ARM has double-digit growth but an increasingly fragile outlook
Profit at at the chip designer is down and threats are emerging from new players.
ARM Holdings might have gotten a little too comfortable being the king.
During the mobile revolution, ARM-licensed chips found their way into virtually every smartphone and tablet on the market. This virtual monopoly on the market has been great for ARM’s bottom line, as the company has recorded double digit profits virtually every quarter during the mobile boom of the last five years.
This quarter was no exception. ARM Holdings’ revenue in Q2 2013 was up 27 percent year-over-year to $264.3 million. However, the company’s profit dropped to $96 million from $118 million in the same quarter last year. Despite this drop in profit, the company’s gross margin is still an extraordinary 94.3 percent.
Going into the next year, ARM will have two emerging threats from MIPS and Intel.
As we reported earlier, a newly revitalized MIPS is gearing up to try and encroach ARM’s turf, particularly the low-cost segment that MediaTek is making a name for itself in. At the same time, Intel is making a big push into the mobile market as the traditional PC market shrinks.
Considering that most OEMs are agnostic to the hardware they use, as long as it runs Android, ARM has a problem on its hands.
Facing these two threats, ARM only had a miniscule boost to its R&D budget. In the first quarter of this year, the company spent $56.2 million on research; Q2’s budget has only been upped to $57.1 million.
ARM does have some solid IP in the pipeline, particularly the Cortex-A15 and Cortex-A7 in big.LITTLE configurations, but its now facing a massive emerging threat from MIPS and Intel. Neither company will dethrone the king, but the game of thrones MIPS and Intel are prepared to play to jostle themselves into a greater share of ARM’s market capture means ARM should consider doubling down and investing a lot more in R&D.
Source: ARM Holdings