ARM Holdings Plc

Jared Levy

April 04, 2012

Company Description
You may recognize the name from their ARM chips (processors) that come in all sorts of electronics ranging from mobile handsets, Smartphones and digital set top boxes to car braking systems, network routers and more. In fact over 20 billion ARM based have shipped to date and over 800 processor licenses have been sold in more than 250 countries since ARM was formed in 1990.

ARMH is focused more in the design and licensing of IP, as opposed to the manufacture of the products themselves. This structure allows them to collect royalties on every ARM based product produced and keeps them focused on development of products and services as well as forming partnerships to keep their products flowing into new technologies.

They are doing something right; ARM technology is used in 90% of smart phones, 80% of digital cameras, and 28% of all electronic devices globally and yes, their chips are found in iPhones.

The stock can be rather volatile and only recently has it begun to build bullish momentum. With a P/E of 56, they will need to continue to deliver strong earnings results.

Recent Developments
Processors aren’t their only business; The British Tech Company just announced a joint venture with two European technology companies to develop a new security standard for online transactions for Smartphones, tablets, game consoles and more. Their key is low power consumption, small size and fast processing.

Now that ARM processors can run Microsoft Windows, the PC market could be another huge catalyst for the company. The company expects 100 billion processors to be shipped by 2020.

Financial Profile & Earnings
ARMH is a mid-cap (13.06 billion) company that is trading at about 56 times forward (expectations for next quarter) earnings. ARMH became a Zacks Rank 1 strong buy on April 3rd.

The chip designer saw annual sales increase 23%, which drove an earnings increase from $0.30 in FY2010 to $0.38 in FY2011 (diluted).

ARM has surprised analysts to the upside 3 quarters in a row with a miss back in March of 2011 at an average of almost +11.37% surprise per report over the past year. Of the 7 analysts who cover ARMH, the consensus is for the company to grow earnings by 22% in the current year (FY2012) and roughly 20% in FY2013. According to the Zacks Consensus Estimate, expectations are for ARMH to earn 11 cents when they report results on April 25th.

The stock is currently trading around $29 a share, look for support around the $27.50 area, which is where the 50 and 200 day moving averages are converging.