fildes Of DOW JONES NEWSWIRES
LONDON -- U.K. semiconductor technology company ARM Holdings PLC (ARMHY) Monday said it will increase investment during the second half of the year after reporting strong growth in second-quarter revenue driven by an increase in licenses for high-end chip designs.
Cambridge-based ARM is a specialist in developing and licensing microprocessor technology ideally suited to low-power portable devices such as the latest generation of mobile phones and handheld computers. Wireless devices accounted for 68% of ARM's unit shipments during the second quarter.
For the quarter ended June 30, ARM reported 18% growth in revenue to GBP36.9 million from GBP31.4 million the year before. Revenue was 5% higher than the first quarter and above a consensus forecast of GBP35.7 million.
The company said with activity levels in the semiconductor sector higher in the first half than in the previous year and the appetite for ARM11 technology, it is confident licensing revenues will continue to grow in the second half.
ARM Chief Financial Officer Tim Score told a conference call of journalists the company is experiencing strong activity across the board, giving the company confidence it can increase dollar-denominated revenue around 30% for the full year. This echoes guidance given six months ago. Around 90% of the company's revenue is denominated in dollars.
He said after record shipments of ARM-based chip embedded products during the
first half, unit shipments should increase 30% to 40% during the year. He said
the proportion of revenue derived from non-mobile phone-based devices, such as
Apple Computer Inc.'s (AAPL) i-Pod music player and digital cameras, has tripled
over the past two years. He expects non-wireless devices to account for around
50% of ARM's shipments within three to four years. He declined to comment on
Nokia Corp.'s (NOK) revelation last week that it suffered a drop in market
share, but said ARM has a very broad customer base and enjoys an 80% market
share in mobile handsets.
ARM attributed the strong revenue growth to its technology portfolio, specifically the ARM11 core design; a recent chip design that garners higher margins than older designs. ARM signed five ARM11 licenses during the quarter compared to two in the first quarter.
Score said he expects ARM11 to be a mainstream product within 18 months, but noted the company is still signing a significant amount of ARM7 and ARM9 licenses. "There is a significant appetite amongst our customer base to upgrade to ARM11 from ARM9," he said.
As a result, ARM is increasing R&D investment in the second half. The company, which had 763 full-time employees at the end of the first half, said it expects to add more than the 23 staff it added in the first six months of the year in both its engineering operations and its sales and marketing channel. Score said it will add staff in China and India during the second half.
He said the company's costs will be kept under control despite the higher investment and expects R&D spending to trend lower, toward 30% of sales, in the medium term.
ARM's operating margin edged up to 23.8% from 22.6% in the first quarter, driving pretax profit up 58% to GBP10.4 million from GBP6.6 million a year earlier. The consensus pretax profit forecast was GBP9.5 million. Net profit increased 74% to GBP8.7 million from GBP5 million in the second quarter of 2003.
The company generated GBP13.5 million in cash during the quarter leaving it with cash and short-term investments of GBP166.3 million at the end of June. It will pay out a first-half dividend of 0.28 pence a share, a 17% rise from the 0.24 pence paid in the first half of 2003.
Arbuthnot analyst Michael Blogg said he expects to upgrade his forecasts for ARM after meeting with the company and sees consensus forecasts for the full-year edging higher on the back of the results. He rates ARM at hold.
Commerzbank's Steve Woolf said the growth in royaly revenue, during a seasonally weak period, bodes well for the future, but maintained his underweight rating.
Overall licensing revenues were 4% higher on a sequential basis with the order backlog 10% higher than at the end of the first quarter. Royalty revenue was 3.7% higher than in the first quarter on record unit shipments of 286 million.
But Merrill Lynch, which hurt sentiment last week by downgrading the semiconductor sector, said the results were "good but not great." It pointed to licensing revenue shy of its forecast and maintained its sell rating.
At 0804 GMT, ARM shares were down 1.6% at 111 pence.
Company Web site: arm.com |
