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ARM Holdings release suprisingly high first quarter results

By . Published: 11th Apr 13:11:48 | Permalink | Printable

ARM Holdings has surprised many London stock exchange analysts by reporting healthy first quarter results even with the current downturn in the telecommunications industry.

The Cambridge-based microchip designer has recorded a pre-tax profit of 11.4 million for the first quarter ended March 31, an increase of 39% from 8.2 million in the corresponding period last year.

Revenues are also up, by 52%, to 32.5 million from 21.4 million.

Despite the economic slowdown affecting the US and Far East, the group says it still enjoys a strong demand for its products and services.

Licensing remains lucrative for ARM Holdings, accounting for 43% of revenues, with 20 new licences signed during the first quarter.

The company gets a licensing fee every time a manafacturer, such as Intel, makes a chip based on its design. This happens 1.3 million times a day. A year ago that figure was just 800,000.

A growing slice of sales comes from software kits, used to write programmes for ARM-based products, from mobile phones to Nintendo's new Gameboy Advance. In fact it is recknoned that between 80 and 90 percent of the world's mobile phones are powered by an ARM-based chip.

Analysts had expressed concerns that a downturn in the key-end market for ARM Holdings's microprocessors could affect the company, but royalty revenues remained consistent at 8.3 million, compared with 8.1 million for the fourth quarter of 2000.

Chief financial officer Jonathan Brooks says: "Given the high increase in our headcount during last year and the difficulties reported by other technology companies, we decided early in the quarter that it would be prudent to moderate our headcount growth plans for the year until market conditions improve."

He says this has resulted in slightly lower costs for the quarter, allowing operating margins to rise.

"With continuing strong demand for our products and services, we remain confident about the outlook for the next two quarters."

ARM's growth into software means it is less exposed to simple, commoditiesed chip production. "Our business model is closer to Microsoft than to Intel", says Robin Saxeby, ARM's chief executive.

However although analysts agree that ARM is a strong company some believe that with a 100 times forecast earnings the shares are pricey.

ARM Holdings.: www.arm.com

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