ARM Profit Rises But Revenue Misses Forecast

LONDON—ARM Holdings PLC, a computer-chip designer that creates technology found in iPhones, increased its dividend on Wednesday after reporting a rise in second-quarter profit, boosted by a jump in chip shipments.

The company, based in Cambridge, England, said that net profit in the three months ended June 30 rose to £ 77.1 million ($120 million) from £ 55.5 million in the same period a year earlier.

Revenue rose 22% year-on-year to £ 229 million, marginally lower than a consensus market forecast of £ 235 million.

However, in dollar terms, the group said that it expects full-year revenue to be in line with market predictions of about $1.48 billion, assuming macroeconomic uncertainty doesn't have any further impact on consumer spending.

The company said that it recommends raising its interim dividend 25% to 3.15 pence a share.

"[The second quarter] has been a strong quarter for ARM," said Chief Executive Simon Segars.

ARM designs chips found in 95% of all smartphones, including those manufactured by Apple Inc. and Samsung Electronics Co. It earns licensing fees from chip manufacturers such as Qualcomm Inc. and Nvidia Corp. and royalties on every chip shipped. The company's revenue often lags behind the market, because nearly half of its business comes from royalties.

In dollar terms, ARM's licensing revenue in the second quarter rose 3% year-on-year, while revenue from royalties grew 30%. ARM said that the number of chips shipped in the second quarter rose 26% year-on-year to 3.4 billion.

On Tuesday, Apple's profit surged 38%, aided by strong demand for the company's latest iPhones and robust growth in China where sales more than doubled. But while Apple sold 35% more iPhones in the fiscal third quarter compared with a year earlier, those sales missed some analysts' estimates. Apple also indicated its revenue in the current quarter could come in below market projections.

ARM said on Wednesday that it was unconcerned about Apple's results, adding that its forecasts for the remainder of the year were unchanged with strong royalty momentum and good visibility on a pipeline of licensing orders.

At 0831 GMT, ARM shares dipped 3.7% to 1,001 pence, valuing the company at £ 14.6 billion. Analysts said that a stronger-than-expected foreign-exchange rate had an impact on the company's results and that investor sentiment is dented by Apple's earnings statement.

"Apple's results disappointed markets overnight," said Accendo Markets analyst Augustin Eden, adding that ARM's stock fall was a buying opportunity.

ARM's business model is challenged by softening global demand for higher-end smartphones. Earlier this month, Samsung warned of sliding quarterly operating profit and revenue as it grapples with the fast-changing mobile industry.

To reduce its reliance on smartphones, ARM is emphasizing commercial opportunities in the so-called Internet of Things, or the plethora of connected devices that track activity and data, such as cars, lamps and health-monitoring wristbands. It is also positioning itself to take a share of the lucrative computer-server market from Intel Corp.

Write to Simon Zekaria at [e-mail]

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