ARM Holdings plc (ARMH)

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Wall Street Breakfast

ARM Holdings plc (ARMHY)
Q2 2007 Earnings Call
July 26, 2007, 8:300 AM ET


Bruce Beckloff - VP, IR
Warren East - CEO
Tim Score - CFO


Gary Mobley - AG Edwards
Corey Tobin - William Blair & Company



Thank you for the standing by, and welcome to the ARM Holdings Q2 Result Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by your question-and-answer session. [Operator Instructions]. I must advice you that this conference is being recorded today, Thursday, the 26th of July, 2007.

I would like to turn the conference over to your speaker today, Bruce Beckloff. Please go ahead, sir.

Bruce Beckloff - Vice President, Investor Relations

Thank you very much. Good afternoon everyone and good morning to you over in the States. This is Bruce Beckloff, the VP of IR at ARM.

On today's Q2 and half year results conference call, we have Warren East, the Chief Executive Officer; and Tim Score, the Chief Financial Officer. On today's call, Warren and Tim will take us through the highlights and comments from the quarter results and then we'll open it up to Q&A session.

As a reminder, the presentation and release as well as the webcast of this morning's presentation can be found on ARM IR website, at Before I hand over to them, I just have a few words to read out with respect to this conference call and what we are about to discuss. The content for this conference call being directed only to those of you who have professional experience in matters relating to investment and the information communicated on this call is being made available only to investment professionals. Any person present on this call who does not have professional experience in matters relating to investment should not act or rely on the content of this call.

The following conference call will contain forward-looking statements which are other than statements of historical fact. 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.

On this note, I'll hand over to Warren.

Warren East - Chief Executive Officer

Thank you, Bruce. Good afternoon and good morning and thank you for joining us. So I will start with an overview and then hand over to Tim. Today, 2007 has been a challenging year for the semiconductor industry as a whole and nobody seems to be immune to this and as a result, in April we indicated that revenues for Q2 would be broadly similar to those that we saw in Q1. And set against this challenging backdrop, we are very pleased today to announce a very solid set of numbers with profit and operating margin well ahead of expectations and a very strong, even record performance in licensing revenues which we are showcasing on newer technology and overall revenue in line with expectations.

So going into the second half now, our pipeline remains strong and our record backlog of future orders that existed in January only marginally reduced. So I am just going to go into a bit more detail on each of the parts of the business.

In the Processor division, we had a record quarter for license revenue and that completed the first half which was up some 25% year-on-year, in fact Q2 was up 26% in Processor division licensing compared with Q2 last year. And to do that we signed 15 licenses bringing the total number of licenses to 491, and that means we now have 6 new partners, bringing the total of semiconductor partners up to 197, which incidentally is up from 184 twelve months ago, so new partners are still going well.

Within that licensing activity, there were 4 newer ARM11 licenses, three new Cortex licenses and a further sale of our Mali Graphics product. And actually on the Graphics product, there was meaningful revenue being recognized on some of the earlier graphics licensing within 12 months of the acquisition. So our graphics business is now tracking ahead of our own internal plan.

It was good to see in Q2 a high proportion of the Processor licensing being driven by non-mobile applications. And in the quarter, we introduced ARM11 to the foundry program which should help drive this non-mobile activity even more over the next several quarters. In the mobile space, you may have noted this morning that we announced that Infineon have chosen to adopt ARM processors across their entire range of wireless chipset including ultra low cost phones. In the main though, mobile licensing was really related to smarter phones, which is of course giving rise to potential ARM IP per phone and therefore, enhance royalties.

Royalties themselves is reported in the quarter were affected by the semiconductor industry correction cycle with infantry of the hang and that was very marked in Q1 which is the quarter to which these royalties relate. And this together with the normal seasonality that we see in Q1 across consumer segments, PC and mobile sector all offset a very strong growth in microcontrollers to together produce an overall decline in volumes versus the previous record quarter, of some 10% sequentially. But if you compare that to the quarter 12 months ago, though we saw our 17% increase in volumes over 2006 and that continues to demonstrate strong growth in market share cross all affected and support our longer term volume predictions, which remain absolutely unchanged.

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