ARM Profit Up but Misses Forecasts

LONDON—ARM Holdings PLC, in its first earnings report since Japanese telecommunications giant SoftBank Group Corp. agreed to acquire the British chip designer for $32 billion last week, reported a second-quarter rise in revenue and profit.

Revenue in the three months ended June 30 rose to $387.6 million, an increase of 9% from the same period in 2015. Profit rose to £ 90 million, up 17% from a year earlier.

Both revenue and profit fell short of a Thomson One Analytics consensus survey of 23 analysts. ARM's share prices held at £ 16.77, close to the price at which SoftBank agreed to acquire the Cambridge, England-based firm.

The acquisition is expected to close before October.

ARM is one of the world's most important under-the-radar tech companies, having drawn up the blueprints for the microprocessors in more than 95% of the world's smartphones. It is strictly a chip designer, not a manufacturer, that licenses its processor schematics to partners including Apple Inc., Samsung Electronics Co. and Qualcomm Inc.

SoftBank said it was buying ARM, at a 43% premium to the share price before the deal was announced, largely as a bet on ARM's leadership in the field of the "Internet of Things," or the idea that everyday items such as lightbulbs and automobiles will be connected to the web. These objects will require chips that can process information and send information to the internet. ARM wants to design all those chips.

Analysts question whether designing Internet of Things chips is a lucrative endeavor. Malik Saadi, managing director at research-firm ABI Research, estimates that revenue associated with intellectual property from Internet of Things chips would rise from $125 million in 2014 to $400 million in 2020.

So far, the market for Internet of Things devices is small and the revenue per sale for chip in such devices is tiny. A microprocessor in a lightbulb could cost less than a dollar, and ARM would earn only a fraction from the total sales price of such a chip.

ARM's second-quarter royalty per chip was 4.9 cents. The company said it generated revenue from the shipment of 3.6 billion ARM processor-based chips in the second quarter, up 9% from the same period a year earlier. Royalties from processors totaled $176.7 million in second-quarter revenue, up 11% from the same period in 2015.

ARM is also focusing on increasing its market share in the field of designing chips for routers and other networking devices. It is in the early stages of mounting a challenge to Intel Corp.'s near monopoly in the computer-server business.

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

(END) Dow Jones Newswires

July 27, 2016 04:05 ET (08:05 GMT)

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