Markets shrug off Greek worries to push shares back towards record highsThe FTSE 100 is continuing the week’s recovery, with chip designer Arm leading the way.The company, which supplies Apple’s iPhone, has jumped more that 5% to £12.13 after it beat forecasts for its first quarter. Boosted by the iPhone 6, Arm said profits rose 24% to £120.5m and royalties were expected to continue growing. Chief executive Simon Segars said:As the world becomes more digital and more connected, we continue to see an increase in the demand for Arm’s smart and energy-efficient technology, which is driving both our licensing and royalty revenues.In recent months many handset [manufacturers] have announced smartphones and tablets based on Armv8-A and Mali graphics processors. As production of these mobile computers start to ramp up in the second half of the year, Arm will benefit from the higher royalty percentage per chip that these technologies deliver compared to the processors in previous generations of mobile devices.Overall Arm’s results were a good set of numbers and we expect 2015 consensus to nudge up. Royalty growth was stellar with higher royalty chips now coming through (V8 was 3.5% of volume) with sales up 31% to $167.5m versus our $160.1m (consensus $159.9m). However licences were down 2% to $109.3m versus our $113.8m (consensus $113.2m) with backlog down 7%. The exceptional licence growth of last two years could not continue forever so we are not overly concerned with this one data point. Shares are at our target and we stay at hold.This is a strong start to the year as the mobile industry continues to expect strong progress in 2015, demonstrated at the Mobile World Conference in February.Having spoken to the company we don’t expect any material changes to consensus estimates for 2015 (royalty nudged up, licensing nudged down). Expect the royalty growth to be well received, but don’t expect any change to numbers.We reduce EBITDA by around 9% largely due to increased investment in technology. At the adjusted earnings per share level however our estimates are increased 7% for 2015 and 1% for 2016 as we adjust for acquired amortization, in line with recent company reporting. Continue reading...
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