Semiconductor intellectual property supplier ARM Holdings Plc (ARMH, ARM.L) reported Tuesday a decline in third-quarter profit, hurt by higher operating costs mainly due to restructuring charges. Revenues increased 5% helped by strong dollar against sterling, while dollar revenues decreased 8% from last year. ARM also reaffirmed that it expects group dollar revenues for the full year to be at least in line with current market expectations.
The U.K.-based company's profit before tax for the quarter declined to GBP 7.66 million from GBP 15.76 million in the previous year.
Results for the quarter include restructuring costs of GBP 6.56 million, acquisition related charges of GBP 3.64 million and share-based compensation and related payroll taxes of GBP 6.28 million. Excluding items, normalized profit before tax slightly decreased to GBP 24.26 million from GBP 24.88 million a year ago.
Profit for the period was GBP 6.89 million or 0.5 pence per share, down from GBP 11.27 million or 0.9 pence per share in the prior year. Normalized profit for the quarter slightly decreased to GBP 17.46 million or 1.34 pence per share from GBP 17.74 million or 1.38 pence per share a year ago. Earnings per American Depositary Share, or ADS, for the quarter was 2.5 cents, down from 4.7 cents a year ago. Normalized earnings per ADS were 6.44 cents, lower than 7.41 cents last year.
Total revenues for the quarter increased 5% to GBP 75.16 million from GBP 71.66 million a year earlier, due mainly to the strengthening of the dollar against sterling. Product revenues grew to GBP 70.72 million from GBP 67.68 million in the year-ago quarter. Service revenues improved to GBP 4.44 million from GBP 3.99 million in the same quarter last year.
In dollar terms, revenues decreased 8% to $123 million from $134.4 million in the previous year. Total dollar license revenues fell by 14% year-on-year to $39.7 million, which represent 32% of group revenues. Total dollar royalty revenues declined by 6% to $62.3 million, representing 51% of group revenues. Sales of development systems were $14 million, a decrease of 4%, which represent 11% of group revenues. Service revenues, representing 6% of group revenues, decreased 9% to $7 million.
Total cost of revenues decreased to GBP 5.77 million from GBP 7.48 million in the preceding year.
Total operating expenses grew to GBP 62.15 million from GBP 49.65 million in the previous year. Research and development expenses increased to GBP 27.09 million from GBP 21 million a year ago. Sales and marketing expenses were GBP 15.03 million, up from GBP 13.83 million in the prior year. General and administrative expenses also rose to GBP 20.03 million from GBP 14.82 million in the comparable quarter last year. Normalized operating expenses for the quarter were GBP 45.99 million, higher than GBP 40.8 million last year.
Profit from operations declined to GBP 7.23 million from GBP 14.53 million in the earlier year. Normalized profit from operations was GBP 23.83 million, slightly up from GBP 23.66 million last year.
Gross margins in the third quarter, excluding the share-based compensation charge of GBP 0.4 million, were 92.9%, compared to 89.9% in the third quarter of 2008.
Warren East, chief executive officer said, "Q3 was a good quarter for ARM. Despite pressure on customers' R&D budgets we are pleased that continuing strong demand from industry leaders, combined with our broadest range of products and effective use of licensing models, has delivered a record number of processor licenses. We are particularly encouraged by the licensing of ARM's next generation processor technology, and by the first license to a leading fabless semiconductor company of ARM's advanced 28nm physical IP."
For the nine-month period, the company reported pre-tax profit of GBP 27.14 million, compared to a profit of GBP 39.95 million in the same period last year. Normalized profit before tax decreased to GBP 64.46 million from GBP 67.5 million in the previous year.
Profit for the period declined to GBP 23.1 million or 1.8 pence per share from GBP 26.37 million or 2 pence per share in the preceding year. Normalized profit decreased to GBP 47.31 million or 3.66 pence per share from GBP 48.12 million or 3.73 pence per share last year. Normalized earnings per ADS were 17.57 cents, down from 19.97 cents a year ago.
Revenues for the nine-month period grew 7% to GBP 219.84 million from GBP 204.57 million in the prior year.
Looking ahead, ARM reaffirmed that it expects group dollar revenues for the full year to be at least in line with current market expectations.
In the short term, the company noted that the trajectory of consumer demand for electronic devices remains unclear, while looking ahead through 2010, ARM is well positioned to take advantage of the generally anticipated improvements in the semiconductor industry.
ARM.L is currently trading at 150.4 pence, up 1.2 pence or 0.8%, on a volume of 2.95 million shares. In the past 52 weeks, ARM shares have been trading in a range of 75.75 pence - 162.9 pence on the LSE.
ARMH closed Monday's regular trading at $7.37 on the Nasdaq.
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