ARMH Arm Holdings Plc ADS Each Representing 3 Ordinary Shares (MM)

By Stu Woo 

LONDON--ARM Holdings PLC said Wednesday that first-quarter revenue and profits grew strongly in the first quarter, compared with a year earlier, though the British chip designer warned that economic uncertainty could slow the industry the rest of the year.

The Cambridge, England-based tech company said revenue grew to GBP276.4 million ($396.4 million) in the three months ended March, up 21.5% from GBP227.5 million in the same period in 2015. Profit rose to GBP91.5 million, up 7.6% from a year earlier.

Both figures beat analysts' expectations, sending shares up 2.23% in trading midday.

ARM makes money from licenses and royalties from the chips it designs. While the company currently designs the architecture for more than 95% of the world's smartphone chips, it is seeking to increase its market share in networking infrastructure as well as the server industry currently dominated by Intel Corp., which said Tuesday that it was cutting 12,000 jobs, or 11% of its workforce.

ARM said Wednesday it increased its head count by 20% over the past year, reaching about 4,000 employees, and operational expenses in the first quarter rose to GBP157 million ($225.2 million), up 36% from the same period a year earlier.

"Going forward, we are expecting our operating expenditures to be more in line with [quarter-over-quarter] growth, which is more in the single-percentage range," Chief Executive Simon Segars said in an interview. "What we're tracking very carefully are the investments we announced last year."

The company said it expects revenue for the rest of 2016 to be in line with market expectations, but it added that "macroeconomic uncertainty remains, and could influence consumer and enterprise spending, potentially impacting semiconductor sales and industry confidence."

Sanford C. Bernstein analyst Pierre Ferragu said ARM risks falling beneath expectations in the second half of 2016 and in 2017. That is in part because first-quarter royalties on processors, totaling $191.9 million [CQ, reported in dollars], came in below his forecast, implying that growth significantly slowed.

"We weren't expecting that kind of slowdown as early in the year, but more for the second half and 2017," Mr. Ferragu said.

Mr. Segars said the 15% growth was "pretty good" compared with the overall semiconductor industry, which he said decreased by 3%.

Write to Stu Woo at Stu.Woo@wsj.com

(END) Dow Jones Newswires

April 20, 2016 08:26 ET (12:26 GMT)

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