ARM Royalty Growth Slows as Cheap Smartphones Take Over

ARM Holdings Plc, the semiconductor designer whose products power Apple Inc.’s iPhone and iPad, reported slower growth in royalty revenues in the fourth quarter as the market for high-end smartphones cooled.

Royalty revenue rose 7 percent to $146.4 million, the Cambridge, England-based company said in a statement. That’s compared to 13 percent growth in the third quarter and a 19 percent increase a year earlier.

ARM’s royalties are being hurt by a slowdown in sales of high-end smartphones as the market moves toward cheaper models. The company, whose designs are used in more than 95 percent of mobile phones, is branching out into chips that will run servers and connected devices, such as smartwatches.

“Royalty is the thing that people are expressing some concern about,” Chief Executive Officer Simon Segars said in an interview with Bloomberg TV today. “Growth in the fourth quarter was slower than it had been, but royalty growth in the semiconductor industry was only 1 percent.”

ARM dropped 5.1 percent to 882.5 pence in London trading at 8:22 a.m. The shares had gained 4.1 percent in the year before today.

Royalties may rise 19 or 20 percent this year, in line with increases in the past three years, Chief Financial Officer Tim Score said on a call with reporters today. The growth will come as designs for chips that run connected devices and servers help overcome a slowdown in premium smartphones.

Total Revenue

Total revenue increased 15 percent to 189.1 million pounds or $302.9 million as reported in dollars, the company said. Analysts had predicted sales of 185.9 million pounds ($303 million) on average, according to estimates compiled by Bloomberg.

Global smartphone shipments are forecast to rise 20 percent in 2014 from last year, with most of the growth coming from emerging markets, according to data from industry researcher IDC.

Revenue from licenses, the upfront fee to gain access to ARM’s designs, rose 27 percent from a year earlier to $127.4 million last quarter, ARM said.

Last week ARM said it would back a standard for server technology using its chips that will make it cheaper and faster to develop products based on ARMv8. The designs are a threat to Intel Corp., which controls more than 95 percent of the market for chips in servers that use personal-computer processors.

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