ARMH

ARM Holdings plc (ARMH)

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ARM Holdings (ARMH)

2012 Earnings Call

February 05, 2013 4:30 am ET

Executives

D. Warren A. East - Chief Executive Officer, Director and Member of Disclosure Committee

Tim Score - Chief Financial Officer, Director, Member of Compliance Committee, Member of Disclosure Committee and Member of Risk Review Committee

Analysts

Nick James - Numis Securities Ltd., Research Division

Sandeep S. Deshpande - JP Morgan Chase & Co, Research Division

Francois Meunier - Morgan Stanley, Research Division

Didier Scemama - BofA Merrill Lynch, Research Division

Gareth Jenkins - UBS Investment Bank, Research Division

Janardan Menon - Liberum Capital Limited, Research Division

Simon F. Schafer - Goldman Sachs Group Inc., Research Division

Sumant Wahi - Redburn Partners LLP, Research Division

Andrew M. Gardiner - Barclays Capital, Research Division

Jerome Ramel - Exane BNP Paribas, Research Division

Amit B. Harchandani - Citigroup Inc, Research Division

Presentation

D. Warren A. East

Okay. All right. Good morning, everybody. Thank you very much for coming. I looked at the number of people in the room here, and I said, "Oh it's quite depleted." and Tim's getting with the semiconductor vernacular now, and so he said, "Oh, it's only partially depleted." But there we are.

Good morning, and welcome to our results obligatory statements, and we're going to start off. I'm going to give an update on the business, a romp through of what we've been up to in 2012 and in Q4, in particular. A little bit of a longer-term view towards the end, and then Tim will follow up with numbers in the usual way.

So let's start off with the highlights for Q4. Well, Q4 was a fantastic finish to 2012. We saw our continued momentum in licensing and so 36 licenses in the last quarter. That's another year of over 100 licenses in the full year.

At the start of the fourth quarter, we held our Tech Con event in Santa Clara. And that event and around that event, we launched our v8 products, the Cortex-A50 Series. And indeed, in Q4, we saw some more licensing of those v8 products. And now they're launched, then we're sort of relaxing a little bit on the lead partner licensing as we get closer to silicone on those devices. So that was a good start to the quarter. I'll come back to some of the detail of licensing a bit later.

In terms of how shipments performed in the industry at large, we saw a continuation of outperforming the semiconductor industry. And we've got a few slides or a few pictures in the slides later showing this gap of outperformance is increasing as ARM is targeting a wider range of end applications. But it was particularly pleasing to see when we step back and look at the year as a whole, growth in Cortex-A and Mali shipments, and we've got some of the statistics on that. We normally talk about the outsourcing model and the increasing traction there, and it was another quarter of good licensing for Mali and for processor optimization packages. So all of that came together and enabled us to deliver increases in revenue profits. The normal pie chart that we put up there, you can see the split of revenues. And revenue is up 21%. Profit is up 16%, and Tim will talk about the numbers there.

Now, I'm going to step back a little and look backwards 5 years. One of the key drivers for what's been going on with ARM's business over recent years has been the PC era, and more importantly, the sort of beginning of the end of the PC era, such that now we're talking in our statement this morning about the post-PC era. So we thought it worthwhile having a little look from a sort of longer-term perspective.

If you go back to 2007, there were about 400 million devices shipped in the year that connected to the Internet. And most of those, a good 2/3 of those, were effectively a PCs, and the ARM-based smartphones really were only a small portion of that. And there were a number of devices with other architectures as well. And a few years ago and we -- 2007 is conveniently 5 years. It's also the year of the launch of the iPhone. So it's sort of generally, like, started the smartphone wave.

It's instructive to think about the applications. And at that stage, there were thousands, major parts in the tens of thousands but only just, thousands of third-party software applications running on the PC, which provided a very powerful ecosystem around those products.

Now fast forward to today, and we'll call it the post-PC era or the beginning of the post-PC era. And you can see the number of devices connected to the Internet have grown by a factor of 4. It's now 1.6 billion devices connected to the Internet. And that is, as many of you have heard me say, it's from the palm of your hand, sort of 2-inch screens, 4-inch screens right up to 84-inch screens in digital TVs. And these are all Internet-connected screens. And when we look at the architectures sat behind there, then you can see that the ARM architecture is sat behind about 3/4 of this massively increased volume. And PCs are still there, of course, and people still buy PCs. And people will want to continue buying PCs going forward as well.

What we mean is not that the PC is finished, but actually, digital products are now much more than just PCs. But it's instructive to look at the applications and the strength of the ecosystem, because we've moved from a situation of thousands, even low tens of thousands of apps to now millions of apps that are available. And of course, these millions of apps have been downloaded billions of times. Some 1.4 million apps between iOS and Android available at the moment and about 40 billion downloads. So the huge growth from 400 million to 1.6 billion has really been driven by smartphones, tablets and an increasing diversity of form factors.

So what's going to happen going forward? Well, it's a very competitive market, and who knows what is going to happen to those market shares. But what we would say is that this is all opportunity for ARM architecture going forwards, as the 1.6 billion devices grows by further factor of about 2.5 to, we think, about 4 billion Internet-connected screens over the next 5 years. And obviously, we're not making any particular comments here about the strength of the ecosystem. Clearly, people are going to be building on those 1.4 million applications, and software developers will be free to choose the platforms that they choose.

So that's the sort of context around PCs, and we know that PCs, tablets, smartphones, smart TVs is a very important area. It's very competitive space, but it's a very important area for our business over the next 5 years. So I thought it was worth that slightly longer-term perspective.

Read the rest of this transcript for free on seekingalpha.com