ARMH

ARM Holdings plc (ARMH)

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ARM Holdings plc (ARMH)

Q4 2011 Earnings Call

January 31, 2012 4:30 am ET

Executives

Warren 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

Francois Meunier - Morgan Stanley, Research Division

Didier Scemama - RBS Research

Janardan Menon - Liberum Capital Limited, Research Division

Kai Korschelt - Deutsche Bank AG, Research Division

Andrew Dunn - RBC Capital Markets, LLC, Research Division

Sumant Wahi - Redburn Partners LLP, Research Division

Nick James - Numis Securities Ltd., Research Division

Sandeep Deshpande - JP Morgan Chase & Co, Research Division

Gunnar Plagge - Citigroup Inc, Research Division

Gareth Jenkins - UBS Investment Bank, Research Division

Andrew M. Gardiner - Barclays Capital, Research Division

Presentation

Warren East

Okay, good morning, everybody, and thank you for coming to our results presentation. I have an obligatory slide to flash up in front of you. And in the usual manner, I'm going to do a business update, and Tim will summarize the effects, the financial effects of business, update for the last quarter before we do questions and answers.

I've been enjoying myself so far this morning with some of the broadcast media because we've been talking about another record quarter for ARM, which brings to close an excellent year. And I think the highlights are shown on this slide. Really that excellent year and record quarter and increase in backlog and so on, it’s been driven by continued activity from the major semiconductor companies investing in ARM technology. And in the last quarter, we're pleased to announce our lead partners signed for our version 8 architecture product that we announced in October. Actually, we haven't announced these products. What we announced in October was our version 8 architecture. We will, in due course, be announcing some products. And what you can see here is that some of the lead partners, our first lead partners, have signed up for those products. So this is indicative of the strength of the V8 architecture for the future, and so we're very pleased with that. There'll be a little bit more on that as we go through the presentation.

We have another subscription license in LSI, and I'm pleased with that, when we come to talk about that. LSI has been an ARM partner for a very long period of time. They use ARM in a handful of different products, and they have a product line around infrastructure and networking centered around the PowerPC architecture. And in their press release just a week or so ago, they talked about adopting ARM technology in those products as well. So it's very good to see LSI joining the subscription licensees and particularly for that application.

If you look at our business performance, we're continuing to grow our market share in all our target markets, and I really struggle to single out one area and talk enthusiastically about it at the expense of the other areas, because right across the piece we're very pleased with the progress there and overall increase in market share that we'll come to. In particular, microcontroller’s driving the volume and mobile is driving the value.

We've talked on, when we put up this slide, we talk about growing ARM and we talk about the different growth trajectories there in the graphic. And obviously, one of those is extending the outsourcing model to other IP and very pleased with our progress in our physical IP business, consistently building the processor optimization packages alongside the Cortex-A products, continuing to work at the leading edge in physical IP. And also, we're highlighting here our 5 Mali licenses in the quarter, bringing the total to nearly 60 Mali licenses now. And I'll talk in a little while about Mali's success, particularly in digital TV. So all in all, an excellent quarter, generating record revenues, generating record levels of profitability, and that's coming through into profit.

So there's been a lot of column inches during 2011 on ARM's progress in mobile computing. I was at CES a couple of weeks ago, and at CES, the interesting thing to note was that, well, ARM was everywhere. That was the really interesting thing to note when I had an interview really early on, having been there for about 2 hours, and somebody said, "What's the most exciting thing you've seen so far?" I hadn't really seen anything. But what I had already picked up on was that you could find ARM technology on just about everything you looked at, from home automation through to the biggest digital TVs. And we were also seeing ARM a lot in mobile computing. There's a huge range of form factors on show at CES, and certainly, most of the mobile computers on show at CES were ARM-powered, and those ARM-powered apps processes incorporating our Cortex-A processes. But the good news was that some of them were also incorporating ARM graphics and ARM physical IP.

And of course, the opening keynote at CES was from Microsoft, and Microsoft led off their keynote with their ARM-based mobile product. And then they went on to talk about Windows 8, and they went off -- on to kick off their demonstration of Windows 8 with an ARM-based product. So after 12 months since the initial announcement, we're now getting very close to Microsoft's beta launch, and at CES, they talked about beta being available in Q1. And so after 12 months, we're getting close, and we're looking forward to the Windows activity during 2012.

Obviously, it was a consumer electronics, a consumer products show, and I mentioned digital TVs. Digital TVs for us, it's an exciting area. These TVs are becoming smarter, and as they're becoming smarter, they're becoming connected. And as those 2 trends are happening, they're using more and more ARM technology. And over the last few years, we've been gradually increasing our share in digital TVs as they've been getting smarter and getting more connected, and we think our market share in 2011 was probably about 40%. And the good news is that in 2012, we expect that number to be over 50%, and it is driven by the need for these TVs to become connected to the Internet. Now these TVs are also including graphics processes, and they're starting to ship, and our Mali graphics processor is very well positioned in the TV space. We expect that of the TVs that ship in 2012, certainly more than 50 million of them will have embedded graphics, and we would expect to have about 70% of the market share in graphics in digital TVs in 2012. And a footnote on the bottom of the slide there, we're pleased to see our physical IP evident in some of these processors as well.

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