A conference call discussing these results will be audiocast today at 08:30 BST at www.arm.com/ir
CAMBRIDGE, UK, 27 April 2010--ARM Holdings plc announces its unaudited financial results for the first quarter ended 31 March 2010, demonstrating continuing progress against its strategy with highest ever unit shipments leading to record royalty revenues, profits and net cash generation.
|Q1 2010 – Financial Summary ||Normalised* || ||IFRS |
| ||Q1 2010 ||Q1 2009 ||% Change ||Q1 2010 ||Q1 2009 |
|Revenue ($m) ||143.3 ||120.9 ||19% ||143.3 ||120.9 |
|Revenue (£m) ||92.3 ||79.9 ||16% ||92.3 ||79.9 |
|Operating margin ||40.0% ||29.5% || ||27.3% ||15.9% |
|Profit before tax (£m) ||37.6 ||23.9 ||57% ||25.9 ||13.1 |
|Earnings per share (pence) ||2.04 ||1.38 ||49% ||1.47 ||0.77 |
|Net cash generation** ||43.8 ||15.2 || || || |
|Effective revenue fx rate ($/£) ||1.55 ||1.51 || || || |
Progress against strategy in Q1
Warren East, Chief Executive Officer, said:
"ARM has continued to focus on execution and has seen positive progress against each of our growth drivers in the first quarter. Leading semiconductor and OEM companies are increasingly adopting ARM technology, creating healthy demand for our latest products. This continuing demand validates ARM's commitment to R&D investment as we develop the technology that meets our customers' need for smarter, lower-power chips in a broadening range of end markets.
Shipments of ARM-based chips reported in Q1 increased more than 50% compared with a year ago, driven by strong growth from smarter mobile devices, digital TVs, disk drives and microcontrollers, and leading to record royalty revenues. Combined with on-going financial discipline, this has given rise to year-on-year earnings growth of 49% and record levels of net cash generation."
ARM has made an encouraging start to 2010 in improving trading conditions, although there remains a lack of certainty as to the impact of the broader macroeconomic environment on end-consumer demand later in the year. In this context, and as ARM continues to execute its strategy, we expect group dollar revenues for the full-year 2010 to be in line with current market expectations.
Q1 2010 – Revenue Analysis
| ||Revenue ($m)*** ||Revenue (£m) |
| ||Q1 2010 ||Q1 2009 ||% Change ||Q1 2010 ||Q1 2009 ||% Change |
|Licensing ||34.2 ||31.9 ||7% ||21.8 ||19.6 ||11% |
|Royalties ||66.7 ||50.3 ||33% ||43.2 ||35.1 ||23% |
|Total PD ||100.9 ||82.2 ||23% ||65.0 ||54.7 ||19% |
|PIPD || || || || || || |
|Licensing ||8.8 ||8.8 ||1% ||5.7 ||5.4 ||6% |
|Royalties 1 ||10.8 ||8.0 ||34% ||6.9 ||5.5 ||24% |
|Total PIPD ||19.6 ||16.8 ||17% ||12.6 ||10.9 ||15% |
|Development Systems ||14.8 ||14.6 ||2% ||9.7 ||10.0 ||-3% |
|Services ||8.0 ||7.3 ||10% ||5.0 ||4.3 ||18% |
|Total Revenue ||143.3 ||120.9 ||19% ||92.3 ||79.9 ||16% |
1 Includes catch-up royalties in Q1 2010 of $0.5m (£0.3m) and in Q1 2009 of $1.6m (£1.0m).
Normalised figures are based on IFRS, adjusted for acquisition-related charges, share-based payment costs, restructuring charges and profit on disposal and impairment of available-for-sale investments. For reconciliation of IFRS measures to normalised non-IFRS measures detailed in this document, see notes 4.1 to 4.12.
Net cash generation is defined as movement on cash, cash equivalents, short-term investments and marketable securities, adding back share buybacks, dividend payments, investment and acquisition consideration, restructuring payments, other acquisition-related payments and share-based payroll taxes, and deducting inflows from share option exercises and proceeds from investment disposals – see notes 4.7 to 4.10.
Dollar revenues are based on the group's actual dollar invoicing, where applicable, and using the rate of exchange applicable on the date of the transaction for invoicing in currencies other than dollars. Approximately 95% of invoicing is in dollars.
Each American Depositary Share (ADS) represents three shares.
(IFRS unless otherwise stated)
Total dollar revenues in Q1 2010 were $143.3 million, up 19% on Q1 2009. Q1 sterling revenues were £92.3 million, up 16% year-on-year.
Total dollar license revenues in Q1 2010 increased by 6% year-on-year to $43.0m, representing 30% of group revenues. License revenues comprised $34.2 million from PD and $8.8 million from PIPD.
Total dollar royalty revenues in Q1 2010 increased by 33% to $77.5 million, representing 54% of group revenues. Royalty revenues comprised $66.7 million from PD and $10.8 million from PIPD.
Royalty revenues are recognised one quarter in arrears with royalties in Q1 generated from semiconductor unit shipments in Q4. PD royalty revenues in Q1 2010 increased 33% year-on-year. This compares with industry revenues increasing by less than 20% in the shipment period (i.e. Q4 2009 compared to Q4 2008), demonstrating ARM's market share gains over the last 12 months. During Q1, ARM partners reported shipping 1.4 billion chips, an increase of about 70% on last year.
Total PIPD royalties of $10.8 million included $0.5 million of catch-up royalties. Underlying royalties increased about 60% year-on-year, compared to an increase in overall foundry revenues of approximately 45% in the corresponding period.
Development Systems and Service revenues
Sales of development systems in Q1 2010 increased 2% year-on-year to $14.8 million, representing 10% of group revenues.
Sales increased sequentially partly due to additional revenue coming from backlog from two large software tools deals signed in prior periods reaching payment milestones. When considering development systems revenues in Q2 2010, the Q4 2009 revenue of $12.7m is a more appropriate indicator.
Service revenues in Q1 2010 were up 10% to $8.0 million, representing 6% of group revenues.
Gross margins in Q1 2010, excluding the share-based payment costs of £0.5 million (see below), were 93.0% compared to 94.3% in Q4 2009 and 90.2% in Q1 2009.
Operating expenses and operating margin
Normalised operating expenses (excluding acquisition-related, share-based payments and restructuring charges) were £49.0 million in Q1 2010 compared to £48.6 million in Q4 2009 and £48.5 million in Q1 2009. Normalised operating expenses in Q2 2010 (assuming effective exchange rates similar to current levels) are expected to be in the range £50-52 million as ARM increases investment in R&D programs.
Normalised research and development expenses were £25.2 million in Q1 2010, representing 27% of revenues, compared to £23.9 million in Q4 2009 and £21.8 million in Q1 2009. Normalised sales and marketing costs were £12.0 million in Q1 2010, being 13% of revenues, compared to £12.7 million in Q4 2009 and £12.4 million in Q1 2009. Normalised general and administrative expenses were £11.8 million in Q1 2009, representing 13% of revenues, compared to £12.0 million in Q4 2009 and £14.3 million in Q1 2009.
Normalised operating margin was 40.0% in Q1 2010, compared to 37.3% in Q4 2009 and 29.5% in Q1 2009.
Total operating expenses in Q1 2010 were £60.2 million (Q1 2009 were £59.0 million) including amortisation of intangible assets and other acquisition-related charges of £3.0 million (Q1 2009: £4.5 million), £8.2 million (Q1 2009: £4.4 million) in relation to share-based payment costs and related payroll taxes and restructuring charges of £nil (Q1 2009: £1.3 million). Total share-based payment costs and related payroll tax charges of £8.7 million in Q1 2010 were included within cost of revenues (£0.5 million), research and development (£5.3 million), sales and marketing (£1.7 million) and general and administrative (£1.2 million).
Normalised income statements for Q1 2010 and Q1 2009 are included in notes 4.11 and 4.12 below which reconcile IFRS to the normalised non-IFRS measures referred to in this earnings release.
Earnings and taxation
Profit before tax was £25.9 million in Q1 2010 compared to £13.1 million in Q1 2009. After adjusting for acquisition-related, share-based payment costs and restructuring charges, normalised profit before tax was £37.6 million in Q1 2010 compared to £23.9 million in Q1 2009. The Group's effective normalised tax rate was 27.4% (IFRS 24.4%) in Q1 2010 compared to 26.5% (IFRS 25.1%) in Q1 2009.
In Q1 2010, fully diluted earnings per share prepared under IFRS were 1.47 pence (6.67 cents per ADS****) compared to earnings per share of 0.77 pence (3.29 cents per ADS****) in Q1 2009. Normalised fully diluted earnings per share in Q1 2010 were 2.04 pence per share (9.30 cents per ADS****) compared to 1.38 pence (5.92 cents per ADS****) in Q1 2009.
Intangible assets at 31 March 2010 were £570.8 million, comprising goodwill of £549.0 million and other intangible assets of £21.8 million, compared to £516.8 million and £24.7 million respectively at 31 December 2009.
Total accounts receivable were £57.9 million at 31 March 2010, comprising £45.0 million of trade receivables and £12.9 million of amounts recoverable on contracts, compared to £65.2 million at 31 December 2009, comprising £52.2 million of trade receivables and £13.0 million of amounts recoverable on contracts. Days sales outstanding (DSOs) were 26 at 31 March 2010 compared to 46 at 31 December 2009.
Net cash was £196.0 million at 31 March 2010 compared to £141.8 million at 31 December 2009. Normalised free cash flow in Q1 2010 was £43.8 million.
Group order backlog at the end of Q1 2010 is down about 7% sequentially, but remains at historically high levels, up 25% from one year ago. Looking at the mix of potential deals in the opportunity pipeline, prospects for backlog over the next few quarters are promising
A total of 17 processor licenses were signed in Q1. Non-mobile devices continue to be a major driver for processor licensing with 13 of the new processor licenses being signed for a broad range of digital products such as microcontrollers, networking, smart energy meters, intelligent sensors and solid state drives. The remaining four licenses were signed for use in mobile computers and smartphones, including in the applications processor, baseband modem and power controller ICs.
13 of the licenses were for ARM's advanced Cortex™ processors, including the second lead-license for ARM's next generation Cortex-A processor codenamed "Eagle" for use in mobile and consumer electronics, one license for the Cortex-R processor for a baseband modem, and nine licensees for Cortex-M processors mainly for use in deeply embedded products such as microcontrollers.
Q1 2010 and Cumulative Processor Licensing Analysis
| ||Existing Licensees ||New |
|Cumulative Total* |
| ||1 ||1 ||173 |
| ||2 ||2 ||264 |
| ||1 ||1 ||77 |
|3 || ||3 ||36 |
|1 || ||1 ||18 |
|5 ||4 ||9 ||60 |
| || || ||27 |
| || || ||24 |
|9 ||8 ||17 ||679 |
* Adjusted for licenses that are no longer expected to generate royalties
Royalties are recognised one quarter in arrears with royalties in Q1 generated from semiconductor unit shipments in Q4. PD royalty revenues in Q1 2010 increased 33% year-on-year. This compares with industry revenues increasing by less than 20% in the shipment period (i.e. Q4 2009 compared to Q4 2008), demonstrating ARM's market share gains over the last 12 months.
Q1 revenue came from the sales of more than 1.4 billion ARM technology-based chips, the highest ever shipped in a quarter. The Cortex family now represents 5% of units shipped up from 2% in the prior quarter. This sequential increase is primarily due to shipments of Cortex-M class processors in microcontrollers and wireless networking chips, and an increase in Cortex-A shipments driven by high-end smartphones adopting smarter applications processors.
Q1 2010 Processor Unit Shipment Analysis
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ARM continued to gain share in non-mobile end-markets. Shipments of ARM technology-based microcontrollers grew 80% year on year, compared to 20% growth for the overall microcontroller market. Part of this growth was due to an increase in sales of Cortex-M class based chips. These chips go into a wide range of price sensitive markets such as toys, consumer white-goods and industrial controllers. This strong sequential growth in low-cost microcontrollers has resulted in the average royalty per chip decreasing to 4.8c in the quarter from 4.9c in the prior quarter and 6.0c in the same quarter last year. This growth in microcontrollers looks set to continue with Actel, Atmel, NXP, ST, Toshiba and Triad all announcing ARM-based microcontroller products in recent months.
The increasing penetration of smartphones continues to benefit ARM. In Q4 2009 ARM's customers reported about a 50% increase in wireless chips sales, driven by smartphone shipments growing about 40% year-on-year and Bluetooth chip shipments growing about 80%. For the quarter, ARM achieved an average of 2.4 ARM technology-based chips per mobile handset, the same as the prior quarter, and up from 1.9 a year ago.
To date, 27 Mali multimedia licenses have been signed, and the first of these is beginning to generate royalties
ARM signed two new licenses in Q1 for royalty-bearing platforms of physical IP, one at 90nm and the other at 130nm. The base of platform licenses for physical IP further drives ARM's future royalty potential. Cumulatively, ARM has now signed 70 platform licenses.
ARM's strategy of developing advanced physical IP for leading-edge manufacturing processes remains on track with ARM sending two 32nm chips for manufacture at major foundries.
Q1 2010 and Cumulative PIPD Licensing Analysis
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Platform analysis (nm)
Royalty-bearing Platforms at Each Node
New Platform Licenses
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180 to 250
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In addition, we signed another license for ARM's physical IP optimised to enable a Cortex-A9 processor to run at 2GHz whilst consuming less than 2W of power, demonstrating the synergistic benefits of having both processor and physical IP within ARM.
Physical IP royalties are generated mainly from chips manufactured in foundries such as TSMC, UMC and GLOBALFOUNDRIES. Royalties are recognised one quarter in arrears with royalties in Q1 generated from semiconductor unit shipments in Q4.
Underlying PIPD royalties in Q1 2010 were $10.3 million, up 60% year-on-year. PIPD demonstrates continuing market share gains as industry revenues are forecast to have increased about 45% compared to a year ago. ARM is now receiving royalty revenue from wafer shipments across eleven different advanced processes at 65nm and below, contributing more than 10% of PIPD's total royalty revenues.
At 31 March 2010, ARM had 1,729 full-time employees, a net increase of 19 since the start of the year. At the end of March, the group had 692 employees based in the UK, 493 in the US, 189 in Continental Europe, 271 in India and 84 in the Asia Pacific region.
ARM is continuing to invest in its R&D programs and operations, and expects to continue to recruit through 2010.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Group that could affect the results in 2010 and beyond are noted within the Annual Report for the year ended 31 December 2009. There have been no changes to these risks that would materially impact the Group in the foreseeable future. These include but are not limited to: ARM's quarterly results may fluctuate significantly and be unpredictable which could adversely affect the market price of ARM ordinary shares; general economic conditions may reduce ARM's revenues and harm its business; and ARM competes in the intensely competitive semiconductor market.
Download ARM Holdings plc Q1 2010 Financial Results Tables (345Kb PDF)
ARM designs the technology that lies at the heart of advanced digital products, from wireless, networking and consumer entertainment solutions to imaging, automotive, security and storage devices. ARM's comprehensive product offering includes 32-bit RISC microprocessors, graphics processors, video engines, enabling software, cell libraries, embedded memories, high-speed connectivity products, peripherals and development tools. Combined with comprehensive design services, training, support and maintenance, and the company's broad Partner community, they provide a total system solution that offers a fast, reliable path to market for leading electronics companies. More information on ARM is available at http://www.arm.com/.
Source: Gartner, March 2010