UBS Investment Research
ARM Holdings Plc
Steady as she goes
Solid growth, margin expectations
We hosted ARM for a roadshow and sales briefing. Our thoughts follow: ARM
repeated its view that, with growing penetration in consumer devices, it outpaces
semis market growth (cons. c.+15-16%, UBSe. +12% 2010E). With growth of 10-
15% through cycle, tight opex control and GM mix benefits, they believe 40%
EBIT margins (underlying ex stock comp) are possible if market growth continues.
Cores/device should remain robust
ARM believes that cores/device (currently 2.4) will continue trend towards 3 and
possibly higher, and c.2.6-2.7 by end of 2010. Management would not comment on
iPad specifically, but we believe there is likely to be 5-6 ARM cores in the device.
We view this as just another potential driver of tablet/ereader market along with
other products (Lenovo/Kindle). More interesting will be ARM's move into other
areas and we watch carefully (medium-term) for any Broadcom adoption of ARM
in its Set-top box solution (MIPS based) which could add a further 7-9% to EPS.
Integration more +ve than -ve, Intel still not yet there but potential threat
ARM highlighted that after integration (e.g., baseband/GPS), it still sells 2
royalties (two cores required for different protocol stacks etc.) on higher chipset
price (one at slight discount) so total royalty is higher. While management believe
Intel is a threat long term in high end smartphone market, they are not standing still
and that the company's new Eagle product will step up in terms of processing
We maintain our DCF based price target of 215p (9.5% WACC, 3% g).
Net Income (UBS)
EPS (UBS, p)
Net DPS (UBS, p)
Profitability & Valuation
5-yr hist av.
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