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Apple supplier Arm jumps after update but FTSE falters as Pearson plunges

Discussion in 'Market News' started by Lily, Oct 21, 2015.

  1. Lily

    Lily Forum Member

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    Chip designer positive on outlook but educational publisher warns on profits

    Leading shares are heading lower again ahead of this week’s meeting of the European Central Bank and amid a raft of results showing a mixed performance from some of Britain’s biggest companies.

    Arm has jumped 77p or nearly 8% to £10.40 after the chip designer reported a 27% rise in third quarter profits to £128.4m, and eased concerns about a slowdown in the market. The company, whose technology is used in Apple products including the iPhone, said full year dollar revenues would be in line with expectations of around $1.5bn. It has been helped by growth in its newer technology- which receives higher royalties - in smartphones and other devices. Chief executive Simon Segars said:

    The third quarter has been another strong quarter for royalty revenue growth, driven by premium chip pricing and elevated royalty percentages from recently introduced ARMv8-A based chips.

    These new chips are now shipping in a wide range of devices including smartphones, enterprise equipment such as base stations and servers, and consumer electronics such as digital TVs.

    We see Arm as a standout long term quality play with materially underpinned royalty value ahead... These results show the strength of the royalty model, and support our positive view on the stock. We retain our 1200p target price based on 2020 estimated royalties.

    First thoughts: steadies the nerves. With an in-line-to-better print, guidance that continues in the same vein but royalties stronger than expected ($185m), we think there is scope for Arm to consolidate its trend of slowly improving share price gains of late. End market negatives may persist – the near-term macro (especially China) – but offsetting this should be proof that ARMv8 shipments (64 bit) carry value upside, signs of strong late 2015 iPhone build, new Arm product launches (Artemis, Grebe, Kite) and any eventual unwinding of the inventory problems (Samsung?).

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