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ARM Third-Quarter Profit, Sales Rise on Smartphones

ARM Holdings CEO Warren East
ARM Holdings Plc Chief Executive Officer Warren East, seen here, said, “Our partners are also starting to develop chips in new markets for ARM, such as servers and laptops, creating longer-term opportunities.” Photographer: Simon Dawson/Bloomberg

ARM Holdings Plc, the U.K. designer of semiconductors that power Apple Inc.’s iPhone, reported higher third-quarter profit and sales on increasing shipments of chips used in smartphones and tablet computers.

Third-quarter earnings per share increased to 1.1 pence per share from 0.5 pence, the Cambridge, England-based company said today. Sales rose 34 percent to 100.4 million pounds ($159.5 million). Analysts had estimated sales of 96.3 million pounds.

ARM is seeking to broaden its range of product designs with technology companies to take on Intel Corp., the world’s biggest computer chipmaker. The company said today that new tablets from Dell Inc., Research in Motion Ltd. and Samsung Electronics Co. all contained designs it produced.

The stock dropped as much as 6.2 percent in London trading as analysts said the company’s share price, which has more than doubled this year, may face a correction.

“We believe the rating is now well ahead of itself and vulnerable to a correction,” Paul Morland, an analyst at KPC Peel Hunt, said in a note to clients. “Although sales have impressed and the backlog looks strong, we do not believe this is sufficient to justify a multiple of 44 times.”

The shares declined as much as 24.1 pence to 365.1 pence and were down 3 percent at 377.5 pence as of 8:37 a.m.

Royalty Revenue

ARM said today it received third-quarter royalty revenue from the sale of 1.5 billion processor chips with its designs. A “major semiconductor company” has also bought an architecture license to develop its own designs, the company said.

“Our partners are also starting to develop chips in new markets for ARM, such as servers and laptops, creating longer-term opportunities,” Chief Executive Officer Warren East said in the statement.

ARM’s stock climbed this year on rising earnings and sales and on speculation the company may be a takeover target. Oracle Corp. Chief Executive Officer Larry Ellison said in September his company may buy a chipmaker. Oracle would more likely target an enterprise-focused chipmaker such as Advanced Micro Devices Inc., Lee Simpson, an analyst at Jefferies International Ltd., said at the time.

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