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Tablet Sales Could Double; ARM Needs To Watch Intel

Posted on Wednesday, Nov 17th 2010

ARM Holdings (NASDAQ:ARMH) recently reported strong third quarter results driven by demand for its processor-based chips. ARM licenses its processors for most smartphones and tablets, including the iPhone and iPad, as well as for televisions and electrical gadgets. It shipped about 1.5 billion chips, with 900 million for smartphones and tablets. Intel, the world’s largest chipmaker, which has been slow to enter the ARM-dominated smartphone and tablet market, is expected to release a chip aimed at tablets in early 2011. Let’s take a closer look.
Financials
ARM reported third quarter revenue of £100.4 million or $158.1 million, up 29%, and EPS of 2.08 pence, up 55%. Net cash was £251.9 million ($403 million) at the end of the quarter. ARM’s annual revenue in 2009 was £305 million, or $489.5 million. Over the past two decades, Arm has shipped about 20 billion ARM architecture based chips and aims to reach 100 billion by 2020. To hit that target, ARM is pushing for growth beyond smartphones and tablets and eyeing the chip market for televisions, household appliances, and cars.

Robin Kwong of FT.com reports that Warren East, CEO of ARM, sees far greater opportunities for the company in the increasing use of ARM-based microcontrollers in energy-related applications, such as those used in solar and wind energy generation, as well as in electric motors. Semiconductor chips are increasingly used in these areas to improve efficiency, which makes ARM’s chips, which are known for their low power consumption, an attractive solution.

During the quarter, ARM shipped 600 million ARM-processor based chips in everything from toys to televisions, cameras to cars. It signed 22 processor licenses, four for mobile phone and computing applications and 18 for a broad range of applications including network infrastructure and sensors. It also signed three licenses for royalty-bearing platforms of physical IP at advanced nodes and mature nodes including TSMC licensing physical IP for 28nm and 20nm and two licenses for Mali, ARM’s advanced graphics processor.

ARM is trading around $17 with market cap of about $7.5 billion. Its 52-week range is $7.43 to $19.96. Jonathan Browning of Businessweek reports that

ARM’s stock climbed this year on rising earnings and sales and on speculation the company may be a takeover target. Oracle Corp. Chief Executive Officer Larry Ellison said in September his company may buy a chipmaker. Oracle would more likely target an enterprise-focused chipmaker such as Advanced Micro Devices Inc., Lee Simpson, an analyst at Jefferies International Ltd., said at the time.

I don’t think Ellison would buy AMD, though. Too much of a liability.

Chart forARM Holdings plc (ARMH)

Tablets and Intel
ARM licenses its architecture to all three vendors that have tablets on sale: Apple, Samsung, and Dell. But the tablet market is expected to heat up next year with Intel releasing its Oak Trail chip aimed at tablets and a number of vendors launching their tablets next year. Gartner, the research firm, expects tablet sales to reach 54 million in 2011, up from 19.5 million this year.

The average number of ARM processors per phone is now up to 2.7. Guest author Nalini Kumar Muppala in his Intel vs. ARM series analyzed ARM’s strengths in the standoff. ARM has a strong position in the smartphone and tablet market because of the low power consumption architecture. This is a crucial factor for mobile devices that are not connected to a power supply, and Intel’s chips have traditionally been more power hungry. Will the new chip help it get closer to ARM in this lucrative market?

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