A conference call will be held today at 08:00 BST to discuss this announcement. The dial-in number for the conference call is +44-1452-541-077, Reference ID: 57633449. A play back of the conference call will be available on the ARM IR website at http://www.arm.com/ir.
Highlights (US GAAP unless otherwise stated)
- Q2 revenues at $128.1m, GBP65.0m
- Normalised operating margin at 31.5% (US GAAP 18.3%)
- Normalised PBT at GBP21.1m (US GAAP GBP12.6m)
- Normalised EPS at 1.17p (US GAAP 0.71p)
- Strong orders increase group backlog above previous quarter's
record level
- Reiterating FY 2008 guidance
- Processor Division (PD): Strong licensing platform driving royalty
momentum
- Licensing revenues down sequentially and year-on-year
- H2 licensing uplift expected due to strong opportunity
pipeline
- Architecture license signed for current and future ARM
technology with strategic OEM
- Royalty revenue up 27% year-on-year
- Physical IP Division (PIPD): Second quarter of sequential growth for
both licensing and royalty revenues
- Total revenue at $22.3m, up 5% year-on-year
- Licensing revenues increased 7% sequentially to $12.6m
- Royalty revenue up 33% year-on-year
- Business model yields increasing cash returns
- Record generation of cash in the quarter at GBP26.5m
- GBP30.7m returned to shareholders in Q2 2008, GBP15.3m by
dividend and GBP15.4m by share buybacks
- Net cash of GBP50.6m at the end of Q2
- 2008 interim dividend announced at 0.88p per share, up 10%
year-on-year
Outlook
We enter the second half of 2008 with a broad product portfolio for licensing into an increasingly diverse customer base; an opportunity pipeline expected to deliver near-term license revenue and good royalty momentum across the business.
We therefore reiterate the guidance for FY 2008 given in both February and April; assuming no further deterioration in the trading environment, we continue to expect to increase dollar revenues in FY 2008 by at least the growth rate achieved in FY 2007.
Commenting on the results, Warren East, Chief Executive Officer, said:
"ARM has made good progress in the first half of 2008 in challenging market conditions, further extending the group's backlog which was already at record levels. We see continued strong demand for ARM's technology including long-term commitments for our processor and physical IP technology by industry leaders.
Prospects for PD licensing in H2 2008 are promising notwithstanding the uncertain current trading environment. We have a broad product portfolio that our customers are designing into applications from mobile computers to microcontrollers. We are encouraged by our second successive quarter of sequential growth in PIPD as we build momentum in that business.
Growth of more than 25% year-on-year in underlying royalty revenues for both PD and PIPD provides further evidence of the increasing use of ARM's technology in a rapidly broadening range of consumer electronics products.
Whilst investing in future technology innovation, we continue to exercise financial restraint, reducing overall operating costs and headcount, thereby increasing margins sequentially; generating record levels of cash within the quarter; and increasing the interim dividend."
Q2 2008 - Revenue Analysis
Revenue ($m)*** Revenue (GBPm)
Q2 2008 Q2 2007 % Change Q2 2008 Q2 2007 % Change
PD
Licensing 30.2 45.3 -33% 15.3 23.2 -34%
Royalties 51.0 40.1 27% 26.0 20.2 29%
Total PD 81.2 85.4 -5% 41.3 43.4 -5%
PIPD
Licensing 12.6 14.0 -10% 6.4 7.1 -10%
Royalties(1) 9.7 7.3 33% 4.9 3.6 36%
Total PIPD 22.3 21.3 5% 11.3 10.7 5%
Development Systems 16.2 14.1 15% 8.2 7.1 15%
Services 8.4 8.4 4.2 4.3 -2%
Total Revenue 128.1 129.2 -1% 65.0 65.5 -1%
(1) Includes catch-up royalties in Q2 2008 of $1.1m (GBP0.6m) and in Q2 2007 of $0.6m (GBP0.3m).
H1 2008 - Revenue Analysis
Revenue ($m)*** Revenue (GBPm)
H1 2008 H1 2007 % Change H1 2008 H1 2007 % Change
PD
Licensing 66.6 82.7 -20% 33.5 42.6 -21%
Royalties 105.8 85.1 24% 53.9 43.2 25%
Total PD 172.4 167.8 3% 87.4 85.8 2%
PIPD
Licensing 24.4 31.0 -21% 12.3 15.7 -22%
Royalties(1) 18.8 15.6 20% 9.6 7.9 21%
Total PIPD 43.2 46.6 -7% 21.9 23.6 -7%
Development Systems 30.3 27.7 9% 15.3 14.1 9%
Services 16.5 16.3 1% 8.3 8.5 -2%
Total Revenue 262.4 258.4 2% 132.9 132.0 1%
(1) Includes catch-up royalties in H1 2008 of $2.1m (GBP1.1m) and in H1 2007 of $2.1m (GBP1.1m).
Q2 2008 - Financial Summary
US GAAP Normalised* US GAAP
GBPM
Q2 2008 Q2 2007 % Change Q2 2008 Q2 2007
Revenue 65.0 65.5 -1% 65.0 65.5
Income before income tax 21.1 22.5 -6% 12.6 12.0
Operating margin 31.5% 32.0% 18.3% 16.0%
Earnings per share (pence) 1.17 1.18 -1% 0.71 0.64
Net cash generation** 26.5 10.0
Effective fx rate ($/GBP) 1.97 1.97
H1 2008 - Financial Summary
US GAAP Normalised* US GAAP
GBPM
H1 2008 H1 2007 % Change H1 2008 H1 2007
Revenue 132.9 132.0 1% 132.9 132.0
Income before income tax 42.5 44.1 -4% 24.8 24.7
Operating margin 31.0% 31.1% 17.7% 16.5%
Earnings per share (pence) 2.33 2.32 1% 1.39 1.34
Net cash generation** 40.2 25.5
Effective fx rate ($/GBP) 1.97 1.96
* Normalised figures are based on US GAAP, adjusted for
acquisition-related, share-based remuneration and restructuring
charges.
** Before dividends and share buybacks, net cash flows from share option
exercises and acquisition consideration.
*** 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.
Contacts:
Fiona Laffan/Pavla Shaw Tim Score/Ian Thornton
Brunswick ARM Holdings plc
+44(0)207-404-5959 +44(0)1628-427800