ARM's Profits Jump 22%

LONDON -- The shares of ARM (LSE: ARM.L  ) (Nasdaq: ARMH  ) rallied 15 pence, or 2%, to 609 pence in early London trade this morning after the microprocessor designer revealed that third-quarter profits had advanced 22%.

The FTSE 100 member said its customers had produced 2.2 billion ARM-based microprocessors during July, August, and September, which was a 16% improvement on the same quarter of 2011. The company also said the average royalty rate per chip had increased from $0.044 cents to $0.049.

Sales during the quarter gained 18% to 228 million pounds, which helped underlying profit before tax climb 22% to 68 million pounds and earnings per share gain 22% to 3.71 pence per share.

ARM said it had signed 29 new processor licenses during the third quarter, taking the group's running total to 920. New licenses covered processors for smartphones, televisions, set-top boxes, and hearing aids.

Warren East, ARM's chief executive, said:

ARM has delivered another quarter of strong revenue and earnings growth. As we move into an ever more connected world of mobile computing, cloud-based networks and the Internet-of-Things, ARM is seeing increased demand for its high performance and low-power technology. This demand is helping to drive ARM's licensing revenues and this quarter we saw market leaders license ARM's advanced processor technology for next generation super smartphones, tablets, and mobile and embedded computing applications.

Looking ahead, ARM claimed it had entered the final quarter of 2012 with "a record order backlog and robust opportunity pipeline." The firm also reckoned group dollar revenues for the fourth quarter would match current market expectations.

Earnings now look likely to come in around 14 pence per share for the year as a whole, thereby valuing the 8 billion pound company at 42 times profits. ARM's rating remains high, but earnings did balloon from 2.59 pence to 8.19 pence per share between 2007 and 2011, and today's statement shows no sign that the premium growth rate will decelerate.

Indeed, ARM's shares have surged from as low as 79 pence since the banking crash, thereby delivering a 771% gain to investors smart enough to spot the rapid growth opportunity. Such great returns suggest it may pay to keep an eye on ARM.

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Maynard does not own any share mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


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