ARM Holdings plc (ARMH)

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ARM Holdings PLC (ARMH)

Q4 2010 Earnings Conference Call

February 1, 2010 4:30 AM ET


Warren East – CEO

Tim Score – CFO


Didier Scemama – RBS

Kai Korschelt – Deutsche Bank

Gareth Evans – Investec

Nick Hyslop – RBC Capital Markets

Nick James – Numis Securities

Sandeep Deshpande – JP Morgan

Andrew Gardiner – Barclays Capital


Warren East

Hi good morning everybody, and thank you very much coming to our update on business results for 2010 and for Q4 in particular. It’s nice to see everybody this morning. We, Tim and I are on a very tight timeline to finish this at 10:30, but the good news is that Ian is here. And so if there are any unanswered questions at 10:30, then Ian is right there and Jonathan is at the other end of the room. So we should be able to cover questions. So, sorry that we have to dash-off at 10:30. Now hopefully this is going to go forward and we will get started.

So 2010, it was a record quarter in Q4 to finish a record year, and clearly the numbers are going to speak for themselves. However, one of the things that I’m highlighting on the slide here technology chosen by market leaders. The quality of our customers in 2010 has been something of note, and also the applications that people are now targeting ARM technology at. New areas of growth beyond 2015. So lots of the press releases that you read, lots of the licensing activity that we’re doing now is all about fuelling the royalty growth beyond the period of those market share tables that Ian puts in the pack and you all know and we’ll come those tables in a few moments.

Good news is that in 2010, we could see ARM continuing to gain share in the sort of markets that we want to gain share in, in areas of strong structural growth, smartphones, very strong growth in smartphones, mobile computing 2010 was the year of the tablet and we’re going to see a lot more of that. But we’ll also touch on the growth and thinks like microcontrollers and consumer as well. Physical IP strategy is on track. And in fact in all of those three normal areas that we target for driving growth in outside of mobile, increasing the amount of ARM technology in every consumer – every time a consumer goes into a shop and buys an electronic product, and in indeed one of the ways of getting that by extending the IP that we’re outsourcing.

So a good progress in all of those three areas led to a record year for numbers. And we were particularly pleased with Q4 from a bookings point of view driving the already record backlog still further higher. So 75% higher than it was when we stood here in this room 12 months ago. And translating all that revenue growth into profits and cash, we’ll see about that but it’s not just translating into profit growth, it’s a combination with a fairly sort of balanced approach, we had a combination of more profit but also investment in the future, investments in our product roadmap.

So we grew nearly 180 people during the year, particularly in our processor roadmap and our graphics technology at the same time is increasing the profit margin from 30% to 40% and growing the earnings per share by 70%. So 2011, how has it started? Well, it has been a very busy start to 2011, but of course that is really a reflection of hard work done in 2010. And we started at the Consumer Electronics Show at the beginning of January. There were two announcements and we thought we’d put them on the slide here, everybody has read about it, however in recent weeks but just to set the context, I mean the first announcements, Microsoft choosing to support the ARM architecture with the Windows operating system.

This was a great presentation by Steve Ballmer and his team. I think the really interesting point here was the support for several ARM partners, and also real applications, not just the operating system. So the fact they demonstrated real applications running on ARM, clearly highlighting that of course that is where there is a lot of work still to do. Really Microsoft came to a little bit closer to ARM in 2010, but that’s a result of many years of working with Microsoft. So that was a great presentation. Another great presentation at CES was from NVIDIA. They’ve had fantastic success with their ARM powered Tegra chipset in terms of design wins. And what they were talking about in CES was licensing Cortex-A15, that’s the new Cortex-A processor that we launched in September.

They’re extending their Tegra family around Cortex-A15, but also they’ve become an architecture licensee for new products smoothing out in the computing spectrum. So taking ARM right across the computing spectrum in future, that’s their plans. I think these announcements in enough themselves, very interesting but actually it’s indicative of progress generally with new markets fuelling growth for the years to come. This is obviously all about computing applications, so where is ARM in computing today. Well there is a blurring between computers and smartphones and that’s certainly helping the ARM’s very strong presence in smartphones is helping us get into computing. But at CES there were some great brand names and the whole show was indeed a showcase for lots of ARM technology and showed ARM very strongly positioned as the consumerization of the internet that we talk about takes place over the coming years.

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