Hopes this helps.....
Tan
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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
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