ARM First-Quarter Sales Gain on Smartphone, Tablet Demand

ARM Holdings Plc (ARM), the U.K. designer of chips that help power Apple Inc. (AAPL)’s iPhone, said first-quarter sales rose 26 percent on booming demand for smartphones and tablet computers.

Revenue climbed to 116 million pounds ($191 million), Cambridge, England-based ARM said in a statement today. The average estimate of 17 analysts in a Bloomberg survey was for 111 million pounds. Full-year sales in U.S. dollars are forecast to be “at least in line” with market estimates, ARM said.

“ARM is growing faster than we thought possible in a year following what was a strong recovery year,” said Paul Moorland, an analyst at Peel Hunt in London. Moorland today raised his recommendation to “hold” from “sell.”

ARM is seeking to broaden its range of product designs with technology companies to take on Intel Corp., the world’s biggest computer chipmaker. Semiconductors based on ARM’s designs are used in most tablet computers, including Apple’s iPad, and the company is also targeting the server computing market. First- quarter net income rose 10 percent to 21.5 million pounds.

“Influential market leaders are licensing ARM technology to gain access to a growing ecosystem of operating systems, software applications, tools and service providers,” Chief Executive Officer Warren East said today in the statement.

Shares dropped 1.2 percent to 616.5 pence as of 9:51 a.m. in London trading.

Royalty Revenue

ARM’s royalty revenue gained 27 percent to $98.6 million, representing 53 percent of total sales. The company sold 1.85 billion processor chips with its designs, the highest-ever shipped in a quarter. The company predicts a “normal seasonality” for royalty revenues in the second quarter.

Microsoft Corp. has said the next version of its Windows operating system will run on ARM’s chip designs for the first time. The Windows software will be tailored for battery-powered products, such as tablets, netbooks and other handhelds, Redmond, Washington-based Microsoft said. ARM will start receiving royalties from the chips in about two years.

ARM is also seeking to partner with Intel rival Advanced Micro Devices Inc. (AMD) which currently doesn’t use the company’s designs, CEO East said on a conference call today.

“AMD has signaled they are going through a rethink of their strategy,” he said. “That’s represents a heightened opportunity for us.”

East also said that some benefits of Google Inc. (GOOG)’s Android software, the most popular mobile-phone operating system in new smartphones, may disappear if the U.S. search engine allows clients to modify the platform substantially.

“It’s not really for us but Google to determine how much standardization they want in the marketplace.”

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

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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ARM Holdings Plc CEO Warren East

Chris Ratcliffe/Bloomberg

ARM Holdings Plc Chief Executive Officer Warren East.

ARM Holdings Plc Chief Executive Officer Warren East. Photographer: Chris Ratcliffe/Bloomberg