ARM Holdings
description
Transcript of ARM Holdings
ARM designs and licenses low-power microprocessors predominantly for use in mobile devices such as
phones. ARM does not manufacture its chip technology but merely develops and licenses it. The company
has been able to able to build significant market share, with around 95% of all mobile phones currently using ARM cores. A total of 12 billion ARM processor-based devices were shipped in 2014.
The Business
-25%
-15%
-5%
5%
15%
Mar-14 Jun-14 Sep-14 Dec-14 Mar-15
S&P 500 ARMH
Key Numbers
2014 2018
PE TTM 60 50
EPS $1.15 $1.85
Margins
Gross 95.5% 96%
Operating 50% 55%
Net Income 42% 46%
R&D 21% 21%
Growth
Sales 16% 12%
EBIT 18% 14%
Thesis
1
By Daniel Dorman, Julio Escalona and Aaron Mederos
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM HoldingsBuy Recommendation
Price 2018 Target Beta$53 $93 1.2Value $68 Cap. $25bln
Performance 1 yr Beginning March 16, 2015
Increasing smartphone shipments and increasing smartphone share within all phones shipped will drive
royalty growth
Increasingly complex chips within each device increases royalties per device
Increasing penetration of newest technology within all segments raises royalties per device
Increasing market share within enterprise and embedded computing increases licensing and royalty
revenue
Total addressable market growth, through the Internet of Things, will increase both licensing and royalty
revenue
2
The Business
ARM designs and licenses its microprocessor designs which are in turn produced by licensees for a variety of
end uses that can be broadly classified into three categories: mobile, embedded, and enterprise infrastructure.
ARM’s technology is found on
95% mobile devices around the
globe. ARM’s energy efficient
Cortex CPUs and Mali GPUs are
presently used in elite products
from manufactures like
Samsung, Apple, HP, Microsoft,
HTC, LG, Motorola, Lenovo,
Alcatel, and Huawei, just to
mention a few. From
smartphones and phablets to
high definition tablets, ARM
technology is favored by virtually
all OEMs.
Partners like NVIDIA use ARM technology to power infotainment
systems, instrument cluster, and rear seat entertainment (RSE)
systems for more than 35 car models. End customers include
Tesla, Volkswagen Group, Fiat Chrysler, and BMW among
others. Ford infotainment systems also use ARM CPUs.
ARM products are currently in devices that part of the Internet of
Things revolution. ARM Cortex-M series have become the
customary technology used in smartwatches. Products include the
Apple Watch, Pebble, LG ‘G’ and Samsung Gear Live and fitness
products like Fitbit.
ARM technology is used throughout a variety of household
electronics. Partners like Samsung, Sony, Vizio, and Rocketfish
use ARM IP. Companies like Leapfrog, Nintendo, Microsoft, and
Sony manufacture products based on ARM architecture. Nest’s
revolutionary thermostats use an ARM Cortex chip. ARM
designed chips can also be found in
Various municipalities throughout Germany, the United Kingdom,
and the United States use ARM designs to collect and distribute
real-time data about parking spaces both on the street and in
garages allowing cities to reduce traffic congestion or control
parking prices.
ARM’s products are used throughout industry with end uses in
robots, machinery, and medical devices.
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
Mobile
Embedded
Vehicles
Wearables
Home
Intelligent City
Industrial & Other
Customers
Apple Watch
Nest Thermostat
Tesla
2
33
The Business
ARM architecture is also used in enterprise products like routers, ethernet switches, printers, and video
conference terminals, among others. Honeywell, Konica, Keda Communications, Fuji, Aperto Networks,
Philips, and Thinklinx Inc. are some of the partners that use ARM’s power efficient technology on their
products.
Catalysts
Royalty Growth
Mobile device royalties are set to grow
dramatically through three different avenues:
The number of smartphones, based on IDC
estimates, is expected to grow at an annual
rate of roughly 10% from 2014 to 2018.
Additionally, the percentage of smartphones
within all mobile phones is expected to grow
roughly 6% each year from 2014 to 2018,
reaching almost 80% of all mobile phones
shipped by 2018.
This growth works to increase royalty revenue
in two ways. First revenue will track the
broader growth trend in mobile devices, as
ARM products are found across all mobile
devices types. Second, as smartphones take a
greater portion of mobile device shipments,
royalties per device will grow significantly.
Based on ARM data, an entry-level
smartphone generates five times more
royalties than a feature phone, while a high-
end device earns the company twenty times
feature phone royalties.
Smartphones are increasingly using more
ARM designs per each chip. Put more
simply, what was at one point two or more
chips are being combined into one chip. This
consolidation coupled with a steady or
slightly increasing chip count per device
translates to more royalties per device.
The following graphic illustrates
managements expectations on royalty
increases when chips are consolidated. The
realization of such an outcome would
outpace our base case assumptions on
royalties.
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
Enterprise Infrastructure
Increasing Royalties and Operational
Leverage
20%
30%
40%
50%
60%
70%
80%
0.0
0.5
1.0
1.5
2.0
2011 2012 2013 2014 2015 2016 2017 2018
Perc
enta
ge o
f Unit S
ale
sUnit S
ale
s (
Bill
ions)
Feature Phone Smartphone
Smartphone Share
1
2
More Chips in More Advanced Phones
Greater Smartphone Share Boost Royalties
3
4
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
Catalysts
From public operating metrics, we deduce an approximation
of Royalties per unit within each segment (mobile, home,
enterprise, embedded). Our analysis of end markets and
ARM’s strategy inform our mix and volume estimates from
which we model royalty sales growth.
ARM has seen a significant increase in the adoption of its
newest technologies, which carry the highest royalty rates.
When ARM released its v7 (previous generation) technology,
adoption was initially restricted to high-end devices and
trickled down the entry-level slowly. Their new technology,
v8, has already gained a significant presence, appearing in
20 of the 33 major smartphones announced or released at
Mobile World Congress 2015.
We expect the shift in adoption rates to increase royalties
per mobile device shipped.
We also expect the continued royalty mix shift combined with
above factors to slightly increased the average royalty per
unit ARM will receive in the future.
In addition to ARM’s processor designs, which dominate the
industry, ARM’s Mali graphics processor has seen significant
market share gains. This propelled ARM to the number one
spot in mobile graphics IP vendors. The Mali architecture is
featured in slightly more than 50% of smartphones present
at Mobile World Congress 2015. Many manufacturers use
Mali only in part of their product line. As these manufactures
progress through their product cycle, other mobile graphics
products will be replaced with Mali to standardize the
product line and reduce costs.
ARMs embedded computing products which serve a variety
of end markets, ranging from digital signage, to household
appliances to driver assistance systems. The vastness of
end market applications is reflected in the more than 3,500
microcontroller units ARM’s customers offer. This huge
portfolio offers customers almost any configuration
necessary to meet their specification.
Between ARM’s expertise and the breath of solutions based
off their architecture, ARM was able to gain an additional 5%
of the embedded computing market, growing from 19% in
2013 to 24% in 2014.
We expect Embedded to make up 45% of Royalty unit mix
by 2018.
Royalty Growth Royalty Projections
Mix Projection
Embedded
8
9
10
11
12
13
14
15
16
17
$0.00
$0.01
$0.02
$0.03
$0.04
$0.05
$0.06
$0.07
$0.08
$0.09
$0.10
2014 2015 2016 2017 2018
Billio
ns
Mobile LHS Enterprise LHS
Home LHS Embedded LHS
Royalty per Unit RHS Royalty Units RHS
45%
16%5%
34%
Mobile Enterprise Home Embedded
2014
33%
16%8%
45%2018
Market Research
5
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
Catalysts
ARM’s presence in enterprise infrastructure continually
exceeds company expectations, and now reaches
approximately 10% market share. Of importance is the fact
that these products were all based off of v7. As enterprise
solutions create products based off the v8 architecture,
ARM will not only see replacement sales, but with v8’s
superior power consumption and increased computing
power will increase substantially, leading to further market
share increases. Enterprise Infrastructure market share is
expected to reach 20% by 2020
ARM is positioned to capitalize on the promising potential
and growth in sensors and computing demanded from the
proliferation of internet connectivity. Now commonly
referred to as the Internet of Things, much of this growth
market falls in ARM’s embedded segment. Another aspect
of the scalability of this connectivity is the use of wearables.
ARM can already be found in a slew of wearables, ranging
from Samsung smartwatches to the Apple Watch to Google
Glass. ARM’s products are also prevalent in other tech
products including GoPro products, Nest Learning
Thermostat, Drop Cam, and Smart Locks. Aside from
household and personal items, ARM products can be found
in automobiles, ranging from infotainment systems to
advanced driver assistance systems. As the above list
indicates, ARM already has a substantial foothold in the IoT
space and this position will only continue to grow.
Growing Market Share
Increases in Addressable Market
41%
9%
43%
7%
Asia 50%
North America Europe
Asia Pacific, ex. Japan Japan
Margin Expansion
We expect margin expansion as revenues
increase against the backdrop of relatively
fixed operating costs, revenue mix changes,
and licensing growth continues.
A disproportionate amount of cost of sales
come from physical IP segment, which will
grow slower than other revenue segments,
putting upward pressure on gross margins.
Furthermore, management states that R&D
expenses our paid back after 12 licensing
deals per offering. This payback will drive
operating margins as 163 licensing were
sold last year alone. However, the timing is
somewhat unpredictable, which guides our
projections to the conservative side
(Financials appendix).
20%
30%
40%
50%
60%
88%
91%
93%
96%
98%
Gross Margin LHS Operating Margin rhs
International Wealth
As standards of living rise globally, demand
will increase for more advanced mobile
computing and IoT devices. The potential for
greater than expected growth In living
standards abroad as a result of market
favored reforms will only further support the
bull case for ARM and drive market beating
numbers.
Geographic Breakdown
6
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
Competition
Competing companies could be also some of ARM’s
semiconductors partners. For example, Synopsys (SNPS) is a
company that provides electronic design automation (EDA),
semiconductor IP, as well as software and services. Synopsys
designs components that serve the same purpose as those
created by ARM. In September, 2014 the two companies signed a
multiyear agreement that allows Synopsys pre production access
to a large portion of ARM’s intellectual property like the latest
ARM Cortex processors for ARMv8-A and ARMv7-A
architectures, ARM Mali graphics processors, ARM CoreLink
system IP, ARM Artisan physical IP, and ARM POP IP. The two
companies have collaborated for over twenty years. We think that
partnerships like this mitigate competition risk for ARM as their
competitors become collaborators; this allows ARM intellectual
property to have a wider reach while customers can step up their
merchandise development cycles and benefit from leading
processes and IP. It also demonstrates that ARM technology is
favored by partners and competitors and has become the industry
leading.
Other Competitors/become collaborator Other Partnerships
In October 2014, ARM announced
a partnership that will optimize
ARMv8-A processor IP for Taiwan
Semiconductor Manufacturing
Company (TSMC) 10FinFET
process technology. TSMC is the
company that replaced Samsung
in manufacturing Apple iPhone 6
and 6 plus A8 chip that is uses
ARM 64-bit architecture. ARM and
TSMC have collaborated on
20SoC and 16FinFET before and
decided to collaborate again for
10FinFET.
Macro Set-Up
0%
1%
2%
3%
4%
5%
6%
7%
Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14
Private fixed investment information processing equipment and software, SAAR, YoY
1 Yr Average
Based on several macro data points within our research venture’s reach, we find the industry and marco-
outlook favorable for ARM, based on semiconductors volume, information technology investment, and
favorable pricing trends.
The graph to the right displays investment in information processing equipment, which generally uses
ARM technology. As one can see, the one year average and Y/Y growth are both increasing.
Investment Accelerating
7
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
Macro
Positive Pricing Power Trends
-7
-6
-5
-4
-3
-2
-1
0
1
2
Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14
Yo
Y %
Import (Harmonized System): Electronic integrated circuitsand micro assemblies, NSA
The chart below is an inflation measure of electronic circuitry. It shows a recent
end to unit price deflation in circuitry, indicating ARM’s end markets are some
of the few not suffering from the current global deflationary pressures. After
years of present downward pressure on pricing this market is finally stabilizing
provide a potential impetus for higher margins.
Semiconductors Trending Higher
24
25
26
27
28
29
30
31
Millio
ns
2014
Semiconductors Billings 3 MO Average 1 Year Average
8
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
Competitors
The largest semiconductor company designs,
manufactures and sells digital technology. Intel’s
main segments are; PC Client Group, Data Center
Group, while its Internet of Things Group, Mobile
and Communications Group, Software and
Services, and Other segments contribute minimally
to revenue.
Intel’s strength has been the computer
microprocessor market as it has dominated this
segment and displaced competitors like AMD and
Texas Instruments. Intel has a moat in the desktop
computer space where it has a large market share
and its Core processors are ubiquitous in the
personal computer space. However, ARM
outperforms Intel in the smartphone and tablet
market as Intel’s mobile segments loses money at
an accelerating pace. Recently, Intel announced it
intends to combine its mobile segment within its
desktop segment. Are analysis of this event is that
Intel is attempting to mask its money losing ventures
into mobile by de-segmenting its operating metrics,
as it continues to fail to adapt to the fastest growing
markets in which ARM has a dominant stronghold.
Beating IntelRelevance of Intel
$(5)
$(3)
$(1)
$2
$4
$6
$8
2012 2013 2014
Mobile and Communications Group
Internet of Things Group
Data Center Group
Intel’s latest effort against ARM is the much
announced Xeon processor. However, we see no
immediate threat to ARM products coming from
Intel. In the Mobile World Congress celebrated this
month in Barcelona, we notice that the ARM v8
technology was used in 70% of the phones
unveiled at the event; also, ARM Mali graphics
were also used in 52% of the phones. All this
points to a wide adoption of ARM technology
among OEMs and supports our view on the
company’s products technological advantage.
We favor ARM as it is solely the designer for its
technology, maintains focus on its engineering
expertise, continues R&D investment, and does
not incur productions costs while competitors like
Intel are hit by production costs, and new product
implementation costs. Qualcomm, Samsung,
MediaTek, and Nvidia, are the main players in
mobile System on Chip (SoC) manufacturing.
Their combined market shares account for the
vast majority of smartphone and tablet chips and
their CPU hardware is based on ARM’s designed
processors for which the company collects
royalties and licensing fees. We think that ARM’s
low power processors have this market cornered
(in fact, gaining share) and could take years for
Intel to keep up with ARM.
Intel’s Mobile Struggles
62%
26%
4%
0% 4% 4%
PC Client Group
Data Center Group
Internet of ThingsGroup
Mobile andCommunicationsGroup
Software andservices operatingsegments
All other
Intel’s Revenue Breakdown
9
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
Valuation
Free Cash Flows to Equity Model
2014 2015 2016 2017 2018 Term Val
EPS 1.32 1.46 1.63 1.85 $93
Dep. 0.14 0.15 0.16 0.18
Cap Ex -0.11 -0.13 -0.14 -0.16
NWC -0.08 0.04 0.04 0.00
FCFE 1.26 1.52 1.68 1.87
PV of FCFE 1.15 1.26 1.27 64.62
Value $68.29Stock Price $52.87% to fair value 29%
Discount Rate
Beta 1.2
MRP 6.45%
10Yr
Yield 2.24%
CAPM 10.0%
Our free cash flow to equity model uses a pricing method for a 2018 terminal price of $93. Our target
price is based on a trailing PE multiple of 50 times 2018 earnings. The average trailing multiple over the
last five years is 77x. Based on ARM’s historic multiple, this assumption is reasonable and gives us
greater cushion and conviction in our margin of safety, as we assume multiple contraction despite robust
opportunities for growth as a result of the increasing proliferation of microprocessors. The reasons for
ARM’s ostensibly high multiple include the following:
Unmatched margins, with business purely focused on engineering, not production
Fee based revenue model
Impressive growth prospects with proliferation of computing and more advanced computing
technologies
Market leading positions in mobile and embedded markets
Leading innovation of low power consuming technology
Broad diverse applications for ARM architecture
Superior research and development track record and cumulative IP experience
40
60
80
100
120
140
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14
PE - LTM Average
20
25
30
35
40
45
50
55
60
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14
PE - NTM Average
Historic Multiples
Simon Segars – CEOMr. Segars was selected as CEO in July 2013. He joined the company Board in 2005, and has served as EVP, Engineering; EVP, Worldwide Sales; EVP, Business Development; and EVP and General Manager of the Processor and Physical IP Divisions. Mr. Segars has been with the company over 24 years since the introduction of ARM’s early CPU products. He has worked in the development of many of the company products. Mr. Segarsholds a Bachelor of Engineering from University of Sussex and a Master of Science from the School of Computer Science at the University of Manchester. He holds numerous patents in embedded CPU architectures.
10
Tim Score – CFO
Mr. Score has been with the company since 2002 in the
role of CFO and director. He is a Qualified Chartered
Accountant and carries years of experience in corporate
finance. Prior to ARM, Mr. Score served as Finance
Director of Rebus Group Limited from 1999 to 2001; from
1997 to 1999, he was Group Finance Director of William
Baird PLC, which he joined from Group Controller for
LucasVarity plc, where he worked from 1996 to 1997. From
1991 to 1995, Mr. Score served as Group
Financial Controller for BTR PLC.
Mike Muller – CTO
Mr. Muller is a Co-founder at ARM and its Chief
Technology Officer since 2000. He has served as ARM
VP, Marketing from 1992 to 1996 and EVP, Business
Development until from 1996 to 2000. Mr. Muller is also
member of the company board since 2001. Prior to ARM,
he was head of hardware strategy and portable products
development at Acorn Computers.
Graham Budd - COO
Mr. Budd was selected to the position in 2008. He has
served as EVP and General Manager of the Processor
Division and has held numerous leadership roles on the
organization. Mr. Budd joined ARM in 1992 as a design
engineer; he has worked on the design of numerous
ARM's early system-on-chip designs. He is a chartered
engineer.
Management
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
11
Financials Appendix
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
ARM Income Statement 2011 2012 2013 2014 2015E 2016E 2017E 2018E
Technology Licensing
Processors 237 287 383 497 591 650 715 787
Physical IP 49 52 65 84 88 93 98 103
Total Technology Licensing 286 340 448 581 680 743 813 890
Technology Royalty
Processors 357 418 495 536 577 637 704 824
Physical IP 49 56 64 61 61 61 61 61
Total Technology Royalty 406 474 559 597 638 698 765 885
Software and Tools 52 55 57 57 58 58 59 60
Services42 45 54 57 63 69 75 83
Total Revenue 786 914 1,118 1,292 1,438 1,568 1,712 1,916
Cost of Sales 89.26 38 50 58 58 58 63 68 77
Gross Income 332.46 747 863 1,059 1,234 1,380 1,506 1,644 1,840
R&D 190 212 232 273 303 331 361 404
S&M 96 102 120 132 146 160 174 195
G&A Expense 106 136 159 179 187 188 188 192
Operating Costs 268.04 393 450 511 584 637 679 724 791
EBIT (Operating Income) 354 417 549 650 743 827 920 1,049
Nonoperating Income - Net 9.62 19 26 31 8 16 16 16 16
Interest Expense - - 0 0 0 16 17 19 21
Pretax Income 73.43 374 443 580 657 743 825 917 1,043
Income Taxes 19.64 106 121 206 105 119 132 147 167
Equity in Earnings of Affiliates - - (1) (6) (6) - - - -
Unusual Expenses 16 5 - 1 - - - -
Net Income 316 367 545 624 693 770 876
EPS (diluted) 0.11 $0.55 $0.68 $0.78 $1.15 $1.32 $1.46 $1.63 $1.85
Diluted Shares Outstanding 470.60 458.67 465.27 470.60 473.70 473.70 473.70 473.70 473.70
12
Financials Appendix
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
Growth Technology Licensing 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E
Processors 30% 42% 21% 33% 30% 19% 10% 10% 10%
Physical IP 15% 19% 7% 24% 29% 5% 5% 5% 5%
Total Technology Licensing 27% 37% 19% 32% 30% 17% 9% 9% 9%
Technology Royalty
Processors 40% 22% 17% 19% 8% 8% 10% 10% 17%
Physical IP 21% 11% 16% 13% -4% 0% 0% 0% 0%
Total Technology Royalty 37% 21% 17% 18% 7% 7% 9% 10% 16%
Software and Tools 7% -5% 5% 4% 0% 1% 1% 1% 1%
Services -18% 30% 7% 20% 6% 10% 10% 10% 10%
Total Revenue 26% 24% 16% 22% 15.6% 11% 9% 9% 12%
Gross Income 29% 26% 16% 23% 16% 12% 9% 9% 12%
R&D 16% 2% 12% 9% 18% 11% 9% 9% 12%
S&M 6% 15% 6% 18% 10% 11% 9% 9% 12%
G&A Expense 13% 20% 28% 17% 13% 4% 1% 0% 2%
EBIT (Operating Income) 64% 39% 18% 32% 18% 14% 11% 11% 14%
Margins
Cost of Sales 5.70% 4.90% 5.50% 5.20% 4.48% 4.00% 4.00% 4.00% 4.00%
Gross Income 94.3% 95.1% 94.5% 94.8% 95.5% 96.0% 96.0% 96.0% 96.0%
R&D Expenditure 29% 24% 23% 21% 21% 21% 21% 21% 21%
S&M Expenditure 13% 12% 11% 11% 10% 10% 10% 10% 10%
G&A Expenditure 14% 14% 15% 14% 14% 13% 12% 11% 10%
Operating Costs 57% 50% 49% 46% 45% 44% 43% 42% 41%
Operating Income 40% 45% 46% 49% 50.3% 52% 53% 54% 55%
Pretax Income 42% 48% 48% 52% 51% 52% 53% 54% 54%
Income Taxes 22% 28% 27% 36% 16% 16% 16% 16% 16%
Net Income 31% 32% 35% 33% 42% 43% 44% 45% 46%
13
Financials Appendix
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
Balance Sheet 2011 2012 2013 2014 2015E 2016E 2017E 2018EAssets
Cash 80 76 185 228 343 531 688 685
Short-Term Investments 397 554 641 828 1,048 889 758 702
Short-Term Receivables 210 242 417 260 288 282 291 326
Inventories 4 4 5 4 5 5 6 6
Other Current Assets 47 204 44 37 41 45 49 55
Total Current Assets 738 1,079 1,292 1,358 1,725 1,752 1,792 1,775
Net Property, Plant & Equipment 28 59 61 68 72 78 86 96
Total Investments and Advances 172 263 238 340 359 376 394 422
Long-Term Note Receivable 3 3 5 5 5 5 5 5
Intangible Assets 862 862 1,008 1,004 1,004 1,004 1,004 1,004
Deferred Tax Assets 167 116 108 100 100 100 100 100
Other Assets 4 3 3 3 3 3 3 3
Total Assets 1,974 2,386 2,715 2,877 3,268 3,319 3,383 3,404
Liabilities & Shareholders'
Equity
ST Debt & Curr. Portion LT Debt 5 5 16 6 6 6 6 6
Accounts Payable 13 10 12 18 20 22 24 27
Income Tax Payable 41 27 31 50 50 50 50 50
Other Current Liabilities 228 338 405 332 283 319 369 412
Total Current Liabilities 287 380 464 406 359 397 449 494
Long-Term Debt - 5 2 4 4 4 4 4
Deferred Tax Liabilities 3 2 0 13 13 13 13 13
Other Liabilities 35 39 75 71 71 71 71 71
Total Liabilities 325 426 542 494 448 485 538 583
Common Equity 1,649 1,961 2,172 2,383 2,383 2,383 2,383 2,383
Retained Earnings 437 451 462 438
Total Equity 1,649 1,961 2,172 2,383 2,820 2,834 2,845 2,821
Total Liabilities & Equity 1,974 2,386 2,714 2,877 3,268 3,319 3,383 3,404
14
Financials Appendix
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
ARM Cash Flows 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E
Cash Flow
Operating Activities
Net Income / Starting Line 197 252 316 367 545 624 693 770 876
Depreciation, Depletion & Amortization 31 21 28 44 58 64 70 77 86
Other Funds 4 26 16 164 78 78 78 78 78
Funds from Operations 233 299 360 575 681 767 842 925 1,041
Changes in Working Capital 71 19 (128) 52 (74) (79) 39 39 4
Net Operating Cash Flow 304 317 232 627 607 689 881 964 1,044
Investing Activities
Capital Expenditures (11) (21) (41) (71) (49) (54) (60) (67) (78)
Net Assets from Acquisitions - (14) - (33) (21) - - - -
Sale of Fixed Assets & Businesses 0 0 - - - - - - -
Purchase/Sale of Investments (17) (13) 2 (11) (5) (5) (6) (6) (7)
Other Funds (241) (218) (122) (296) (236) (191) (209) (228) (255)
Net Investing Cash Flow (269) (266) (160) (411) (310) (250) (274) (301) (339)
Financing Activities
Cash Dividends Paid (48) (68) (83) (108) (143) (187) (243) (308) (438)
Change in Capital Stock 37 14 13 9 (98) (108) (118) (129) (144)
Issuance/Reduction of Debt, Net - - (5) (7) (12) (14) (15) (16) (18)
Net Financing Cash Flow (11) (54) (75) (106) (253) (309) (375) (453) (600)
Exchange Rate Effect (0) (0) (1) (1) 0 (14) (16) (17) (19)
Net Change in Cash 24 (4) (4) 109 44 115 215 193 85
15
Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings
Markets Appendix
ARM is investing with its partners to homogenize the basic software building blocks, to permit the car manufacturers and its supplier to focus on areas of value add and differentiation around the user interface. ARM is heading towards a future that incorporates simpler advanced user interfaces in the car and provides continuous access to content as a user transfers from their home, to the car and to the office.
Embedded
Smart Cards
In-vehicle Infotainment
ARM defines "Embedded Computing" as equipment that carries out computing functionality, yet is provided as a "black box". This means preloaded applications, and no capability for the users of the equipment to add new hardware functionality or new applications. Applications include digital signage, ATM machines and factory automation. Unlike personal computers, these systems are have considerably higher levels of reliability, which places tighter demands on the system architect in terms of thermal considerations and temperature range of operation.
Across a number of applications, there is an increased need for more performance, either due to increased algorithm complexity, integration of multiple, discrete MCU systems into a single entity or the inclusion of wireless/wired connectivity. The rapid growth of the 32-bit controller market, coupled with ARM efforts to standardize low level software libraries further accelerates the availability of software libraries optimized for use on the Cortex-M family of embedded processors, reducing the learning curve for new microcontroller developers and improving time to market for new devices.
Smart cards are perhaps the single largest application of embedded microcontrollers by volume. They are evolving from relatively simple single application chips to high capacity multi-application secure devices. The Mobile Segment is a key driver for new technology in the smart card market with the once humble SIM card becoming a true multi-application card. Since all GSM handsets carry SIM cards, it is a device primed for carrying: payment, ticketing, loyalty, physical access control and many more applications that require some level of offline secure functionality. Over-the-air provisioning of new applications is driving the need for additional processing power and storage.
Embedded Computer
General Purpose MCUs
Smart Meter
The spiraling costs of residential and enterprise energy requirements are forcing public utility companies across the world to be more efficient in the way they manage power. Utility companies are starting to deploy electronic metering systems that capture and transmit usage information with the long-term goal to empower and educate users as to the real-time cost and impact of using an appliance at a particular moment in time.