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Smartphone Recovery Will Propel Growth For ARM Holdings plc (ADR) (NASDAQ:ARMH)

Boston, MA 04/28/2014 (wallstreetpr) – The semiconductor industry declines in the first quarter of the year 2014 with lower inventory movement for mobile and consumer electronics. The decline was due to the effect of lower sales of both Apple and Samsung in 2013.

Lower sales become a worry for ARM Holdings plc (ADR) (NASDAQ:ARMH) as the Company supply chip technology for Apple’s iPhone. But, the Company said that the market for smartphones will increase in the second half of 2014.

Solid performance

In 1Q2014 ended March 31, 2014, the British Company posted 9% increase in pretax profit to £97.1 million ($163.4 million) and 5% increase in earnings per share to 5.60 pence ($0.09). Growth in licensing and revenue from royalty improves the operating margin and earnings.

Revenues were up by 16% to $305.2 million with increasing revenue from processor licenses (+38%) and royalty for technology (+8%). Strong growth in processor licenses was due to increasing use of ARM’s technology in enterprise networking and microcontrollers. Group order backlog was down by 5% compared to the previous quarter, but, the pipeline for licensing opportunity is healthy in 2014 that will drive future licensing revenue.

In addition, Taiwan Semiconductor (TSMC), world’s largest contract chip maker, represents more than half of ARM’s processor royalties. The expected increase in demand for smartphones and strong guidance of TSMC’s second quarter will further support growth for ARM Holdings plc (ADR) (NASDAQ:ARMH)’s royalty revenue.

Going ahead

The market for smartphones is picking up as Samsung is targeting from low end to top and Apple is likely to launch a new product for the developing countries. In addition, the improving trend in the semiconductor industry with growing demand of enterprise equipments and microprocessors will further drive growth for the chip designer.

During 1Q2014, ARM Holdings plc (ADR) (NASDAQ:ARMH) also signed 26 processor licenses across multiple end markets for ARM’s technology, including mobile computing to enterprise networking and chips for embedded services. In consumer electronics and enterprise infrastructure, advance technology generates high royalty per chip. As a result, ARM expects licensing CAGR of ~10% in next six years, in between 2014 to 2020.

Published by Nicholas Maithya

Nicholas is a Financial Analyst by profession, who enjoys writing about investments, technological developments, business, economics and other financial topics at various financial publications. Join him here on as he endeavors to deliver to you the latest breaking news on the above mentioned fronts. Contact him by email at [email protected] or follow Nicholas Kitonyi @nmaithyak on Twitter.

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