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Most things are relative – and that is probably the best (or even only) way to approach valuations at ARM. Shares in the British-based chip designer have traded on a historic average of 30 times forward earnings. At 931.50p – up 7 per cent on Tuesday's first-quarter results – they are on 45 times. The question for investors, then, is simple: can this stratospheric rating be justified?

Tuesday's news gave skeptics little, if any, ammunition. First-quarter revenues were up 26 per cent year-on-year at $264-million (U.S.). That was 5 per cent ahead of expectations and the 15th successive quarter in which ARM has topped market forecasts for sales, according to Citibank. The outperformance came largely from processor royalties, up a whopping 33 per cent year-on-year at $123-million. As ARM fairly admits the comparison was made easier by the inventory corrections that took place a year ago. Even so, this hugely outpaced semiconductor industry growth of 2 per cent over the same period reflecting demand for smartphones and tablets and the dominant market position of ARM-designed chips in powering these devices.

Average royalty per chip held firm with growing income from higher value processors offset by growth in lower value, high volume markets such as touchscreen controllers. On the licensing side, the order backlog was up another 5 per cent, quarter-on-quarter. Tax trends are helpful. And the company expects to "at least" meet 2013 sales expectations – which implies revenues will grow by almost one-fifth this year.

Those seeking to quibble could fret about the impending management change as chief executive Warren East steps down, or Intel's ambitions in the mobile market and longer-term device sector trends. The rating is a nonsense. That said, it is hard to escape the conclusion that ARM's prospects look at least half as good again as they have historically been.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
AAPL-Q
Apple Inc
-1.06%171.48
C-N
Citigroup Inc
+0.78%63.24
GOOG-Q
Alphabet Cl C
+0.21%152.26
INTC-Q
Intel Corp
+0.91%44.17
MSFT-Q
Microsoft Corp
-0.17%420.72

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