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I’ve been watching ARM Holdings (LSE:ARM) for some time now. It is a fascinating company on its own merit, regardless of its public status. It almost defines “leading edge technology,” and it is unique in its offering of proprietary circuit designs without manufacturing the chips themselves. Its high-performance, power-efficient circuit designs have propelled the company to the forefront of the race to dominate the tablet and mobile phone market.
Competition with its chief rival, Intel (NASDAQ:INTC), has been fierce, with each attempting to outperform the other in a race that keeps getting faster as it goes along. The winner of this race, if there ever is one, will need a combination of endurance and a strong finish. Alas, it seems as though the finish line keeps moving farther away each time ARM takes the final turn. One day ARM is forging ahead by a length-and-a-half, the next by 10 lengths, only to be nose-to-nose the following day, as ARM and Intel keep introducing newer and more excellent designs. We’ll come back to the “ARM’s race” in a minute.
ARM was floated on the LSE in 1998. The company has grown significantly over the past 15 years to become a member of the elite FTSE 100. Its share price on 06 June 2012 was 503.50. At 13:29, the time that I am writing this paragraph, ARM’s share price is 896.50 with nearly five million shares traded. That’s an impressive 78% increase. on the year.
But here’s the rub. ARM closed at 924.00 yesterday, 04 June. On 15 May its share price hit 1,097.00. So ARM’s share price has dropped by more than 18% in the past two weeks. Some investors are starting to get nervous. I believe this is due, at least in part, to two reasons. The first, and not necessarily the most important, is that Intel has announced that it has a new design that is ready to come to market. The second is that Samsung has expressed an interest in the Intel chip. Although ARM has its new Cortex A-12 processor in the pipeline, it will not be available until 2014.
An even more problematic issue for some is the concern that ARM is overvalued with a PE Ratio of 76.86. All of this – the past two weeks, the Intel announcements, and the price to earnings ratio – causes some to think that ARM is not a good investment. Let me pause a second to remind you that I reported on 24 January that “Analysts . . . already feared that ARM might be overvalued” at 832.0 per share. This is where we separate the men from the boys. Let’s go back to the “ARM’s race.”
You see those rail birds down at track side. Those are the boys who placed their bets on ARM just a few days before today’s race. Do you hear them shouting? Do you see them jumping up and down in a frenzy? Now, take a look up in the stands at the owners’ boxes. Sure you can see some signs of concern on those men’s faces, but they’re not having apoplexy like the boys on the rail are.
So what’s the difference? The boys have a betting slip for this race. The men have a horse in the race. The boys are in it for today’s race. The owners are in it for the long haul. If you are a trader, you think like a boy and you are probably nervous. If you are an investor, you are an owner and you think like a man. You understand that your horse may not win every race, but you know that he is a winner.
Boys, it’s time to grow up.
