Mobile Processor Demand Helps Power ARM Q4, 2010 Financial Results

British semiconductor firm ARM Holdings last week reported impressive 2010 annual and fourth quarter earnings, stemming in part from its licensing of mobile processor designs to new customers.

ARM reported revenue for the fourth quarter of 2010, which ended December 31, of $179.6 million, up 28 percent over the $140 million it reported for the fourth quarter of 2009. Profit for ARM’s fourth quarter 2010 was $55.1 million, up 67 percent over the company’s fourth quarter 2009 profit of $33 million.

ARM reported 2010 revenue of $631.3 million, up 29 percent compared to the $489.5 million the company reported for all of 2009. Profit for all of 2010 was $170.5 million, up 125 percent over the $75.7 million the company reported last year.

ARM’s profits were originally reported in British pound terms based on IFRS (International Financial Reporting Standards) results.

"ARM continues to sign licenses with influential market leaders in an increasingly digital world, and as the industry chooses ARM technology in a broadening range of electronic products, it further drives our long-term royalty opportunity," CEO Warren East said in a statement. "The growth in licensing and royalty revenues, throughout 2010, has combined to deliver our highest ever annual revenues, profits and cash generation."

ARM's business model involves licensing its intellectual property to other companies and earning royalties on products based on its architecture. ARM's Q4 total dollar license revenue rose by 46 percent to $65.4 million, of which ARM's processor division accounts for $53.8 million and its Physical Intellectual Property Division accounts for $11.6 million.

ARM's total royalty revenue in Q4 was up 26 percent to $93.9 million, and ARM's full-year revenue from royalties was up 37 percent. ARM's full-year dollar license revenues were up 27 percent to $208.2 million total. Royalties now account for 53 percent of ARM's total revenue, which is up from 40 percent in 2005 and expected to increase further.

ARM signed 35 processor licenses in Q4, of which 11 pertained to ARM's Cortex-A processor design and 8 to ARM's Mali architecture. The company is looking to bring its reference designs to new markets beyond mobile processor devices, where ARM currently has over 90 percent market share according to Gartner. Now the company is looking to build on its success in mobile in order to gain market share in other segments.

"2011 will bring exciting opportunities and challenges as ARM enters competitive new markets and we are well positioned to succeed with leading technology, an innovative business model and a thriving ecosystem of partners," East said in last week's statement.

ARM's profile grew last spring, thanks to Apple's adoption of ARM's Cortex A8 CPU design for its A4 processor, which powers the Apple iPhone and Apple iPad. In addition, vendors including Qualcom, Samsung, NEC and Texas Instruments also license ARM's chip designs inside their mobile handheld devices.

Next: ARM's Entry Into The CPU Market

East in December said ARM plans to begin offering processor designs for the server space, a segment in which the company believes it can challenge Intel by 2014. East said that server manufacturers are interested in ARM-based designs for processors that emphasize low power consumption in devices and data centers.

ARM has also gained broader visibility as a result of bullish remarks from its top executives in various interviews. ARM co-founder Dr. Hermann Hauser in November criticized Intel's business model and predicted the end of the microprocessor industry, and other important figures of ARM have said Intel's entry into the mobile market does not pose a serious challenge.

At CES 2011 last month Microsoft said it will offer ARM support in the next version of Windows, as Microsoft seeks to challenge Apple's iOs and Google's Android mobile platforms.

Also at CES 2011, Nvidia confirmed rumors that it's working on a new ARM-based CPU for desktops and servers, code0named "Project Denver." Featuring Nvidia's GPU technology integrated onto ARM's CPU architecture, Project Denver will be the first ARM-based chip targeted at high-performance computing.

In an interview with CRN at the event last month, ARM president and co-founder Tudor Brown, Brown said Microsoft needs to move into the future and has adopted ARM in order to do so. He also said that ARM is protecting its market share advantage as Intel moves into the mobile device space, and ARM is moving toward the server and PC space despite not finding it "particularly exciting."