ARM Holdings Plc believes it is on course for a 20% increase in revenue this year – 30% in dollar terms – and believes it can achieve the same rate of growth in 2005, even without the contribution from its controversial $787.3 million acquisition of Artisan Components Inc.
In its third quarter to September 30, the Risc chip designer increased net income by 97.8% to 9.5 million pounds ($17 million) on revenue 24.3% higher at 39.4 million pounds ($70.7 million). Growth in the second half will slow as the whole chip sector has been hit by lower sales and customers run down inventories.
With an 80% market share in processors for mobile phones, ARM would have to foul up on a grand scale not to benefit from the current buoyant state of the market, especially as the arrival of 3G technologies will force its customers to move up to its latest ARM11 processor to provide multimedia facilities. So far, it has signed an additional 12 licenses this year bringing the total to 22.
License revenue is 13.1% above last year’s level at 14.6 million pounds ($26.3 million), 37% of the total and down from the 41% it represented a year earlier. The driver for growth has been royalty revenue that increased 45.5% to 16 million pounds ($28.3 million). The beauty of ARM’s business model is that royalties averaged 8.4 cents a unit, a huge barrier to entry for potential competitors simply because it is so small.
ARM recognizes that it has to evolve. With wireless devices providing 68% of shipments, it has to spread its tentacles into other area. The company yesterday launched its Cortex processor, targeting the $2.5 billion 32-bit microcontroller market.
This takes the company into sectors such as automotive, white goods and networking devices.
ARM has already broadened the range of its IP with the Artisan acquisition, which it claims will enable it to offer one of the industry’s broadest portfolios of system-on-chip IP. This deal frightened the company’s investors and its share price was savaged. This is the inevitable fate of a London-quoted company and ARM must be tempted to move to more technology-savvy US markets.