ARM Holdings Plc (ARM), the semiconductor designer whose products power Apple Inc. (AAPL)’s iPhone and iPad, reported slower growth in first-quarter revenue from royalties on a decelerating market for high-end smartphones.
Royalty sales rose 3 percent to $144.5 million, the Cambridge, England-based company said in a statement. That compares with a 32 percent increase a year earlier. The figure includes a $5 million deduction to correct for a customer that over-reported royalty figures.
ARM’s royalties on chips are expanding more slowly as the mobile industry moves to lower-cost smartphones. The company, whose designs are used in more than 95 percent of mobile phones, is counting on royalty revenue growth this year to come from new businesses such as so-called connected devices, which include wireless-enabled cars and thermostats, and servers. Still, the company said it expects sales to improve in the second half of the year.
“The smartphone market is still a very vibrant space,” Chief Executive Officer Simon Segars said in an interview on Bloomberg Television. “Devices get cheaper over time, but they get replaced by more sophisticated devices and that helps replenish the price model.”
ARM fell 21.5 pence, or 2.2 percent, to 961.5 pence in London trading at 8:22 a.m. The stock had declined 11 percent this year through yesterday.
Global smartphone shipments are expected to rise 19.3 percent in 2014 from last year, dropping from 39.2 percent growth in 2013, researcher IDC said in a February report. The most mature markets, such as North America and Europe, will have growth in single digits as increases come from devices priced at less than $150 and emerging markets, according to the report.
Total revenue increased 10 percent to 186.7 million pounds, or $305.2 million as reported in dollars. That met the average 187.6 million-pound estimate by analysts in a Bloomberg survey. ARM’s profit before tax, acquisition costs, and other expenses, rose to 97.1 million pounds in the quarter from 89.4 million pounds a year earlier.
“We’re pretty optimistic,” Chief Financial Officer Tim Score said in a call with reporters today. “We expect royalty revenue growth to be consistent with where it’s been in the last two or three years.”
License revenue, the upfront fee to gain access to ARM’s designs, rose 37 percent from a year earlier to $129.9 million, ARM said. The company recorded 26 licenses in the quarter, including 11 for wearable technology and connected devices, which should lead to an increase in royalty revenues as those devices go on sale, Score said.
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