London -- ARM Holdings, the Cambridge, U.K., processor intellectual property developer, said it was forecasting "flattish" revenues in the short term after releasing its annual results on Jan. 28. ARM cited ongoing unpredictability in the processor IP sector, but said it remained upbeat on its future prospects based on its growing business in the Asian market.
After being forced to make layoffs and take charges following its third quarter results, which saw the company announce declining sales after 18 successive quarters of improving revenue, chief executive Warren East said the company had "been stabilized in spite of difficult market conditions," in its fourth quarter.
"We intend to become a major force in China, to drive the development of IP and SoC design. Our mission is to help local users realize their design ideas, from concepts to complete products," said East.
ARM said it has positioned itself to take advantage of China's potentia l to become the world's largest wireless market, with investment by the Chinese Government of $151 billion by 2005. ARM entered the Chinese market in 2000, signing up ZTEIC as a partner to incorporate ARM IP into its ARM7TDMI core-based devices for mobile communications applications.
"The company's push into China has been very successful following the opening of an office in Shanghai last year," East said. "We have licensing partnership with some key players in China such as SHHIC, which has licensed our SC100 core for smart card ICs."
Other partners signed up in China include Shanghai-based Semiconductor Manufacturing International Corp., which is using the ARM7TDMI 32-bit RISC processor core. The company plans to produce a test chip based on its 0.18-micron process technology and hopes to see China-based fabless companies develop ICs around the core this year.
"We believe that China is going to be a very big supplier of wafers and is expecting to become No.2 after the U.S for wafer productio n in the coming years," he added. "East Asia including China currently accounts for 40 percent of our business and we think that is going to grow rapidly following the country joining the [World Trade Organization]. Getting the right strategy in place in China has been very important for us."
Industry analysts questioned whether the growing Chinese market can make a difference to ARM as long as the processor IP market remains sluggish. "There will be some great, new Chinese [integrated device manufacturers] and foundries," said Malcolm Penn of semiconductor industry watcher Future Horizons.
"The local market is big and can support local fabs. It is a new IP market for ARM, but there are big doubts on timing, and certainly with respect to its short- to near-term impact on ARM's" profit and loss.
"ARM has already signed up the major Chinese semiconductor companies and many of the foreign companies setting up in China are already ARM licensees. All markets reach saturation and we could be seeing th e beginning of saturation for ARM," Penn said.
Responding to assertions that the semiconductor IP market is approaching saturation, ARM has stressed that that two-thirds of the top 150 semiconductor companies have yet to become ARM licensees. Others like Penn said most of those companies are not potential licensees since they are either too small or inactive in the markets for ARM's products.
The company continues to make money despite its recent slide in revenue. While licensing revenue slowed in the second half, revenue for the year was up 8 percent to $136.1 million. The company logged 70 licenses signed in 2002, compared to 77 in the previous 12 months.
Still, company executives stressed that royalty revenues grew 26 percent sequentially in the fourth quarter to about $12.8 million based on record quarterly shipments of 127 million units. Company executives said this indicated that their business was fundamentally sound and that ARM would eventually prosper when end-user market demand picked up.