ARM to take £6.4m hit to end Herodion fight

PicoTurbo lawsuit comes back to bite

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ARM has settled its last remaining differences with Herodion, the company that comprises what's left of PicoTurbo, the chip maker it accused of patent infringement in 2001.

The settlement will see ARM's 2003 fully diluted earnings per share dip from the previously forecast 2.1 pence to 1.5 pence, under UK GAAP. Similarly, the EPS under US GAAP for 2003 of 1.9p falls to 1.3p.

ARM sued Milpitas, California-based PicoTurbo for offering ARM-compatible processors. It claimed these chips violated its intellectual property rights.

In December 2001, the two reached an out-of-court settlement. PicoTurbo agreed not to sell ARM-compatible processors and surrendered the relevant designs and IP to ARM. In return, ARM dropped all claims against PicoTurbo. PicoTurbo's customers would continue to be supported by both companies, and steered over time to more legitimate ARM-based product.

Everyone assumed that the story was now over. Not so. PicoTurbo was wound up, but its remaining assets became the property of Herodion, a company formed by shareholders of privately-held PicoTurbo as a fabless chip house offering designs based on ARM-licensed technology.

Last year it emerged that ARM paid out $11m under the terms of the settlement - financial details of which were not disclosed in the December 2001 settlement. It also emerged that ARM had agreed to invest around $3m in Herodion. This was never paid because, ARM claims, it never received the promised business plan and agreement to protect the value of its investment.

For its part, Herodion says ARM had reneged on the December 2001 settlement and presumably threatened legal action. To avoid this, the two companies took the case to arbitration, ARM announced last October. Talks have now been completed, ARM said today. It has agreed to pay Herodion £6.4m, which includes the $3m it originally said it would pay. The rest covers "damages in compensation for loss of license revenue and royalty payments" Herodion claims to have suffered.

The settlement will be treated as a one-off item applied to 2003's full-year results, which are due to be published on 24 March. ARM said its 2004 results will not be affected by the settlement. ®

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