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ARM Results, Strong Biceps

ARM Results, Strong Biceps
by Paul McLellan on 04-23-2014 at 10:53 am

 ARM announced their Q1 results yesterday. Having just written that Intel lost $1B in mobile, I guess I could have used the title “ARM didn’t lose $1B in mobile.” They made $100M (on revenues of $300M). So let’s start off with what their results actually were and then look at what other things of interest they said on the conference call.

Q1 net profit rose to $104.7M
Revenue climbed 10% to $305.2M
Processor licensing revenue +38% in dollar terms; underlying processor royalty revenue +8%.
2.9B chips using ARM technology shipped, +11%

ARM expects Q1 royalties to be down (they will report them in Q2) reflecting traditional Q4 to Q1 weakness in semiconductor, especially mobile. Assuming that the second half of the year is strong as is generally anticipated, then ARM expects full year revenues to be in line with market expectations which means about $1.31B.

The transcript starts of with ARM’s IR guy introducing Simon Segars as CFO (or maybe it is a transcription error). He is, of course, the CEO. ARM signed 26 processor licenses in the quarter in a whole load of markets. Six of the licenses signed with the ARM’s Cortex A series technology. This included five licenses for ARM’s latest Cortex-A53 and Cortex-A57 processors, once licensee being a brand new customer to ARM. These are ARM’s highest performance 32/64 bit multicore processors.

 ARM signed 26 processor licenses across multiple markets, including mobile computing, enterprise networking and chips for “Internet of Things” devices.

Royalty revenue was up 8% (this is for Q4, remember, royalties are one quarter in arrears) on an underlying semiconductor business that grew 6%. Licensees shipped 2.9 billion ARM processor based chips, up 11%. That year-on-year increase is an additional 300 million chips. They are on track to ship maybe 12B chips this year (or rather their customers are). Simon explicitly pointed out that many of these additional 300M chips were in enterprise and IoT-like markets. Sales in enterprise networking more than doubled year on year (which may just reflect a very small base last year). It is funny to see how ARM has to go out of its way to show it is growing outside mobile while Intel is doing what it can to show it is growing within it.

For some color, Simon said:As examples as carrier infrastructure moves to heterogeneous networks ARM is being used in new designs from small cells to base stations to virtualize networks and service. As data centers and cloud computing companies look to optimize their services so opportunities for ARM based service are being created.

Premium mobile devices are becoming increasingly used in enterprise applications and with productivity software such as Microsoft Office are being available for ARM based computers, we anticipate further penetration of the enterprise.

So what does this all mean? I think that it shows that ARM continues to be very strong in mobile and they are getting some design-ins in enterprise and IoT. These show up first as licensing fees and usually they cannot name names. Then a year or so later these show up as royalties once the designs are completed and the end products ramp to volume. It is still too early to say whether ARM’s move into enterprise is strong enough to make the battle with them and Intel get interesting.

It is the Linley Mobile Conference next week, which is always a good place to put a finger on the pulse of what is going on in ARM’s biggest market. I can’t go but hopefully Dan Nenni will be there to cover it for SemiWiki.

Details on Linley Mobile Conference here.
Earnings call transcript at SeekingAlpha is here.
Press release on ARM’s website here.

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