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ARM Holdings (LSE:ARM) share price is up 2.94% today and, in a moment, I shall tell you why. But first, I would like to say that ARM is one of the most fascinating and well-conceived companies that I know. I and my ADVFN colleagues devote a significant amount of copy to ARM Holdings – and deservedly so. At its heart is a kind of genius similar to a Walt Disney-esque dream of future things, one that has prepared to imagine the future and bring it to life.
The Annual Results
Without question, ARM’s Q4 and full-year results helped boost investor confidence today, taking its share price to a new 52-week high of 1,105.02 in early trading before retreating to 1,087.00 at closing.
- Q4 revenue was up 19% to £225.9 million
- Q4 pretax profit was up 25% to £118.9 million
- Q4 EPS was up 36% to 7.2 pence
- Full year revenue was up 11% to £795.2 million
- Full year pretax profit was up 13% to £411.3 million
- Full year EPS was up 17% to 24.1 pence
Those are results that will drive investors into the arms of ARM. In fact, the street expected quarterly pretax profits to roll in at £113.0 million, a number that ARM beat handily.
The Apple Relationship
The company’s vision of the future, both in its business model of designing without manufacturing and in its understanding of technology trends, has positioned ARM to reap even greater benefits in 2015 and forward.
Whilst chip makers and designers were focused on PCs, laptops and other similar office devices, ARM realized that the future would be in highly-efficient mobile technology. The company embarked on a strategy of designing for future need as well as the present. When combined with the licensing and royalty business model, it was a stroke of genius that has led the company to the results it has just reported.
Supplying the design for the Apple iPhone 6 chip has given the company a major boost. It sure doesn’t hurt that 95% of chips in all smartphones are based on ARM designs, but the Apple connection could be the most important for ARM, as Apple CEO Tim Cook recently laid to rest any misgivings about his company’s goal, which is to create a technologically seamless society.
The Internet of Things
The term “The Internet of Things” is one that is still somewhat obscure to baby boomers who are still trying to find out whatever happened to Englebert Humperdink and Tom Jones. An article in Forbes may have best described it as “A giant network of connected “things” (which also includes people). The relationship will be between people-people, people-things, and things-things.” Or, as Tim Cook said, “a seamless society.” You might call it the microelectronic-ization of mankind. Everything that can be connected to the internet will be connected to the internet – and we are farther down the path to that reality than most people think.
Some industry analysts are estimating that over 100 billion devices and people will be interconnected by 2020, with our lives controlling, and being controlled by, advanced, mobile-devices with chips designed largely by ARM.
The results that ARM published today are just a forebear of things to come. Think of it this way. The royalties for much of the ARM designs that were licensed in 2013 and 2014 have yet to start rolling in.
Well done, ARM. And well positioned for the future. As CEO Simon Sigars said, “2015 will bring exciting opportunities and challenges as ARM invests in new products and technologies, and continues to establish itself in competitive new markets.”
