Thursday, 24 April 2014

ARM share price: Company reports Solid Q1 and improving momentum in H2

Solid Q1 on strong licensing: ARM reported sales of USD305m (+16% y-o-y) and normalised EPS of 5.60p, both in line with market expectations. As in the previous quarter, the mix was dominated by strong processor licensing (USD112m, +38% y-o-y) as ARM signed 26 processor licenses. Processor royalties grew only 4% y-o-y, to USD128m which, however, included a USD5m deduction due to a customer having over-reported in prior years (underlying royalties were USD133m, +8% y-o-y). The group backlog declined 5% sequentially and the backlog draw-down stood at 65%, which is ahead of the normal 40-60% range. Encouragingly, the pipeline remains strong and, thanks to decent ARMv8 licensing, management is guiding for a stable backlog at the end of 2014 compared to the current level.

Earnings growth to re-accelerate in H2: Mobile unit shipments (46% of total shipments) declined slightly y-o-y given the inventory correction in the high-end smartphone market, although ARM sees strong growth in the embedded segment. As a result, ARM’s outperformance compared to the semi industry dropped to a very low level (2ppts). However, with the inventory correction completed, ARM will face normal seasonality in the current quarter and an improving performance in H2. We also find the broad-based licensing encouraging as it’s a lead indicator for future royalties.

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