ARM sees opportunity in adversity

ARM is reaping bigger profits as other chip companies suffer - but how long can it last?

Other chipmakers may be sunk in stock market gloom, but not the UK's ARM Holdings, which on Wednesday announced first-quarter profits of £11.4m before tax, a 39 percent increase on the same quarter last year. The results were in line with analysts' expectations.

ARM sells designs for embedded chips, a huge market including everything from dishwashers to mobile phones, for which low power consumption is more important than the clock speeds touted by PC chip makers like Intel and AMD. Also unlike those companies, it doesn't have the capital expenditures of actually manufacturing its chips -- a burden that has weighed heavily on other companies now that the US economy is slowing.

"As an intellectual property licensing business, we have not been directly exposed to the inventory corrections seen by many technology companies in the last few months and have experienced a strong quarter, with 20 licenses signed," said chairman and chief executive Robin Saxby, in a statement.

As an indicator of future growth, Saxby pointed to continued strong sales of development systems, used in research and development for new products. ARM nearly tripled its revenues from development systems compared to a year ago, and was up 39 percent on the previous quarter.

ARM believes it can ride out the high-tech slump through the sheer diversity of its embedded offerings, and its prominence in the market. "When there is uncertainty, people flock to quality," Jonathan Brooks, chief financial officer, told ZDNet UK. "We're the leading brand, and we have very competitive products. We see this as an opportunity to gain market share."

Besides its mobile phone chips, ARM designs power Nintendo's Game Boy, which is selling 100,000 units a day, and the handheld computers running EPOC and Windows CE operating systems. Palm Computing, the handheld leader, is expected to launch ARM-based products late this year.

The company also says it has a growing presence in the automotive anti-lock braking systems, smartcards and broadband networking products like cable modems. The company is making a big showing at the Embedded Systems Conference in San Francisco, California this week.

Still, it remains to be seen whether ARM is, as it says, "insulated" from the slowdown. Its latest results come as the chairman and chief executive of Motorola, which manufactures a wide variety of PC and embedded chips, warned that the high-tech sector is in a "recession". Palm Computing recently issued a profit warning and says it will delay the volume production of some new devices.

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