ARMH

ARM Holdings plc (ARMH)

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ARM Holdings Plc (ARMH)

Q4 2009 Earnings Call

February 2, 2010 4:30 am ET

Executives

D. Warren A. East - Chief Executive Officer, Director

Tim Score - Chief Financial Officer, Director

Analysts

Terrence Higgins - UBS

Unidentified Analyst

Nick Hissop (ph) - RBC

Unidentified Analyst

Joel Wamel (ph) - BNP Paribas

Janardan Menon - Liberum Capital

Dede Sam (ph) - RBS

Simon Schafer - Goldman Sachs

Brett Simpson - Arete

Aaron Judge (ph) - Milburn (ph)

Paul Morland - Astaire Securities

Presentation

D. Warren A. East

Well good morning, ladies and gentlemen. It's 9:30 so we'll start away. Welcome to our results presentation. I am going to talk for a little while and give you an update on the business and then Tim will give a slightly more detailed update on the numbers and then we'll hand it over to Q&A in the usual way.

So to start with, 2009, we're reporting this morning 2009 and Q4 results. 2009 for the semiconductor industry was a pretty horrible year, particularly in the first half, and so we're very pleased to be standing here this morning talking about a year with our revenues down about 10% versus an industry down about 20%. To see that continued outperformance of the semiconductor industry at large is very encouraging and we're doing that through continuing to gain share in end markets and gain penetration in markets where we're already established and there are trends happening in smart phones, mobile computing, micro controllers, and consumer electronics that are helping us on our way there.

We have had a very successful year for selling licenses, more on that later. Our physical IP strategy is in good shape from both a licensing point of view and some very pleasing royalty numbers coming through from that part of the business. We exit the year with a backlog at record level, up sequentially and also substantially year on year so that is a good position to be moving forward on. And the way in which we've managed the business during 2009 obviously, as I say, it was a difficult year and so with revenues coming down as was inevitable, we had to be fairly disciplined about where we made our investments during the year. We need in our sort of business obviously to continue with investing in major technology developments and so I think 2009's been a pretty good year in terms of managing that financial discipline. That's translated into by the end of the year, Q4 margins at record levels and record cash generation.

The slide is exactly the same format as the last couple of years of results presentations. So very much we are going to be talking about how we are concentrating on executing this strategy which has not changed for some time and will demonstrate how we're achieving growth in our mobile applications, how we're increasing the value in products where we're already present, and how we're extending the IP that we're outsourcing to our customers.

So industry as a whole, probably the worst year for semiconductors getting on for a decade and for ARM, a year of resilient execution closing with several records and we will talk more about those I'm sure.

So now I'll delve into a bit of the detail hopefully. Growth in cell licensing, this is obviously an engine for ARM's future growth. Licensing is all about equipping the ARM semiconductor partners with technology that drives future business, and given the wider economic conditions in the first half it was a very good year for building our licensing base. You can see our licensing base grown to over 660 licenses, second half in particular strong for the number of licenses sold, and our exit rate of $36 million in the quarter in Q4 is an encouraging place to be.

Now, behind those numbers there were some quite meaningful public announcements from some of our licensees. So the Infineon architecture license for security is clearly a meaningful announcement for ARM, breaking into a new area with a leading player in that area.

We saw some encouraging licensing in the quarter as well for the Cortex licenses and for Mali, and this morning we're starting to talk about the fact that one of those Mali licenses was with Samsung who's obviously a leader in the industry and an opinion former in the industry as well. So that's very encouraging for our graphics licensing.

When you look at the pie chart at the bottom, which again we have shown in several of these presentations, the picture is as it has been for some time with licensing driven by both mobile and non-mobile, and we're very encouraged by a continuation of the non-mobile licensing, and within mobile we're increasingly seeing ARM processes used in peripheral controllers in the phone away from the traditional, just the base band mode, and just the applications processor. So we're talking connectivity, cameras, power control, touch screen, and those sorts of applications.

Now I'll just look at the licensing in a slightly different way, and again the left-hand side of this slide is a chart with which I hope you'll be familiar. It's the traditional format where we show the base of licensees that are out there to generate future royalties and the numbers in parentheses are what's been added to those licenses during 2009.

Now I showed a very similar slide this time last year where on the right-hand side of the slide we talked about three new processors that we were intending to launch or deliver during 2009. Well, we did absolutely deliver those products in 2009 and we've sold licenses and so now here's a look ahead to 2010 where we have another three new microprocessors lined up for launch and/or delivery in 2010. And as shown on the slides we've been signing up lead licenses for each one of those processors and you can see the Eagle Processor, this is a high-end applications processor targeted at the top end application processor market. We've got some real core aimed at realtime applications and we've got a new addition to our microcontroller product range as well. So those are all coming to market in 2010 and so that's a bit of a look forward to what's happening there — similar slide to the one we looked at 12 months ago.

One of the things, a little detail as you might notice here down the right-hand side of the slide though is that with the growth, particularly of the microcontroller product portfolio, we have updated some of our market size numbers and in the complete slide pack in the appendices you'll notice that the Ian has updated the charts again, charts which I hope most of you are familiar with, and you'll see that the total market that we're aiming at has grown a little.

So our licensing is all about driving future royalty and it's happening in a variety of ways, but numbers across the bottom are showing our licensing aimed at semiconductor partners aimed very specifically at growing our market going forward in the mobile space, but also in some new areas. And outside in the demonstration area we have ST today. Some of you will have seen the demonstration there. They are showing off their digital set top box and I already mentioned the Infineon design. The numbers down in the bottom indicate where is ARM in these markets today and where is ARM going forward.

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