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ARM sales and profits plunged during Q1 2003

No improvement foreseen, either

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ARM Holdings today said that its Q1 sales and income had fallen dramatically, and it expects the gloom to continue for the foreseeable future.

For the three months to 31 March 2003, ARM recorded a profit of £4.3 million on revenues of £31 million. This time last year, ARM posted a profit of £10.7 million on sales of £42.1 million. Today's figures represent year-on-year declines of 59.8 per cent and 26.4 per cent, respectively.

The good news is that while Q1 sales were down on Q4's £32.3 million, profits were up 19 per cent quarter-on-quarter. Royalty revenues were up just over 33 per cent sequentially, thanks to the signing of eight new licensees.

So £10.3 million of ARM's Q1 revenue was derived from royalty payments as licensees shipped a record 178 million ARM-based products. Licence revenues amounted to £12.1 million. Sales of development systems improved in the quarter, to £5.0 million. Service revenues were £3.6 million.

Licence revenue fell from 49 per cent of total revenue in Q4 2002, to 39 per cent in Q1 2003. By contrast, royalty revenue's share of the total rose from 24 per cent in Q4 2002 to 33 per cent last quarter. In short, the mix is shifting from new licence sign-ups to existing licensees shipping product. No great surprise, that, since most of the companies that want to license ARM technology have already done so.

Operating expenses reduced to £23.1 million from £25.4 million in Q4 2002. Before investment write downs in Q1 2003 and restructuring costs in Q4 2002, operating expenses fell to £21.5 million from £23.5 million.

Gross margins for the first quarter were 91%, down from 92% in the fourth quarter of 2002, reflecting the increase in sales of development systems, the company said.

Sir Robin Saxby, ARM chairman, described the results as "robust" despite the "uncertain political, economic and semiconductor industry environment".

Looking forward, ARM doesn't expect its circumstances to improve any time soon: "Given the uncertain macro environment, we do not currently foresee any improvement in the circumstances that have given rise to slower licensing activity in the last three quarters. Thus, although the long term growth indicators for the business remain healthy, it is our expectation that total quarterly revenues will remain at a similar level as Q1 2003 in the short term," it said. ®

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