ARM wary despite topping targets

ARM Holdings has shrugged off tough times for global computer chip makers and beaten forecasts for the 16th consecutive quarter. The FTSE 100 group said demand for its chip designs remained strong despite difficulties for most of its key clients, but warned that prolonged recession in the semiconductor industry had increased uncertainty over sales.

Full-year pre-tax profits surged 42% to £50.3m on sales ahead 45% to £146.3m. Earnings per share rose 14% to 3.3p.

The group said 2002 had got off to a solid start. However, there were signs that the Cambridge-based group may have to keep supplementing its core businesses to maintain current growth rates. The shares fell 22 1/4p to 312 3/4p.

Chips based on ARM designs, on which it receives a royalty, dipped to 96m from 103m in the latest quarter. But royalty revenues grew 7% due to higher royalties per chip.

Shipments linked to mobile phone handsets provide about half of royalty revenues, which rose 9% to £27.9m in the year to 31 December.

Annually licence sales rose 69% to £76.8m, but edged ahead of the third quarter by just 5% to £22.7m in the final three months. The group has now sold 77 licences including 15 in its latest quarter and chief executive Warren East said the new year had started strongly with a 'number of new licensing deals and good prospects in the pipeline'.

Finance director Jonathan Brooks, who leaves the group in March and will be succeeded by Rebus's Tim Score, said the group remained comfortable with 2002 estimates suggesting ARM will make a profit of £65m on sales of £185m.

But the global technology downturn had made forecasting potential orders six months in advance more difficult. 'Royalties are not growing like they were but there are so many things coming out now using ARM's technology that royalties will grow in the future,' Brooks added. 'We still have two quarters of visibility but we are a year further on into the semiconductor downturn, and looking beyond two quarters is more difficult.' Brooks said the group would preserve its £105m in cash.

Founder Sir Robin Saxby said he did not expect the semiconductor industry to bounce back from the doldrums but that ARM would continue to grow.

ARM's enhanced chip design for third generation mobiles, dubbed Jaguar, will launch in October.