Q4 Financial Summary
Profit before tax (£m)
Earnings per share (pence)
Net cash generation (£m)**
Effective revenue fx rate ($/£)
FY Financial Summary
Profit before tax (£m)
Earnings per share (pence)
Net cash generation (£m)**
Full year dividend (pence)
Effective revenue fx rate ($/£)
Progress against strategy in Q4
Warren East, Chief Executive Officer, said:
"We are pleased that in Q4 ARM has continued to outperform the semiconductor industry as we gain market share. Throughout 2009 we demonstrated the resilience of the ARM business model in a challenging trading environment. Despite industry dollar revenues being down about 20% in the relevant period, ARM market share gains resulted in dollar revenues being down 10% with on-going financial discipline maintaining normalised operating margins over 30% and delivering strong cash generation.
The company is well-placed for this strong performance to continue as leading semiconductor manufacturers are increasingly designing ARM technology into their products, and as ARM technology becomes ever more pervasive in markets with long-term structural growth such as smartphones, digital TVs and microcontrollers. Recently, Infineon and STMicroelectronics have announced the intention to use, for the first time, ARM processors in their smartcard and digital TV/set-top-box product lines respectively."
It is generally anticipated that the semiconductor industry will see improving conditions in 2010 compared to 2009. The rate of improvement is still unclear as it will be influenced by consumer confidence and the broader macro-economic environment. Reflecting these generally anticipated improvements in the semiconductor industry, and given ARM’s strong industry position coming into 2010, we expect group dollar revenues for the full-year to be at least in line with current market expectations.
Q4 2009 – Revenue Analysis
1 Includes catch-up royalties in Q4 2009 of $0.8m (£0.5m) and in Q4 2008 of $1.0m (£0.6m).
FY 2009 – Revenue Analysis
1 Includes catch-up royalties in FY 2009 of $5.0m (£2.6m) and in FY 2008 of $4.6m (£2.5m).
* Normalised figures are based on IFRS, adjusted for acquisition-related, share-based payment costs and restructuring charges and profit on disposal and impairment of available-for-sale investments. For reconciliations of IFRS measures to normalised non-IFRS measures detailed in this document, see notes 5.1 to 5.18.
** Before dividends and share buybacks, net cash flows from share option exercises, disposals of available-for-sale investments, investment and acquisition consideration and other items excluded from normalised profits – see notes 5.9 to 5.13.
*** Dollar revenues are based on the group’s actual dollar invoicing, where applicable, and using the rate of exchange applicable on the date of the transaction for invoicing in currencies other than dollars. Approximately 95% of invoicing is in dollars.
**** Each American Depositary Share (ADS) represents three shares.
A presentation of these results will be webcast today at 9:30 GMT at www.arm.com/ir
|Nick Claydon/Daniel Thöle||Tim Score/Ian Thornton|
|Brunswick||ARM Holdings plc|
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Total 2009 full-year revenues were $489.5 million, down 10% on 2008. Full-year sterling revenues were £305.0 million, up 2% on 2008. By comparison dollar revenue for the semiconductor industry was down about 20% over the equivalent period.
Total dollar license revenues in Q4 2009 declined by 15% year-on-year to $44.9m, representing 32% of group revenues. License revenues comprised $35.7 million from PD and $9.2 million from PIPD.
During Q4, several partners entered into long-term commitments to use ARM technology where the revenue associated with these agreements goes into backlog to be recognised in future quarters as engineering and delivery milestones are achieved. In addition, a subscription license was renewed during the quarter. As a result, group backlog at the end of the quarter was up more than 30% sequentially to a record high. See Backlog section for more details.
Full-year dollar license revenues were $164.1 million, down 14% on 2008.
Royalties are recognised one quarter in arrears with royalties in Q4 generated from semiconductor unit shipments in Q3. Total dollar royalty revenues in Q4 2009 declined 2% to $74.6 million, representing 53% of group revenues. Royalty revenues comprised $63.5 million for PD and $11.1 million for PIPD.
PD royalties were up 20% sequentially in Q4 2009, due to particularly strong Bluetooth, microcontroller and smartcard shipments.
PIPD royalties of $11.1 million include $0.8 million of “catch-up” royalties. Underlying royalties for PIPD were up 8% year-on-year to a record high, compared to the forecasted decline in overall foundry revenues of about 5% in the corresponding period.
Full-year dollar royalty revenues were $244.3 million, down 8% on 2008. Royalty revenues now represent 50% 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.
Development Systems and Service revenues
Sales of development systems were $12.7 million in Q4 2009, slightly lower than Q4 last year and representing 9% of group revenues. Service revenues were $7.8 million in Q4 2009, just ahead of last year and representing 6% of group revenues.
Full-year development systems revenues were $51.6 million, down 11% year-on-year. Full-year service revenues were $29.5 million, down 8% on 2008.
Gross margin in Q4 2009, excluding share-based payment costs of £0.6 million, was 94.3%, compared to 89.5% in Q4 2008.
Full-year gross margin, excluding share-based payment costs of £1.7 million, was 92.2% compared to 89.4% in 2008.
The higher gross margin in 2009 compared to 2008 is due primarily to the higher proportion of royalty and licensing revenue compared to development systems and services revenues.
Operating expenses and operating margin
Normalised Q4 and full-year income statements for 2009 and 2008 are included in notes 5.14 to 5.18 below which reconcile IFRS to the normalised non-IFRS measures referred to in this earnings release.
Normalised operating expenses (excluding acquisition-related, share-based payments and restructuring charges) in Q4 2009 were £48.6 million compared to £46.0 million in Q3 2009 and £51.8 million in Q4 2008. The sequential increase in operating expenses in the fourth quarter is due primarily to a higher charge for bonus and commission payments than in Q3, arising from the strong revenue and bookings performance in Q4. Underlying costs were carefully managed throughout 2009. Group headcount at the end of 2009 is approximately 2% lower than at the start of the year and a pay freeze remained in place throughout the year. The pay freeze was lifted with effect from 1 January 2010 and, subject to the generally anticipated improvement in trading conditions materialising, it is expected that net headcount will increase gradually during 2010 as the Group continues to invest in the innovative technology that underpins future license and royalty revenues. Normalised operating expenses in Q1 2010 (assuming effective exchange rates similar to current levels) are expected to be £48-50 million.
Normalised operating margin in Q4 2009 was 37.3%, ARM’s highest ever, mainly due to Q4 being the Group’s second highest revenue quarter, combined with on-going financial discipline. Normalised operating margin in Q3 2009 and Q4 2008 was 31.7% and 34.6% respectively. Normalised operating margin in the full-year 2009 was 31.2% compared to 32.7% in 2008.
Normalised research and development expenses were £23.9 million in Q4 2009, representing 28% of revenues, compared to £21.5 million in Q3 2009 and £18.6 million in Q4 2008. Normalised sales and marketing costs in Q4 2009 were £12.7 million, being 15% of revenues, compared to £11.9 million in Q3 2009 and £14.1 million in Q4 2008. Normalised general and administrative expenses in Q4 2009 were £12.0 million, representing 14% of revenues, compared to £12.6 million in Q3 2009 and £19.2 million in Q4 2008.
Total IFRS operating expenses in Q4 2009 were £60.2 million (Q4 2008: £61.7 million) including amortisation of intangible assets and other acquisition-related charges of £3.7 million (Q4 2008: £5.6 million), £7.4 million (Q4 2008: £4.0 million) in relation to share-based payments and related payroll taxes and restructuring charges of £0.5 million (Q4 2008: £0.3 million). Total share-based payments and related payroll tax charges of £8.0 million in Q4 2009 were included within cost of revenues (£0.6 million), research and development (£4.8 million), sales and marketing (£1.5 million) and general and administrative (£1.1 million).
Full-year total IFRS operating expenses for 2009 were £233.9 million, including share-based payments and related payroll taxes of £23.0 million, amortisation of intangible assets and other acquisition charges of £16.2 million and restructuring charges of £8.5 million. Excluding these charges, operating expenses for the full year were £186.2 million, compared to £169.5 million in 2008.
Earnings and taxation
Profit before tax in Q4 2009 was £20.1 million compared to £23.2 million in Q4 2008. After adjusting for acquisition-related, share-based payments and restructuring charges, normalised profit before tax in Q4 2009 was £32.3 million compared to £33.4 million in Q4 2008. The Group's effective normalised tax rate in Q4 2009 was 27.2% (IFRS: 13.8%) giving a full year normalised tax rate of 26.8% (IFRS: 14.4%). The tax rate under IFRS is lower than the normalised tax rate due primarily to the impact of tax credits arising on share-based payments.
In Q4 2009, fully diluted earnings per share prepared under IFRS were 1.32 pence (6.38 cents per ADS****) compared to earnings per share of 1.35 pence (5.94 cents per ADS****) in Q4 2008. Normalised fully diluted earnings per share in Q4 2009 were 1.79 pence per share (8.66 cents per ADS****) compared to 1.94 pence (8.52 cents per ADS****) in Q4 2008.
Full-year 2009 fully diluted earnings per share prepared under IFRS were 3.11 pence compared to earnings per share of 3.39 pence in 2008. Normalised fully diluted earnings per share for 2009 were 5.45 pence per share compared to 5.66 pence per share in 2008.
Intangible assets at 31 December 2009 were £541.5 million, comprising goodwill of £516.8 million and other intangible assets of £24.7 million, compared to £567.8 million and £45.1 million respectively at 31 December 2008. A regular review of the carrying value of assets arising on acquisition was performed during Q4 2009 and it was concluded that no impairment was required.
Total accounts receivable were £65.2 million at 31 December 2009, comprising £52.2 million of trade receivables and £13.0 million of amounts recoverable on contracts, compared to £56.1 million at 30 September 2009, comprising £45.3 million of trade receivables and £10.8 million of amounts recoverable on contracts. Days sales outstanding (DSOs) were 46 at 31 December 2009 compared to 43 at 30 September 2009 and 49 at 31 December 2008.
Cash flow and dividend
Total cash (see notes 5.6 to 5.8) at 31 December 2009 was £141.8 million compared to £121.7 million at 30 September 2009. Normalised cash generation in Q4 2009 was £30.7 million.
The directors recommend payment of a final dividend in respect of 2009 of 1.45 pence per share, up 10%, which taken together with the interim dividend of 0.97 pence per share paid in October 2009, gives a total dividend in respect of 2009 of 2.42 pence per share, an increase of 10% on the total dividend of 2.2 pence per share in 2008. Subject to shareholder approval, the final dividend will be paid on 19 May 2010 to shareholders on the register on 30 April 2010.
During Q4 several partners entered into long-term commitments to use ARM technology including GLOBALFOUNDRIES licensing leading-edge physical IP, Infineon signing an architecture license, enabling them to develop ARM technology-compatible processors for security applications such as smartcards, and STMicroelectronics renewing their subscription license.
This has led to ARM’s highest ever group order backlog at the end of Q4 2009, increasing more than 30% sequentially and up more than 20% on a year ago.
A total of 25 processor licenses were signed in Q4. Non-mobile devices continue to be a major driver for processor licensing with 19 of the new processor licenses being signed for a broad range of digital products such as automotive, consumer entertainment, microcontrollers, printers, networking, smartcards and solid state drives. The remaining six licenses were entered into for use in mobile computers and smartphones, including a new use for an ARM processor in the peripheral ICs within a mobile phone.
14 of the licenses were for ARM’s advanced Mali™ graphics and Cortex™ processors, including Samsung who licensed a Mali 3D graphics processor for use in next generation consumer products. As industrial and consumer products become more energy and resource efficient, they need smarter chips to control them. This is opening up new markets for ARM technology in deeply embedded chips, such as microcontrollers, illustrated by seven of these licenses being for Cortex-M class processors.
Q4 2009 and Cumulative Processor Licensing Analysis
As mentioned in the Q3 2009 earnings announcement, ARM has been meeting new product development demand, from companies with reduced budgets, by offering more term and single-use licenses. Typically, these licenses have a lower upfront fee but a higher on-going royalty rate.
Royalties are recognised one quarter in arrears with royalties in Q4 generated from semiconductor unit shipments in Q3. PD royalty revenues in Q4 2009 declined 3% year-on-year. This compares with industry revenues declining by about 20% in the shipment period (i.e. Q3 2009 compared to Q3 2008), demonstrating ARM’s market share gains over the last 12 months.
Q4 revenue came from the sales of more than 1.3 billion ARM technology-based chips, the highest ever number of ARM technology-based chips shipped in a quarter. The ARM11™ family now represents 5% of total unit shipments, with the ARM7™ and ARM9™ families representing 57% and 36% of total shipments respectively. The Cortex family represents 2% of total shipments, with the number of Cortex processor-based chips more than doubling sequentially.
Q4 2009 Processor Royalty Analysis
ARM continued to gain share in non-mobile end-markets. Shipments of ARM technology-based microcontrollers grew 60% sequentially, compared to 20% growth for the overall microcontroller market, and ARM technology-based smartcards doubled sequentially. Part of this growth was due to an increase in sales of Cortex-M class based chips. These chips go into a wide range of price sensitive markets such as toys, white-goods and industrial controllers. This strong sequential growth in low-cost microcontrollers has resulted in the average royalty rate decreasing to 4.9c in the quarter from 5.3c in the prior quarter and 5.4c in the same quarter last year.
The increasing penetration of smartphones continues to benefit ARM. In Q3 smartphone shipments grew about 15% year-on-year, whilst overall mobile phone shipments were flat. In addition, ARM’s customers reported an increase in wireless connectivity chip sales into mobile phones. For the quarter, ARM achieved an average of 2.4 ARM technology-based chips per mobile handset, up from 2.1 in the previous quarter. Over the last few months, more new smartphones and mobile computers based on Cortex-A technology were announced by OEMs including Dell, Google, Lenovo, HP and Motorola.
ARM signed three new licenses in Q4 for royalty-bearing platforms of physical IP, one at 28nm and two at 130nm. The base of platform licenses for physical IP further drives ARM’s future royalty potential.
ARM’s strategy of developing advanced physical IP for leading-edge manufacturing processes remains on track. As mentioned in the Q3 earnings announcement GLOBALFOUNDRIES licensed a platform of ARM's advanced 28nm physical IP early in Q4. In addition, two leading foundries licensed ARM’s physical IP at 130nm demonstrating continuing demand for ARM technology at more mature nodes.
At the end of the quarter, ARM had signed 68 platform licenses.
Q4 2009 and Cumulative PIPD Licensing Analysis
at Each Node
New Platform Licenses
180 to 250
Included within processor licenses is another agreement for a Cortex-A9 processor which has been optimised with ARM’s physical IP and runs at 2GHz whilst consuming less than 2W of power, further demonstrating the synergistic benefits of having both processor and physical IP within ARM.
Physical IP royalties are generated mainly from chips manufactured in foundries such as TSMC, UMC and Chartered. Royalties are recognised one quarter in arrears with royalties in Q4 generated from semiconductor unit shipments in Q3.
Underlying PIPD royalties in Q4 2009 were $10.3 million, up 8% year-on-year, to a record high. PIPD demonstrates continuing market share gains as industry revenues are forecast to have declined about 5% compared to a year ago . ARM is now receiving royalty revenue from wafer shipments across nine different advanced processes at 65nm and below, contributing more than 10% of PIPD’s total royalty revenues.
At 31 December 2009, ARM had 1,710 full-time employees, a net reduction of 30 since the start of the year. At the end of 2009, the group had 661 employees based in the UK, 496 in the US, 204 in Continental Europe, 265 in India and 84 in the Asia Pacific region.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Group that could affect the results in 2009 and beyond are noted within the Annual Report for the year ended 31 December 2008. There have been no changes to these risks that would materially impact the Group in the foreseeable future. These include but are not limited to: ARM's quarterly results may fluctuate significantly and be unpredictable which could adversely affect the market price of ARM ordinary shares; general economic conditions may reduce ARM's revenues and harm its business; and ARM competes in the intensely competitive semiconductor market.
Download 2009 Earnings Release - Financial Tables (108KB .pdf)
The results shown for Q4 2009, Q3 2009, Q4 2008, and FY 2009 are unaudited. The results shown for FY 2008 are audited. The condensed consolidated financial information contained in this announcement does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts of the Company in respect of the financial year ended 31 December 2008 were approved by the Board of directors on 2 April 2009 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain an emphasis of matter paragraph nor any statement under Section 237 of the Companies Act 1985.
The results for ARM for Q4 2009 and previous quarters as shown reflect the accounting policies as stated in Note 1 to the financial statements in the Annual Report and Accounts filed with Companies House in the UK for the financial year ended 31 December 2008 and in the Annual Report on Form 20-F for the financial year ended 31 December 2008.
This document contains forward-looking statements as defined in section 102 of the Private Securities Litigation Reform Act of 1995. These statements are subject to risk factors associated with the semiconductor and intellectual property businesses. When used in this document, the words “anticipates”, “may”, “can”, “believes”, “expects”, “projects”, “intends”, “likely”, similar expressions and any other statements that are not historical facts, in each case as they relate to ARM, its management or its businesses and financial performance and condition are intended to identify those assertions as forward-looking statements. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a number of variables, many of which are beyond our control. These variables could cause actual results or trends to differ materially and include, but are not limited to: failure to realise the benefits of our recent acquisitions, unforeseen liabilities arising from our recent acquisitions, price fluctuations, actual demand, the availability of software and operating systems compatible with our intellectual property, the continued demand for products including ARM’s intellectual property, delays in the design process or delays in a customer’s project that uses ARM’s technology, the success of our semiconductor partners, loss of market and industry competition, exchange and currency fluctuations, any future strategic investments or acquisitions, rapid technological change, regulatory developments, ARM’s ability to negotiate, structure, monitor and enforce agreements for the determination and payment of royalties, actual or potential litigation, changes in tax laws, interest rates and access to capital markets, political, economic and financial market conditions in various countries and regions and capital expenditure requirements.
More information about potential factors that could affect ARM’s business and financial results is included in ARM’s Annual Report on Form 20-F for the financial year ended 31 December 2008 including (without limitation) under the caption “Risk Factors” (on pages 5 to 13) which is on file with the Securities and Exchange Commission (the “SEC”) and available at the SEC’s website at www.sec.gov.
ARM designs the technology that lies at the heart of advanced digital products, from wireless, networking and consumer entertainment solutions to imaging, automotive, security and storage devices. ARM’s comprehensive product offering includes 32-bit RISC microprocessors, graphics processors, video engines, enabling software, cell libraries, embedded memories, high-speed connectivity products, peripherals and development tools. Combined with comprehensive design services, training, support and maintenance, and the company’s broad Partner community, they provide a total system solution that offers a fast, reliable path to market for leading electronics companies. More information on ARM is available at http://www.arm.com.
ARM is a registered trademarks of ARM Limited. ARM7, ARM9, ARM11, Cortex and Mali are trademarks of ARM Limited. All other brands or product names are the property of their respective holders. “ARM” is used to represent ARM Holdings plc; its operating company ARM Limited; and the regional subsidiaries: ARM Inc.; ARM KK; ARM Korea Ltd.; ARM Taiwan Limited; ARM France SAS; ARM Consulting (Shanghai) Co. Ltd.; ARM Belgium NV; ARM Germany GmbH; ARM Embedded Technologies Pvt. Ltd.; ARM Norway AS; and ARM Sweden AB.