Can ARM be broken? No? Read on...

Profits up a whopping 97 per cent. Analyst expectations beaten for a tenth quarter running. Chips in three-quarters of the world's mobile phones. It would be churlish to suggest ARM, darling of UK high-tech, is heading for a fall. So here goes...

This is a company that designs components that go into other people's products. Often it makes components that go into technologies that go into yet another person's product. As such it is always two or three steps removed from the end user, business or consumer. And as such any reaction to a poor performing technology and telecoms market is likely to be a delayed one. Specifically, ARM's business model means it lives and dies by its ability to form partnerships. In this area it has few equals - 22 out of the top 25 semiconductor firms have signed on the dotted line. But if its partners suffer, it will too. Eventually. Take the mobile phone market which is bracing itself for a downturn through a mixture of slowing sales and uncertainty over the rollout of next generation services. Nokia, the sector's bellweather, has downgraded its expectations, saying 50 million fewer phones will be sold globally in 2001 than previously predicted. Competitors and partners alike have reined in forecasts as a result. Motorola, the biggest handset maker on the other side of the Atlantic and the latest high-profile ARM partner, is not immune to this trend either. Earlier this month it announced 2,500 redundancies and slashed its own handset forecast. Hardly surprising, then, that ARM chose this morning to concentrate on its other business streams: 50 per cent of revenues come from non-wireless products, the company assured us. Yet its networking partners are hardly in rude health. Intel spent late 2000 issuing profits warnings to anyone who would listen, and watching its market cap take a massive hit. And just last week Lucent announced 10,000 job losses. Fast forward three months and it's clear if ARM is to record an eleventh stellar quarter it will need to some good news from its partners. Soon.