ARM’s chip licensing revenue is growing at a rapid pace

ARM Holdings’ chip licensing business continues to grow, the company said, reporting year-on-year increases in second-quarter profit and revenue. Revenue for the quarter totaled £187.1 million (US$309.6 million) for the quarter, up from £171.2 million a year earlier, according to International Financial Reporting Standards. Profit rose to £68 million from £15 million a year earlier. During the quarter, the company signed 41 additional processor licenses, for applications including mobile computing, consumer electronics and embedded intelligent devices, taking the total number of licenses over 1,100. The company does not manufacture or sell chips itself, making its money from licensing its processor core designs to other companies for inclusion in their chips, and from per-chip royalties for devices manufactured using its technology.

ARM, the British microchip designer responsible for the architecture of the processor in almost every smartphone, benefitted from a boost in licensing revenues in the second quarter as manufacturers bought into its latest technology. The company’s designs are used by Apple, Samsung and virtually every other smartphone maker. Revenues and pre-tax profits were both up 9pc on the same period last year at £187.1m and £94.2m respectively. Almost all the boost came from sales of new licences, the up-front fees ARM receives when it sells intellectual property to microchip manufacturers. The company licensed its latest ARMv8-A design seven times during the second quarter. The technology was first used in the iPhone 5S and is expected to receive further upgrades and spread through the smartphone industry. Overall licensing revenues increased 36pc to £89.6m. Total royalty revenues, the other half of ARM’s business, which is built on a small cut of the price of each device sold containing its designs, were down 9pc in the second quarter at £80.3m. The drop was accounted for by the strong pound. In dollars, royalties were flat at $135.5m. ARM said the weak performance relative to licensing was a result of seasonal fluctuations and some parts of the electronics supply chain managing their inventory. ARM said it expected royalty trends to improve in the second half, however.