Wednesday preview: ARM Holdings first quarter, UK jobs data

Chip maker ARM Holdings reports its first quarter interims on Wednesday amid concerns that demand may recede.

Shares in ARM slumped on Monday after the Nikkei reported that Apple - one of ARM’s biggest customers - will continue its reduced production of iPhones in the quarter ending June due to sluggish sales.

The production cut could last longer than the one introduced back in 2013, when the technology giant scaled back production orders for its cheaper iPhone 5C a month after launch, the news agency added.

Jefferies downgraded the stock to ‘hold’ from ‘buy’ on Monday, saying: “Our deep dive into the drivers of its royalty revenue from here…suggests the consensus trend to a more than doubling of earnings per share (EPS) to 2020 is more complex and potentially risky than the journey to date.

“We model EPS more than doubling by 2020 (on trend with consensus), but strongly believe the multiple the market has on that growth is too high.”

Jefferies added that smartphone chip prices have declined and newer end markets are much more competitive.

For the first quarter Numis has pencilled in earnings per share of 8.43p, revenue of $396m and earnings before interest and tax of £138m. The broker expects ARM to report Processor Division (PD) royalty growth of 23% to $206m and PD licensing growth of 6% to $116m.

“Our overall US$ revenue estimate is in-line with consensus, however on EPS we are ahead due to foreign exchange (US$ has remained strong) ,” said Numis analyst Nick James.

“With foreign exchange remaining highly favourable (and ARM now likely to have over half of the year hedged) and in general macro concerns having eased a bit (consumer demand in China has clearly not fallen off a cliff), we believe there should be scope for some small upgrades following the results.”

Meanwhile in macroeconomic data on Wednesday, the Office for National Statistics releases its latest jobs statistics.

The UK is expected to have added 60,000 jobs in the three months to February. The unemployment rate is projected to remain at 5.1% during the period. Average weekly earnings are forecast to rise 2.3%, accelerating from the previous quarter’s 2.1% growth.

The Bank of England is monitoring the labour market as it determines the timing for an interest rate hike. The BoE cited weak wage growth as part of its reason to keep rates unchanged for the 85th month in April.

Wednesday 20 April

INTERIMS
Punch Taverns

INTERIM DIVIDEND PAYMENT DATE
Close Brothers Group

QUARTERLY PAYMENT DATE
Assura

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Crude Oil Inventories (US) (15:30)
Existing Home Sales (US) (15:00)
MBA Mortgage Applications (US) (12:00)
Producer Price Index (GER) (07:00)

FINALS
Brown (N.) Group

DRILLING REPORT
BHP Billiton

AGMS
Bunzl, Domino's Pizza Group, EP Global Opportunities Trust, EP Global Opportunities Trust, Essentra, JPMorgan Claverhouse Inv Trust, Moneysupermarket.com Group, Permanent TSB Group Holdings, RTC Group, Unilever, Verseon Corporation (DI/REG S)

TRADING ANNOUNCEMENTS
Relx plc

UK ECONOMIC ANNOUNCEMENTS
CBI Industrial Trends Surveys (11:00)
Claimant Count Rate (09:30)
Unemployment Rate (09:30)

Q1
ARM Holdings, Kcell Joint Stock Co GDR (Reg S)