RISC chip designer ARM Holdings Plc plans to cut 10% of its 800-strong workforce to try to win back stock market confidence after its stock was hammered following last week’s profit warning.
The Cambridge, UK-based company, whose chips power more than 70% of mobile phones, cannot see any signs of an upturn, and warned that revenue will be flattish at the current quarterly run-rate of 33 million pounds ($51.6m) for the foreseeable future.
With 121.7 million pounds ($188.6m) in the bank, and a dominant and growing market share, the 5 million pounds ($7.7m) annual cash saving from the job reductions is hardly essential. But CEO Warren East said the current landscape is littered with the wrecks of companies that failed to make such decisions soon enough.
After meeting stock market expectations for the previous 13 quarters, ARM has been savagely punished for failing to anticipate the third-quarter downturn, and its shares have lost 90% of their value in the past year. This leaves the company with a stock market value of just 451.4 million pounds ($699.7m), a level at which it could be vulnerable to a takeover.
In the third quarter to September 30, net income was 5.6 million pounds ($8.7m), down from income of 8.4 million pounds ($13.0m) on revenue of 33.3 million pounds ($51.6m), down from 37.5 million pounds ($58.2m). At the nine-month stage, net income was up 21.7% at 27.5 million pounds ($42.6m) on revenue up 11.8% at 118.6 million pounds ($183.8m).
What worries ARM is that while the current run rate of royalty revenue, sales of development systems and services business, together with contracted revenue in the backlog give it reasonable visibility of future revenue, the timing of closure of new license deals is unpredictable.
ARM has just announced a flurry of new license deals with major players for its new ARM11 core, which is likely to produce a steady increase in revenue in the next financial year, the concern is how fast the second-tier players will sign licenses for the new design.