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The share price of ARM Holdings (LSE:ARM) stumbled a bit early today, but was showed a strong comeback in the afternoon. The general consensus seems to be that the brief retreat by ARM investors was caused by the heartburn that Apple investors experienced on the news of December sales having fallen short of expectations. Apple share price took a 10% hit in after-hours trading yesterday.
Rumors have also surfaced that Apple would be cutting back component orders from some suppliers as a result of lagging sales. Hence, the conclusion that those must include ARM and that the effect on ARM would be deleterious. That drove ARM to a low of 832.00 today, down from 849.50 at yesterday’s close. Analysts who have already feared that ARM might be overvalued saw the Apple news as a reason to ponder reducing there position on ARM.
Cooler heads seem to have prevailed as ARM’s share price has risen to 863.50 at the time of this writing, now up 14.00 pence and 1.7% as it continues to move toward analyst expectations of it reaching 900.00.
Here is my problem with the way the market, at least momentarily, reacted. The reaction was spawned by another company’s slower-than-expected sales. Regardless of how much one understands the fundamentals, individuals tend to look at their preferred fundamentals. Plus, there is also a tendency to think that all news – good or bad – has the same impact on all companies with little consideration for the fact that cause and effect are seldom related in time and space. For instance, an major equipment breakdown in a remote mining operation is much more likely to have an immediate and long-term effect, whereas to Apple share price plunge may never have any real impact on ARM as one of their suppliers.
The Apple – ARM relationship is much different. People continue to think that ARM’s role as a supplier to Apple cannot be considered in the traditional sense. ARM does not supply Apple with any components. ARM designs microelectronic circuitry, then licenses those designs to manufacturers. In this case it licenses the designs to manufacturers who supply components to Apple. ARM’s unique position keeps it relative disconnected from the ultimate seller of products utilizing components based on its designs. Arm’s continued expansion in circuitry design for other leading edge electronics will also soften any potential blows from any single user of any single component built on ARM’s designs.
Whether ARM will eventually reach 900.00 remains to be seen, but it is a company who has put its golden eggs into many, many baskets. It is unique, not only in its product offering, but in its ability to stay free of adverse impact in the stock market. No need to overreact on ARM.
Oh, by the way, in the short space of three paragraphs, ARM is now at 869.50, up 20.00 and 2.4% from yesterday’s close.
