Arm sees rising sentiment in chip market

Signs of improving demand for consumer electronics

Arm Holdings provided further evidence of a recovery in the global semiconductor market, after the chip designer’s third-quarter sales beat market expectations.

Warren East, chief executive, said: “The businesses that we deal with are moving beyond restocking, but it is cautious and after Christmas there may be a bit of taking stock.”

Although its market capitalisation is just £1.9bn ($3.1bn), Arm occupies a central role in the global technology industry. Its designs are licensed to semiconductor companies for incorporation into products such as smartphones, music players and washing machines.

Mr East said Arm would “at least” meet rising market expectations for full-year dollar revenue projections. Analysts are expecting the group to achieve revenue of $476m for the year, ahead of earlier predictions of about $450m but below Arm’s record of $546.2m in 2008.

The semiconductor sector is starting to recover from a severe destocking at the start of the year, when cash-strapped consumers stopped spending on gadgets. Chipmakers such as Intel, Texas Instruments and Broadcom have all exceeded expectations on sales.

Arm is benefiting from growing shipments of smartphones – its designs are used in the Apple iPhone – and increasing market share in microcontrollers, which regulate battery power.

A growing number of devices now use microcontroller chips and Arm has seen a 75 per cent sequential increase in shipments in this segment, albeit at a price. The larger number of lower-value microcontrollers in the mix has pushed average royalty rates down from 5.7 cents in the second quarter to 5.3 cents in the third quarter.

Worldwide smartphone sales are expected to grow 29 per cent to reach 180m units this year, according to Gartner. The smartphone trend has boosted the number of Arm chips in each mobile phone, with a global average of 2.1 per handset, against two per phone in the second quarter.

Revenue for the three months to September 30 fell 8 per cent to $123m but, in sterling terms, rose 5 per cent to £75.2m. Pre-tax profit fell 2 per cent to $24.3m.

Arm was helped by sterling weakness against the dollar, as its US payroll accounts for about half of its costs. On a nine-month basis, revenue rose 7 per cent to £219.8m and pre-tax profits fell 5 per cent to £64.5m. In dollar terms, revenue fell 12 per cent to $349.4m. Arm shares, which have gained 87 per cent over the past year, rose 0.8p to close at 150p.

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