ARM Q3 beats forecasts; profit up by 22 percent, outlook up

The darling of the U.K. technology industry ARM reported a significant rise in profit, thanks to a "record backlog" of orders. The firm's outlook is looking healthier than ever.

With sluggish worldwide economic conditions and a slow-down in the PC building market ahead of the release of Windows 8, no-one wants to be in the chip-making business right now. 

Except ARM.

British chip designer ARM announced healthy third quarter sales and profits -- slightly higher than expected -- claiming it has enjoyed a record order backlog and an ongoing strong revenue stream.

ARM said it generated a pre-tax profit of £68.1 million ($108m) on revenue of £144.6 million ($231m), a 22 percent increase on the same quarter a year ago. Earnings per share stood at 3.7 pence ($0.06), a rise from 3.05 pence a year ago ($0.04).

Cash currently stands at £477.9 million ($764.8m), down slightly from £495.9 million ($736m) at the end of the third quarter, a difference of about 10 percent.

According to Reuters, ARM was expecting a pre-tax profit of £67.4 million ($107.9m) on revenue of £140 million ($224m). All in all, the figures were above the expected market figures.

What kicked ARM into gear? The firm said licensing costs rose by 17 percent, while royalties rocked to 27 percent year-on-year, thanks to the firm's Cortex-A and Mali-based chips. The firm reported that 2.2 billion chips has shipped based on ARM's design, split equally between mobile and non-mobile sectors. 

But on the whole, between the smartphone market and tablet sector, disk drives to printers, digital cameras and even the automotive business -- where the British chip designer is breaking into slowly but surely -- ARM's looking strong across the board of sectors the firm has and continues to break into.

The firm noted that mobile devices remains the firm's largest market with 4.5 billion chips -- up 15 percent in 2011 -- with enterprise as the fastest growing sector, at a 30 percent rise in 2011.

ARM chief executive Warren East said in a prepared statement:

ARM has delivered another quarter of strong revenue and earnings growth. As we move into an ever more connected world of mobile computing, cloud-based networks and the Internet-of-Things, ARM is seeing increased demand for its high performance and low power technology. This demand is helping to drive ARM's licensing revenues and this quarter we saw market leaders license ARM's advanced processor technology for next generation super smartphones, tablets, and mobile and embedded computing applications.

East also noted that ARM's royalty revenues outpaced the industry with continued gains in market share in crucial markets, including digital televisions and microcontrollers. This, he said, gives the firm plenty of cash to keep investing for the future and deliver increased profits and cash.

What likely has ARM up in the good books with analysts is the increased publicity surrounding upcoming Windows RT devices -- or Windows 8 on ARM chip tablets. ARM already has confirmed product announcements from Asus, Dell, Lenovo, Samsung, and Microsoft with its Surface RT tablet -- all powered from ARM's chip designs -- even in spite of nobody quite knowing what Windows RT is actually for .

Looking ahead, ARM's outlook looks pretty solid. The firm said the final and fourth quarter points to another strong quarter for licensing revenue as ARM's fourth quarter royalty revenue is generated from chip shipments in the third quarter, which is expected to increase. ARM expects group dollar revenues for the quarter to be in-line with market expectations.