"It's the first year where revenues have fallen year-on-year, and yet our share price has doubled," says ARM's chief financial officer, Tim Score. "This is because people recognise that we are well set in a number of long-term growth markets."
So, despite full-year dollar revenues at the semiconductor design specialists contracting by 10 per cent to $489.5m (£307m) - the group generates more than a third of sales in the US - management remains upbeat. That's because industry dollar revenues fell 20 per cent in the year, meaning that ARM has managed a relative degree of outperformance when compared to the sector.
Still, license revenues for the year declined 14 per cent to $164.1m. But 25 new licenses were signed in the quarter, and this has increased the order backlog by more than 30 per cent from the previous quarter, and by 20 per cent from a year ago. What's more, while ARM supplies processors for more than 95 per cent of the world's mobile phones, a growing number of new licences are for non-mobile products. This was evident through a new deal with Infineon, which will use ARM's processors in their smartcards, and a renewal of a subscription deal with STMicroelectronics for televisions and set-top-boxes. Meanwhile, royalty revenues fell 8 per cent to $244.3m, despite the group gaining more market share. Royalty revenues now account for half of group sales, and this is expected to continue to rise.
Going forward, Mr Score says that the semiconductor sector is expected to register sales declines of between 10 and 12 per cent for 2009, and growth of 15 per cent for 2010. He adds that ARM's visibility is "reasonable" thanks to its order backlog and current sales pipeline. However, he accepts that, despite the rise in market share, royalties continue to be vulnerable to consumer spending. Broker Piper Jaffray remains bullish on ARM's prospects and expects pre-tax profits of £80.1m for 2010, giving EPS of 4.47p (£47.3m and 3.2p in 2009) - although the brokers' price target, on a discounted cash flow basis, stands at just 190p.
ARM HOLDINGS (ARM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 201p | MARKET VALUE: | £2.6bn | |
| TOUCH: | 200-201p | 12-MONTH HIGH: | 205p | LOW: 83p |
| DIVIDEND YIELD: | 1.2% | PE RATIO: | 63 | |
| NET ASSET VALUE: | 58p* | NET CASH: | £141.8m** | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | 232 | 40.5 | 2.08 | 0.84 |
| 2006 | 263 | 56.7 | 3.47 | 1.00 |
| 2007 | 259 | 45.1 | 2.70 | 2.00 |
| 2008 | 299 | 63.2 | 3.40 | 2.20 |
| 2009 | 305 | 47.3 | 3.20 | 2.42 |
| % change | +2 | -25 | -6 | +10 |
Ex-div: 28 Apr Payment: 19 May *Includes intangible assets of £541.5m, or 42p a share **Includes short-term investments and marketable securities | ||||
