Profit boost for ARM Holdings despite smartphone slowdown

10th February 2016

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As ARM Holdings reports its full year results Ian Forrest, investment research analyst at The Share Centre, explains what they mean for investors…

British chip designer ARM Holdings has beaten a global dip in smartphone sales as it reports a 17% rise in fourth quarter profit.

This has been led by high demand for its processor designs in higher end smartphones as it has increased its market share over the last year. ARM’s fourth quarter sales and pre-tax profits beat earnings, while adjusted earnings per share were in line. The Board has recommended a 25% increase in the final dividend to 5.63 pence per share.

Investors should appreciate that ARM seems fairly upbeat on its 2016 outlook, expecting to see increased demand for its ARMv8-A chips. It expects dollar revenue for this year to be broadly in line with market expectations, and predicts strong momentum for royalty revenues ahead coupled with a healthy licensing pipeline.

While there is still growth in this sector and ARM gains market share, we maintain our medium risk ‘hold’ recommendation, noting the fairly high forward looking earnings multiple of about 28x.

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