ARM Shares Drop Most Since 2008 on Valuation, Tablet Concern

ARM Holdings Plc (ARM), the U.K. designer of chips that help power Apple Inc. (AAPL)’s iPhone, retreated the most in more than two years in London trading on concern the stock may be too expensive and as analysts said sales of some tablet computers may fail to meet expectations.

ARM tumbled 9 percent to 522.5 pence in London, the steepest decline since Oct. 6, 2008, according to data compiled by Bloomberg.

The shares had gained 151 percent in the past 12 months through yesterday, double the next best performance in the MSCI World Information Technology Index, as demand surged for semiconductors in mobile devices such as iPhones. The stock was also boosted by speculation that Apple, Oracle Corp. or Intel Corp. may try to buy the Cambridge, England-based company.

“It’s an overvalued stock,” said James Crawshaw, a London-based analyst at Standard & Poor’s Equity Research. “They get pushed up too far with people chasing the momentum. Then the bubble reaches its peak.”

While increasing shipments of mobile handsets have helped push ARM’s gross margin to the highest level of any global semiconductor company, a takeover would now cost at least $11.3 billion, in line with the combined total spent in all chip acquisitions in the past year, data compiled by Bloomberg show. Even as technology companies sit on $276 billion in cash, ARM’s Chief Executive Officer Warren East has said any deal would destroy shareholder value because the chip designer’s success stems from its neutrality.

ARM’s stock may drop if tablet sales in the second half of 2011 from manufacturers other than Apple disappoint, JP Morgan Cazenove analysts including Sandeep Deshpande said in a note today.

To contact the reporter on this story: Jonathan Browning in London jbrowning9@bloomberg.net.

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net.

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