Last updated: October 26, 2010 10:30 pm

Arm looks to cash in on tablet market

Arm, whose chip designs are used in Apple’s iPad and iPhone, is expecting to benefit from growing demand for tablet computers.

Speaking as the group revealed third-quarter results, Warren East, chief executive, said Arm was “excited” that this year’s launch of the iPad had opened up a new market for tablet computers.

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The group – which licenses its low-powered chip designs to semiconductor manufacturers and then collects royalty payments – said that new tablets from Dell, Research in Motion and Samsung Electronics would all contain its semiconductor designs.

Last week Gartner, the research group, said it expected tablet sales to more than double in 2011 from an expected 19.5m units this year, and surpass 208m units in 2014 as rival technology groups launch tablet products.

Arm creates the architecture for chips found in more than 90 per cent of mobile phones sold globally. The group has benefited from growing consumer demand for smartphones, which use more of its chips per handset than standard low-end phones.

Arm’s chip designs are also being used increasingly in digital cameras, televisions, microcontrollers, printers and washing machines.

Mr East said the increasing “consumerisation of the internet” was encouraging companies to look at adopting more energy-efficient server technology and to move into cloud computing, in which digital information is housed remotely on centralised servers rather than on users’ computers.

He said Arm’s chip architecture would be used in the next generation of more energy-efficient servers that are due to hit the market in four or five years.

Arm, which reported pre-tax profit of £19.6m for the three months to September, compared with £7.7m in the same period last year, on revenues up 34 per cent to £100.4m, said that 1.5bn of its processor chips were shipped during the quarter. The group expects to exceed consensus revenue forecasts for the fourth quarter of about $158m.

The results failed to cheer investors, however, and the shares, which have more than doubled this year on takeover rumours, fell 23p to 366.2p.

Mark Davis, analyst at Panmure Gordon, said that Arm’s “punchy” multiples were partly to blame for the share price fall. Consensus forecasts put Arm on 42 times earnings for this year and 38 times for next year.

He said the long-term outlook was very promising, given that Arm stands to benefit from the push towards using low-powered chips in servers.

“But in the short term there is still some concern in the consumer market over what the impact of austerity measures will be,” said Mr Davis. “Is Christmas going to be good? The royalty levels [Arm receives] are based on the number of products that are shifted.”

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