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ARM profits jump on license, royalty fees

The chip designer beats analyst estimates, reporting fourth-quarter 2000 pretax earnings that rose to $14.8 million (10.1 million pounds), a 53 percent jump from a year ago.

Chip designer ARM Holdings beat analyst estimates on Wednesday, reporting fourth-quarter 2000 pretax earnings that rose to $14.8 million (10.1 million pounds), a 53 percent jump from a year ago.

The Cambridge, England-based company, whose ARM processor designs are used in 75 percent of wireless devices, posted profits of 3.8 cents per share on revenue of $85 million. That compares with earnings of $10 million on revenue of $28 million in the same period in 1999.

Analysts expected ARM Holdings to earn 3 cents a share, according to a survey by First Call.

ARM CFO Jonathan Brooks called 2000 a "very strong year."

Company profits for the year were up 97 percent to $52 million in 2000, from $26 million in 1999. Revenue grew 62 percent to $150 million, from $90 million in 1999. Earnings per share were 12.8 cents, beating analysts' estimates of 12 cents per share for the year.

Much of the company's success came on a large increase in unit shipments of ARM processors, for which the company receives royalties. The company said shipments more than doubled from 182 million units in 1999 to more than 400 million units in 2000. It received some $11.9 million in royalties in the fourth quarter, about $38 million for the year.

But licensing is ARM's bread and butter. The company secured 14 new licensees in 2000, collecting $66 million in licensing fees over the year, up from $49 million in 1999.

Its largest licensing win in 2000 was Motorola.

Motorola signed an architectural license, which gives it the rights to adapt ARM technology to its own needs. The company will, for example, incorporate ARM processor technology into its Dragonball line of processors. Dragonball is the processor used by Palm in its handheld computers. The only other architectural license holder is Intel.

ARM also counts Texas Instruments, Lucent Technologies, Sony, Philips Electronics, Alcatel and Ericsson among its licensees. The company also signed semiconductor foundries Taiwan Semiconductor Manufacturing and United Microelectronics.

Most of ARM's business, about 50 percent, comes from cellular phones and other wireless devices. But the company is working to diversify its markets and recently began targeting the automotive industry as a new area of focus.

Aside from wireless, the rest of ARM's royalties come from networking equipment, such as cable modems, set-top boxes, storage, and imaging products such as digital cameras.

This diversification helps the company avoid economic downturns, company executives said.

"Especially in the U.S., there's a certain amount of uncertainty (with) semiconductor growth slowing," said Robin Saxby, chairman and CEO. "What we are noticing is that our semiconductor partners are less sure about what their shipments are going to be over the next couple of quarters."

However, "We feel pretty good," he said.