ARM Holdings plc (ADR) (NASDAQ:ARMH)

Great product portfolio with microprocessor architecture being used in many different products.

With a PE of 86.50, this stock looks to be overpriced already. Add to that that Intel has released their Medfield Atom chips for smartphones and tablets, which are outperforming comperable ARM chips from Qualcomm, etc., at about the same power envelope, then heap on that 22nm Intel chips are coming sometime around Q2 of this year, and 14nm Intel chips in 2013, and I think you're going to see Intel taking a significant amount of market share away from ARM licensees, and a corresponding decline in ARM license fees (their revenue). So, in a 5 year window, yes, I think ARMH will underperform the market...

Strong Smartphone and tablet growth bodes well for ARM - they currently dominate the space. Intel is a credible threat, but with the enormous growth rate of the space, there is room for both.

http://www.fool.com/investing/general/2011/09/14/4-reasons-to-buy-this-mobile-chip-stock.aspx

4 Reasons to Buy This Mobile Chip Stock
I did it. I pulled the trigger and am now a shareholder of ARM Holdings (Nasdaq: ARMH ) as of last week. I told you weeks ago that I was considering picking up shares. Here are the reasons I couldn't sit on the sidelines any longer.

One of a kind
The company's distinct position in the mobile supply chain gives it opportunities unlike any other chip company. By spreading the cost of R&D throughout the industry and licensing out the technology while collecting royalties, the industry as a whole benefits from ARM's role by saving an estimated $20 billion annually compared to if every company had to do its own R&D. These cost savings inevitably result in cheaper products for you and me. By leaving the chip fabrication to semiconductor manufacturers, the company also doesn't have to burden itself with the billions of capital expenditures associated with operating a chip foundry.

To say that ARM dominates the mobile chip market is an understatement; it owns the market.

Widespread mobile CPUs like Qualcomm's (Nasdaq: QCOM ) Snapdragon and NVIDIA's (Nasdaq: NVDA ) Tegra are built on ARM technology. This includes NVIDIA's recent superhero quad-core chip that just began shipping.

Other bigwig tech players supporting ARM include Texas Instruments, Samsung, and Marvell Technology. Apple's (Nasdaq: AAPL ) custom A5 chip also uses ARM technology. The list goes on and on, with a total installed base of more than 800 licenses. ARM-designed chips are used in more than 95% of mobile phones and are starting to make their way into other computing devices.

Arm-in-arm to new markets
With Microsoft (Nasdaq: MSFT ) already including ARM support in Windows 8 and talk of Apple testing ARM-powered MacBooks, the stage is set for an invasion into Intel's (Nasdaq: INTC ) home turf. Even as Google's (Nasdaq: GOOG ) Chrome OS and Chromebooks have yet to make a dent, that OS also packs ARM support.

Market analysis firm iSuppli predicts that ARM processors will take a 20% market share of laptops by 2015, foreseeing a sea change led by Windows 8 as laptop makers include the chips in favor of low power consumption, lower cost, and high performance.

Other areas for potential growth in the coming years include microcontrollers, automotive, digital cameras, digital TVs and set-top boxes, and 4G base stations, to name a few.

They always come back for more
Each license sold generates recurring royalty revenue for years to come. Royalty revenue as a percentage of total revenue has been on the rise, along with gross margin -- 94.8% last quarter. Operating margin also hit a record high at 44.5% recently.

On top of that, new license activity continues to gain momentum -- 91 new licenses inked in 2010 compared to 87 in 2009 and 61 in 2008. It takes an average of three to four years before a licensee begins producing chips and paying royalties, so all the recurring revenue from those new licenses is still in the pipeline.

Stacking up
Last quarter's revenue grew by 27% while competitor MIPS Technologies (Nasdaq: MIPS ) recently reported a 24% drop in its sales. ARM does trade at a notably higher valuation than its competitors, but also has shown more promising growth.

Company

Price / Sales (TTM)

Sales Growth (5-Year)

Gross Margin (TTM)

Return on Equity (TTM)

ARM Holdings 17.8 11.8% 93.9% 10.2%
MIPS Technologies 3.5 5.1% 98.4% 23.3%
Intel 2.1 2.4% 63.0% 25.9%
Source: Reuters. TTM = trailing 12 months.

Even though the company's return on equity is lower, keep in mind that ARM carries no debt on its balance sheet, whereas Intel carries roughly $2.3 billion in debt. That leverage will boost return on equity when times are good, but, like any leverage, can hurt when times are tough.

The mobile market is only the first to be conquered by ARM. The momentum it has gathered will carry into multiple other sectors for potential expansion and drive sales growth for years. Consumers typically upgrade smartphones every two years -- once those pesky contracts are satisfied -- which will keep generating cash for the company from the mobile market even as ARM widens its horizons.

The long haul
There's a lot to look forward to in the coming years as a newfound ARM shareholder. The company has already benefitted from society's mobile push, which is just beginning, and I think this one will be a winner for the long haul.

Teaming up with NVDA to create one of the most powerful, energy efficient chips on the market today! Look for Q3 for a ride of the year!

ARM Holdings has become a darling of the markets, boasting a 72.6x P/E. Frighteningly, even if ARM quadruples its earnings this quarter and maintains that level, it would take 18.15 years to return the earnings which would justify its P/E. While the market for smartphones and tablets is burgeoning, I do think that Intel will manage to break into the market with its vast resources and perhaps take over. At the very least, the price of this stock will have to come back down. I would much rather gamble on Intel then on ARM, though I'm slightly bearish on its prospects as well.

Back in after many years. Finally the thesis came true, just a few years after I gave up. Need to learn patience.

Some say this may be the stock of the decade.
If so, then it should do my CAPS score good, eh?.

Chip designer to the stars. Navellier stock of the decade. No, century. Millenium. All-time.

The tablet computing revolution is here, and these are the folks who make the chips that power that revolution. As long as they can keep their products on the edge of technology, they will come out strong.

Smartphones, tablets, computers, oh my!

Buying in on the drop. Great piece written on the company by UltraLong.

http://www.fool.com/investing/general/2011/08/09/2-electronics-dividends-to-buy-and-1-to-avoid.aspx

ARM sits on the catbird seat in semiconductors. With no cost to manufacture, profits are reinvested in chip design. Those designs are then licensed to a growing set of manufacturers including the biggest of the big and the smallest of the small. With an insatiable demand for smaller, faster, more efficient chips as mobile computing emerges as the next tech revolution, ARM is a logical long term play.

Momentum play for now.

Way overpriced

Long Term Outperform.

All this week, we are counting town the Top 5 technology stocks for the fall of 2011 at FastballFinancial.com. Technology stocks have been particularly beaten down of late. Furthermore, technology stocks have historically performed well in the fall, mostly because it's when they make the majority of their profits (for multiple reasons) and therefore can provide the most clarity to investors. Here is the #3 tech stock for the fall of 2011:

ARM Holdings (ARMH)

ARM is a technology Intellectual Property company, meaning that they develop the technology and then charge other companies a fee to use the technology they've developed. They make 50% of their revenue off royalties and 37% of their revenue off licensing. Royalties, which grew 16% year-over-year, are based primarily on the mobile technology market. Licensing revenue comes from semiconductor companies, consumer electronics and enterprise products. This segment few at 37% year-over-year and is an important driver of the company's success especially since Microsoft & Google are currently building their products around ARM-based technology for Windows 8 and Chrome, respectively.

ARM boasts a 20% profit margin and no debt to go along with their revenue growth. Their P/E is roughly 45. Interestingly, ARM also pays a small dividend of approximately 0.5%.

Given their already substantial presence in leading technology that should continue to grow, I would not hesitate to buy this stock on any future dips.

Smartphones are poised to become the standard in the next 4 years. The iPad has convinced the public that they want/need tablet computing. This makes ARM a profitable place to be in 2 separate growth categories.

I picked ARM to under-perform and for Intel to out-perform on the presumption that Intel will eventually establish a meaningful market share in the hand-held Internet access devices. Intel's resources and past history of steam rolling over competitors makes me think that, in the end, ARM's 50 P/E ratio will be viewed as overly optimistic. If I turn out wrong, well, good for ARM Holdings, but right now I think this is the correct longer-term bet.