EMBARGOED until 7.00am GMT 3 February 2009
ARM HOLDINGS PLC REPORTS RESULTS FOR THE FOURTH QUARTER AND FULL
YEAR ENDED 31 DECEMBER 2008
A presentation of the results will be webcast today at 09:30 at
www.arm.com/ir.
CAMBRIDGE, UK, 3 February 2009-ARM Holdings plc ((LSE: ARM); (NASDAQ: ARMH)), the world's leading semiconductor intellectual property
supplier, announces its unaudited financial results for the fourth
quarter and full year ended 31 December 2008
Q4 Financial Highlights (US GAAP unless otherwise stated)
- Q4 2008 revenues at USD149.4m, up 15% year-on-year (GBP94.4m, up
47%)
- Normalised operating margin at 34.6% (US GAAP 24.2%)
- Normalised PBT at GBP33.4m, up 57% (US GAAP GBP23.6m, up 105%)
- Normalised EPS at 1.93p, up 54% (US GAAP 1.38p, up 86%)
- GBP29.6m cash generated in the quarter
- Final dividend increased by 10% to 1.32 per share
Q4 2008 - Financial Summary
Normalised* US GAAP
GBPM Q4 2008 Q4 2007 % Change Q4 2008 Q4 2007
Revenue 94.4 64.3 47% 94.4 64.3
Income before income tax 33.4 21.3 57% 23.6 11.5
Operating margin 34.6% 31.5% 24.2% 16.3%
Earnings per share (pence) 1.93 1.25 54% 1.38 0.74
Net cash generation** 29.6 10.5
Effective fx rate (USD/GBP) 1.58 2.02
FY 2008 - Financial Summary
Normalised* US GAAP
GBPM
FY 2008 FY 2007 % Change FY 2008 FY 2007
Revenue 298.9 259.2 15% 298.9 259.2
Income before income tax 100.8 86.7 16% 64.8 48.2
Operating margin 32.6% 31.4% 20.6% 16.5%
Earnings per share (pence) 5.63 4.67 21% 3.68 2.70
Net cash generation** 91.2 57.1
Effective fx rate (USD/GBP)1.83 1.98
Outlook
Semiconductor industry activity slowed down markedly in the fourth
quarter and the near-term outlook for the sector remains uncertain.
Whilst not immune from the impact of the industry slow down, ARM
continues to build an established base of licenses that drives
long-term royalty growth. The current licensing opportunity
pipeline to enlarge that base further remains robust.
Although there is less visibility than usual at this time of the year,
we believe that ARM is positioned to perform resiliently in the context
of the challenging trading environment. Unless conditions
deteriorate to a greater extent than generally anticipated, we expect
group dollar revenues for full-year 2009 to be at least in line with
current market expectations of around USD460 million.
Warren East, Chief Executive Officer, said:"We are pleased to see ARM
technology being increasingly utilised in
innovative consumer electronics products, leading to the highest ever
group revenues for both the fourth quarter and for the full year.
We saw strong demand for new ARM technology, with industry leaders
continuing to license our latest generation processors and physical
IP. ARM has built a base of more than 580 processor licenses
that is driving long-term royalty growth.
We are encouraged to see that the inherent operating leverage in
the ARM business model, combined with sound financial discipline and
the recent strengthening of the dollar against sterling, has given
rise to earnings growth in 2008 of more than 20%."
Q4 Operational Highlights
- Processor Division (PD): Strong licensing base driving
royalty momentum
- Base of licenses increased to 587 with 21 additional
processor licenses signed in Q4
o Three CortexTM-A9 licenses to tier 1 semiconductor companies
for mobile computing and gaming
- Q4 mobile unit shipments grew approximately 35% to more than
750 million units
- Q4 non-mobile unit shipments grew approximately 70% to 450
million units
- Physical IP Division (PIPD): Licensing advanced technology
nodes to IDMs and foundries
- 12 companies licensed physical IP in Q4, 7 at advanced nodes,
including 32nm
- PIPD backlog grew more than 5% sequentially, whilst PIPD
license revenue declined 6% quarter-on-quarter
Q4 2008 - Revenue Analysis
Revenue (USDm)*** Revenue (GBPm)
Q4 2008 Q4 2007 % Change Q4 2008 Q4 2007 % Change
PD
Licensing 43.0 38.4 12% 26.5 19.3 37%
Royalties 65.5 48.8 34% 42.5 23.7 79%
Total PD 108.5 87.2 24% 69.0 43.0 60%
PIPD
Licensing 9.8 10.8 -9% 6.3 5.3 19%
Royalties1 10.5 8.7 20% 6.8 4.3 59%
Total PIPD 20.3 19.5 4% 13.1 9.6 36%
Development Systems 12.9 15.5 -17% 8.1 7.7 5%
Services 7.7 8.1 -5% 4.2 4.0 5%
Total Revenue 149.4 130.3 15% 94.4 64.3 47%
1 Includes catch-up royalties in Q4 2008 of USD1.0m (GBP0.6m) and in
Q4 2007 of USD0.3m (GBP0.2m).
FY 2008 - Revenue Analysis
Revenue (USDm)*** Revenue (GBPm)
FY 2008 FY 2007 % Change FY 2008 FY 2007 % Change
PD
Licensing 145.1 163.5 -11% 79.3 83.4 -5%
Royalties 226.5 176.5 28% 125.5 88.0 43%
Total PD 371.6 340.0 9% 204.8 171.4 19%
PIPD
Licensing 44.6 54.4 -18% 24.2 27.3 -11%
Royalties1 40.3 32.3 24% 22.2 16.1 38%
Total PIPD 84.9 86.7 -2% 46.4 43.4 7%
Development Systems 57.8 55.6 4% 31.1 27.9 12%
Services 31.9 32.0 - 16.6 16.5 1%
Total Revenue 546.2 514.3 6% 298.9 259.2 15%
1 Includes catch-up royalties in FY 2008 of USD4.6m (GBP2.5m) and
in FY 2007 of USD2.7m (GBP1.4m).
* Normalised figures are based on US GAAP, adjusted for
acquisition-related, share-based compensation and restructuring
charges and profit on disposal and impairment of
available-for-sale investments. For reconciliation of GAAP
measures to normalised non-GAAP measures detailed in this
document, see notes 7.1 to 7.27.
** Before dividends and share buybacks, net cash flows from share
option exercises, disposals of available-for-sale investments and
acquisition consideration - see notes 7.14 to 7.18.
*** Dollar revenues are based on the group's actual dollar invoicing,
where applicable, and using the rate of exchange applicable on the
date of the transaction for invoicing in currencies other than
dollars. Approximately 95% of invoicing is in dollars.
**** Each American Depositary Share (ADS) represents three shares.
CONTACTS:
Sarah West/Pavla Shaw Tim Score/Ian Thornton
Brunswick ARM Holdings plc
+44 (0)207 404 5959 +44 (0)1628 427800
Financial review
(US GAAP unless otherwise stated)
Total revenues
Total revenues in Q4 2008 were a record USD149.4 million, up 15%
on Q4 2007. Q4 sterling revenues were GBP94.4 million, up 47%
year-on-year.
Total 2008 full-year revenues were also a record USD546.2 million, up 6%
on 2007. Full-year sterling revenues were GBP298.9 million, up 15% on
2007.
License revenues
Total dollar license revenues in Q4 2008 increased by 8% to
USD52.8 million, representing 35% of group revenues.
PD license revenues were USD43.0 million, up 12% versus Q4 2007. Q4
2008 license revenues include a larger than usual contribution from
order backlog due to a major engineering milestone being achieved.
PIPD license revenues were USD9.8 million, down 9% in Q4; this is
primarily due to the timing of revenue recognition. A number of the
contracts signed in Q4 were for leading-edge technology which yields
lower short-term revenue than more mature technology. As a
result, backlog at the end of Q4 2008 was up approximately 5%
sequentially. See the PIPD section in the Operational Review below.
Full-year dollar license revenues were USD189.7 million, down 13% on
2007.
Royalty revenues
Total dollar royalty revenues in Q4 2008 increased 32% to
USD76.0 million, representing 51% of group revenues. Royalty revenues
comprised USD65.5 million for PD and USD10.5 million for PIPD.
PD royalties were up 19% sequentially in Q4 2008, due to particularly
strong smartphone and microcontroller shipments.
PIPD royalties of USD10.5 million include USD1.0 million of "catch-up"
royalties. Underlying royalties for PIPD were up 2%
sequentially, slightly ahead of foundry utilisation levels in Q3 2008.
Full-year dollar royalty revenues were USD266.8 million, up 28% on 2007.
Development Systems and Service revenues
Sales of development systems were USD12.9 million in Q4 2008, down 17%,
representing 9% of group revenues.
Service revenues were USD7.7 million in Q4 2008, down 5%, representing
5% of group revenues.
Full-year development systems revenues were USD57.8 million, up 4% on
2007. Full-year service revenues were USD31.9 million, marginally lower
than in 2007.
Gross margins
Gross margin in Q4 2008, excluding share-based compensation charges of
GBP0.3 million, was 89.5%, slightly up on Q4 2007.
Full-year gross margin, excluding share-based compensation charges of
GBP1.0 million, was 89.4% compared to 89.6% in 2007.
Operating expenses and operating margin
Total operating expenses in Q4 2008 were GBP61.3 million (Q4 2007:
GBP46.8 million) including share-based compensation charges of GBP3.8
million (Q4 2007: GBP3.0 million), amortisation of intangible assets
and other acquisition charges of GBP5.4 million (Q4 2007: GBP5.3
million) and restructuring charges of GBP0.3 million (Q4 2007: GBP0.1
million). The restructuring charges of GBP0.3 million in Q4 2008 relat
e
to a reduction in headcount of approximately 3% across the group in Q4
2008 and Q1 2009. Further restructuring charges of approximately
GBP1.2 million are expected to be incurred in Q1 2009 in relation to
this headcount reduction. The total share-based compensation charge of
GBP4.1 million in Q4 2008 are included within cost of revenues
(GBP0.3 million), research and development (GBP2.8 million), sales and
marketing (GBP0.5 million) and general and administrative
(GBP0.5 million). Normalised Q4 and full-year income statements for
2008 and 2007 are included in notes 7.24 to 7.27 below which reconcile
US GAAP to the normalised non-GAAP measures referred to in this earnings
release.
Operating expenses (excluding share-based compensation, amortisation of
intangible assets and other acquisition charges, restructuring
charges and impairment of investments) in Q4 2008 were GBP51.8 million
compared to GBP40.8 million in Q3 2008 and GBP37.2 million in Q4 2007.
The sequential increase in operating expenses this quarter is
due primarily to the significant strengthening of the dollar against
sterling which has had two primary effects: firstly, an increase in the
sterling value of the group's US dollar denominated costs and secondly,
the impact of accounting for derivative instruments giving rise to a
net charge of GBP3.0 million in Q4 2008. Taking these impacts and other
quarterly seasonal factors into account, normalised operating expenses
in Q1 2009 (assuming effective exchange rates similar to current
levels) are expected to be significantly less than Q4 2008, in the
range GBP44-47 million. Costs continue to be carefully managed with
group headcount at the end of 2008 only marginally higher than at the
start of the year and a pay freeze being implemented across the group
with effect from 1 January 2009.
Normalised research and development expenses were GBP18.6 million in Q4
2008, representing 20% of revenues, compared to GBP15.7 million in Q3
2008 and GBP15.1 million in Q4 2007. Normalised sales and marketing
costs in Q4 2008 were GBP14.1 million, representing 15% of revenues,
compared to GBP11.4 million in Q3 2008 and GBP11.1 million in Q4 2007.
Normalised general and administrative expenses in Q4 2008 were GBP19.2
million, representing 20% of revenues, compared to GBP13.7 million in
Q3 2008 and GBP11.1 million in Q4 2007. The increase in operating
expenses due to the strengthening dollar explained above is reported
for the most part within general and administrative expenses.
Normalised operating margin in Q4 2008 was 34.6% (7.1) compared to
33.0% (7.2) in Q3 2008 and 31.5% (7.3) in Q4 2007.
Full-year operating expenses for 2008 were GBP204.6 million,
including share-based compensation charges of
GBP14.1 million, amortisation of intangible assets and
other acquisition charges of GBP19.0 million and restructuring charges
of GBP1.9 million. Excluding these charges, operating expenses for the
full year were GBP169.6 million, compared to GBP150.8 million in 2007.
Normalised operating margin in the full-year 2008 was 32.6% (7.4)
compared to 31.4% (7.5) in 2007.
Earnings and taxation
Income before income tax in Q4 2008 was GBP23.6 million compared to
GBP11.5 million in Q4 2007. After adjusting for share-based
compensation, amortisation of intangibles and other acquisition charges
and restructuring charges, normalised income before income tax in Q4
2008 was GBP33.4 million (7.6) compared to GBP21.3 million (7.8) in Q4
2007. The group's effective tax rate under US GAAP for the full-year
2008 was 26.6%.
In Q4 2008, fully diluted earnings per share prepared under US GAAP
were 1.38 pence compared to earnings per share of 0.74 pence in Q4
2007. Normalised fully diluted earnings per share in Q4 2008
were 1.93 pence (7.19) per share compared to 1.25 pence (7.21)
per share in Q4 2007.
Full-year 2008 fully diluted earnings per share prepared under US GAAP
were 3.68 pence compared to earnings per share of 2.70 pence in
2007. Normalised fully diluted earnings per share for 2008
were 5.63 pence (7.22) per share compared to 4.67 pence (7.23)
per share in 2007.
Balance sheet
Intangible assets at 31 December 2008 were GBP507.1 million, comprising
goodwill of GBP465.5 million and other intangible assets of
GBP41.6 million, compared to GBP344.7 million and GBP39.4 million
respectively at 31 December 2007. A regular review of the carrying
value of assets arising on acquisition was performed during Q4 2008 and
it was concluded that no impairment charge was required.
Total accounts receivable were GBP76.9 million at 31 December 2008,
comprising GBP59.0 million of trade receivables and GBP17.9 million of
amounts recoverable on contracts, compared to GBP66.2 million at 30
September 2008, comprising GBP48.8 million of trade receivables and
GBP17.4 million of amounts recoverable on contracts. Days sales
outstanding (DSOs) were 49 at 31 December 2008 compared to 55 at 30
September 2008 and 49 at 31 December 2007.
Cash flow, share buyback programme and 2008 final dividend
Net cash at 31 December 2008 was GBP78.8 million (7.11), compared to
GBP66.0 million (7.12) at 30 September 2008. Normalised cash generation
in Q4 2008 was GBP29.6 million (7.14).
During the quarter, GBP14.3 million of cash was returned to shareholders
via the purchase of 3.8 million ARM shares at a cost of GBP3.2 million
and the payment of the 2008 interim dividend of GBP11.1 million.
The directors recommend payment of a final dividend in respect of 2008
of 1.32 pence per share, up 10%, which taken together with the interim
dividend of 0.88 pence per share paid in October 2008, gives a
total dividend in respect of 2008 of 2.2 pence per share, an increase
of 10% on the total dividend of 2.0 pence per share in 2007. Subject to
shareholder approval, the final dividend will be paid on 20 May 2009 to
shareholders on the register on 1 May 2009.
International Financial Reporting Standards (IFRS)
ARM reports results quarterly in accordance with US GAAP. At 30 June
and 31 December each year, in addition to the US GAAP results, ARM is
also required to publish results under IFRS. The operating and
financial review commentary included in this release on the US GAAP
numbers is for the most part applicable to the IFRS numbers and, in
particular, revenues, dividends and share buybacks are recorded in the
same way under both sets of accounting rules. A summary of the
accounting differences between IFRS and US GAAP and reconciliations of
IFRS and US GAAP profit and shareholders' equity are set out in
note 6 to the financial tables below.
Following the ruling issued by the Securities and Exchange Commission
in November 2007, allowing foreign private issuers to file financial
statements using IFRS as published by the International Accounting
Standards Board, ARM will report quarterly, half-yearly and annual
results in accordance with IFRS with effect from Q1 2009. ARM will no
longer report results under US GAAP.
Operating review
Backlog
In Q4 2008, certain major engineering milestones relating to delivery
of technology were achieved and as a result the proportion of license
revenues arising from order backlog was higher than usual. At the end
of Q4 2008, backlog was slightly down sequentially and just under 10%
lower than a year ago.
PD Licensing
ARM signed 21 processor licenses in Q4. The quarter was characterised
by licensing of ARM technologies across the portfolio, with licenses
being signed for the ARM7TM, ARM9TM, ARM11TM and Cortex processor
families, as well as for the MaliTM graphics processor.
Non-mobile applications continue to be the driver for a high
proportion of processor licenses, including graphics processors.
Approximately 60% of licenses are expected to be used initially in
applications such as automotive, gaming, microcontrollers and
high-speed broadband.
In mobile, ARM processors and graphics processors are being designed
into a widening range of mobile technology such as chips for
Bluetooth�, gaming, mobile computing and mobile TV.
In Q4, six new companies licensed ARM processor technology for the
first time.
Q4 2008 and Cumulative PD Licensing Analysis
Multi-use Term Per-use Cumulative
U D N U D N U D N Total Total
ARM7 2 1 3 161
ARM9 1 1 1 1 4 253
ARM11 1 1 2 72
Cortex-M3 2 1 3 25
Cortex-R4 1 1 13
Cortex-A8 10
Cortex-A9 2 1 3 8
Mali 2 1 2 5 15
Other 30
Total 21 587
U: Upgrade D: Derivative N: New
PD Royalties
Reported PD unit shipments grew 20% sequentially in Q4 2008 (our
partners report royalties one quarter in arrears) buoyed by growth
in automotive, Bluetooth, digital consumer, microcontrollers, storage
(HDD and Flash) and Wi-Fi. Reported processor unit shipments
were 1.2 billion in the quarter, up 46% compared to Q4 2007. FY 2008
reported processor unit shipments were 4.0 billion, up 38% compared to
FY 2007.
The ARM7, ARM9 and ARM11 families represented 56%, 39% and 5% of total
shipments respectively for the quarter. More than 2
million Cortex processor-based products were reported in the quarter,
shipping into a broad range of applications including consumer
electronics, microcontrollers, mobile computers, networking and Wi-Fi
applications.
In Q4 2008, shipments of ARM technology-based chips in mobile devices
grew approximately 35% compared to Q4 2007. For the quarter,
an ARM technology-based mobile phone contained an average
of 1.9 ARM microprocessors, up from 1.8in the prior quarter. As well as
smartphones containing multiple ARM technology-based
chips, mid-range phones are now being shipped with multiple ARM
processors. Shipments of ARM technology-based chips in embedded
devices continued to grow strongly with microcontroller shipments up
approximately 95% compared with Q4 2007. Units shipped into enterprise
applications grew by approximately 85% driven by increased use of ARM
in networking and storage devices; whilst units shipped into the home
products market grew approximately 30% driven by increased market share
in consumer electronics products such as DVD, set-top boxes and digital
TV. In Q4 2008, shipments of ARM processor units in mobile, embedded,
enterprise and home represented 62%, 17%, 14% and 7% respectively.
PIPD Licensing
ARM signed 12 physical IP licenses in Q4 for technologies at all
process nodes from 180nm to 28nm; and for a wide range of ARM products
including platforms of physical IP for new process nodes; memories,
standard cells and PHYs for mature nodes; and power-optimised
components for use with ARM processors.
Demand for leading-edge physical IP continues as ARM signed
a further agreement with an IBM Common Platform partner to develop and
license 32nm and 28nm physical IP.
At leading foundries, the 45 and 40nm process nodes are used for
manufacturing the highest performance chips available today.
Five licenses for physical IP at these nodes were
signed with tier-1 semiconductor companies, such as STMicroelectronics
who have licensed additional 40nm technology one quarter after
licensing a substantial platform at this node. Also for use at the 45nm
process node, a top 10 fabless semiconductor company licensed physical
IP optimised for use with an ARM Cortex-M3 processor.
Q4 2008 and Cumulative PIPD Licensing Analysis
Process Node Total
(nm)
Platform Licenses
32/28 1
45/40 3
Standard Cell Libraries 40 1
130 2
Memory Compilers 65 1
130 1
PHYs 45/40 1
90 2
Quarter Total 12
Cumulative Total 405
PIPD Royalties
Underlying PIPD royalties in Q4 2008 increased 13% year-on-year to a
record USD9.5m, ahead of foundry revenues that were up 5% in the
equivalent period. ARM continued to expand market share in Q4 (our
foundry partners report royalties one quarter in arrears) as underlying
royalties were up by more than the improvement in utilisation rates at
the foundries. PIPD catch-up royalties were USD1.0m compared with
USD0.3m in Q4 2007.
Acquisition of Logipard AB
In December 2008, ARM acquired Logipard AB, a leading video processor
and imaging technology company, from Anoto Group AB. The company has
offices in Lund, Sweden and has existing licensing deals in place with
a global mobile phone manufacturer. The company has changed its name to
ARM Sweden AB.
The acquisition of video processor technology builds on the success
of the ARM Mali graphics processor, and enables ARM to provide
customers with an integrated multimedia platform, which is becoming
increasingly important in devices such as mobile computers, portable
media players and digital TVs.
People
At 31 December 2008, ARM had 1,740 full-time employees, representing a
net increase of 12 over the year, including the 15 people who joined
the group through the acquisition of Logipard. At the end of Q4, the
group had 645 employees based in the UK, 501 in the US, 212 in
Continental Europe, 300 in India and 82 in the Asia Pacific region.
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