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A customer uses his new iPhone 4S after making the purchase at Apple's flagship retail store in San Francisco, California October 14, 2011. Apple Inc's new iPhone 4S went on sale in stores across the globe on Friday, prompting thousands to queue around city blocks to snap up the final gadget unveiled during Steve Jobs' life. (Robert Galbraith/REUTERS)

A customer uses his new iPhone 4S after making the purchase at Apple's flagship retail store in San Francisco, California October 14, 2011. Apple Inc's new iPhone 4S went on sale in stores across the globe on Friday, prompting thousands to queue around city blocks to snap up the final gadget unveiled during Steve Jobs' life.

(Robert Galbraith/REUTERS)

Mobile chipmaker ARM outperforms smartphone makers Add to ...

ARM Holdings beat market expectations for the second quarter after demand for its low-power chips in smartphones outstripped the industry, providing a firm foundation against growing signs of weakening consumer demand.

Apple, which uses ARM’s technology in the iPhone and iPad, missed expectations on Tuesday, hit by Europe’s economic woes and a pause in iPhone sales ahead of the next version.

ARM’s rival chipmaker Intel and its customer Qualcomm also reduced forecasts in recent weeks, reinforcing fears about the strength of demand for technology.

Chief financial officer Tim Score said ARM’s chipmaker customers were sounding notes of caution, but the strength of demand for its technology and a strong performance in licensing meant it was confident of meeting market forecasts for the year.

Analyst Julian Yates at Investec said it was a good set of numbers. “It’s 5 per cent ahead of our profit number, and they have beats on top-line royalties and licences,” he said.

Paul Morland at Peel Hunt said ARM had a “very strong” quarter, but he added that macro concerns would limit upgrades.

“Underlying forecasts remain unchanged despite the beat because ARM cautiously expects a generally weaker outlook for global chip shipments to mean that the beat in Q2 could be lost in Q4,” he said.

Some 2 billion chips using ARM’s technology were shipped in the quarter, up 9 per cent year-on-year compared with a 4 per cent fall in industry shipments, ranging from processors in tablets to microcontrollers in air conditioners.

The increased penetration of ARM’s technology helped processor royalties rise 14 per cent to 96.3 million pounds, bucking a 7 per cent decline in industry revenues, the company said on Wednesday.

The Cambridge-based company posted a 23 per cent rise in adjusted pretax profit to 66.5 million pounds on sales of 135.5 million, resulting in earnings per share of 3.58 pence, all ahead of analyst forecasts.

Mr. Score said the group was benefiting from strong demand for smartphones, tablets and digital TVs.

But he said macroeconomic uncertainty could hit demand later in the year.

“A lot of the guidance that has come out in the last few days from semi companies has been a much flatter picture,” he said.

“It is possible therefore that the royalty uptick in the fourth quarter is not what we usually see. But offsetting that there is strong licence momentum, which is why we are confirming the overall picture for the full year.”

ARM licenses its technology to chipmakers, which pay it a royalty on each chip shipped.

It reports royalties a quarter in arrears, so its second-quarter numbers reflect sales of devices in the first months of the year.

Analysts currently expect full-year revenue of $875-million (U.S.), Mr. Score said, after slightly nudging their numbers down from $877-million to reflect the weaker economic climate.

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