How Long Is ARM's Reach?

PUBLISHED: 20 Feb 2015 @ 09:38 | Comments (0) | More info about Lou Gutheil

It has been one week since I used this space to discuss ARM Holdings (LSE:ARM) following its earnings report for 2014. In the interim, ARM’s share price has gained an additional 12 points. It is up 104 points (10%) since 01 January, closing today at 1,099.00. Every time I research ARM, I get the same kind of results that I get for almost any other publicly-traded company: some of this and some of that from proponents and naysayers. So, I thought today might be a good time to visit one of the fundamentals of investing: understanding what the company does and why.

Most of what I write today will come directly from ARM’s website, but none of it is propaganda. It is all factual information. My objective is that, once you read this, you will understand why ARM is significantly well positioned to prosper as never before as the world embraces the rapidly-approaching Internet of Things. This information is, in my opinion, far more valuable to investors than any chart or analysis can ever provide.

What Does ARM Do?

I am going to go out on a limb here and say that I suspect that most readers already know. For the benefit of those who have been living under a rock, they design electronic circuits that deliver maximum performance with a minimum of power. There is no other company of its combined magnitude and kind. Its customers include nearly every name in mobile technology that the average individual can name – and a bunch you’ve never heard of. ARM is not encumbered with traditional product, because it is not a manufacturer. It is a technical designer of sorts. What makes it tick is its intellectual property. (All of that it from me. What follows is from ARM.)

What Does ARM Supply?

The following list will not be all-inclusive, simply because we lack the space. Just keep in mind how each of these position ARM for the next five to ten years and even beyond. ARM provides:

SoCs – Systems on Chips – and we are not talking about the chips you get with your fish. Within this segment ARM addresses system and memory controllers and product designs that provide for inter-connectivity, tracing and debugging. ARM designs are so advanced that they literally define and set the standards for SoCs.
High-performance, scalable processors for the widest range of devices, including networks, home gateways, digital TV, eReaders, notebooks and smartphones. Also for micro-controllers, smart sensors and other devices that are either used or will be used in automotive electronics.
Low-power, scalable multimedia IP and tools that lead the way for graphics and gaming technology. This includes ARM’s unmatched series of leading graphic processing units (GPU).
The industry’s largest selection of silicon, proven logic embedded memory and interfaced IP fully tuned to all ARM technology.
Embedded development tools to enhance systems based on ARM designs.
Built-in security for a broad range of platforms, including SIMs and smartcards.
Innovative designs that turn legacy solutions (that are unable to meet customer requirements) into worthless antiques. (last two words are mine).
Designs that enable the evolution of cyberspace into the Internet of Things.

Why Is This Meaningful for Investors?

The answer is simple. No company, regardless of size or years in business, can afford to live on its legacy. The companies that are most ideally positioned to be aware of and prepared for what is in the future will ultimately be the best investments.

As the next major evolution of the Internet, devices and machines of all different shapes and sizes are being connected to the Internet, to each other, and to people. With more than 10 billion micro-controllers being shipped each year, all potentially connected through the Internet, a huge variety of intelligent devices are being enabled, from motion sensors, to pool pumps, to gas/electric meters, to street lights. The development of embedded devices today is highly fragmented, expensive and slow, often using custom or proprietary embedded software and communication protocols. Most existing M2M and IoT systems are in practice “walled gardens” with limited growth potential. ARM and its partners share a disruptive vision where creation and deployment of commercial, standards-based IoT devices is possible at scale.

Think about it. Doesn’t it make more sense that looking at the past?

Disclaimer: Lou Gutheil does not hold any investment or other interest in ARM Holdings.

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