Booming ARM looks beyond mobile handset success

Booming ARM looks beyond mobile handset success
By Peter Clarke, EE Times
January 31, 2000 (6:04 p.m. EST)
URL: http://www.eetimes.com/story/OEG20000131S0059

LONDON—Shipments of chips including ARM RISC processor cores more than trebled in 1999 to 175 million units up, from 51 million units in 1998, according to the company's annual results, announced Monday (Jan. 31).

The growth is mainly due to ARM's leading position as supplier of the controller core for the majority of digital mobile phone handsets, although the company is claiming this will soon be augmented by a number of design wins in the automotive sector.

The shipment boom helped to drive the sales revenue of ARM Holdings plc up 47 per cent to about $100 million for the year to Dec. 31, 1999, and helped produce a near doubling of pre-tax profits for the second year running. ARM (Cambridge England), which licenses designs of RISC microprocessors to semiconductor manufacturing partners rather than making chips itself, reported pre-tax profit was about $29 million, up 91 per cent on the previous year. U nit royalties for 1999 increased to 18 per cent of the total revenue, up from 8.5 per cent in 1998.

ARM also receives revenues from initial license fees and for additional services and consulting with semiconductor partners that license ARM cores. ARM executives said the prospects for 2000 are good.

No let up is seen in the growth of the mobile phone market and ARM is claiming to be on the verge of additional revenue streams from the automotive sector.

Jamie Urquhart, chief operating officer at ARM, declined to break down ARM-powered chip shipments by application sector, but said, "Telecom is where the bulk of our shipments are going right now."

"We're already shipping in automotive applications but its not ABS [anti-lock braking systems] or engine management yet. It tends to be in navigational systems and in-car entertainment, but progress tends to be a function of when the carmakers make new introductions. I expect to see a number of automotive design wins later this year," he said.

Urquhart said that an ARM processor was the controller for between 50 and 70 per cent of digital mobile phones, the uncertainty stemming from difficulties in estimating the numbers in such a fast growing market. ARM also reported that it now has 37 semiconductor partners as licensees, of which 32 have been publicly declared, with 19 actively shipping silicon to their customers.

The company also is beginning to pursue acquisitions. In 1999 it acquired a small software company Micrologic (Cambridge, England). Growth by acquisition and through increasing systems and software capabilities are directions the company intends to pursue.

"The Micrologic team gives us a more software-oriented team internally. It's part of a strategy to make ARM cores easier to use both through internal software development and through external partnerships," said Urquhart.

Cash pile
One result of ARM's success is that it is starting to build up cash reserves. ARM's cash balance rose to about $84 million at the end of 1999 compared to $64 million at the end of 1998.

"Like a lot of software businesses we are cash generating," said Urquhart, admitting that finding the best use for the money was a challenge for ARM's management.

"We don't have to pay dividends and for acquisitions we can use paper," said Urquhart referring to offering ARM stock in payment for acquisitions.

The company's shares are traded on the London Stock Exchange and American Depository Shares, representing three shares, are traded on Nasdaq, where, as a high-growth stock, ARM is not under pressure to pay dividends.

Urquhart said that a more or less formal venture capital fund was one possible use of the money. "We've already got some investments; in PalmChip and Sirius Communications but it's important we remain focused on ARM's primary business," he concluded.