MARCH 8, 2013
Electronics IP Industry –Q4 2012
by Russ Henke - Contributing Editor
Posted anew every four weeks or so, the EDA COMMENTARY delivers to its readers information concerning the latest happenings in the EDA industry, and at least once a quarter also covers similar happenings in the MCAD/MCAE space, reporting on vendors, products, finances and new developments. Frequently, feature articles on selected public or private EDA & MCAD/MCAE companies are presented. Brought to you by EDACafe.com. If we miss a story or subject that you feel deserves to be included, or you just want to suggest a future topic, please contact us! Questions? Feedback? Click here. Thank you!
This is the MARCH 8, 2013 article for the EDACafe.com EDA Commentary, which covers the “Electronics IP Industry for Q4 2012.”
The IP FINANCIAL RESULTS for Q3 2012 were presented back on December 02, 2012. To read the December 02, 2012 EDA COMMENTARY entitled, "The Electronics IP Industry - Q3 2012", click here.
In this series of articles we return our quarterly attention to the phenomenon of the rise of Intellectual Property (IP) in the world’s Electronics Industry, an important segment of Electronic Design Automation (EDA) that Henke Associates began reporting on separately in EDACafe.com in 2003.
Back then at the start, we covered eight (8) publicly-traded IP companies from around the world (called the "Group-of-8" or "G8"), as representative of the financial state of the then very immature IP Industry. In an early action that foretold its sophisticated understanding of what the IP segment might become, ARM absorbed Artisan Components in 2004; much later, Mentor Graphics acquired LogicVision in 2009; and Synopsys bought Virage Logic in 2010. So these days, when we report on the Electronics IP Industry quarterly financials, the G5 listed below are included:
EDA IP Vendor Results for Q4 2012
PUT REST OF LATEST VERSION SENT TODAY HERE
On February 05, 2013 ARM Holdings plc announced its unaudited financial results for the fourth quarter ended December 31, 2012.
Progress on key growth drivers in Q4 2012
- Growth in adoption of ARM®processor technology
- 36 processor licenses signed for a broad range of applications, from smart phones and mobile computers to medical devices and microcontrollers
- Momentum continues in computing, servers and networking applications with the signing of two ARMv8 architecture licences, six ARMv8 processor licenses and three ARM Cortex™-A15 processor licences
- Growth in shipments of chips based on ARM processor technology
- 2.5 billion chips shipped
- Processor royalty revenue grew 21% year-on-year, driven by strong growth in Cortex-A and Mali™-based chips
- Growth in outsourcing of new technology
- 7 Mali graphics processor licenses signed
- 5 physical IP based POP™ IP products licensed
Warren East, ARM's Chief Executive Officer, said, “ARM has seen good revenue and earnings growth throughout 2012. Customers are developing products to meet the needs of the "post -PC era" and are driving demand for ARM's most advanced technology. In Q4 2012 ARM again saw influential market-leaders demonstrating their commitment to ARM technology by licensing its latest products. Royalty revenue has also grown strongly during Q4 underpinned by ARM’s market share gains and an increased royalty percentage from Cortex-A class processors being deployed into smart phones and tablets."
Mr. East continued, ”2013 brings exciting opportunities and challenges as ARM enters competitive new markets where we are well positioned to succeed with leading technology, an innovative business model and a thriving ecosystem of partners.”
ARM reported that it entered 2013 with a robust opportunity pipeline for licensing and a record order backlog. Market share gains in long-term growth sectors look set to continue as ARM partners introduce new chips based on ARM technology. ARM believes that the global macro-economic environment continues to be uncertain with possible low growth for some time. This low growth will influence consumer and enterprise spending will inevitably impact semiconductor revenues and industry confidence. However, assuming the macroeconomic situation does not deteriorate significantly, ARM expects group dollar revenues for the full-year to be at least in line with current market expectations.
In recent quarters, the year-on-year growth of ARM’s processor royalty revenues has outperformed the semiconductor industry by 15-20%. ARM’s royalty revenues for Q1 2013 are based on actual shipments in Q4 2012. Relevant data for the fourth quarter of 2012 suggests that semiconductor revenues were marginally up year-on-year. Assuming year-on-year royalty growth based on similar trends and given the positive outlook for license revenues, total ARM revenues in the first quarter of 2013 are expected to be around $250 million.
ARM Total Revenues in US$ reached $262.8 million in Q4 2012, up 21% compared to $207.0 million in Q4 2011. For all of 2013, REVENUES WERE $913.2 MILLION, UP 16% OVER $785 MILLION IN 2011.
Gross margins in Q4 2012, excluding share-based payments charges of £0.6 million (see below), were 95.1% compared to 94.6% in Q3 2012 and 96.0% in Q4 2011.
Full-year gross margin, excluding share-based payment costs of £2.1 million, was 94.8% compared to 95.1% in 2011.
Operating expenses and operating margin
Total IFRS operating expenses in Q4 2012 were £98.9 million (Q4 2011: £84.1 million) including share-based payment costs and related payroll taxes of £15.6 million (Q4 2011: £13.2 million), and amortisation of intangible assets and other acquisition-related charges and impairments of £3.6 million (Q4 2011: £5.1 million).
Total share-based payment costs and related payroll tax charges of £16.2 million in Q4 2012 were included within cost of revenues (£0.6 million), research and development (£8.3 million), sales and marketing (£2.6 million) and general and administrative (£4.7 million).
Total IFRS operating expenses for the full-year 2012 were £336.9 million compared to £315.2 million in 2011.
Normalised income statements for Q4 and full-year 2012 and 2011 are included in notes 11.13 to 11.16 below which reconcile IFRS to the normalised non-IFRS measures referred to in this earnings release.
Normalised operating expenses were £79.7 million in Q4 2012 compared to £72.3 million in Q3 2012 and £65.8 million in Q4 2011. Given the strong revenue and bookings performance in the quarter, Q4 operating expenses included incremental bonus and sales commission costs of approximately £5 million. There was also a charge of approximately £2 million due to the impact of a weaker dollar on the accounting for derivative instruments.
Earnings and taxation
Profit before tax was £59.5 million in Q4 2012 compared to £49.7 million in Q4 2011. considered non-recoverable following a change in US state law. With the introduction of the Patent Box tax regime in April 2013, ARM’s full-year normalised effective tax rate in 2013 is expected to be around 20%.
Net Income for ARM in Q4 2012 measured in US dollars was $ million in Q4 2012, up % over Q3 2012, and up % above Q4 2011. Fully diluted earnings per share in Q4 were , compared to in Q3 2012 and to in Q4 2011.
Fully diluted earnings per share were 3.04 pence (14.8 cents per ADS) compared to earnings per share of 2.40 pence (11.2 cents per ADS) in Q4 2011. Normalised fully diluted earnings per share in Q4 2012 were 4.08 pence (19.9 cents per ADS) compared to 3.71 pence (17.3 cents per ADS) in Q4 2011.
Full-year 2012 fully diluted earnings per share prepared under IFRS were 11.51 pence compared to earnings per share of 8.19 pence in 2011. Normalised fully diluted earnings per share for 2012 were 14.70 pence per share compared to 12.45 pence per share in 2011
AS of December 31, 2012, ARM had 2,392 full-time employees, a net increase of 276 since the start of the year, being mainly engineers joining ARM’s processor R&D teams. At the end of Q4, the group had 993 employees based in the UK, 583 in the US, 296 in Continental Europe, 347 in India and 173 in the Asia Pacific region.
Principal risks and uncertainties
The principal risks and opportunities faced by the Group include but are not limited to: ARM's quarterly results may fluctuate significantly and be unpredictable which could adversely affect the market price of ARM ordinary shares; general economic conditions may reduce ARM's revenues and harm its business; ARM may have to protect its intellectual property or defend the technology against claims that we have infringed others’ proprietary rights; an infringement claim against ARM’s technology may result in a significant damages award which would adversely impact ARM’s operating results; companies within the semiconductor industry may consolidate reducing the number of customers that ARM may sell its technology to; for ARM to enter new markets or develop new technology may require significant investment and may not result in profitable operations; and ARM competes in the intensely competitive semiconductor market.
By now, almost all readers are familiar with five IP companies and the company spokespeople that are covered in this IP Commentary issued every three months. If you want refresh your memories, please refer to past issues by GOING TO THE WEBSITE BELOW:
Our first surprise is contained in Table 1, which contains the G5 Electronics IP Revenues for five quarters, starting with the most recent quarter ending September 30, 2012. We immediately notice a sequential revenue growth in Q3 2012 of 7.26% and year-over-year growth of a whopping 18.81% for the perennial leader ARM Holdings save one, but the next three of the IP vendors actually shrank in revenue recognized in the quarter compared to Q2 2012. While Rambus avoided shrinkage in Q3, it barely did so with only a token revenue increase of just over 2%.
Table 1's SUM of Revenue for the G5 IP companies for Q3 2012 [313.28 MILLION] still comes in larger than the lowest QUARTERLY REVENUE SUM ON THE CHART; THAT DUBIOUS HONOR GOES TO Q1 2012.
INDEED, THROUGH THREE QUARTERS OF 2012, THE G5 IP VENDORS TAKEN TOGTHER ARE ONLY AVERAGING $313.06 MILLION A QUARTER, ONLY A COUPLE MILLION A QUARTER THAN THEY AVERAGED IN ALL OF 2O11.
TURNING FINALLY TO NET INCOME, WE HAVE TABLE 2:
Notice that Table 1 columns far above calculate the percentage of one quarter over the other, as labeled, whereas in Table 2 just above, the relevant columns provide the numerical dollar differences in earnings between two different quarters as labeled.
About the writer:
Since 1996, Dr. Russ Henke has been active as president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. The number of client companies served by Henke Associates during those years now numbers close to fifty. Engagement lengths have varied from a few weeks up to ten years and beyond.
During his previous corporate career, Henke operated sequentially on "both sides" of MCAE/MCAD and EDA, as a user and as a vendor. He's a veteran corporate executive from Cincinnati Milacron (Research Scientist – Oakley, OH), SDRC (President & COO – Fairfax, OH & Milford, OH), Schlumberger Applicon (Executive VP – Burlington, MA),Gould Electronics Imaging & Graphics (President & General Manager – San Jose, CA), ATP (Chairman and CEO – Campbell, CA), and Mentor Graphics Corporation (VP & General Manager – PCB Division San Jose, CA & Professional Services Division – Wilsonville, OR).
Henke is a Fellow of the Society of Manufacturing Engineers (SME) and served on the SME International Board of Directors. Henke was also a board member of SDRC, PDA, ATP, and the MacNeal Schwendler Corporation, and he currently serves on the board of Stottler Henke Associates, Inc. (San Mateo, CA). He also serves as VP Business Development of Stottler Henke, focused on commercial applications of artificial intelligence.
In addition, Henke is a member of the IEEE and a Life Fellow of ASME International. In April 2006, Dr. Henke received the 2006 Lifetime Achievement Award from the CAD Society, presented by CAD Society president Jeff Rowe at COFES2006 in Scottsdale, AZ. In February 2007, Henke became affiliated with Cyon Research's select group of experts on business and technology issues as a Senior Analyst. This Cyon Research connection aids and supplements Henke's ongoing, independent consulting practice (HENKE ASSOCIATES). Dr. Henke is also a contributing editor of the EDACafé EDA WEEKLY, and he has published EDA WEEKLY articles every four weeks since November 2009; all URL's available.
Since May 2003 HENKE ASSOCIATES has also published more than 100 independent COMMENTARY articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafé and EDACafé; most URL’s available.
Information on HENKE ASSOCIATES is available at http://www.henkeassociates.net
March 31, 2013 will mark the 1yth Anniversary of the founding of HENKE ASSOCIATES.