ARM Reports Stellar Second Quarter, Expects Good Times To Continue

British chipmaker ARM Holdings has posted financial results for the second quarter of 2013, reporting pre-tax profit of £86.6 million on revenue of £171.2 million, up 24 percent year-on-year.

The company has beaten analyst expectations, and is doing better than most of its competitors in the semiconductor industry. The positive results are a good start for Simon Segars, who replaced long-time CEO Warren East at the beginning of the month.

ARM shares were boosted further by better-than-expected results posted by Apple, one of the chip designer’s largest customers.

What slowdown?

ARM doesn’t manufacture any hardware – it develops the processor technology and licenses it to others. The company receives royalties on every single chip sold, and in the second quarter, manufacturers shipped 2.4 billion chips based on ARM designs, up 20 percent year-on-year.

The company signed 25 new licensing agreements in three months ending on 30 June, including five for its latest Cortex-A processors and seven for Mali GPUs. Half of the licenses signed were with Asian semiconductor companies. One of the licenses was for the Cortex-A chip that featured ARMs big.LITTLE technology, which means we could see more smartphones powered by eight processor cores.

In the second quarter, ARM’s licensing revenue grew 34 percent to £56.9 million. Royalties from chips shipped in Q1 2013, manufactured by OEMs such as Qualcomm, rose 26 percent to £77.7 million.

“During the quarter, our Partners announced exciting new design wins as ARM-based chips were selected for high-volume OEM products.  These included many new smartphones and tablets, ARM-based 64-bit servers and mobile base stations,” said Segars.

On Tuesday, Samsung announced it would use ARM’s Mali graphics chips in its flagship devices, instead of designs from rival Imagination Technologies. Beyond smartphones, ARM is also making advances in the server market, with Dell, AMD and Samsung all interested in making “hyperscale” hardware.

ARM’s finance director Tim Score said on Wednesday he expects the smartphone market to grow further, although at a slower pace. On the same day, Apple’s CEO Tim Cook said he didn’t believe “that the high-end [smartphone] market has reached its peak.”

ARM expects to meet analyst expectations for full-year revenue too. “These results suggest this traction is very solid judging by the licence result, setting the business up for material royalty growth ahead, and we retain our positive view on the stock,” said Investec analyst Julian Yates.

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