ARM posts 46% profits jump

ARM's chips power many every-day products

UK chip designer ARM Holdings has reported a 46% rise in pre-tax profits for the second quarter.

The results were in the top end of what analysts were expecting, but the company has warned that its royalties were slipping with the onset of the economic slowdown.

The strength of ARM's partnership business model and the momentum gained over the years has enabled us to deliver further growth

Robin Saxby
ARM

ARM's profits before tax rose to £12.2m ($17.5m) in the three months ended 30 June 2001, from £8.3m a year ago.

They were also 7% higher than profits in the first quarter of the year, while analysts had forecast a range of between £10.3m and £12.5m.

Despite the concerns about royalties, the market greeted the news positively, sending the shares up 9%.

Strong ARM

"The strength of ARM's partnership business model and the momentum gained over the years has enabled us to deliver further growth in a period when the semiconductor industry has experienced one of the sharpest downturns in its history," said Robin Saxby, chairman and chief executive.

However, he added: "We have experienced a decline in royalty revenues in the second quarter."

ARM develops and licenses - but does not make - microchips for mobile phones and other electronic gadgets.

Clients pay royalties if they actually go on to make products using the chips.

Shares in ARM, which have lost about 80% of their value since peaking in February 2000, were up 17p to 218p at 0900 GMT after the announcement.

ARM is something of an anomaly in a week when tech shares have done their best to drag the FTSE 100 down to fresh lows.

Last week the FTSE lost nearly 3%, retreating to levels last seen in March.

Infineon loss

In contrast to ARM, German semiconductor maker Infineon reported a loss in the three months to June.

The company said it was hit by declining demand and falling product prices.

Infineon posted a net loss of 371m euros (£226m; $323m), compared with a profit of 23m euros last quarter.

A year ago, it also made a profit - somewhat larger at 266m euros.

The global economic slowdown has hit the semiconductor industry particularly hard.

Last week the world's largest chipmaker, America's Intel, said that its latest profits had fallen by 75% to $854m.

It has pledged to shake up its sales operation and to push new chips, such as the Pentium 4 chip.

Confident

However, despite the slowdown, ARM said that it was confident about its business outlook for the remainder of the year.

It reported that its revenues were up 56% to £36m, compared with £23.1m a year ago.

This was also 11% higher than last quarter.

The company added that its declining royalties had been offset by higher sales from licensing, consulting services and development systems.

It reported that it has signed new licences with 15 separate partners which took a range of products in the second quarter.

The company also said that existing partners were increasingly taking "upgrade" licences.

Headcount grew from 619 at the start of 2001 to 687 at the end of June.