Wednesday, April 27, 2011

ARM Holding (ARMH) with Another Fine Quarter, but Range Bound for Now

The last time we spoke of ARM Holdings (ARMH) mid March, it was beginning a bounce off the 100 day moving average.  I mentioned at the time:

For those interested in ARM Holdings (ARMH) the stock has become much more attractive in terms of valuation (still not cheap - just cheap(er)) and entry point, than it was 2-3 weeks ago.  The stock has lost nearly a quarter of its value in that time and now sits right above the....the 100 day moving average.  This is also an area the stock tested a few times in January 2011.  One could definitely take a swing here and abandon ship if this support level is broken - the stock held up quite well during yesterday's market carnage all things considered.

The stock was just over $24 at the time, after pulling back from $31.  Anyone who jumped in, would have enjoyed the better half of a round trip - as we're back to $31 the past few days; a cool 30% gain in about 6 weeks.

The company reported overnight, and posted solid earnings.  However due to valuation it's been range bound.  Clearing those mid February highs would be a positive technically, but for now the way I'd play this is to dump all the shares bought back in mid March, and wait for either (a) a pullback or (b) a breakout over February highs, to get back in.

  • U.K. chip designer ARM once again delivers the goods; Wednesday reporting solid first quarter results ahead of market expectations on the back of its processor business. It’s also quietly confident about the outlook; reiterating its annual revenue guidance.
  • .... beat forecasts with a 34% rise in first-quarter earnings, helped by soaring demand for smartphones powered by its technology.  The FTSE 100 company, which is trading at 50 times its earnings, gained on the back of a 26% increase in revenue to £116 million. 
  • It secured 39 processor licenses in the quarter ended March 31 after signing 35 processor licenses in the previous quarter.
  • For 2011, ARM expects group dollar revenue, a figure closely watched by analysts as the group generates the bulk of its sales in that currency, to be in line with current expectations of around $730 million, despite uncertainty regarding the economic impact of the Japanese earthquake on the semiconductor industry supply chain and end-product markets.
  • ARM’s results were well received by U.K. analysts, who say they bode well for the company’s prospects.  Numis analyst Nick James said “the licensing performance of ARM is very encouraging for its long term growth prospects.” Mr. James, who reiterated his add rating on ARM and 660 pence target price, also noted that it is “becoming increasingly apparent that Mali is a credible competitor in the market for mobile graphics, a trend which is negative for Imagination (Technologies).”
  • Peel Hunt analyst Paul Morland has upgraded the stock to a hold rating from sell “as the company is growing faster than we thought possible.” The results were “exceptionally strong”, which should lead to upgrades of at least 5%, he added.
  • Matrix analyst Adrien Bommelaer described the results as “pretty good”, attributing the better-than expected performance on the processor business, with royalties and licenses up strongly. He expects full year consensus figures to go up a “little bit”, similar to what happened after the fourth quarter results in February. But he retains a reduce rating on ARM and 500 pence target price, noting the stock is “totally overpriced.

Via Reuters:
  • Smartphones, such as those running Google's  Android software, generally contain two or more of ARM's newer microprocessors, helping the average royalty per chip to rise to 4.8 cents from 4.6 cents in the previous quarter.

    Japan could still be an issue...

    • Finance director Tim Score said there had clearly been disruption in the industry from events in Japan, but the severity was not yet known. "I do not think anyone is yet clear to what extent the semiconductor industry supply chain may be impacted by the temporary closures and shutdowns we have seen in Japan," he told reporters on a conference call. "We also do not yet know what the impact will be on consumers in Japan.
    • ARM reports royalties a quarter in arrears, so the impact of the earthquake will not be fully apparent until its third quarter.

    [Mar 17, 2011: WSJ - Getting an ARM Up on Intel]
    [Feb 1, 2011: ARM Holdings Continues to Squash Critics with Latest Earning Report]

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