ARM Holdings plc Q Roadshow Slides

Transcription

1 ARM Holdings plc 2015 Roadshow Slides

2 2015 Progress Against Strategy Licences signed for broad range of end markets Cortex-M for Embedded Intelligence 10 Cortex-A for Mobile, IOT and Enterprise 6 Mali IP for Mobile and Consumer Royalty revenue growth accelerating % $186m 2014 Mobile Key market performance (unit growth) +20% 2015 Microcontrollers & Smartcards % 2015 Enterprise infrastructure % Physical IP Platform for Growth License revenue -14% $19m 2015 Royalty revenue % $19m 2015 License revenue declines as 28nm and 20nm delivered POP IP license for Artemis on 10nm FinFET process Increasing royalty revenues from FinFET

3 Investing in Long-Term Growth for Superior Returns Investing in Future Technology Normalised operating costs 108m Investing in people and infrastructure to accelerate growth R&D Spend +34% 55m Total Headcount +19% 3,853 1,530 UK 854 US 613 Europe 3,853 people, over 70% engineers 329 added in India 315 Asia Pacific Profit before tax 128m up 27% Effective tax rate of 16% Normalised EPS of 7.6p up 29% Generated 87m of net free cash Total net cash of 898m Group Revenue (GBP) +24% 2014 Strong financial performance 2015 Normalised Opex (GBP) % 2015 Normalised EPS (p) 243m +29% 108m p 2015

4 ARM Introduction Global leader in the development of semiconductor IP 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 ~1,300 licences Growing by >120 every year Over 400 potential royalty payers 12.0 bn ARM-based chips in 2014 ~20% CAGR over last 5 years

5 Key Growth Drivers Gain share in long-term growth markets From mobile phones to networking infrastructure to embedded smart devices and wearable computers Increase revenue per smart device ARM s processor content per chip increasing More chips per product and more advanced processors with higher royalty rates Generate additional revenues from new technology Physical IP and multimedia IP further increase ARM s value per chip Invest in long-term growth Create superior returns by developing new technology that will deliver increased profitability and cash generation

6 From Revenue to Profits and Cash 2015 Revenues $m m %revs Licensing % Royalty % Other % Total % Cost of Revenue 9.1 Gross Margin 96.2% Over 95% of revenues earned in US dollars Royalties approximately 50% of revenues Operating Costs Operating Margin 51.7% Profit Before Tax EPS (p) 7.6 Net Cash Generation 87 Total Cash % move in $/ impacts EPS by ~15% Revenue growth has driven higher operating margins and earnings Cash generative, debt free Normalised ARM numbers 2015

7 Long-Term Growth Opportunity ARM s opportunity to increase revenue and profitability CAGR Route from 2015 to 2020** Technology Licence revenue 29% Reverting to 5-10% CAGR over time Technology Royalty revenue 15% Expecting ~15ppt outperformance* through multiple years Other revenue 8% Group revenue 20% Opex 13% Continuing to invest in R&D. Opex growth related to licence revenue growth Operating margin 40% to 50% Operating leverage drives further margin expansion Earnings per share 27% Revenue growth, margin expansion and reducing tax rate drive EPS growth Net cash generation 17% Dividend 25% Gradually increasing pay-out ratio * 3% semiconductor revenue CAGR 2010 to WSTS data excluding memory and analog, January 2015 ** Assumes 2014 exchange rate of 1.63 Including Software and Tools, and Services

8 Additional investment for increased returns Additional incremental revenues ($m) Additional incremental costs ( m) Additional incremental EPS (p) ~(0.5) Note: Includes incremental impact on both COGS and Opex Expected to grow more modestly in 2017 and beyond Assumptions: /$ exchange rate: 1.60 Effective tax rate: 15% Fully diluted shares: 1.4bn

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

10 Cumulative Licences Licensing Enables Future Royalties 38 licences signed in 2015 ARM s current royalty revenues are derived from licences signed many years ago Growing base yields royalty revenues over long period ~1300 $350m $300m $250m $200m $150m 2011 to present Pre-2006 Significant Royalty Potential from Recent Licences ~600 licences signed since Jan 2011 ~400 ~ ~700 ~50% of ARM most recent licences are drivers of future royalty revenue $100m $50m ~300 licences 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 H

11 ARM s Main Growth Markets Mobile Computing Embedded Intelligence Enterprise Infrastructure 85% Share in % Share in % Networking Infrastructure Share in 2014 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 White-goods, wearables, smart devices in industrial, transport and utilities Microcontrollers, smartcards, embedded connectivity chips 200 companies have licenced ARM processors for use in embedded intelligent devices 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

12 Embedded Intelligence Enterprise Infrastructure Mobile Apps Processors Markets for ARM in 2014 Devices Shipped (Million of Units) Smart Mobile* * Includes smartphones, tablets and laptops 2014 Devices Chips per Device TAM 2014 Chips 2014 ARM 2014 Share Apps Processors 1 1,800 1,600 85% 1,800 Connectivity, Sensors, etc ,500 2,500 60% Voice / Feature Phones ,100 1,000 90% DTV and STB % Consumer Entertainment % Computer Peripherals , % Servers 10 Many 50 <1 <1% Networking Infrastructure 1, , % Hard Disk and SSD % Automotive Apps Processors % 85 Other Automotive Chips Many 3, % Smartcards 8, ,500 1,900 22% Microcontrollers 9, ,500 2,500 26% Embedded Connectivity <100 1 <100 >50 >50% Other ** % Total 33,000 12,000 37% * * Includes other applications not listed, e.g. desktop PCs, sat navs, white goods, etc. Year Market Share % % % % % % % % Source: Gartner, IDC, WSTS, and ARM estimates

13 Embedded Intelligence Enterprise Infrastructure Mobile Apps Processors Markets for ARM in 2020 Devices Shipped (Million of Units) Smart Mobile* * Includes smartphones, tablets and laptops 2020 Devices Chips per Device TAM 2020 Chips Device CAGR Chip CAGR Apps Processors 1 2,800 +8% +8% 2,800 Connectivity, Sensors, etc , % Voice / Feature Phones % -20% DTV and STB ,100 +7% +8% Consumer Entertainment % -9% Computer Peripherals ,400 +4% +6% Servers 20 Many % +12% Networking Infrastructure 1, ,800 +5% +5% Hard Disk and SSD % +1% Automotive Apps Processors % +40% 90 Other Automotive Chips Many 4, % Smartcards 12, ,000 +6% +6% Microcontrollers 17, , % +10% Embedded Connectivity 5, , % +100% Other ** 3, , % +30% Total 60,000 10% * * Includes other applications not listed Key Growth Areas for ARM Mobile Apps Enterprise Infrastructure Embedded intelligence Source: Gartner, IDC, WSTS, and ARM estimates

14 ARM s Expanding Opportunity Share 2014* TAM 2014 TAM 2020 Mobile Application Processors Includes smartphones, tablets and ARM addressable laptops 85% $15bn $25bn Networking Infrastructure 10% $15bn $18bn Servers <1% $14bn $20bn Embedded Intelligence 25% $15bn $25bn Includes microcontrollers, smartcards and non-mobile connectivity. Excludes automotive * 2014 ARM Market Share by Volume Total Available Market (TAM)

15 ARM s Expanding Opportunity Share 2014* TAM 2014 TAM 2020 Automotive 5% $10bn $15bn Excludes Automotive Infotainment Other Mobile Chips 65% $10bn $10bn Includes WIFI/BT and modems in smartphones and tablets Non-mobile Application Processors Includes Automotive Infotainment, Desktop PCs, DTVs and STBs 50% $10bn $10bn Chips into Other Markets 40% $7bn $10bn Includes storage, printers and DVDs * 2014 ARM Market Share by Volume Total Available Market (TAM)

16 Licensing Drives Market Share ARM gains share by winning designs at leading semiconductor companies Smart Mobile* * Includes ARM smartphones, 2015 tablets and laptops 2014 Share Apps Processors 85% Connectivity, Sensors, etc. 60% Voice / Feature Phones 95% DTV and STB 50% Consumer Entertainment 80% Computer Peripherals 75% Servers <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% 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 2013 to companies reequipped 4 companies reequipped Movement in companies reequipped 2 companies decided to use ARM tech. 2 companies reequipped 1 company reequipped 1 company started shipping 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

17 Investing in Technology for Sustainable Growth Creating sustainable growth Investing in processor innovation Investing in new technologies Investing in the ecosystem Increased royalty per processor Increased ARM IP per chip Accelerate market share gains Increased long-term adoption Additional new markets More royalty revenue per chip Increased share in target markets New revenue streams from new markets

18 Continuing Licensing of ARMv8-A by Market Leaders Apps Processors for Smartphones Apps Processors for Tablets and Laptops Consumer Electronics Enterprise Infrastructure 10/10 9/10 5/5 5/5 All of the top ten shippers of apps processors into smartphones have licenced ARMv8-A technology Nine of the top ten shippers of apps processors into tablets have licenced ARMv8-A technology Five of the top five shippers of chips into consumer electronics have licenced ARMv8-A technology Four of the top five shippers of chips into networking infrastructure equipment have licenced ARMv8-A technology ARMv8 Licensing just starting Licences YTD15 12 Total ARMv8-A 81* Total ARMv7-A 183 Top shippers based on full-year 2013 market data. Will update with 2014 when market data is available. * Including all extant licences that are expected to generate royalties

19 Relative Royalty Percentage per Chip 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 Potential ~4x increase in royalty percentage 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 Source: Gartner and ARM Smartphone Shipments (m, units) 2020 Opportunity in Smartphones 2,200 2,000 1,800 1,600 1,400 1,200 1, Overall Smartphone Device CAGR: 8% 4% CAGR 7% CAGR 2020 Smartphone Chips Applications Processor Connectivity Sensors Applications Processor Connectivity Sensors Applications Processor Connectivity $15-$20 } $5-$10 $5-$15 } $2-$3 < $5 $1-$2 ARM Technology ARMv8 Cortex-A big.little Mali Physical IP ARMv8 Cortex-A big.little Mali Physical IP ARMv8 Cortex-A Mali Physical IP Total ARM Royalty CAGR: 15-25% 2020 ARM Royalty Opportunity per Device 20x 10x 5x % CAGR Premium Smartphones Mid-range Smartphones Entry-level Smartphones 1x is the royalty that ARM receives from a voice-only phone

21 ARMv8-A in Mobile in 2015 Just some of the ARMv8-A based phones announced so far Unsubsidised price estimated* from $100 to $850 Asus Pegaus X002 Elephone P6000 Huawei Honor 4X Huawei Ascend Y550 Huawei MediaPad X2 Lenovo Vibe Shot Lenovo Sisley S90 Lenovo Vibe X2 Pro LG Flex 2 HTC One M9 Meizu M1 Note Motorola Moto e LTE Oppo 1105 Samsung Galaxy S6 Edge Samsung Galaxy Note 4 Sony Xperia M4 Aqua Sony Xperia Z4 Tablet LTE Vivo X5Max Xiaomi Redmi 2 *Pricing information from

22 Progress in Mobile Computing Evolution of the smartphone over past five years x Sensor functionality 24x Screen resolution 158x GPU performance 80x Compute performance Source: GSMArena HTC DREAM/T-Mobile G1, ARM11 handset compared to ARMv8-A based Samsung Galaxy S6 Edge

23 Investing in for the future of mobile devices big Cortex-A15 Cortex-A17 Cortex-A57 LITTLE Cortex-A7 Cortex-A72 Cortex-A53 Artemis Future big Processors Future LITTLE Processors Graphics Mali-4xx Mali-T6xx Mali-T7xx Mali-T830 Mali-T880 Mimir Future Graphics IP Video Display Mali-V500 Mali-V550 Egil Mali-D500 Mali-D550 Gemini Future Video IP Future Display Technology Systems IP Physical IP 32nm Corelink 400 Corelink / 28nm 28nm 20nm 16 / 14FF 10nm Future System IP Future Physical IP Smartphone handset OEM plan to introduce a new model every year; mobile chip providers needed an acceleration in the pace of ARM s innovation ARM will provide a complete system of technology to enable every generation of chips for mobile devices

24 ARM s Opportunity in Networking Infrastructure Investing today to accelerate long-term share gains Product Development Creating software Earlier scale-out deployments >75% market share expected in wireless access by 2020 ARM is investing in new advanced SoC technologies to understand new workloads and how to optimise future architectures, processors, SOCs and systems ARM is working with Open Source community to expand the availability of these new software components and ensuring they run efficiently on ARM-based SOCs ARM is engaging closely with operators and OEMs at an engineering level to develop proof-of-concepts that help drive deployments

25 Accelerating Share in Networking Infrastructure Wireless Market OEM selling into Wireless access Mobile backhaul Current design wins Each dot represents a leading OEM providing equipment into each market. Wired Wired access Aggregation/Core High-end enterprise/data centres Colour codes represent whether an ARM-based chip is the main chip in the device. Enterprise Low/mid enterprise equipment Storage and Security Shipping mainly ARM-based equipment 10% 45% $18bn Shipping some ARM-based equipment ARM design wins, but not yet shipping market share in 2014 target share in 2020 total addressable market in 2020 No ARM design win

26 ARM s Opportunity in Servers Investing today to accelerate long-term share gains Product Development Optimising software Earlier scale-out deployments 7.1x Gigabyte MT70-HD0 is a 2U, 4 node blade server with 96 ARM cores. Based on Cavium's ThunderX SOC Power Consumption 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 ARM is working with the software ecosystem to port and optimise server software to ARM-based SOCs ARM is engaging with server users for cloud, HPC and large enterprise applications to accelerate the deployment of ARM-based servers

27 Accelerating Share in Servers High Performance Computing (HPC) ARM-based servers are being tested at national labs and research institutes in several regions, with four with advanced proof of concepts or early deployments Cloud All major cloud companies are evaluating ARM-based server technology. They have started testing or working on advanced proof of concepts or early deployments Enterprise Several enterprises that are amongst the world s largest uses of server technology have started to evaluate ARM-based servers <1% 25% $20bn market share in 2014 target share in 2020 total addressable market in 2020

28 ARM s Opportunity in Automotive Dashboard ADAS IVI DCM = Data communication module EPS = electric power steering Body apps = seat, mirror, sun-roof, HVAC, etc. GPS Cortex-A Cortex-M Cortex-A Cortex-A Cortex-M Cortex-A DCM Cortex-A Bluetooth Cortex-M Airbag Battery Management Cortex-M Engine Control Cortex-R / Cortex-M Classic ARM EPS ABS/ESC Body Apps Motor Control/Inverter Cortex-R / Cortex-M Cortex-R Cortex-M Cortex-R Cortex-R Cortex-M

29 ARM s Opportunity in Embedded Intelligence ARM Technology is at the Heart of IoT ARM Community Enabling the Developer Huge and Growing Opportunity Sensor ARM Share: MCU Radio 26% >50% Common software, low-power platform Low cost platforms, free software and tools Embedded market forecast: $25bn in 2020

30 Investing in the hardware platform for a secure IoT License and Royalty bearing Controller License and Royalty bearing Physical IP License 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 MCU Physical IP Radio Sensor Secure Store Crypto Secure Devices License 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 assets. In IoT you cannot do big data, unless you can trust the little data 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 mobile implementations up to 2.5GHz Artisan Physical IP based chip shipments (bn, units) Cumulative POP licences 4.8bn 6.0bn 7.3bn 8.9bn ** Gartner, March Excluding Wired Interfaces such as USB and PCI-X which ARM does not provide.

33 Growing Mali Penetration Mali is the most widely licenced graphics processor 124 licences; 6 subscription licenses; 64 licensees Mali is the #1 graphics IP processor by shipments 550m chips reported as shipped in market penetration 75% of DTVs >50% Android tablets >30% Android smartphones Based on market data from IDC and Gartner Cumulative Licences ~ Mali graphics based chip shipments (m, units) m YTD On track for ~700m Growth in adoption of GPU Compute Over 30 licensees for latest Mali range of processors High performance, low power GPU compute enables new software applications E.g. computational photography, multi-perspective views and realtime photo editing 400m 150m <50m YTD

34 Backlog Analysis End 2015 Backlog by Maturity Profile Backlog Composition

35 Backlog Underpins Licensing Revenue Licensing: Backlog vs Revenues License Revenue Backlog ~3x H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H Backlog and license revenue both up sequentially in Q2 Opportunity pipeline healthy for 2015 Backlog underpins future licensing revenue Turns Backlog H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H Contributions from backlog and turns can be lumpy Revenue from backlog is recognised: as a quarterly contribution from subscription and architecture licences* when processors that are in development reach project milestones * Some architecture licences are recognised in a similar way to subscription licences

36 2015 Revenue Summary ($) % Change Technology Licensing Processors % Physical IP % Total Licensing % Technology Royalty Processors % Physical IP % Total Royalty % Software and Tools % Services % Total Revenue %

37 Effective Tax Rate Decreasing ARM s effective normalised tax rate is expected to decrease UK Corporation Tax rate reducing from 21% to 20% from April 2015 Patent box phasing in 10% tax rate from April 2013 ARM s normalised full-year tax rate in 2015 expected to be ~16% Patent box applies to qualifying profits Phased introduction: 80% of the benefit applying to qualifying profits from April , increasing in 10% increments per annum Covers patents granted by UK IPO and European Patent Office Applies to existing as well as new IP, and to acquired IP 28% 27% 25% 25% 26% 20% 17% Tax rate could decline 1ppt in 2016 ~16%

38 Summary Balance Sheet IFRS 30 Sep Dec 14 MM MM Assets Cash (net of accrued interest) Accounts receivable (including AROC) Other assets, inventory and investments Property and equipment Goodwill Other intangibles Total assets 1, ,837.2 Liabilities & shareholders equity Deferred revenue Other creditors Shareholders equity 1, ,528.3 Total liabilities & shareholders equity 1, ,837.2

39 Cash Flow Summary MM 15 9M 15 Operating activities Interest received, net Tax (14.0) (49.6) Capital and intangible expenditure/finance lease repayments (7.6) (29.9) Investments and acquisitions (net of disposals) (44.0) (45.4) Dividends payable - (63.5) Share buy-backs (47.0) (92.2) Share options Loans to joint venture - (1.8) Other (forex) Cash flow (5.6) 36.5 Opening cash (net of accrued interest) Closing cash (net of accrued interest) Profit before tax (normalised) Interest income, depreciation and amortisation Cash flows from items excluded from normalised profits (2.8) (13.7) Movements in working capital (32.7) (70.5) Operating activities

40 Contact Information Contact Title Contact Ian Thornton Head of Investor Relations Philip Sparks 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 Recent events include: Webcasts on Smartphone Market in China, Opportunity in Automotive and ARM s Approach to CSR

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