ARM Shares Up on Rumors & Clues of Google Alliance

PUBLISHED: 14 Dec 2013 @ 19:17 | Comments (0) | More info about Lou Gutheil

The share price of ARM Holdings (LSE:ARM) rose sharply in early trading yesterday from Thursday’s close at 972.80. The share price reached a high for the day of 1028.0 at about 9:45 am, a 15.7% increase, before closing the day at 1001.0, up nearly 3.0% on the day. The odd thing is that there was no news from the company to cause the price to soar. Its movement was based entirely upon rumors and, admittedly, a few clues.

The big rumor is that – and regular readers know that I am not big on rumors, regardless of how big they are – Google (NASDAQ:GOOG) is considering designing its own server processors and that they will use ARM to provide the design work for those chips. If that door were to actually open, it could lead to other open doors in the server market, the most obvious of which are Facebook and Amazon. ARM has long been the leader in chip design for mobile applications that demand power, speed, and efficient energy usage. Although dabbling a bit in the PC market, the company signaled some months ago that it was looking to the potentially larger and much more lucrative server market.

If you are a bit nervous about investing based on rumors, as I am, there are several clues in this case that lend some credibility to this rumor.

Google has recently posted a job opening for a qualified, ASICs design engineer.
Google has joined a IBM-birthed group of companies that provide license chip designs for use in IBM servers.
A Google spokesperson said that “the company is actively engaged in designing the world’s best infrastructure, including both hardware and software design.

ARM’s share price was not the only one affected by the rumor. Intel (NASDAQ:INTC) shares closed down 0.74% at $24.47. Google is Intel’s fifth-largest customer. Losing it would not only lead to a significant revenue loss ($500 million annually), but could also make investors – and Intel – nervous about whether this might be the beginning of a trend of disastrous proportions.

Google’s requirements are going to become enormous as it strives toward its role of world dominance. The company already operates 12 massive (square footage-wise) data centers worldwide. The only one that I have actually seen is hidden in the foothills of the Smokey Mountains of North Carolina. It is hard to find, huge, and heavily guarded. More than the rumor is, for sure. If Google goes with ARM, current shareholders of the latter might even consider counting their chickens before they hatch.

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