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The company said it would miss analysts' expectations for the third quarter, with revenue likely to fall 12 percent to STG33 million (EUR52.5 million). The company's pre-tax profits look set to come in at STG8 million, approximately 50 percent lower than analysts' predictions and a fall of 38 percent sequentially.
By lunchtime Wednesday the company's shares were hitting four-year lows in London, down almost 65 percent to STG47.5.
"In our second quarter earnings announcement in July, we referred to continued challenging market conditions in the industry," the company said. "These conditions have deteriorated further in the third quarter, resulting in the deferment of investment decisions by our partners and therefore a slowdown in licensing activity."
ARM, like other chip designers, had avoided the most severe aspects of the semiconductor downturn over the last 18 months because it designed so-called next-generation chips and was able to convince clients like Intel and Infineon to invest in its future technologies. In fact, for the last 18 quarters, the company's earnings have met or exceeded analyst expectations, Executive Officer Warren East said in a conference call.
Analysts now say that after months of continuing to license ARM designs, clients appear unwilling to spend more as the semiconductor downturn persists. "Whilst our sales pipeline and backlog of signed contracts give us reasonable visibility in our business, the persistent difficult market conditions mean that the timing of the closure of licensing deals is unpredictable," ARM said. The company also said it expects the situation to improve substantially in the fourth quarter.
"The semiconductor industry is experiencing its worst ever downturn," East noted. "Whilst ARM has continued to achieve robust results to date, the persisting challenging market conditions have eventually caused some of our partners to delay decisions about licensing our technology."
The news did little to help shares in ARM competitor Parthus, an Irish company that is in the closing days of its merger with DSP Group subsidiary Ceva. Parthus shares sank 7.5 percent in London by lunchtime on Wednesday to STG0.125.
The backlash against ARM may be somewhat undeserved, a few analysts noted, because the company continues to expect profitability for the full year. In fact, ARM said it continues to generate cash and it expects cash balances to increase to approximately STG121.7 million at the end of the third quarter, compared with STG115.4 million at 30 June 2002.
The UK-based employer of 800 said it is not planning any job cuts following the news, although it did say it would not recruit any new workers after boosting staff levels by 100 this year.
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