Apple may have disappointed with its latest earning update overnight, but there were no such worries for one of its key suppliers.
Chip designer Arm beat market forecasts for the second quarter with a 23% jump in profits to £66.5m for the three months to June. Demand for its products, used in smartphones as well as the iPad, outstripped the industry, since Intel and Qualcomm as well as Apple have recently issued downbeat statements.
Apple was hit by the downturn in Europe and consumers holding back purchases until the new version of the iPhone. But Arm benefited from widening its customer base and strong licensing fees. With the caution from its customers, the outlook is less certain but said it had a record order backlog. It said:
Macroeconomic uncertainty may impact consumer confidence, and some analysts have become less confident in the semiconductor industry outlook in the second half. However, building on our strong performance in the first half we expect overall group dollar revenues for the full year to be in line with market expectations.
So ignoring the Apple worries, Arm's shares have jumped 20.7p to 505.5p, a rise of more than 4% in an uncertain market. Julian Yates at Investec issued a buy note with an 800p target, saying:
We continue to see Arm as a standout tech sector holding. The strong licence growth of recent years, which has continued into the first half we see catalysing royalty upgrades from 2013 which in our view supports 2016 earnings per share of more than 45p, which drives our target price. We acknowledge the near term negative stockmarket trends, but see material long term value in Arm.
Canaccord Genuity was more cautious, with a hold recommendation. Analyst Gareth Evans said:
We believe that Arm will continue to tread water as investors struggle to balance the extraordinary long-term potential on which the group is clearly delivering against the clearly more-difficult near term earnings outlook. The performance of the Arm-powered version of Microsoft's tablet (due later in 2012) could be an important signal of Arm versus Intel. Further wins by the Arm ecosystem across a broad range of markets is probably priced-in, but we would expect positive surprises in terms of market share over time.
With continuing worries about the eurozone and ahead of UK GDP figures, the FTSE 100 is up just 4.17 points at 5503.40.
