UK-based ARM Holdings plc – a company engaged in the design of microprocessors, physical intellectual property and related technology and software, as well as the sale of development tools – saw stock values drop more than five per cent on Friday. The decrease came after analysts downgraded the company's stock from 'market perform' to 'underperform'. The firm's price target was also slashed to 800p from 1,000p.
This was in sharp contrast to the FTSE 100 company's status being upgraded at the beginning of the year in anticipation of a rise in material earnings – it was expected that a migration to ARM v8 would boost royalty revenue growth and stabilise Semi Content per Device.
According to experts, the drop in the performance is in part due to a lull in smartphone sales. Since ARM manufactures components for brands like Apple and Samsung, a slowdown in sales of the devices that was observed in the first quarter of 2015 could affect ARM – and now it's believed that the drop in smartphone sales will be the first of a series, rather than an inventory correction.
The Telegraph reports that brokers are also warning that ARM's stock is above fair value and there is risk of earnings disappointment in the second half of this year and next year.
First quarter results
ARM released its latest earnings data on April 21st. At the time, the chip-maker reported $0.32 (£0.20) earnings per share for the quarter and the company had revenue of $348.20 million for the period – higher than the consensus estimate of $341.40 million.
During the same period last year, the company reported $0.05 earnings per share. Revenue was up 21.9 per cent compared to the first quarter of 2014.
In a press release that accompanied the company's Q1 results, the company said: "Arm has made an encouraging start to 2015 with more leading companies choosing to deploy ARM technology in their products. Assuming that the macroeconomic backdrop remains supportive of consumer spending, we expect dollar revenues for the full-year 2015 to be at least in line with current market expectations."
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.