Apple iPhone Supplier ARM Holdings Turns On Growth

The future is here for ARM Holdings, executives say.

The British chip and software design company says that it is poised to boost its royalty fees as commercial customers increasingly adopt its technology for use in smartphones, tablets and other popular consumer electronics.

ARM Holdings (NASDAQ:ARMH) says that as of the beginning of September, it had 50 licensing agreements signed for its ARMv8-A technology, which includes support for the advanced 64-bit computing increasingly in demand for phones and tablets.

Tech giant Apple (NASDAQ:AAPL), for example, uses 64-bit technology in its newest smartphones: the iPhone 6 and iPhone 6 Plus, out Sept. 19.

Core To Apple

ARM Holdings doesn’t discuss partners’ products, but an iPhone 6 Plus teardown by tech repair firm iFixit found its handiwork inside, according to reports. Apple designed the main processor with technology licensed from ARM Holdings, a Reuters article said the day the phones debuted. A few days earlier, CNET reported that ARM Holdings technology was likely the basis for Apple’s new A8 microprocessor in both the iPhone 6 and iPhone 6 Plus.

To keep pace with Apple, more rivals are following its lead and moving to 64-bit, analysts say. The new v8-A chips also improve the efficiency of existing 32-bit applications.

ARM says that its deal-making on the v8-A technology includes all of the top 10 companies that sell application processors for smartphones and nine of the top 10 for tablets. Some of the company’s business partners will start to ship chips based on the new technology before the end of this year, ARM says.

“These are certainly positive trends for ARM,” Brian Colello, a Morningstar analyst, told IBD.

He says that continued development of new devices, such as a smartwatch developed by Apple that is set to begin selling in 2015, could continue to propel ARM. “If they catch on,” he said, “ARM would benefit.”

ARM designs the chips that go into a range of mobile devices and other electronics. It earns royalties on every ARM-powered device shipped. Royalties account for about half its revenue. It also collects licensing fees for products in development that use its chips.

ARM is the No. 4 firm by market cap in IBD’s Electronics-Semiconductor Fabless industry group, after Qualcomm (NASDAQ:QCOM), Broadcom (NASDAQ:BRCM) and Avago Technologies (NASDAQ:AVGO), and before NXP Semiconductors (NASDAQ:NXPI). The group is No. 12 in performance out of 197 that IBD tracks.

Philip Sparks, ARM’s investor relations manager, said in an interview that the Cambridge, England-based company expects royalty growth to “accelerate through the remainder of the year” and continue to advance in 2015, when its v8-A architecture should be a “really big story.”

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