ARM Royalties Accelerate as Smartphone Market Gains Strength

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ARM Holdings Plc, the chip designer whose technology is in more than 95 percent of smartphones, reported accelerating royalty revenue growth as the market for quicker, more powerful handsets expanded.

Royalty sales in the fourth quarter advanced 13 percent, compared with 7 percent a year earlier, the Cambridge, England-based company said today in a statement. The company had said that type of revenue -- the fees ARM collects when customers use its technology -- would return to more “normal” growth levels in the fourth quarter after five slower quarters.

The acceleration will continue this year, driving a 10 percent increase in total sales, as measured in dollars, in the first three months, the company said. Faster, fourth-generation mobile networks are pushing customers to upgrade to new phones that take advantage of them, like Apple Inc.’s iPhone 6.

License revenue, the upfront fee customers pay to access ARM’s technology and an indicator of future sales, rose 27 percent from a year earlier to $162.3 million in the fourth quarter.

ARM climbed 3.7 percent to 1,095 pence at 8:23 a.m. in London, taking the advance to 17 percent in 12 months.

Industrywide, smartphone unit sales increased 28 percent in the fourth quarter, helped by demand for less expensive devices in emerging markets, researcher IDC said last month.

Diversified Products

While industry growth is coming from cheaper handsets, the company’s newer designs are being incorporated in phones at all price points, Chief Financial Officer Tim Score said on a call today. More than half of chips using ARM technology are going into devices other than mobile phones as the company diversifies its product line, he said.

ARM unveiled technology this month that will give customers the ability to build processors with 50 times more power than top-tier smartphones had five years ago. The company is also making bets on alternative technology, adding designs and software for Web-enabled appliances, like connected streetlights and thermostats.

Total revenue in the quarter rose 18 percent to $357.6 million, or 225.9 million as reported in pounds. That compares with the 215 million pounds predicted by analysts on average, according to data compiled by Bloomberg.

Companies including Samsung Electronics Co. and MediaTek Inc. use ARM’s designs to make processors for phones. Qualcomm Inc. also uses ARM designs in some of its products and licenses ARM technology for use in ones it designs itself.

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