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ARM is the UK-based supplier of chip-sets and its licensed patents and IP are incorporated into hundreds if not thousands of TV, computing and cellular smartphone products. For some years it has been the “darling” of UK technology. But as a major report from equity advisors at investment bank Jefferies now suggests “its story is changing”.
Jefferies had recommended ARM’s shares as a ‘BUY’ but has now downgraded that advice to ‘HOLD’, citing changes to the Mobile/Cellular market where the “tailwind is less assured” and where new areas (Networking and Servers) are more competitive and fragmented.
ARM is a premium technology business where wide-spread use of its low-power CPU architecture is popular amongst its end-user clients. Of late ARM has transitioned to depend more on licenses and royalty payments for its IP rights.
Between 2010-2014 ARM enjoyed “explosive” benefits from the growth in mobile phones and in particular smartphone demand. Jefferies sees Mobile providing nearly half of the growth in ARM’s royalty revenue from 2016-2020, and well over half of ARM’s processor royalty revenue mix in 2020.
Jefferies is optimistic that Cambridge-based ARM will find new business in the Internet of Things and vehicle-based connectivity, as well as low-power WiFi routers and gateways. Jefferies also suggests that ARM could well offer more of a threat to Intel’s “dominance” in the industry.
ARM employs some 1700 people and has design centres in the UK, France, India, Sweden and the US.