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ARM holdings shares are taking a big leg up and heading the UK Index this morning with Q1 results from the chip architect being well received as profits managed mid-teen percentage growth in spite of a 20% increase in R&D spend. Investors like the sound of revenues +22% in GBP and 4.1bn chips being shipped in Q1 (+10%) helping royalties climb by 15% to outperform a weak industry of late. Within the highly competitive and increasingly saturated smart devices market (Apple starting to struggle?) a higher R&D spend is also being digested well, taken as necessary to ensure differentiation and future growth. 
An outlook statement suggesting gains in market share, strong demand, robust licensing and FY group revenues in-line with consensus is a message that investors clearly appreciate at this early stage of the year. Observations about macro-economic uncertainty look like they are being swiped away with the dominant bullish contingent electing to focus on the world’s sill insatiable demand for all that is smart and requires quality chip design within.
While rival Intel’s announcement that it is cutting 12,000K jobs is a negative for the tech sector as a whole, the fact it is restructuring away from PCs and towards cloud computing and what is billed as ‘The Internet of Things’ plays very much in favour of the future for ARM. Shares back at £10 and above the 200-day moving average. Note ARM management hosting a conference call at 9.30am and the shares going ex-div to the tune of 5.3p tomorrow.
Mike van Dulken, Head of Research, 20 Apr
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