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Technology Stocks : ARM Holdings (Advanced RISC Machines) plc. -- Ignore unavailable to you. Want to Upgrade?

To: Mephisto who wrote (373)	2/1/2000 8:39:00 PM
From: Michael	Respond to of 912

ukinvest.com THE DAY'S TOP BROKER RESEARCH Strong ARM tactics to pay off February 1, 2000 By Sean Flynn, UK-iNvest.com ARM (ARM), one of the darlings of the technology sector, was the company Merrill Lynch's clients were reading up on this morning. The microprocessor maker's meteoric rise since flotation in the first half of 1998 has given punters plenty to be cheerful about. Admitted to the FTSE 100 on December 7, ARM more than lives up to the report's understated title: Good Momentum. True, the technology sector has not had as bright a start as one could have hoped for in the New Year but this has not stopped the US investment bank from tagging ARM as a short- and long-term buy. Analyst Andrew Griffin may be bullish about ARM Holdings but nobody could accuse him of idiot optimism. Merrill's forecast, coming in the wake of strong fourth-quarter figures, has been only moderately upgraded. Earnings per share estimates for 2000 have risen from 7.8p to 7.9p and for 2001 from 13.7p to 14.4p. It wants another solid quarter before making a substantial upgrade. The caution comes in light of royalties' failure to make a greater percentage of total revenues in 1999. According to Griffin's model, 18% of earnings were derived from royalties, Going forward, this is expected to jump to 28% in 2000 and 39% in 2001. At the margins It?s on margins that Merrill is pleased. Stretching the margins is something ARM has done consistently well. In the third quarter of last year, the operating margin was 25.2%; by the end of the fourth this had reached 31%, though this was beefed up with a one-off tax rebate of œ4.4m. The full-year figure was 25.7%; Merrill expects that to rise to 26.5% this year. Steady growth at the margin is largely attributable to operating cost reductions and the impressive gross margins in the company's product lines -- at the end of 1999, the latter stood at 91%, with forecasts for a slight drop in 2000 and holding the line at 90% in 2001. ARM's licences Licensing activity was distinctly muted in the fourth quarter of 1999. You don?t have to be a rocket-scientist to figure out that pre-millennial technophobia played a significant part to play in this. Since year-end however, three companies have signed up with ARM: Mitsubishi, Analog Devices, and Basis Communications. Once a company has licensed the ARM microprocessor, it can take a year or so for the first silicon to come off the production line. The product then gets designed in to the end equipment and it is at this stage that the royalties begin to roll in. More than a mobile chip maker The majority of the company's business (19 out of 37 licensees) comes from the mobile phone sector. ARM is keen to show a different face to investors. Its recent analysts' presentation was awash with slides of telecom and networking equipment, as well as printers, digital cameras and new-fangled MP3 players. Growth forecasts for the next few years remain highly bullish. Pretax profit of œ18m last year is expected to become œ25m this year, œ45m in 2001 and œ86m in 2002. By 2005, Merrill says, profit should be œ641m. Sean Flynn is a staff writer for UK-iNvest.com.