ARM profits fall in tough marketplace

By Steve Malone

Posted on 28 Jan 2003 at 13:48

Cambridge-based chip design company ARM Holdings saw its profits drop at the end of 2002 despite a rise in revenues.

The company, whose core designs are said to be at the heart of 80 per cent of the world's digital mobile phones and whose StrongARM technology powers a wide range of handhelds including the Compaq iPaq H3600, has been hit by the worldwide fall in PDA and mobile sales.

Total revenues for 2002 were £150.9 up 3 per cent from £146.3 million in 2001. However, the company saw its revenues for Q4 drop to £32.3 million, down nearly 20 per cent from the equivalent figure in 2001 and three percent lower than Q3. Total profits for the year before tax came to £47.4 million, down 3 percent from £50.3 million in 2001

The figures are against a worldwide backdrop of falling or flat sales in the handheld and mobile markets. ARM depends heavily on licensing its technology to manufacturers, but because its OEMs sales have either been flat or falling, they have been slow to sign new licences. Gartner has reported that PDA sales in Western Europe declined by 6.7 percent in 2002, whereas IDC noted that the mobile phone market was flat in 2002 with the 2.5G market, where ARM is strongest, growing by only 1.8 per cent. Announcing the results, ARM admitted that 'licencing activity slowed' in the second half of the year.

The figures could have been even worse had ARM not cut its workforce by 721 saving around £5 million in costs on the year. ARM says that despite the cuts it managed to increase its research and development expenditure by 28 percent in 2001 to £47.3 million.

ARM does see blue sky on the horizon by pointing out that royalty revenues for Q4 leapt 26 percent to £7.8 million and that the company signed another 13 licences in Q4 which indicates that manufacturers expect a return to growth in 2003.