Chip designer ARM beats forecasts with first-quarter profit rise

By Paul Sandle

LONDON (Reuters) - Britain's ARM Holdings (ARM.L) reported better-than-expected first-quarter profit as the provider of technology for the iPhone licensed more of its designs for use in the next generation of smartphones and connected devices.

The Cambridge-based company said adjusted profit rose 14 percent to 137.5 million pounds on revenue, measured in dollars, of $398 million, both ahead of market forecasts.

Robust processor licensing, up 24 percent year on year, was behind the beat, analysts at Citi said, although royalties, paid on each of the 4.1 billion chips shipped in the previous quarter by ARM's partners, fell slightly short of expectations.

ARM has long dominated mobile processing, and more of its processor and graphics technology is being used by Samsung , Huawei [HWT.UL] and Apple (AAPL.O) in their in-house designed chips.

Royalties, paid a quarter in arrears, grew 15 percent, outstripping a 3 percent drop in global semiconductor sales, the company said on Wednesday.

"Our outperformance was driven by market share gains and the increasing amount of ARM technology appearing in the latest mobile devices and other markets," Chief Financial Officer Chris Kennedy told reporters.

He said macroeconomic uncertainty could influence consumer and enterprise spending this year, potentially impacting semiconductor sales, but based on current conditions, full-year revenue would be in line with expectations of $1.65 billion.

Investors, encouraged by the beat in licensing, shrugged off concerns about an increasingly saturated smartphone market. ARM's shares were trading up 3 percent at 993 pence at 0914 GMT.

The stock had fallen to seven-week lows in recent days on reports that Apple continued to reduce iPhone production in the current quarter.

ARM is also looking to markets such as the Internet of Things - billions of connected devices - and enterprise servers as sources of growth beyond mobile.

Intel (INTC.O), its rival which largely failed to break into mobile, said on Tuesday it would cut 12,000 jobs and focus on the same opportunities as the PC market declines.

Kennedy said ARM's low-powered technology and network of partners would make it the technology of choice in fields such as 5G mobile networks and connected cars.

"Nearly three quarters of new microcontrollers, which is the technology that goes into the 'things' of the Internet of Things, are ARM-based," he said.

(Editing by Kate Holton and Susan Thomas)