The Motley Fool Previous Page

The Stock Picker's Guide to ARM Holdings

Tony Reading
May 1, 2013

LONDON -- Successful investors use a disciplined approach to picking stocks, and checklists can be a great way to make sure you've covered all the bases.

In this series I'm subjecting companies to scrutiny under five headings: prospects, performance, management, safety, and valuation. How does ARM Holdings (LSE: ARM) (NASDAQ: ARMH) measure up?

1. Prospects
ARM designs microchips. It licenses designs to microchip manufacturers for an upfront fee, and receives royalties on every device sold. It has a near-monopoly on low-powered chips suitable for smartphones (where it has a 95% market share) and digital cameras (80% global market share).

ARM's market stranglehold and intellectual property library give it a wide economic moat. Potential risks come from disruptive technology, backward integration by chip manufacturers such as Intel, or possibly IP theft.

ARM's market is driven by smartphone and tablet computer volumes. When those markets eventually mature, it faces tougher competiti