ARM Holdings plc Q Roadshow Slides. Version: Draft

Transcription

1 ARM Holdings plc 2016 Roadshow Slides Version: Draft

2 2016 Progress against strategy Licences signed for broad range of end markets Cortex-M for Embedded Intelligence 8 Cortex-A for Mobile, Automotive and Enterprise 2 Mali IP for Mobile and Consumer Royalty revenue growth continuing % $192m ARM 2016 Key market performance (unit growth) Mobile +5% 2016 Microcontrollers and Smartcards +20% 2016 Enterprise infrastructure +10% 2016 Physical IP Platform for Growth Licence revenue % $13m Royalty revenue % $24m Licence revenue declined as 20nm delivered; licences for 10/7nm will drive future revenues 2 long-term agreements signed for 55nm to 14nm 50% royalty revenues from 28nm and more advanced geometries

3 Technology adoption and increased investment 39 licences signed Broad mix of ARM technologies, with a high proportion of licenses being recognised as revenue in the quarter Smartphones: increasing royalty per device ARMv8-A ~60% of smartphones in Octa core ~25% of smartphones in Mali #1 shipping graphics processor with 50% share Investing in Future Technology R&D Spend +44% 68m 2016 Total Headcount % 4, other employees up 12% 3,254 engineers up 25% Strong financial performance Gaining share in growth markets Networking: 15% share (up from 10% in 2014) Microcontrollers and smartcards: 25% share Early deployments of ARM-based servers Group Revenue (GBP) +21% 2016 Normalised Opex (GBP) +33% 2016 Normalised EPS (p) 276m +15% 133m 8.2p ARM 2016

4 ARM Introduction Global leader in the development of licensable technology R&D outsourcing for semiconductor companies Innovative business model yields high margins Upfront licence fee flexible licensing models Ongoing royalties typically based on a percentage of chip price Technology reused across multiple applications Long-term, secular growth markets ~1,350 licences Growing by >120 every year 14.8 bn ARM-based chips in 17% CAGR over last 5 years 4 ARM 2016 Over 440 potential royalty payers Industry leaders and high-growth start-ups; chip companies and OEMs

5 Long-term growth opportunity ARM s opportunity to increase revenue and profitability CAGR Route from to 2020** Technology Licence revenue ($) 20% Reverting to 5-10% CAGR over time Technology Royalty revenue ($) 18% Expecting ~15ppt outperformance* through multiple years Other revenue ($) 6% Group revenue ($) 17%*** Opex ( ) 15% Continuing to invest in R&D to accelerate share and create new opportunities Profit Before Tax ( ) 25% Investment in R&D drive growth in profits over the long-term Earnings per share (p) 25% Growing profits and reducing tax rate drive EPS growth Net cash generation 15% Dividend 26% Consistent with medium term EPS growth * Semiconductor revenue 2011 to grew 1.4% CAGR. WSTS data excluding memory and analog, January 2016 ** Assumes exchange rate of 1.54 *** 18% CAGR in GBP Including Software and Tools, and Services 5 ARM 2016

6 Key growth drivers Maintain or gain share in long-term growth markets From mobile phones to networking infrastructure to embedded smart devices and servers Increase value of ARM technology per smart device More chips per product and more advanced processors with higher royalty rates Physical IP and multimedia IP further increase ARM s value per chip Generate new revenue streams from adjacent markets Investing in new technologies and businesses Invest to create a sustainable business, fit for the long term Create superior returns by developing new technology that will deliver increased profitability and cash generation 6 ARM 2016

7 From Revenue to Profits and Cash 2016 Revenues $m m %revs Licensing % Royalty % Other % Total % Over 95% of revenues earned in US dollars\ Royalties approximately 50% of revenues Cost of Revenue 9.1 Gross Margin 96.7% 7 ARM 2016 Operating Costs Operating Margin 48.6% Profit Before Tax EPS (p) 8.2 Net Cash Generation 80.6 Total Cash 1,005.9 Normalised numbers 10% move in $/ impacts EPS by ~15% (forex impacts revenues and costs) Revenue growth has driven higher operating margins and earnings Cash generative, debt free

8 ARM s main growth markets Mobile Computing Enterprise Infrastructure Embedded Intelligence >85% Share in 15% Networking Infrastructure Share in 25% Share in Smartphones, tablets and laptops Apps processor, modem, connectivity, touchscreen and image sensors Apps processor: Increasing proportion using ARM technology with higher royalty per chip from ARMv8-A, octa-cores, graphics and physical IP 8 ARM 2016 Base stations, routers, switches, and servers for cloud and data centres Networks evolve to cope with increased data at lower latency: virtualisation, integration and programmability Most major chip vendors have announced ARM-based products Automotive, white-goods, wearables, smart devices in industrial and utilities Microcontrollers, smartcards, embedded connectivity chips 200 companies have licenced ARM processors for use in embedded intelligent devices

9 ARM investing for the long term Mobile Computing Enterprise Infrastructure Embedded Intelligence $40bn TAM 2020 $36bn TAM 2020 $45bn TAM 2020 Investing to generate more value per device More advanced processors Broader range of technologies available (graphics, video, display, interconnect) Closer collaboration with market leaders Investing to accelerate market share gains New software ecosystems Supporting deployments Investing to create new revenue streams New architectures for secure, connected devices Broader range of technologies New markets and opportunities 9 ARM 2016

10 ARM investing for the long term ARM is investing for long-term returns Majority of investment is people related In, total headcount increased by net 681 of which net 568 were engineers; R&D headcount increased by twice the rate of non-r&d Mix of organic expansion and acquisitions Acquisitions accelerate product development and/or broaden the product portfolio Normalised operating expense 65% of opex increase invested in R&D 432m + 72m 215m 360m 168m 111m 81m + 13m + 12m 124m 93m 2014 G&A S&M R&D 10 ARM 2016

11 Balancing resilience, investments and cash returns Cash reserves ( m) Investing in the business ( m) Increasing returns to shareholders (p) Maintaining robust business for flexibility and fire-power Sustaining growth for the long-term Dividend increased at 25% CAGR Acquisitions 11 ARM 2016 Normalised operating costs

12 Licensing enables future royalties 39 licences signed in 2016 ARM s current royalty revenues are derived from licences signed many years ago Growing base yields royalty revenues over long period Cumulative Licences ~ ~50% of ARM most recent licences are drivers of future royalty revenue +39 ~1350 $400m $350m $300m $250m $200m $150m $100m $50m Significant Royalty Potential from Recent Licences 2012 to present Pre-2007 ~375 licences ~600 licences signed since Jan 2012 ~375 ~600 0 Pre $0m H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 12 ARM

13 Licensing drives market share ARM gains share by winning designs at leading semiconductor companies 13 ARM 2016 Share Mobile Apps Processors >85% Computing* Connectivity, Sensors, etc. 60% Voice / Feature Phones 95% DTV and STB 50% Consumer Entertainment 80% Computer Peripherals 75% Servers (ARMv8-A based) <1% Networking Infrastructure 8% Hard Disk and SSD 90% Automotive Apps Processors 95% Other Automotive Chips 5% Smartcards 22% Microcontrollers 26% Embedded Connectivity >50% 3D Graphics 30% * Includes smartphones, tablets and laptops Shipping mainly ARM-based chips Shipping some ARM-based chips Public ARM design wins, but not yet shipping No ARM design win or not yet public Movement from 2014 to 13 companies re-equipped 11 companies re-equipped 1 companies re-equipped 2 companies re-equipped 2 companies decided to use ARM Movement in 1Q companies re-equipped 1 company re-equipped Based on current market shares and ARM s view of how these markets may develop. ARM will update the chart on the left only when design wins become public

14 Markets for ARM: and 2020 Application Chip Function Device Shipments Chip Shipments 2020 ARM Chips Market Share Device Shipments Chip Shipments Chip CAGR Mobile Apps Processors 1,800 1,600 >85% 2,400 +6% 1,800 2,400 Computing * Connectivity and Control 11,000 4,000 37% 16,000 +6% Consumer Apps Processors 1, % 1,700 +7% 3,600 5,200 Electronics ** Connectivity and Control 8,000 3,000 40% 10,000 +5% Enterprise Servers 22 >0 <1% 27 +4% Infrastructure Networking - Infrastructure % % Networking - Home and Office % % Automotive Apps Processors >95% % Control 2, % 3,500 +5% Embedded Apps Processors % 1, % Intelligence Connectivity % 5, % Control 20,000 4,400 22% 30,000 +8% Total (in millions) 46,500 14,800 32% 71,000 +9% * Includes smartphones, tablets, laptops. * * Includes voice-only mobile phones, desktop PCs, computer peripherals, wearables, white goods, etc. Source: Gartner, WSTS and ARM estimates 14 ARM 2016

15 Markets for ARM: and 2020 The following chip types are distributed across the categories shown on the previous page Industry Shipments 2020 ARM Chips Market Share Industry Shipments CAGR Apps and Compute processors 4,500 2,800 65% 6,000 +6% Connectivity chips 5,000 3,000 60% 11, % Controller chips 37,000 9,000 24% 54,000 +8% - General purpose controllers 9,000 2,250 25% 15, % - Smart cards 11,000 2,900 26% 14,000 +5% - Automotive controllers 2, % 3,500 +5% - HDD/SSD controllers % 1,000 +7% - Flash memory controllers 6,000 1,500 25% 10, % - Smart sensor controllers 5,000 1,000 20% 7,000 +7% - Battery controllers 2, % 3,500 +6% Year Market Share % % % % 32% Total (in millions) 46,500 14,800 32% 71,000 +9% Source: Gartner, WSTS and ARM estimates 15 ARM 2016

16 ARM s expanding opportunity Share * TAM TAM 2020 Mobile Application Processors 85% $18bn $25bn Includes smartphones, tablets and ARM addressable laptops Networking Infrastructure 15% $13bn $16bn Servers <1% $15bn $20bn Embedded Intelligence 30% $21bn $30bn Includes microcontrollers, smartcards and non-mobile connectivity. Excludes automotive 16 ARM 2016 * ARM Market Share by Volume Total Available Market (TAM)

17 ARM s expanding opportunity Share * TAM TAM 2020 Automotive 10% $10bn $15bn Includes Automotive Infotainment Other Mobile Chips 35% $13bn $15bn Modems, WiFi/BT, GPS, NFC, sensor hubs, image sensors, emmc, etc Consumer Electronics 40% $20bn $20bn Includes Desktop PCs, DTVs and STBs Chips into Other Markets 30% $7bn $10bn 17 ARM 2016 * ARM Market Share by Volume Total Available Market (TAM)

18 ARM s opportunity continues to broaden Semiconductor industry continues to grow 5% by volume, 2.5% by value Proportion of chips with processors is increasing 70% in ARM is gaining share within the chips with processors segment of the industry 32% in 80bn 70bn 60bn 50bn 40bn 30bn 20bn Chips by volume Total industry* Chips with processors ARM shipments 10bn 20% 0bn CAGR * Data source: WSTS, January 2016 and ARM, Industry volume excluding analog and memory 5% CAGR % CAGR ARM 2016

19 Delivering more value per chip ARM is developing more advanced technology, delivering a greater benefit to customers and generating a higher royalty percentage per chip: More capable processor command a higher royalty per chip Higher royalty for the ARMv8-A architecture Multiple processors per chip from 8 to 256 cores per chip Mali graphics IP and Physical IP increasing penetration Relative Royalty Percentage per Chip Potential ~4x increase in royalty percentage 19 ARM 2016 ARM 7/9/11 Cortex-A (v7) Cortex-A (v8) Cortex-A (v8) + Multiple Processors Cortex-A (v8) + Multiple Processors + Mali + Physical IP Next Generation

20 2020 opportunity in smartphones Source: Gartner and ARM Smartphone Shipments (m, units) 2,200 2,000 1,800 1,600 1,400 1,200 1, ARM 2016 Overall Smartphone Device CAGR: 6% 5% CAGR 8% CAGR 6% CAGR Smartphone Chips Applications Processor Connectivity Sensors Applications Processor Connectivity Sensors Applications Processor Connectivity Premium Smartphones Mid-range Smartphones Entry-level Smartphones $15-$20 } $5-$10 $5-$15 } $2-$3 < $5 $1-$2 ARM s advanced technology commands a higher royalty percentage per chip Mali graphics based High core count (>4 cores) ARMv8-A based ARMv7-A based ~15% Smartphone Royalty CAGR

21 Increasing royalties per smartphone ARM typically gets a higher royalty from chips that have more ARM technology and more advanced ARM technology 100% ARMv7-A based ARMv8-A based Mali graphics based High core count (>4 cores) Target 21 ARM 2016 Penetration of ARM s latest technology into smartphones

22 ARM s opportunity in networking infrastructure Investing today to accelerate long-term share gains Product Development Creating software Earlier scale-out deployments ARM is investing in new advanced SoC technologies to understand new workloads and how to optimise future architectures, processors, SOCs and systems Network Function Applications OpenStack OpenDaylight Linux Hypervisors Open vswitch OpenDataPlane ARM is working with Open Source community to expand the availability of these new software components and ensure they run efficiently on ARM-based SOCs >75% market share in wireless access by 2020 ARM is engaging closely with operators and OEMs to help them develop the proof-of-concepts that will drive deployments 22 ARM 2016

23 Accelerating share in networking infrastructure Wireless Wired Market OEM selling into Wireless access Mobile backhaul Wired access Aggregation/Core Current design wins Each dot represents a leading OEM providing equipment into each market. Colour codes represent whether an ARM-based chip is the main chip in the device. Enterprise High-end enterprise/data centres Low/mid enterprise equipment Storage and Security Shipping mainly ARM-based equipment Shipping some ARM-based equipment ARM design wins, but not yet shipping No ARM design wins Change since Capital Markets Day (Sept ) 23 ARM % Market share in 45% Target share in 2020 $16bn Total addressable market in OEMs have selected ARM for the first time in this application 1 OEM has started shipping

24 ARM s opportunity in servers Investing today to accelerate long-term share gains Product Development Optimising software Early deployments started AMD A1100 based SoftIron Overdrive x Power Consumption Applied Micro based E4 ARKA Traditional Data Center ARM-based Data Center HP ProLiant server cartridge ARM is investing in new technology for physical IP, processor architecture and implementations, as well as tools and analysis to optimise SOCs for servers 24 ARM 2016 ARM and server ecosystem optimising software for ARM-based SOCs All major Linux operating systems now have ARM releases ARM is engaging with server users for cloud, HPC and large enterprise applications to accelerate the deployment of ARM-based servers

25 Server Workloads on ARM Business Systems Management App Dev/Test Structured Data Management Collaborative platforms ( , file sharing, conferencing) Initial HPC Programs Underway HPC (Engineering) Networking Data Analytics (Big Data) Content Delivery Networks Web-serving,/ Java based workloads Storage 25 ARM 2016

26 ARM servers available from multiple manufacturers HP ProLiant (Applied Micro, TI) Softiron (AMD) Gigabyte R120-P30 (Applied Micro) Wiwynn LN SL (Marvell) Gigabyte MT70-HD0 (Cavium) Cirrascale RM1905D (Applied Micro) Mitac Datun (Applied Micro) Gigabyte D120-S3G (Annapurna) 26 ARM 2016

27 Accelerating share in servers Over 1,000 ARM-based server chips being shipped every month High Performance Computing (HPC) ARM-based servers are being tested at national labs and research institutions in several regions. Three deployments so far. Cloud Three early deployments by Tier 1 cloud companies. All major cloud companies are evaluating ARM-based server technology. Enterprise Several enterprises that are amongst the world s largest uses of server technology have started to evaluate ARM-based servers. 27 ARM 2016 <1% Market share in 25% Target share in 2020 $20bn Total addressable market in 2020

28 The car is becoming a supercomputer ! $15bn TAM Z0.1 Z0.5 Conditio ns Z ARM 2016

29 ARM s opportunity in embedded intelligence ARM technology is at the heart of IoT Large and fast growing market ARM expects to gain share in a market growing at 7% CAGR Diverse range of end-market opportunities Smart City Smart Home Industrial Sensor MCU Radio ARM Share: 26% >50% $21bn $30bn Agriculture Wearables Other IOT Common software, low-power platform 2020 MCUs Sensors Smartcards 29 ARM 2016

30 Investing in the hardware platform for a secure IoT Licence and Royalty bearing Controller Licence and Royalty bearing Physical IP Licence and Royalty bearing Sub 1V Radio RF PHY Cortex-M Processor Standard Cells Memory Link layer controller Baseband 10-year battery life ARMv6 ARMv7-M ARM Cortex-M 30 ARM 2016 MCU Physical IP Radio Sensor Secure Store Crypto Secure Devices Licence bearing

31 Investing in the software platform for a secure IoT Investing today to create new revenue streams Secure and energyefficient device software Creating a new ecosystem Secure and scalable server software mbed Device Server ARM is investing in new software technology to secure the chip, the device and its information assets. In IoT you cannot do big data unless you can trust the little data 31 ARM 2016 ARM is working with 100 s of companies to deliver a new ecosystem for the Internet of Things: From chips to cloud to services ARM has developed mbed Device Server to securely manage networks of IOT devices: provisioning, configuring, upgrading and retiring. Allows service providers to focus on servicing clients

32 Physical IP benefits processors ARM is the #1 Physical IP Library Vendor** Physical IP has become increasingly strategically important to enable processor implementation at advanced nodes POP IP Optimised for improved processor/graphics implementation POP IP is now available for TSMC 16FF+ 2x power efficiency over 28nm implementations Cortex-A72 implementations up to 2.5GHz Artisan Physical IP based chip shipments (bn, units) Cumulative POP licences 4.8bn 6.0bn 7.3bn 9.2bn 9.8bn ** Gartner, March. Excluding Wired Interfaces such as USB and PCI-X which ARM does not provide. 32 ARM 2016

33 Growing Mali penetration Mali is the most widely licenced graphics IP processor 134 licences; 6 subscription licences; 65 licensees Mali is the #1 graphics IP processor by chips shipped in 750m chips reported as shipped in market penetration ~75% of DTVs ~50% tablets ~40% all smartphones Growth in adoption of GPU Compute Nine licensees for latest Mali Bifrost range of processors High performance, low power GPU compute enables new software applications E.g. computational photography, multi-perspective views and real-time photo editing 33 ARM 2016 Based on market data from IDC and Gartner Cumulative Licences ~ Mali graphics based chip shipments (m, units) <50m 150m m m m

34 Backlog analysis end 2016 Backlog by Maturity Profile Backlog Composition 49% 26% 8% 17% 25% 75% Q216/Q316 Q416/17 Q217+ Processors Other Physical IP 34 ARM 2016

35 Backlog and revenue Licensing: Backlog vs Revenues License Revenue Backlog Revenue contribution from backlog and turns 2.5 Turns 2.0 Backlog Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 0.0 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q Record booking for a first quarter in 2016 Robust licensing pipeline for ARM 2016 Contributions from backlog and turns is lumpy Revenue from backlog is recognised: As a quarterly contribution from subscription and architecture licences When processors that are in development reach project milestones

36 2016 Revenue Summary ($) 2016 % Change Technology Licensing Processors % Physical IP % Total Licensing % Technology Royalty Processors % Physical IP % Total Royalty % Software and Tools % Services % Total Revenue % 36 ARM 2016

37 Summary Balance Sheet IFRS 31 Mar Dec 15 MM MM Assets Cash (net of accrued interest) 1, Accounts receivable (including AROC) Other assets, inventory and investments Property and equipment Goodwill Other intangibles Total assets 2, ,120.2 Liabilities & shareholders equity Deferred revenue Other creditors Shareholders equity 1, ,797.6 Total liabilities & shareholders equity 2, , ARM 2016

38 Cash Flow Summary MM Operating activities Interest received, net Tax (12.0) (20.8) Capital and intangible expenditure/finance lease repayments (8.0) (13.1) Investments and acquisitions (net of disposals) (1.9) 1.3 Share buy-backs (18.3) - Other (forex) Cash flow Opening cash (net of accrued interest) Closing cash (net of accrued interest) 1, Profit before tax (normalised) Interest income, depreciation and amortisation Cash flows from items excluded from normalised profits (5.4) (8.8) Movements in working capital (52.8) (29.8) Operating activities ARM 2016

39 2016 Operating Expenses and FX Reported Results Guidance 2016 at Constant Currency $124m $133m $129m $133m to $127m +27% YoY +2% QoQ $127m $126m + 0.6m over guidance $130m $108m $100m $99m 39 ARM 2016 Q2 Q3 Q GBP/USD Effective exchange rate for normalised operating expenses February Q4 10 Feb 2016 Removing translation effects and revaluation of monetary items

40 Contact information Contact Title Contact Ian Thornton Philip Sparks Head of Investor Relations Investor Relations Manager More content available on our website Every quarter ARM hosts a series of investor events. Recordings of these events are available on the ARM investor website at Next event is on 4 May 2016 Virtual Reality: A Real Opportunity, with Anand Patel, Snr Product Manager Recent events include: Webcasts on Smartphone Market in China, Opportunity in Automotive and ARM s Approach to CSR 40 ARM 2016