Motley Fool Stock Advisor ARM Holdings (NASDAQ:ARMHY) has taken quite a bit of flak recently over its high-priced buyout of fellow chip designer Artisan (NASDAQ:ARTI). But regardless of how that works out for ARM, you have to hand it to the company for continuing to execute in its own right.

ARM reported on its progress in its third quarter earnings statement, released Tuesday. Here's the basic rundown: Dollar-denominated revenues increased 39% year-on-year (and 7% sequentially), while dollar-denominated net earnings rose 98%, and earnings per diluted share (i.e., per American Depositary Share, a bundle of three London-issued and pound-sterling denominated shares) rose 117%.

Gross margins declined infinitesimally to a still-skyscraping 92.8%. High gross margins are typical of IP shops such as ARM. Still, a 90%+ gross margin is truly impressive. The company keeps its gross margins up by deriving roughly 80% of its revenues from the super-high-margin business of licensing and collecting royalties on the use of its technology by customers such as Intel (NASDAQ:INTC) and Texas Instruments (NYSE:TXN). (TI uses the technology in manufacturing chips that are incorporated into, among others, Nokia's (NYSE:NOK) cell phones -- a role that Intel may be taking over soon.)

Further down ARM's income statement, we see that the company's operating expenses also declined sequentially, dropping more of the gross profits down to the operating profits line. Although operating expenses rose a bit year-on-year, they did not rise nearly as quickly as revenues did. As a result, operating margins increased dramatically year-on-year, rising to 28.9% from last year's 17.7%. Net margins performed similarly, improving by nearly a third from last year's 14.2% to reach 21.1% of revenues in Q3 2004.

Finally, let's draw back and look at the company's performance over the first nine months of 2004 to get some perspective on this quarter. In comparison to the first nine months of 2003, revenues for Qs 1-3 2004 have increased by 18%; net earnings, by 75%; and earnings per ADS, by 88%. While superb by any measure, all three of these numbers are less than their equivalents for the third quarter. Conclusion: ARM's business is firing on all cylinders, with revenue, net earnings, and earnings per diluted share all rising faster and faster over the course of 2004.

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Fool contributor Rich Smith owns shares of Nokia, but of no other company mentioned in this article.