ARM Forecasts Growth in its Chip Royalty as Demand for Affordable Smartphones Increases

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U.K chip designer, ARM Holdings, has read its forecasts which indicate a likely increase in royalty revenue due to the great demand for lower-priced smartphones. “There is a shift advantage for ARM as mid-range and entry smartphones drive smartphone growth. We’ve got that dynamic going into next year,” Chief Financial Officer Tim Score said at a conference in Barcelona yesterday. “Those phones generate much more royalty for ARM because they use more silicon.”

ARM has registered consistent revenue growth over the past 5 years. Technology consumerization is one of the key drivers of ARM’s financial performance. Demand for smartphones and tablets has created a ready market for ARM’s chip designs which control graphics and processing on this devices. Royalty payments however fell short of analysts’ projections in the last quarter.

IDC reported 40% growth in global smartphone shipments last quarter compared to 53% over the previous three-month period. Greater demand for affordable smartphones saw lower average selling prices to $317 – 13% down from a year earlier.

Despite this slow growth, ARM customer base is set to expand over the next five years. Cheaper handsets, enterprise networking and micro-controllers will impact ARM’s performance in the semiconductor market.

The shift to low-end smartphones has prompted Intel to enter the embedded processor race. Intel’s BayTrail processors are now featured on a number of smartphones in the market. With Google and Facebook creating a market for low power data center machines, ARM’s strategy is to increase its market share in the enterprise networking sector.

ARM’s Tim Score states the possibility of identifying markets where they could design chips to accomplish specific tasks, say video loading or storage only. “We can make the chip much more efficient. Everyone knows Intel has a very strong ecosystem around servers, we’re not kidding ourselves,” Score said. “For that reason we see it as further out.”

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