Arm flexes its connections

Excluding £100m in one-off impairment and legal costs in 2013, Arm's operating profit rose 14 per cent to £400m. That was driven by a 26 per cent surge in licensing revenues to £361m. Although full-year royalty revenues were almost flat in sterling terms, investors cheered a fourth-quarter rally of 16 per cent. Arm's gains partly stemmed from "massively increasing" shipment volumes as companies raced to address nascent markets such as connected cars and wearables, says finance chief Tim Score. Blockbuster sales of Apple's iPhone 6 should provide a useful tailwind.

Arm signed 163 processor licences - including a record 53 in the final quarter - spanning myriad applications such as sensors, business systems, in-car technology and mobile devices. The upshot was that shipments of Arm-based microchips climbed a fifth to 3.5bn, and the group's order backlog swelled by 5 per cent during the final quarter. Investors may frown at a 4 per cent dip in average royalty per chip to 4.3¢ (2.8p), but that reflects booming demand in low-margin, high-volume markets such as microcontrollers, smartcards and sensors.

Management expect growth in licensing sales to slow to about 10 per cent. But that's likely to be offset by accelerating royalty revenue growth: customers such as Samsung, LG and Xiaomi are due to launch products based on Arm's V8-A technology this year. And microchip giant Intel's move into the smartphone market isn't entirely bad news, says Mr Score, as its historic move into tablets "galvanised" customers to snap up Arm's technology to remain competitive.

Prior to these results, broker Investec forecast pre-tax profit of £481m, giving EPS of 28.1p, rising to £569m and 33.5p in 2016 (2014: £410m and 23.4p).