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Wednesday, 11 April, 2001, 12:59 GMT 13:59 UK
UK chip designer remains 'confident'
Products that use ARM chips
ARM's chips power many every-day products
The UK microchip designer ARM Holdings is confident about its prospects for the next six months.

The company reported first-quarter results in line with expectations and forecast strong demand for its products and services over the next two quarters.

"We remain confident about the outlook for the next two quarters," said chief financial officer, Jonathan Brooks.

We remain confident about the outlook for the next two quarters

Jonathan Brooks
ARM Holdings
The company's sales in January to March rose by 9% from the previous quarter to 32.5m ($47m).

This pushed ARM's pre-tax profits up by 13% from the fourth quarter of last year to 11.4m.

Mr Brooks added that ARM had no surprises for City analysts, who have forecast sales of 140-150m for the full year.

ARM's shares jumped 13% on the news and were at 317p at 1320 UK time (1420 GMT).

At the height of the tech boom in early 2000, the shares peaked at over 10. When the company went public in 1998, its shares were trading at 41p.

Refreshing news

The news was refreshing in a sector where many of ARM's fellow tech companies have issued profits warnings.

On Tuesday, the mobile phone company Motorola shocked the market with a first-quarter loss, which was worse than expected.

Also, the German telecoms group Siemens said this week that it would cut about a quarter of the workforce at its three German mobile handset plants because of slowing growth in the sector.

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

Clients license the chips and then pay royalties if they actually make products using the chips.

License and royalty figures

The company reported strong license revenues of 13.9m - almost double the figure in the fourth quarter of 2000. License revenues make up 45% of total sales.

Royalty revenues accounted for 8.3m, or 26% of sales. This compares to $8.1, or 27%, for the last quarter of 2000.

The company said that royalties were the only area where it is exposed to the market cycle.

ARM reports its revenue from royalties a quarter in arrears, which means that any signs of a downturn could be slow to emerge.

New products

However, Mr Brooks said that the development of new products would help the company to weather any slowdown in the wireless and communications markets.

He pointed to the launch of Nintendo's ARM-powered Gameboy Advance console as an example of a new product.

"We also know the Nintendo Gameboy Advance is doing very well, so there will be some declines from some people who had inventory problems in Q1, offset by new product launches from new licensees."

The company also said sales of its chip development systems had trebled since the previous year to 6.01m. Development systems are seen as an indicator of design activity among its clients.

"The number of licenses and development tool kits sold suggest there's likely to be a surge in royalties at some point over the next couple of years," said Chris Rodgers, manager of the Schroder UK Growth Fund.

Nevertheless, ARM has decided to cut down its hiring of new staff until market conditions improve.

Headcount rose from 619 people to 659 at the end of 2000.

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