Cautious Arm declines to revise guidance

Arm, the UK’s largest technology company by market value, declined to raise its full-year outlook in spite of beating market expectations with its first-half results.

The chip designer’s shares closed 12.2p lower at 333.9p, having more than trebled over the past year.

Arm has benefited from the success of smartphones such as Apple’s iPhone. Its technology features in nine out of every 10 mobile handsets sold.

Semiconductors using the company’s designs are also used in car engines, washing machines and office equipment.

Warren East, chief executive, said: “Arm continued to gain share in the quarter with shipments of Arm-based chips growing faster than the industry in all target markets.”

But Arm said it expected full-year revenue in dollars to be in line with analyst expectations, citing uncertainty in consumers’ demand for gadgetry.

Revenue in the second quarter rose 54 per cent to £100m, more than 10 per cent higher than analysts’ consensus forecasts after an unexpected one-off royalty catch-up payment. Pre-tax profits rose from £6.4m to £29.6m.

First-half revenues rose 33 per cent to £192m, while pre-tax profits were up 85 per cent to £55.5m. The interim dividend is lifted 20 per cent to 1.16p.

Last week shares in Arm climbed more than 11 per cent to an eight-year peak after it signed a licensing agreement with Microsoft.

The deal is thought to signal Arm’s long-awaited breakthrough into netbooks, tablet computers and PCs. Previous efforts have been hampered by the relatively poor performance of Windows devices using Arm chips.

But analysts at Investec said the deal’s contribution to near-term revenues would be “minimal” and did not “in its own right mandate success”.

Arm said its order backlog at the end of June 2010 had risen 20 per cent from the end of the last quarter to its highest-ever level, while it said licensing deals with semiconductor industry leaders such as Freescale and TSMC would also boost market penetration.

Tim Score, chief financial officer, said uncertainty over the global economy meant the outlook was difficult to predict. “It’s possible that the usual seasonal uptick [in royalties] is of a slightly flatter trajectory, but still showing growth”.

Analysts at Citigroup said that Arm’s backlog growth “assures on long-term license growth”, which could lead to “small upgrades to consensus earnings” forecasts.

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