Tuesday, February 1, 2011

ARM Holdings (ARMH) Continues to Squash Critics with Latest Earnings Report

I won't talk about the valuation of ARM Holdings (ARMH) because you don't talk about fight club, but needless to say it's 'Salesforce.com' like.  The company beat estimates of $161.4M in revenue and 10 cents EPS, with a quarter of $179.6M and 14 cents.  After pulling back from highs via the CES hysteria ($28) the stock settled in a range of $24-$25 the past 2 weeks.  However it was SO stretched from any meaningful support that pullback did not even take it to the 20 day moving average.  Anyone trying to catch the name near that level missed their chance....

Gross margin's remain insane in the mid 90% range, as this is essentially a licensing company- and backlog is great.
  • Gross margin in the quarter edged up from 94.3% to 94.9%.
  • ARM said its backlog at the end of the fourth quarter was up about 35% sequentially and about 75% higher than a year earlier
The royalty rate did fall both sequentially and year over year - which puts a blemish in Goldman Sachs' view that somehow ARMH will be increasing royalty rates (when you are trying to justify a valuation, you come up with all sort of rainbow and butterfly scenarios)   [Jan 18, 2011: 65x Forward Earnings for ARM Holdings? No Problemo says Goldman Sachs]

Via Barron's:

  • Q4 revenue was up 28%, year over year, at $179.6 million, beating the average $161.4 million estimate. EPS of 14 cents was better by 4 cents. The company said it expects to gain share and revenues for the full year will “be at least in line with market expectations.
  • ARM’s processor division recorded a 51% jump in licensing revenue, and a 29% jump in royalty revenue, year over year. 
  • The “Physical IP” division saw a 26% jump in licensing and an 8% jump in royalties.
  • The only potential blemish was the decline, quarter over quarter, of the company’s royalty rate: from 4.7 cents in Q3 to 4.6 cents. The rate was also below the year-earlier quarter’s 4.9 cents. ARM cited the increase in sales of low-cost microcontrollers as being a cause.
  • The company expects to have “normalised” operating expenses — meaning, on a constant currency basis — in Q1 lower than in Q4, at a projected £57 million to 59 million, versus £61.2 million in Q4.
  • ARM, in a statement Tuesday, said it signed 35 processor licenses in the fourth quarter for a range of applications including smartphones, mobile computers, servers and smartcards.


A nice interview with the CEO at All Things Digital

The conventional wisdom right now is that Intel’s longest-term strategic threat is ARM. Is that fair? Will ARM become the rival camp to Intel and x86?

The two markets have been very separate and so they’ve been coming together. Intel has acknowledged that computing has to go lower-power, and they’ve done some work with the Atom processor. They’re still a long way off in terms of power consumption from where we are today. They’ll get closer, and ARM will move higher up in terms of computing performance. Inevitably there’s going to be a clash. Some thought it would happen in the netbook space, but that fizzled out in my mind.

I believe the CEO will also be making an appearance tonight on the 'Mad Man's show.

No position

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