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Strategies & Market Trends : Gorilla and King Portfolio candidates - Moderated -- Ignore unavailable to you. Want to Upgrade?

To: sschahal who wrote (683)	2/2/2004 4:44:30 PM
From: tinkershaw	Read Replies (2) \| Respond to of 2955

The con assessment deals with flat licensing revenue and valuation and the law of big numbers. If licensing revenue remains flat or grows only very slowly or is capped, then it appears that royalty revenue may not be able to grow fast enough to support the present valuation. Presently 66% of cores shipped come from cell phones. Cell phone penetration is expected to increase from 1.2 to 2 cores per phone in the future and cell phones overall will grow, but not exponentially. Meaning that the vast, vast, majority of all future royalty growth must come from non-cell phone markets. And I estimate that at present price per core that ARM will need to have 3 billion cores shipped in the 2006-2007 time frame to justify its present valuation. Using my model this would give ARM 10% stock appreciation per year from present valuation. Others on the board cite must faster growth, but when you put that growth to the smell test, at least IMO, it does not pass. As an example, a for example model was put out there showing ARM with between 11 billion and 29 billion cores shipped in 2007 at a $.10 per core. But if you do the math that implies that ARM chips will account for $110 billion to $290 billion worth of chips shipped, equating at the top end to the entire market of semiconductors. Just not going to happen. There is a limit in the geometric growth of ARM chips. And my point is that flat licensing changes my view of ARM's valuation dramatically, and that royalties themselves are unlikely to make up the difference as there are caps on royalty, and unlike viruses or web-pages, each ARM product, if $.10 per core is to be maintained will cost at least $10 per chip, and there is a limit to how much product like this will ship with ARM cores. As volumes increase dollars per core are likely to trend downward, and geometric growth unlikely. Anyways, it is a debate over valuation, what ARM needs to do to justify it, and is ARM likely to meet this standard, and even so, so what. My conclusion being that even if ARM justifies its present valuation that there is very little room left over for upside surprises, and albeit the extraordinary stock returns one expects when upside surprises exist. Phhhhhw! But best to read yourself if you can, very long thread on both ARM board and NPI board. Tinker