ARM Q2 2014: Licensing drives profit surge

British chipmaker ARM Holdings has reported strong Q2 results due to the sale of new intellectual property licenses.
Written by Charlie Osborne, Contributing Writer
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ARM Holdings reported on Tuesday Q2 pretax profit of £94.2 million with earnings of £5.43 pence per share, a nine percent rise year-over-year. (statement)

The British chip maker, which supplies tech firms worldwide including Apple and Samsung with processor technology, posted overall revenue of £187.1m, an increase of nine percent from £86.6m in Q1 2014. Group revenue in USD surged by 17 percent, coming in at £309.6m.

ARM reported net cash generation of £86.7 million.

The firm's boost in profit is due to a surge in processor licensing revenue within the quarter, which ARM receives up-front when it sells intellectual property to other companies, such as the ARMv8-A -- used in the iPhone 5S -- to chip makers. In total, seven ARMv8-A licenses were issued during Q2 2014, as well as 8 Mali multimedia processor licences and 41 other processor licences -- bringing the cumulative number of licences signed to more than 1,100. This increased overall licensing revenue year-on-year by 36 percent to £89.6m.

However, processor royalty revenue slid by nine percent in comparison to Q2 2013, dropping from £88.1 million to £80.3 million.

ARM also said that there has been a growth in shipments of chips based on ARM processor technology, and in total, 2.7 billion units were shipped in the second quarter, a rise of 11 percent year-on-year.

Simon Segars, ARM chief executive, said in prepared remarks:

"Our continued strong licensing performance reflects the intent of existing and new customers to base more of their future products on ARM technology. The 41 processor licences signed in Q2 were driven by demand for ARM technology in smart mobile devices, consumer electronics and embedded computing chips for the Internet of Things, and include further licences for ARMv8-A and Mali processor technology. This bodes well for growth in ARM’s medium and long term royalty revenues.

As expected, our royalty revenue in Q2 2014 has been impacted by seasonal trends and inventory management in parts of the electronics supply chain. An improving market environment in the second half gives us confidence in strengthening royalty revenue in H2 2014."

The firm expects revenue for the full fiscal year to stay in line with market expectations, especially due to improving semiconductor industry conditions and a predicted surge in royalty revenue growth in the second half of 2014.

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