ARM Holding Plc’s share price down, posts slower growth of first-quarter revenue due to decreasing demand of high-end smartphones

The semiconductor manufacturer ARM Holdings Plc, which is responsible for making chips used in about 95% of all smartphones, made an official statement today, announcing that its revenue from royalties over the first quarter of the current financial year slowed its growth due to decreasing demand for high-end smartphones.

Mr. Simon Segars, the Chief Executive Officer of ARM Holdings Plc, commented on the companys results in an interview on Bloomberg Television: “The smartphone market is still a very vibrant space. Devices get cheaper over time, but they get replaced by more sophisticated devices and that helps replenish the price model.”

The company revealed that its first-quarter net income rose from 51.9 million pounds for the same period of 2013 to 62.3 million pounds (104.7 million dollars). According to ARM Holdings Plcs statement, its royalty sales increased by 3% and reached 144.5 million dollars, including a 5-million-dollar deduction. The result is disappointing in comparison to the 32% increase posted by the company in the first three months of 2013. The company also announced a 10% growth in its revenue, which amounted to 186.7 million pounds.

The companys royalties on chips were facing a slower growth, because the mobile market has been expanding in lower-cost smartphones, shifting the focus from ARMs chips.

The license revenue of ARM was also reported to have increased by 37% from a year ago, to reach 129.9 million dollars. The announcement comes at a time when the company has also shared that a total of 26 processor licenses were signed over the first quarter of 2014. The figures include 11 licenses related to wearable technology and connected devices.

As reported by the Financial Times, the Finance Director of ARM Holdings Plc – Mr. Tim Score – shared his belief that all the segments of the smartphone market will reach growth over the second half of 2014. Mr. Score said: “I think we’re pretty optimistic for the medium to long-term.” According to the Finance Director of the company, the licensing performance was “a very strong indicator of royalties to flow in future… All the signs are very positive.”

Part of Mr. Scores call with reporters was also cited by Bloomberg: “We expect royalty revenue growth to be consistent with where it’s been in the last two or three years.”

ARM Holdings Plc lost 3.15% to trade at 952.00 pence per share by 10:53 GMT, marking a one year change of -2.44. According to the Financial Times, the 23 analysts offering 12 month price targets for ARM Holdings Plc have a median target of 1,050, with a high estimate of 1,450 and a low estimate of 680.00. The median estimate represents a 6.82% increase from the last price of 983.00.