ARM – the vendor that went up a hill and came down a mountain

1. ARM Holdings announced its financial results today, which showed a substantial improvement for the quarter and calendar year. I wanted to provide a quick review of where it stands in 2015.

Unlike Intel ARM doesn’t make its own chips. It makes money from licensees, which use its designs in a vast variety of devices. Nevertheless its business has climbed steadily over the quarters and years (see Figure). Its revenues were £225.0m for the quarter (up 19% over Q4 2013). Its calendar 2014 revenues were £795.2m – up 11%. Net profits are harder to calculate: but we estimate that it made c. £100m in the quarter and c.£285m in the year.

ARM chips are best known for their use in mobile phones, where it has a dominant position. In total it claims its licencees shipped 3.5b chips in the quarter of which 1.6b (47%) were for mobile designs. Intel recently announced it had shipped 46m tablet processors in the last year – insignificant when compared to ARM’s success. In our analyst call Ian Drew noted that Intel is losing money on this business and that c. 200m ARM processors were shipped in tablets last year – it’s been in the business since before Apple launched the iPad of course.

ARM’s big growth in mobile shipments was helped by Apple‘s introduction and 74.5m shipments of its new iPhone 6 in the quarter. Ian won’t talk about the relationship with specific licensees, although it did announce that there were 50m shipments of its Cortex v8 used in Apple’s latest phone. As there’s therefore clearly a time-lag before its licensee revenues appear in its results I’d expect its mobile shipments to grow even more strongly in 2015.

ARM embedded processor shipments have been growing even faster than mobile and may overtake them in 2015 – especially if IoT steps out of being overhyped and becomes a major market.

The jury isn’t out on whether to be a designer and fabricator in 2015 – all chip companies apart from Intel have now separated into one or other camp. IBM for instance is hoping that its Power8 chip will thrive now it has offloaded chip fabrication to GlobalFoundries and set up the (ARM ecosystem-like) OpenPowerFoundation.

I’m proud that a British firm should do so well in the global market – especially that 1,400 of its 3,294 employees are UK based and it pays its tax here as well. It helps in a small way to rebalance the dominance of European and UK markets by American and Far Eastern suppliers.