More on ARM
ARM Q3 results
ARM’s revenue growth continues to slow. The company now expects full year revenue growth of 15%, at the bottom end of its previous 15% to 20% range. Even this looks a little optimistic given year to date growth of 16%, and the third quarter that was well below this.
This performance confirms our fears that ARM’s purchase of Artisan was an attempt to buy in growth that ARM was no longer producing organically. The current performance of PIPD (the former Artisan) is far from stellar with licensing revenues slightly lower year on year and royalties up just 5%.
In the original ARM business license revenue were up 21% and royalty revenues up 12% year-on-year. This is a low rate of growth by historical standards and confirms the lower growth. The average per-unit royalty rate of 7.9 cents appears stable but it is towards the lower end of the range for the last four years and significantly lower than in the first half (8.5c). We believe the long term down trend in per unit prices is continuing.
At 102p ARM is trading on a prospective PE of 21×. This is cheap for the dominant position ARM has in the embedded processor market. The continuing growth in mobile devices in particular suggests that market growth is likely to be strong for many years (if not decades ) to come. However ARM’s recent performance has been disappointing, per unit royalty rates are likely to continue falling and competitive threats are hard to assess.
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