|
ARM is a designer of the little chips which power most of the world's mobile phones and on Monday, the firm reported 30 percent sales growth and a 38 percent increase in pre-tax profits (PBT) for the first quarter ended 31 March 2002, writes Drew Cullen.
Sales were STG42.1 million (Q1 2001: STG32.5 million), five percent higher than the previous quarter and PBT was STG15.7 million (Q1 2001: STG11.4 million), 13 percent up on Q4 2001.
However, royalty income was down six percent to STG6.4 million, or 15 percent of sales in Q1, compared with STG6.8 million or 17 percent of revenues in Q4. Unit shipments from licenses were up from 96 million to 110 million, so the problem lies with "average royalty rates being impacted both by a change in product mix and by downward pressure on chip average selling prices."
The March quarter saw ARM's semiconductor partners move up from 77 to 90. And ARM notes the increasing importance of non-CPU income, with "additional hardware platform, software application and peripherals licenses being signed."
Operating margins were up too -- from 31.7 percent in Q4 2001 to 35.3 percent in Q1 2002 (and 32.1 percent in Q1 last year). Some of this is technical -- ARM reveals a 0.9 percent "uplift" from the introduction of new US GAAP rules regarding the amortisation of goodwill. Also legal costs are greatly reduced, following the settlement of its patent dispute with picoTurbo late last year.
The business also makes a useful turn on development systems sold to partners, posting record sales of STG7.6 million in the quarter (Q4 2001: STG5.8 million). However, most of the increase is down to one big customer placing an order worth STG1.6 million.
ARM also makes a big turn on what it calls "service revenues" -- consulting, support, maintenance and training. For the March quarter it pulled in sales of STG4.6 million from this source, compared with Q4 revenues of STG4.9 million and Q1 2001 sales of STG4.2 million.
It is very helpful of ARM to strip out these revenues for inspection. But it strikes us that sales from development systems and from services should be accorded very different (i.e. much lower) forward earnings multiples than those arising from its royalty income.
ARM's sky-high valuation is predicated on its dominance of CPUs for mobile phones, and upon the sales potential of its designs in other sectors -- cars, for example. Dev systems and consultancy fees are, by contrast, footling sums.
At close of trading on Friday, ARM had a market capitalisation of STG2.74 billion, equating to a P-E multiple of 75.42. In early morning trading on Monday shares fell STG0.245 to STF2.455. ARM's results were in line with analyst expectations, but traders are citing concerns over the impact of deferred income upon the company, financial newswire AFX reports.
The Register and its contents are copyright 2002 Situation Publishing. Reprinted with permission.
|
