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ARM Holdings (LSE:ARM) reported a 30% increase in pre-tax profit for their fiscal second quarter this morning. ARM share price opened at 927.00, rose to 950.00 just after 11:00 am and held ground above the 940.00 mark just prior to the penning of this story. Its double-digit growth was quite a contrast to some competitor news last week.
It was less than a week ago, 18 July, to be exact, that we reported that Intel (NASDAQ:INTC) returned a double-digit decline in their second quarter earnings report. In that story we quoted Intel CFO as having said that “We were a little slow to recognize the trend towards mobility. The company is hoping to focus on selling its chips for use in tablets and smartphones as a way to compensate for this decline, but so far, this has not happened.” That article closed by pointing out that Intel is in a battle royal with ARM. I said that “Frankly, I’d put my money on ARM.” That’s my story and I’m sticking to it.
Once again, ARM is proving that its business model, strategic direction, and market timing are superior, perhaps even far superior, to their competitors. The concept of designing chip circuitry, then licensing the design rather than manufacturing the chip itself, has allowed ARM to be far more nimble in its ability to stay ahead of the development curve. It also doesn’t hurt that the majority of their employees are design engineers who clearly understand their customer requirements in the rapidly changing world of mobile electronics.
That corporate package has allowed the company to gain 25 new processor licenses that will add to the already amazing 2.4 billion ARM-designed chips shipped in Q2, a quantity that is 20% greater than Q2 2012. Capping it off is an excellent forward look with a record order backlog for the balance of 2013 and an increase in cash and cash equivalents from £42.5 at Q2 2012 to £68.2 in 2013.
Other highlights in the report included:
- A 26% increase in revenue from £135.5 million to £171.2 million
- An increase of 2.2 basis points in operating margin from 46.4% to 48.6%
- A 37% increase in EPS from 3.58 pence to 4.89
Complete H1 figures reflected similar growth characteristics.
- A 27% increase in revenue from £422.4 million to £528.2 million
- An increase of 4.0 basis points in operating margin from 45.5% to 49.5%
- A 47% increase in EPS from 6.93 pence to 10.19
This is a good time to mention that any company with an operating margin in the mid-to-high 40’s is probably quite healthy. To be in the mid-to-high 40’s and experiencing a gain is not just healthy, it is exceptional.
CEO Simon Segars pointed out yet another significant performance indicator: “ARM’s processor royalty revenue again outperformed the semiconductor industry, growing at 24% year-on-year. In part this out-performance was driven by the growth in smartphones and mobile computing. These smart devices increasingly contain both ARM’s higher-royalty yielding Cortex-A processor technology and also ARM’s Mali graphics.” He also announced “exciting new design wins as ARM-based chips were selected for high-volume OEM products. These included many new smartphones and tablets, ARM-based 64-bit servers and mobile base stations.”
I’d like to close with a final word to the fine folks over at Intel. In the chip design industry there is no longer any such thing as “a little slow.” There is only fast or nothing at all. If you think that the race is close between yourself and ARM, it is only because ARM has already lapped you. And they are pulling away yet again.
