The future is here for ARM Holdings, executives say.
ARM Holdings ( ARMH ) says that as of the beginning of September, it had 50 licensing agreements signed for its ARMv8-A technology, which includes support for the advanced 64-bit computing increasingly in demand for phones and tablets.The British chip and software design company says that it is poised to boost its royalty fees as commercial customers increasingly adopt its technology for use in smartphones, tablets and other popular consumer electronics.
Tech giantApple ( AAPL ), for example, uses 64-bit technology in its newest smartphones: the iPhone 6 and iPhone 6 Plus, out Sept. 19.
Core To Apple
ARM Holdings doesn't discuss partners' products, but an iPhone 6 Plus teardown by tech repair firm iFixit found its handiwork inside, according to reports. Apple designed the main processor with technology licensed from ARM Holdings, a Reuters article said the day the phones debuted. A few days earlier, CNET reported that ARM Holdings technology was likely the basis for Apple's new A8 microprocessor in both the iPhone 6 and iPhone 6 Plus.
To keep pace with Apple, more rivals are following its lead and moving to 64-bit, analysts say. The new v8-A chips also improve the efficiency of existing 32-bit applications.
ARM says that its deal-making on the v8-A technology includes all of the top 10 companies that sell application processors for smartphones and nine of the top 10 for tablets. Some of the company's business partners will start to ship chips based on the new technology before the end of this year, ARM says.
"These are certainly positive trends for ARM," Brian Colello, a Morningstar analyst, told IBD.
He says that continued development of new devices, such as a smartwatch developed by Apple that is set to begin selling in 2015, could continue to propel ARM. "If they catch on," he said, "ARM would benefit."
ARM designs the chips that go into a range of mobile devices and other electronics. It earns royalties on every ARM-powered device shipped. Royalties account for about half its revenue. It also collects licensing fees for products in development that use its chips.
ARM is the No. 4 firm by market cap in IBD's Electronics-Semiconductor Fabless industry group, afterQualcomm ( QCOM ),Broadcom ( BRCM ) andAvago Technologies ( AVGO ), and beforeNXP Semiconductors (NXPI). The group is No. 12 in performance out of 197 that IBD tracks.
Philip Sparks, ARM's investor relations manager, said in an interview that the Cambridge, England-based company expects royalty growth to "accelerate through the remainder of the year" and continue to advance in 2015, when its v8-A architecture should be a "really big story."
Sparks declined to address any one device but said that there are "certainly some quite exciting products coming out" and that mobile technology in particular is "advancing very quickly."
In addition to the 64-bit support, Sparks said, the v8-A advancement brings extra multimedia capabilities, bandwidth and enhanced security benefits. While early adoption is likely to be concentrated in mobile devices, he said, the technology in coming years could gain traction in televisions and other electronics, adding to the company's long-term growth potential.
ARM is already on solid ground. Its second-quarter sales increased more than 17%, to $309.6 million, and it generated earnings of 28 cents per share. Analysts polled by Thomson Reuters on average forecast third-quarter EPS of 30 cents on sales of $329.1 million.
Analysts predict that sales will top $1.3 billion for all of 2014 and approach $1.6 billion in 2015.
Raymond James analyst Hans Mosesmann, for one, calls ARM's long-term potential big.
"This wave of adoption is happening," he told IBD, referring to more companies using ARM technology.
More Bits, More Bucks
The company says that it works with some 350 firms globally producing chips. As such, it should have plenty of room within its existing base to work with customers as they transition their products from 32-bit technology to 64-bit.
ARM generates higher levels of royalties on the faster 64s than it does on the 32s, so as customers upgrade, each shipment becomes more profitable.
Mosesmann says he anticipates that over the next several years, ARM's customer base will grow substantially. "Their technology is becoming viral," he said.
Mosesmann adds that the growth potential should provide reason for investors, who have shown some uncertainty this year on ARM, to develop renewed interest.
The company's stock, trading near 45, is down about 18% this year and has been hovering near where it traded last September.
ARM's Sparks says that the firm has had to battle through headwinds over the past year -- notably, a gradual transition from 3G wireless networks to 4G in Asia.
China in particular has seen a period in which it has pushed to clear out inventory of devices designed for 3G use before moving to 4G. The transition meant lower royalty levels than ARM would have generated had the shift to 4G begun earlier, driving sales of more advanced and lucrative devices.
China's Need For Speed
But Sparks says that the process is winding down, opening a path for adoption of new devices for use on 4G networks in heavily populated China. He adds that as the changeover continues, it should prove a tailwind for the company and provide "another boost to our royalty growth."
What's more, while high-end devices such as the iPhone are not prevalent in some emerging economies, other phones are increasingly in use, ARM notes.
The "rise of low-end smartphones is enabling hundreds (of) millions of people in emerging economies to access the Internet for the first time," opening up sales opportunities for ARM customers, Chief Financial Officer Tim Score told IBD in an email.
Broadly, the environment in which ARM operates appears to be ripening. Global sales of semiconductors in July climbed 2.4% from the previous month and 10% from a year earlier to a record $28.1 billion, according to the Semiconductor Industry Association.
"The strong interest in ARM technology" across a range of customers, Score said, "bodes well for ARM's long-term growth."
Source: http://www.nasdaq.com/article/apple-iphone-supplier-arm-holdings-turns-on-growth-cm394214#ixzz3EBYcS4Nk
No comments:
Post a Comment