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ARM rise bucks Q3 trend

Makes solid gains in 'seasonally weaker quarter'

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ARM made solid gains during the third quarter of its current fiscal year, with rising royalty revenues and improving margins pushing up the chip designer's income in what CEO Warren East called a "seasonally weaker quarter".

For the three months to 30 September 2004, ARM received revenues totally £39.4m - £14.6m from licensing, £16m from royalties on licensees' shipping products, and the rest from sales of development tools and related services.

That compares to revenues of £36.9m in Q2 and £31.7m in Q3 2003, with growth set at 6.8 per cent and 24.3 per cent, respectively. Licensing revenue was static sequentially but rose 11.5 per cent year on year, from £13.1m. Licensing contributed 37 per cent of ARM's revenue in Q3, down from 39 per cent in Q2 and 41 per cent in the year-ago quarter.

Royalty revenues rose 15.1 per cent sequentially, from £13.9 million, and 45.5 per cent year on year, from Q3 2003's £11m. Quarterly device shipments hit an all-time record: 341m units, up from 286m in the previous quarter and 188m in the year-ago period.

With operating margins reaching 28.9 per cent, from 23.8 per cent in Q2 and 17.7 per cent in Q3 2003, ARM's Q3 2004 net income reached £13.3m (nine pence a share), up 27.9 per cent from Q2's £10.4m and up 95.6 per cent from Q3 2003's £6.8m (a ha'penny a share).

Gross margins for the third quarter were 92.8 per cent, compared to 93.2 per cent in the second quarter, the dip due to the higher proportion of development systems revenues in Q3 versus Q2.

The company quit the quarter with £174.6m cash and equivalents in the bank.

If ARM's revenues remain the same during Q4, then the company will certainly achieve its £150m revenue target for FY2004 - the same figure it achieved in FY2002. That 2004 target translates into dollar-term growth of 30 per cent, an increase ARM CFO Tim Score said the company was now "well positioned" to achieve, despite a slowdown in growth rates throughout the chip industry. ®

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