ARM grows slower than the market

ARM had Q4 revenues of $179.6m and 2010 full-year revenues of $631.3m up 29% on 2009.

Q4 revenue came from the sale of 1.8bn ARM-processor based chips, the highest ever number of ARM-processor based chip shipments reported in a quarter.

The Cortex family now represents 13% of units shipped, up from 2% in the same quarter one year ago.

Shipments of ARM-processor based microcontrollers grew over 100% year-on-year, compared to about 45% growth for the overall microcontroller market. This growth was driven by an increase in sales of Cortex-M family based chips which now comprise about 10% of total ARM shipments.

ARM’s customers reported about a 30% year-on-year increase in shipments of chips into the mobile segment in Q4, driven by a doubling in smartphone shipments.

Total dollar license revenues in Q4 2010 increased by 46% year-on-year to $65.4m, representing 36% of group revenues.

License revenues comprised $53.8m from processors and $11.6m from physical IP.

Full-year dollar license revenues were $208.2m, up 27% on 2009.

A total of 35 processor licenses were signed in Q4. 8 of the licenses were for ARM’s advanced Mali graphics processors for use in smartphones, mobile computers and digital TVs.

19 of the licenses were for ARM’s Cortex processors, including 8 new licenses where ARM technology is being used by a new customer or in a new product line within an existing customer.

Nvidia licensed Cortex-A15 for use in mobile computing applications, and they also signed an ARM architecture license to develop a range of computer chips for PCs, workstations, servers and supercomputers

Two new subscription licenses were signed in Q4, and a third was renewed. during the quarter.

Total cash at 31 December 2010 was £290.1m compared to £251.9m at 30 September 2010. Cash generation in Q4 was £40.7m.

Royalties are recognised one quarter in arrears with royalties in Q4 generated from semiconductor unit shipments in Q3.

Total dollar royalty revenues in Q4 2010 increased 26% to $93.9m, representing 52% of group revenues.

Royalty revenues comprised $81.9m for processors and $12m for physical IP.

Physical IP royalties of $12m include $0.4 million of “catch-up” royalties. Underlying royalties were up 12% year-on-year to a record high.

Full-year dollar royalty revenues were $335.3m, up 37% on 2009. Royalty revenues now represent 53% of ARM’s total revenues, having grown from less than 40% in 2005. It is expected that royalty revenues will become a greater proportion of Group revenues in the future.

Sales of development systems were $11.6m in Q4 2010, down 9% on 2009 and representing 7% of group revenues.

Service revenues were $8.7m in Q4 2010, up 12% and representing 5% of group revenues.

Full-year development systems revenues were $55.4m, up 7% year-on-year. Full-year service revenues were $32.4m, up 10% on 2009.

Gross margin in Q4 2010, excluding share-based payment costs of £0.7 million, was 94.9%, compared to 94.3% in Q4 2009.

Full-year gross margin, excluding share-based payment costs of £2.8 million, was 94.3% compared to 92.2% in 2009.

In Q4 Microsoft announced that future versions of the Microsoft Windows operating system and Microsoft Office software will support low power, system-on-chip platforms from ARM’s partners.

‘This will give computer manufacturers a broader choice of silicon provider, bringing greater differentiation to consumers,’ says ARM.

Physical IP royalties in Q4 were $11.6m, up 12% year-on-year, to a record high. ARM’s physical IP royalty revenues from advanced nodes, at 65nm and below, have increased three-fold from Q4 2009 and now contribute 30% of total physical IP royalty revenue.

Freescale became ARM’s first subscription licensee for physical IP at an advanced technology node.

Five other fabless semiconductor companies licensed advanced physical IP technology, at 28nm and 40nm, for use with royalty-bearing foundry platforms.

In addition, ARM signed another new physical IP license in Q4 for a royalty-bearing 130nm foundry platform. Each platform contains a wide range of physical IP technology components, typically a mix of standard cell libraries and memories.

Cumulatively, 77 physical IP foundry platform licenses have now been signed.

Physical IP royalties are generated mainly from chip wafers manufactured in foundries such as GloFo, TSMC and UMC

ARM is seeing increasing demand for physical IP optimised for use with processors, such as the Cortex-A family.

These processor optimisation packages (POPs) enable the licensee to more readily achieve a high-performance, low-power processor implementation through specially optimized physical IP technology.

For every chip implemented using a POP, ARM receives a royalty both for the processor in the chip and for the physical IP.

During the quarter ARM signed four licenses for POPs for two different advanced ARM Cortex-A cores at 32nm and 40nm nodes, for use in digital TV, gaming, mobile computing and smartphone applications. This brings the total number of POP licenses to 10.

Shortly after the end of the quarter, ARM and IBM announced an R&D collaboration that extends the companies’ existing technology partnership around advanced processes and physical IP.

This agreement enables ARM to develop physical IP and optimised processor implementations through access to IBM’s process technology through the 20nm and 14nm nodes.

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