ARM flexes earnings 34% and lifts dividend 25%, as Apple eyed
After major customer Apple disappointed with earnings overnight, ARM Holdings is likely to open lower as its own earnings rose by 34% to 7.28p per share but fell short of expectations.
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City analysts had been hoping for earnings per share of 7.5p, up from the previous year’s 5.4p.
The microchip designer lifted profits before tax 32% to £123.9m on revenue that rose 22% to £228.5m or 15% in dollar terms to $357.1m.
Processor licensing revenue in US$ up 3% year-on-year, with royalty revenue in US$ up 31% year-on-year.
With net cash generation in the quarter at £93.3m, the interim dividend was hiked 25% to 3.15p per share.
"Q2 2015 has been a strong quarter for ARM with a highly diverse range of leading companies choosing to license ARM's latest processors and physical IP for their future product developments," said chief executive Simon Segars.
He said that following ARM's investment in improved technology products for mobile devices, the automotive sector and enterprise infrastructure, the company had signed licences for many of these new products.
"This licensing activity will help to grow the royalty revenue opportunity for years to come," he added.
Guidance for the full year dollar revenues is in line with current consensus, with a "small sequential increase in industry shipments in Q3".
Overnight, Apple, thought to be ARM's largest customer, also fell slightly short of analyst's consensus expectations for its fourth quarter projections. The California company revealed it sold 47.5m iPhones in the third quarter, up 35% on the same period last year but short of analysts’ expectations of 48.8m. IPad sales fell 18% to 10.9m, the sixth consecutive quarter of declines.
Apple guided towards revenues of between $49bn and $51bn in its fourth quarter, shy of the $51.1bn consensus forecast.
Analysts at RBC Capital Markets said ARM's dollar revenue and profits were in line, though forex rates impacted the company's sterling-reported numbers, with an actual USD/GBP rate of 1.56 compared to consensus expectations of 1.51.
With customers continuing the switchover to higher royalty rate v8 processor architecture in mobile and market share gains continuing outside mobile, RBS said "ARM should by definition continue to outperform the industry".
The Canadian bank said ARM's valuation "looks attractive" as a forward p/e ratio of 27.5 times is cheap versus its historical range of between 30 and 40 times.