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Arm shares slip ahead of update

Discussion in 'Market News' started by Lily, Apr 15, 2016.

  1. Lily

    Lily Forum Member

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    Analysts say no new catalysts for share price expected

    After reaching a peak for the year last week, shares in Arm have been sliding back ahead of its first quarter results next Wednesday.

    The chip designer is down 22.5p or 2% at 985.5p in early trading on Friday, amid a slowdown in the smartphone market. Analysts said there was little expectation that the company would unveil anything at its results which would boost sentiment. Broker Stifel issued a hold recommendation, with analyst Lee Simpson saying:

    We continue to see Arm as a high quality tech story, but with little risk of new fundamental upside catalysts for the second and third quarter of 2016. Sales growth is still evident (up 18%/10% in 2016/2017), and we see scope for outperformance on..consensus, although mainly on dollar strength (the dollar strengthened 6%-7% versus the pound since last quarter).

    The slowing growth in smartphones is well known now and is mitigated by a strong product cycle (64 bit CPUs). Networking markets share is expanding, but costs are rising (especially for servers, Internet of Things). Given our only small rise in estimates (mainly in line with foreign exchange), we maintain our hold rating.

    We think investors are only marginally less concerned with the smartphone unit growth slowdown in 2016 (Stifel estimate only around 4% unit growth this year to 1.49bn), but we don’t think future Arm value is in question. Post MWC [last month’s Mobile World Congress in Barcelona], we think Arm has little new to say for the near term other than comfort with consensus and a need to keep ticking up operating expenditure levels for longer-term investment and hiring. That said, we still think a lot of work is on-going for the mid-to long-term promise and still believe the business sits well relative to this (Networking, Internet of Things, Machine Intelligence, etc.).

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