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Arm hasn't gone soft ahead of SoftBank sale

The microchip designer posted strong growth in the months prior to the agreed takeover
July 28, 2016

Investors in Arm (ARM) may be too busy celebrating the recently agreed £24bn takeover of the microchip giant to pay much attention to these results. Japanese conglomerate SoftBank (jp:9984) won't be feeling buyer's remorse: healthy trading propelled Arm's adjusted pre-tax profits up 9 per cent to £268m in the reported period.

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Arm designs microchips, licenses the blueprints out to customers such as Apple (US:AAPL) and Samsung (Kor:A005930) then collects a royalty each time they ship a device powered by its technology. Management inked 64 processor licences with a range of microchip vendors, component suppliers and major technology companies as its latest designs gained traction. The upshot was a 16 per cent rise in licensing sales to £213m. Shipments of Arm-based chips also increased by a tenth to 7.7bn as the group snatched market share, driving royalty revenues up 23 per cent to £288m.

The group recently acquired Apical, a visual computing specialist, in a bid to strengthen its foothold in robotics, smart cities, connected cars and other cutting-edge markets. But management warned the Brexit vote had raised questions over recruitment, as around a fifth of Arm's UK workers are from other EU countries. Broker Credit Suisse expects adjusted pre-tax profits of £580m for the year to December, giving EPS of 34.6p (from £512m and 30.2p in 2015).

ARM (ARM)
ORD PRICE:1,675pMARKET VALUE:£23.6bn
TOUCH:1,675-1,676p12-MONTH HIGH:1,752pLOW: 812p
DIVIDEND YIELD:0.6%PE RATIO:66
NET ASSET VALUE:143p*NET CASH:£805m

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201545619811.53.15
201654420812.93.78
% change+19+5+12+20

Ex-div: 07 Sep

Payment: 10 Oct

*Includes intangible assets of £1.06bn, or 75p a share