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ARM Holdings Soars After Earnings Surge 58%

LONDON -- The shares of ARM Holdings  (LSE: ARM  ) (NASDAQ: ARMH  ) soared 73 pence, or 8%, to 942 pence during early London trade this morning after the FTSE 100 member announced first-quarter profits had surged 58%.

ARM, which designs and licenses microchips for mobile phones and other digital devices, said its earnings had advanced from 3.36 pence to 5.31 pence per share during January, February, and March.

The company also said its first quarter had seen the number of ARM-based chips shipped by customers rally 35% to 2.6 billion units. The progress helped ARM's Q1 revenue improve 28% to 170 million pounds and pre-tax profit climb 44% to 89 million pounds.

ARM's net cash position improved by 42 million pounds during the three months to finish the quarter at 562 million pounds.

Warren East, ARM's chief executive, said:

ARM has delivered another quarter of strong revenue and earnings growth, driven by robust licensing and record royalty revenue.

ARM's royalty revenues again outpaced the wider semiconductor industry. This outperformance has been driven by market share gains in key end markets including digital TVs and microcontrollers. In addition, the growth in smartphones and tablets continues to benefit ARM.

While East claimed second-quarter revenue would be in line with current market expectations, he added revenue for the full year would be "at least" in line with City forecasts.

Prior to today, City experts had expected ARM to report earnings of 20 pence per share and a dividend of around 5 pence per share for 2013. Those projections currently equate to a P/E multiple of 47 and an income yield of 0.5%.

Of course, whether today's bumper results, the lofty P/E valuation, and the wider prospects for the microchip industry all combine to make ARM a buy is something only you can decide.

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