Chips are down for ARM as smartphone sales weaken

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Shares in ARM Holdings lost their lustre today as the iPhone chip designer caught the smartphone bug.

The FTSE 100 company revealed it made a £135.8 million profit in the fourth-quarter — which was below analysts’ expectations — after stripping out a $9 million (£6.2 million) “royalty catch-up” when a customer said it had underpaid ARM for previous years.

Fourth-quarter revenues grew 19% to £269.1 million, but the firm warned that “increased economic uncertainty” could restrict consumer spending this year. The gloomy outlook caused the shares to fall 36.5p to 903.5p.

Eoin Lambe, an analyst at Liberum, said investors tend to focus on royalty revenues for its processors, which at $196.6 million were below his $199 million forecast even after a 30% rise. 

ARM shares have suffered from the smartphone slowdown that has hit the semiconductor industry. Slowing iPhone sales in China — now the world’s largest smartphone market — has caused Apple’s valuation to fall by more than $200 billion over the past six months.

Earlier this week, a hefty profit warning from another British supplier to Apple, Imagination Technologies, led to the departure of its chief executive.

Julian Yates at Investec said there was “no magic number” in ARM’s results that would propel the shares back up to 1200p, their peak reached just over a year ago, but said progress appeared to be good in the current climate.

The analyst added: “The commentary on the balance sheet suggests the company is not looking to return cash in an immediate timeframe, aside from the continuation of a small share buyback which could suggest [merger & acquisition] activity ahead.”

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February 11, 2016 |
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