ARM Holdings plc (ARMH)

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ARM Holdings plc (ARMH)

Q3 2010 Earnings Call

October 26, 2010 03:30 am ET


Ian Thornton - VP of IR

Warren East - CEO

Tim Score - CFO


Francois Meunier - Morgan Stanley

Gareth Jenkins - UBS

Sandeep Deshpande - JPMorgan

Simon Schafer - Goldman Sachs

Johannes Schaller - Deutsche Bank

Paul Morland - Peel Hunt

Jerome Ramel - Exane BNP Paribas

Gunnar Plagge - Nomura

Brett Simpson - Arete Research

Janardan Menon - Liberum Capital

Jonathan Crossfield - Bank of America

Nick Hyslop - RBC Capital Markets



Thank you for standing by and welcome to the Analyst Conference Call. At this time all participants are in a listen-only mode. (Operator Instructions) I must advise you that this conference is being recorded today Tuesday, the 26 October, 2010.

I’d now like to turn the conference over to your speaker today Ian Thornton. Please go ahead sir.

Ian Thornton

Good morning. Thank you. This is Ian Thornton, Vice President of Investor Relations at ARM. On today’s Q3 Results Conference Call, we have Warren East, Chief Executive Officer and Tim Score, Chief Financial Officer.

On today’s call Warren and Tim will take us through the highlights and comments from the quarter’s results and then we’ll open the call up to a Q&A session. As reminder the presentation and press release can be found on the ARM investor relations website at Before I hand over to them, I just have to read out a few words with respect to this conference call and what we’re about to discuss.

The contents of this conference call are being directed only to those of you who have professional experience in matters relating to investments. And the information communicated on this call is being made available only to investment professionals. Any persons present on this call, who does not have professional experience in matters relating to investments should not act or rely on the contents of this call.

The following conference call will contain forward-looking statements which are other than statements of historical facts. The company’s actual results for future periods may differ materially from these statements as they are based on current expectations and are subject to a number of risks and uncertainties.

And on this note, I’ll hand over to Warren.

Warren East

Thanks Ian. Good morning, everybody and thank you for joining our Q3 results conference call. So as usual I am going to run through some highlights and then hand over to Tim and I hope we’ll cover most of the content in Q&A.

A quick introduction, we are benefiting from growth in markets where we already lead at the moment such as mobile, where smartphones and mobile computers like tablets are growing very strongly. We are also increasing our penetration in other growth applications like storage, digital TVs and microcontrollers. And on top of this our partners have begun experimenting in new areas which are for future growth opportunity; things like servers and even laptops.

Now Q3 is traditionally a challenging quarter for us with holidays happening on both sides of the Atlantic. But this year, the semiconductor industry has been quite buoyant and that buoyancy is continued with licensing very strong across the ARM business leaving what was a record backlog at the half year, some 10% higher by the end of September.

Our market share gains have continued to drive the royalties to outperform the wider industry. ARM’s royalty was up 33% year-on-year versus the industry up about 25% in the corresponding period.

So today we’re reporting record quarterly revenues by a considerable margin. And as we indicated at the half year, we’ve continued to invest in the strategic areas of our business by growing our head count. That’s mainly in the design teams in the processor division. And that reflects our confidence in the medium-term demand for our technology right across all the key market sectors that we’re targeting for growth.

You may recall, the quarter began with the conclusion of what is really a milestone agreement with TSMC in August. And then later in August our annual partner meeting saw record numbers attending to discuss future technologies. And in September, we launched the latest flagship ARM processor, the Cortex-A15 and this is delivering some five times the performance of a Cortex-A8 in a similar power envelope. The processor is aimed at high-end smartphones and mobile computing devices of 2013 and beyond.

And it also opens the way to new application areas for ARM like servers to support cloud computing. We’ve got three lead licensees signed up for that already and it will become available for licensing by the rest of the partnership in the first part of next year.

Now just a little on the detail of the different parts of the business. I’ll start with the processor division, where reported license revenue was $42 million, that’s up 37% during the quarter, and we signed 22 licenses, that’s 56 year-to-date bringing the total license base up to 716. And of the 22 licenses sold, four were initially targeted at mobile applications, which mean that our efforts to push into non-mobile applications are enjoying great momentum at the moment. So of the 16 Cortex licenses sold, five of them were for Cortex-A9 and 10 for Cortex-M products.

And the target applications there include digital TVs, cameras, printers and servers as well as a host of microcontrollers used in all sorts of applications including sensors, automotive, and in both energy generation and usage. We also sold two further Mali graphics licenses and in addition one major semiconductor company became an architecture licensee with plans to target the server market.

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