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Shares in ARM Holdings opened higher on Thursday after the Cambridge-based chip designer announced plans to double its dividend for 2007 and accelerate its share buyback programme.

The group, which designs chips that are used in mobile phones, iPods, gaming devices and high-definition televisions, reiterated its bullish outlook for 2007, saying it expected sales of smartphones to remain robust.

”Our expectation is that 2007 will be a growth year for mobiles, but within that, there will probably be something like a doubling of smartphones,” said Tim Score, chief financial officer.

Mr Score’s confidence came despite a 20 per cent fall in first-quarter pre-tax profits from £12m to £9.6m. It also came as some analysts expressed concerns over the recent sluggishness in the semiconductor market.

On Wednesday, rival chip designer Wolfson Microelectronics reported a 60 per cent drop in first-quarter profit following disappointing sales of portable music players and high-end phones.

ARM blamed the profit fall, which was in line with market expectations, on the weak dollar and a sharp increase in operational expenses. The latter was 12 per cent higher as a result of hiring more staff and increased spending on research and development.

However, it noted that revenues were up 3 per cent to 66.5m for the period and that it started the second quarter with a strong order backlog and a ”healthy licensing sales pipeline”.

As a result, the group said it planned to increase its full-year dividend to 1p per share in 2006 to 2p per share in 2007 and to boost its share buyback program to more than £100m for the year.

Analysts were divided over the trading results. Merrill Lynch maintained its buy recommendation on the stock, saying it expected the slightly weaker first-quarter numbers to be outweighed by the cash returns to shareholders.

Citigroup saw things slightly differently, saying second-quarter weakness, particularly in terms of royalty and licensing revenues, “negates” news of the buyback.

ARM makes its money from licensing its designs to companies including Sony Ericsson, Toshiba and Samsung. Customers also pay an additional ”royalty” payment each time a device using ARM technology is sold.

ARM shares, which have recovered from its fall in July, were up 6p, or 4.5 per cent, at 137½p in early trading in London.

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