New Licensing Revenue Drives ARM's Strong Q3 Earnings

The growth stemmed in large part from a big boost in licensing revenue combined with the signing of 28 new processor licenses with companies such as Broadcom, Freescale, HiSilicon, LG, Microsoft, Samsung, ST-Ericsson and Texas Instruments.

ARM reported total revenue for the third quarter of $192.3 million, up 22 percent compared to the $158.1 million it reported in the same period of last year.

Quarterly licensing revenue, which ARM CEO Warren East called the driving force behind overall growth, jumped to $72.6 million dollars, a 38 percent year-on-year growth from the third quarter of 2010. Royalty revenue for the quarter rose year-on-year by 19 percent to $96.8 million.

The company also reported a quarterly earnings of $68.8 million, or $3.66 per share. This compares to $31.0 million, or $1.72 per share, in the third quarter of 2010.

ARM sold 28 processor licenses throughout the third quarter, 14 of which were to new customers. East noted that most of these new licenses were given to "established" seminiconductor companies who are starting to build their first ARM-based chips.

This is the highest number of new customer licenses ARM has seen in a quarter, East said. "They [semiconductor manufacturers] are finding ARM technology quite instrumental in helping them gain a share in an increasingly competitive market place," he said.

Of the 28 licenses sold, nine were signed specifically for Cortex-A processors, and 14 were for the Cortex-M series. The licenses signed in Q3 were dispersed throughout a broad range of markets, including automotive applications, microcontrollers, mobile phones, and enterprise networking.

"During the third quarter we continued to out-perform the semiconductor industry with good, strong year-on-year growth in licensing and royalties against an industry that is broadly flat year-on-year," East said. "We benefited from the sales of smart consumer products and lots of low-power embedded electronics. The demand for these products is really what’s driven licensing with 28 processor licenses sold in the quarter."

ARM’s growth was reaffirmed in DisplaySearch's Quarterly Tablet Report, released Monday. According to the market researcher, shipments of tablet PCs with ARM processors are projected to increase 211 percent year-on-year in 2011 to approximately 59.9 million units. The recent release of the Cortex-A7 processor Cortex-A7 processor -- which is being touted as ARM’s most energy-efficient yet -- combined with an impressive third-quarter growth, points to an optimistic future, East said.

"We are going into the final quarter of 2011 with a strong order backlog," he said. "Semiconductor companies are looking to develop more of their products on ARM technology, and this combination points to another strong quarter for license revenue."