Processor intellectual property licensor ARM Holdings plc enjoyed a solid first quarter of 2014 with an emphasis on signing up new licensees. These are helping ARM to break out into a wider set of enterprise and embedded applications, company executives said.
In addition the company has taken on 120 additional engineers in the first quarter to support R&D.
The signing of 26 licensees for processor architecture and cores helped the ARM's license revenue turn in 33 percent annual growth. However, despite 2.9 billion ARM-based chips shipping in the quarter, up 11 percent year-on-year, total technology royalty revenue fell to £86.8 million (about $145 million) down 5 percent from £91.2 million (about $153 million) in 1Q13.
While ARM's per-chip royalty rates have generally been pushing up from about 1 percent to 2 percent per core they are based on the chip sale price, which is under downward pressure in most applications. In addition, as ARM moves into applications such as wearable electronics and the Internet of Things the low ASPs adds to the pressure on the absolute royalty per chip.
The company made a net profit £62.3 million (about $105 million) on sales revenue of £186.7 million (about $313 million) in the first quarter of 2014. Sales were up by 9.6 percent from £170.3 million in the same quarter a year before. Sales were roughly flat compared with the previous quarter when ARM made a loss on sales of £189.1 million (about $305 million), up 15 percent from the same quarter a year before.
"Licenses are a precursor to future royalty revenues. Our customers are signing licenses with a view to designing ARM technology into an increasingly wide range of markets from servers and supercomputers to embedded sensors and enterprise networking applications and thereby underpinning ARM's future royalty opportunity," said Simon Segars, CEO of ARM, in a statement.
Noel Hurley, deputy general manager of the CPU group at ARM, said the hiring is not a specific program but is spread across the CPU and GPU design groups and their multiple locations. "We've grown the number of markets we address significantly in the last couple of years. It's a combination of research and development," said Hurley. "About 90 percent of wearables are now based on ARM," he added.
When challenged that wearable electronics market is a fad rather than anything of real signifance, Hurley said: "ARM believes in the wearables market. Right now it is in a place where people are experimenting. Some products will catch the imagination of the consumer and some won't. But that is to do with fashion. Medical is a more serious wearables market that will take time to develop. There are the industrial and enterprise markets for head-up displays, glasses and so on. It's in the early stages but it is a fantastic opportunity."
ARM also prospered in the enterprise market in 1Q14 despite the closure of ARM-based server startup Calxeda Inc. (see ARM Server Pioneer Calxeda Closes) at the end of 2013. Enterprise covers many areas besides servers, including disk drives, routers, switches, and basestations. And in 1Q14 about 500 million units with ARM cores were shipped more than doubling from the same quarter a year before.
The 500 million shipped in enterprise in 1Q14 compared with 1400 million in mobile, 900 million units in embedded computing and 140 million in home consumer applications. With regard to ARM in servers CEO Segars told an analysts conference held to discuss the first quarter's financial results: "I expect commercial deployment later this year with volume taking off in 2015."
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