A day after Apple became the first company to be worth more than $700bn, key supplier Arm has seen its shares boosted by better than expected results.
The chip designer reported a 25% rise in fourth quarter profit to £118.9m on revenues up 18%, helped by strong growth in licensing and growing royalties from the likes of Apple. Full year profits rose 13% to £411.3m. It also said the current year had begun strongly, although at a slower growth rate:
We anticipate that total group dollar revenues for the first quarter will be up about 10% year on year, based on strengthening royalty revenue growth and our expectations of the profile of licence revenue through the year.
Chief executive Simon Segars said the growth in 2014 had come from existing semiconductor companies increasing their commitment to Arm and a broad range of new customers:
2015 will bring exciting opportunities and challenges as Arm invests in new products and technologies, and continues to establish itself in competitive new markets.
Arm shares are up 41p or nearly 4% at £10.97, and Julian Yates at Investec said:
Arm has delivered again on licenses, up 30% year on year to $139.5m versus our $126m (consensus $128.2m), with backlog also up 5% sequentially.
The outlook is for licences to revert back to around 5-10% growth and we expect a flat first quarter 2015 performance. Implied royalty progression of around 20% is in line with our estimates. We see the net impact as a 2%-5% uplift to consensus 2015 earnings per share.
We think the fourth quarter result and outlook comments should to be enough to support the stock after its strong run into the results, but further positive news may be needed for it to break out beyond the peak of its trading range over the last couple of years (around 1100p). We place our forecasts, target price and recommendation under review.
Overall, as investors await the eurozone finance ministers meeting to discuss Greece’s precarious financial position, leading shares are searching for direction. The FTSE 100 is currently down 0.05 points at 6829.07.
Sky is the biggest faller, down 32p at 922p on concerns it had overpaid for the latest round of Premier League matches. Rival BT, which did not splash as much cash, is up 14.2p at 458p.
Elsewhere Tullow Oil has fallen 9.3p to 405p after it made its first loss in fifteen years and scrapped its dividend.
But Reckitt Benckiser has risen 205p to £57.95 as full year revenues rose 4%, in line with forecasts. It said it expected a similar outlook in 2015, with weakness in emerging markets. It also unveiled a new cost cutting programme - including some job losses - to save £100m to £150m a year.
Its newly spun off pharmaceuticals business Indivior has fallen 11p to 160.4p after an 8% fall in 2014 revenues and a forecast of further declines in the current year on growing competition for its addiction treatment drug.
Among the mid-caps, Telecity has jumped 15% or 131p to 979.5p after the data centre group unveiled a proposed $2.2bn all share deal to buy New York listed Interxion, alongside its full year results and plans for a £400m three year share buyback. Investec said:
Results are superseded by a proposed all-share merger with Interxion and a cash return, both of which should be taken positively. That a cash return was coming at all was doubted, and the quantum is better than we expected. A merger offers attractive synergy potential, although exactly how numbers are derived needs further analysis. Opinion will polarise on whether this is a product of weakness or a great opportunity to gain scale. Full year results and guidance are in line.
