The 'Internet of Things' could be a shot in the ARM as smartphone royalties fall

The Cambridge-based chipmaker is selling more licenses for connected home gadgets and wearable technology, but royalties from smartphone chips are down.

by Rachel Savage
Last Updated: 23 Apr 2014

ARM, probably Britain’s favourite technology company, is cashing in on the trend to connect everything to the internet. The chipmaker’s sales were up 16% to $305m (or 10% to £187m when reported in pounds) in the quarter to the end of March, as it signed new licenses for everything from mobile computing to the ‘Internet of Things’ (unsurprisingly, the moniker for everyday things connected to the web).

The Cambridge-based company’s licensing revenues shot up 37% year-on-year to $130m, mostly from signing 26 new licenses for its processors. The race to get us connected in every waking second of our lives, from the watches we wear to our fridges and fire alarms, is clearly paying off for ARM.

However, royalty revenue crept up 3% to $144.5m, positively sclerotic compared with a 32% leap a year ago. The slower growth in sales can be blamed on the smartphone industry switching to lower-cost models, particularly in faster-growing emerging markets. That’s bad news for the FTSE 100 company, whose chip designs are in 95% of smartphones.
That dependence is clearly a concern for investors: ARM’s shares were down more than 3% in mid-morning trading. However, if logged-in fridges stop sending out spam emails and no more Google Glass wearers get mugged, the increasingly connected future could be very bright indeed for ARM.

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