Arm shows a steady hand

Arm, which licenses out its microchip designs then collects royalties for every chip shipped, saw its fourth-quarter revenues rise about 15 per cent year on year to £189m, as its licensing revenues climbed 28 per cent. But consumers' increased preference for cheaper handsets, especially in emerging markets, meant its royalty revenues were only 6 per cent higher - down from 15 per cent growth in the previous quarter. The trend also caused Arm's average processor royalty to fall 6 per cent to 4.5¢ per chip. The company's underlying operating costs also ballooned by 15 per cent to £327m, and are expected to rise further.

Despite slowing growth, smartphone royalties could grow by 15 to 25 per cent annually over the next five years, says chief financial officer Tim Score. Moreover, Arm's strong market penetration may insulate it from new rivals such as MIPS, Imagination Technologies' (IMG) processor business, and computing giant Intel. "There's a very rich ecosystem around Arm technology, and there has been lots of industry investment in it," says Mr Score.

Broker Numis Securities expects adjusted EPS of 23.1p this year (from 20.7p last year), rising to 27.1p in 2015.