ARM Swings to Profit in Fourth Quarter -- Update

By Lisa Fleisher 

LONDON--British microchip designer ARM Holdings PLC, which designs silicon technology found in more than 95% of all smartphones, said on Wednesday that it swung to a net profit of GBP72.8 million ($111 million) in the fourth quarter.

Based in Cambridge, England, ARM said that revenue increased 19% to GBP225.9 million ($334.4 million) in the three months ended Dec. 31, earning strong royalty revenue in line with market expectations.

ARM said it would increase its dividend to 4.5 pence (6.9 cents), pushing its full 2014 dividend up 23% to 7 pence.

The company also gave guidance for the first quarter, saying it expected revenue to be up 10% on the year. The first quarter should reflect revenue stemming from strong sales of Apple's iPhone 6.

The fourth-quarter net profit compares with a loss of GBP6.2 million a year earlier, due to higher operating costs, including patent acquisitions.

ARM makes money by licensing its designs to chip makers, then collecting royalty revenue when the chips ship, either to handset makers or to end consumers. Processor royalty revenue, a closely watched figure, was up 16% year over year, following a weaker performance a year earlier due to an inventory backlog in the industry.

Licensing revenue was up 27% on the year to $162.3 million, mainly based on 53 licenses signed for processors.

"License revenue momentum has continued throughout the year," said Chief Financial Officer Tim Score.

The iPhone 6 phones use the most advanced version of ARM processors, Mr. Score said. But ARM's fourth-quarter results aren't fully reflective of record sales Apple posted last month. Smartphones with the latest version are a "very, very small portion" of the fourth-quarter results, he said.

ARM royalty results usually reflect sales made and posted the previous quarter by chip and handset makers.

Write to Lisa Fleisher at [e-mail]

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