ARM Holdings flexes licensing growth in strong first quarter

First quarter results from ARM Holdings indicated the microchip processor maker remains at the forefront of technology and analysts forecasts, with licence revenue also bouncing back to growth after a slow finish to last year.

Revenues at the Cambridge-based company of $398m were up 14% year-on-year and 22% ahead in sterling terms, while profit margins moderated to 48.6% and earnings rose 15% to 8.2p, all better than the market's expectations.

Processor royalty revenues in dollars were 15% year-on-year, outperforming the industry by 18 percentage points, which was identified by some analysts as a key factor ahead of the results.

These strong gains, plus pre-tax profits expanding 14% to $137.5m all came in spite of normalised operating costs having increased by a third to £132.9m as a result of the step-up in investment plans to accelerate ARM's ability to grab market share in areas such as networking infrastructure and servers, and to create new products that will take advantage of opportunities in the Internet of Things.

Indicating the company's technology is being taken up by technology companies' newer products and likely to result in future royalties, dollar licence revenues increased 11% year-on-year to $148.3m, representing 37% of quarterly group revenues.

Royalty revenues were up 17% at $215.7m, representing 54% of group revenues, with sales of software and tools up 34% to $19.6m.

For the full year, directors' expectations are unchanged despite alluding to macroeconomic uncertainty that could influence consumer and enterprise spending in 2016.

"Devices are increasingly being improved by first becoming digital, and then smart, and then connected," said chief executive Simon Segars. "This is generating huge amounts of data that needs to be protected, transmitted, managed and stored across the internet.

"These trends are creating fantastic opportunities for ARM and our Partners. They are driving our licensing, as more companies need access to smart processors to build intelligence into more products, and they will drive future royalty revenue as more consumers and enterprises choose to buy smarter and more connected products."