ARM Financials and Futures

ARM Holdings, plc announced record-breaking financial results for the fourth quarter and fiscal year 2010. The company also discussed its plans to expand into desktop PCs and servers by aggressively growing its licensee base.

Focal Points:

• For the fourth quarter ending December 2010, ARM reported total revenues of £113.9 million, up 34 percent over the same period last year. Operating margins increased over seven points to 30.1 percent, and net income rose 71.3 percent year-over-year to £29.7 million, said ARM. For the full year 2010, ARM announced total revenues of £406.6 million and net income of just under £86 million. Per the 20 year-old company, this is a record high fourth quarter and financial year. ARM does not sell chips, but establishes base chip designs that other chip manufacturers then license and modify to suit their own purposes. ARM earns revenue from the licenses as well as from the royalties on the devices that other manufacturers make and sell. According to ARM's CEO, more than 6.1 billion ARM chips were sold in 2010, which represents a 55 percent unit increase from 2009. ARM projects that unit shipments will continue to grow at an aggressive pace in the coming decade.
• In the fourth quarter, ARM's Processor Division accounted for £53.8 million in licensing revenues, up 51 percent year-over-year, with another £81.9 million in royalties, up 29 percent compared to the same period 2009. The Physical IP Division, which sells chip packaging technology, brought in £11.6 million in licensing revenues, up 26 percent, and £12 million in royalties, up 8 percent, said ARM. Finally, the Development Systems and Services Division reported £11.6 million in fourth-quarter revenues and £8.7 million in follow-on services sales, down 9 percent and up 12 percent respectively. For the full year 2010, the Processor Division made £458.4 million in revenues, up 36 percent year-over-year, said ARM. Meanwhile, the Physical IP Division reported £85.1 million, up 18 percent, and the Development Systems and Services Division brought in $87.8 million, up 8.3 percent over 2009, ARM added.
• According to ARM, the company had greater than 95 percent unit shipment share in the smartphone market in 2010. It also expects that market to grow from 280 million units in 2010 to around 1.1 billion units by 2015. In the mobile computer market (laptops, netbooks, and tablets), ARM-based devices had a 10 percent share in 2010, with over 230 million central processing units (CPUs) sold. The company is anticipating that 750 million units will ship in 2015. Meanwhile, ARM said that in the digital TV and set-top box market, ARM-based products had a 35 percent share as 2010 came to a close. This is due to a 60 percent-growth by ARM licensees, more than double the 30 percent growth of this market segment overall. ARM currently has a near-zero shares of the server and desktop PC market, but plans to go after that space. As 2010 came to an end, ARM reported having 743 licensees, up 35 during the fourth quarter. ARM plans to offer low-end sensors to high-end servers, from single-core chips that run as slow as 50 MHz and cost 50 cents to multi-core chips that ramp up to 2 GHz and beyond that cost $200. The company estimates that there is a 4 billion unit royalty opportunity for ARM-based chips using the Cortex-A CPU and related Mali graphics chips in 2015. The real-time embedded chip space represents a 12 billion unit opportunity in 2015. This market will be addressed by ARM's Cortex-R family of processors, with another 18 billion units addressed by ARM's Cortex-M designs for microcontrollers, ARM added.

Experton Group believes ARM processors are a well-entrenched disruptive technology that will shortly begin to eat at Intel Corp.'s share of the server market. Startups such as Calxeda Inc. expect to build servers using ARM chip designs that will be compete on performance but at half the price and ten times more energy efficient. Experton Group expects to see ARM servers out this year and gaining decent customer acceptance. Long-term these servers will be available from startups and a number of established server vendors and will form the next low-end wave of processor power, shifting the Intel Xeon servers into the middle tier. IT executives looking for lower cost, energy efficient servers should pilot ARM servers in non-mission critical environments to see if they satisfy business and IT requirements with an acceptable level of risk.