Analyst and Investor Day. 23 May 2007 London

Transcription

1 Analyst and Investor Day 23 May 2007 London 1

2 Cautionary Statement Concerning Forward-Looking Statements This presentation contains forward-looking statements as defined in section 102 of the Private Securities Litigation Reform Act of These statements are subject to risk factors associated with the semiconductor and intellectual property businesses. When used in this document, the words anticipates, may, can, believes, expects, projects, intends, likely, similar expressions and any other statements that are not historical facts, in each case as they relate to ARM, its management or its businesses and financial performance and condition are intended to identify those assertions as forward-looking statements. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a variety of variables, many of which are beyond our control. These variables could cause actual results or trends to differ materially and include, but are not limited to: failure to realize the benefits of our recent acquisitions, unforeseen liabilities arising from our recent acquisitions, price fluctuations, actual demand, the availability of software and operating systems compatible with our intellectual property, the continued demand for products including ARM s intellectual property, delays in the design process or delays in a customer s project that uses ARM s technology, the success of our semiconductor partners, loss of market and industry competition, exchange and currency fluctuations, any future strategic investments or acquisitions, rapid technological change, regulatory developments, ARM s ability to negotiate, structure, monitor and enforce agreements for the determination and payment of royalties, actual or potential litigation, changes in tax laws, interest rates and access to capital markets, political, economic and financial market conditions in various countries and regions and capital expenditure requirements. More information about potential factors that could affect ARM s business and financial results is included in ARM s Annual Report on Form 20-F for the fiscal year ended December 31, 2006 including (without limitation) under the captions, Risk Factors and Management s Discussion and Analysis of Financial Condition and Results of Operations, which is on file with the Securities and Exchange Commission (the SEC ) and available at the SEC s website at 2

3 Today s Agenda 9:30 Warren East Chief Executive Officer Growth for the Long-Term 10:00 Ian Drew VP Segment Marketing Making Market Share Gains Happen 10:30 Break 11:00 Simon Segars EVP Business Development Opportunities Beyond the Microprocessor 11:30 Tim Score Chief Financial Officer The Long-Term Financial Opportunity 12:00 Warren East Wrap up and Q&A 12:30 Buffet Lunch 3

4 Growth for the Long-Term Warren East Chief Executive Officer 4

5 Overview State of the Semiconductor Industry Unique nature of ARM Growth opportunities Physical IP update Summary 5

6 State of the Semiconductor Industry Industry in a state of flux Ever increasing costs Design, manufacture, marketing Marketplace changes Consolidation - groups and alliances More use of system on chip design Timescale pressure Custom designs vs. standard chips Private equity Sharper focus on returns and efficiency Variabilisation of costs 6

7 ARM is Unique in the Semi Industry ARM: combination of Computing and Semiconductors Growth High Low Low Quality of Earnings High ARM: Consistent growth and high quality of earnings 7

8 Driving Growth Build on existing design wins Further penetrate the ARM partner base Leverage existing relationships Utilise ARM sphere of influence Increase barriers to entry for competition Growth Opportunities Growth in non-mobile applications Increasing the ARM value per consumer transaction Outsourcing of Physical IP development to ARM 8

9 Foundations Number of Number of Licensees Processor Licenses 9

10 Foundations Yielding Results Total ARM Units (m) Non-mobile Mobile Partners Paying Royalties (per Quarter) >$3M >$1M Total Revenues ($m) % CAGR

11 An Unparalleled Ecosystem ARM Connected Community 11

12 ARM s Digital World 12

13 Consumers Buying more Products 13

14 Increasing the ARM Value per Consumer 14

15 Broadening the Range Volume ARM Usage Today Opportunity $1-2 $3-6 $10-15 >$25 Average Selling Price of a Semiconductor Chip 15

16 Increasing ARM s Value per Transaction 16

17 Increasing ARM s Value per Transaction % Increase 10 Handset ASP ($) Average Royalty Per Handset (c) 21% Decline Mobile Phone Handset Average Selling Price* ARM Average Royalty Per Handset* (Only includes royalty derived from handsets) * Source: Gartner Dataquest, ARM Estimates 17

18 Physical IP Update 18

19 Physical IP Foundations Number of Platform Licenses Partners Paying Royalties (per Quarter) >$1M ARM is clear leader with the smaller players Revenue > 2x nearest competitor Widest industry library program Increasing tape-outs will reflect in future royalty 19

20 Industry Change Yields Opportunity Economics of chip design causing change Private equity impact More scrutiny on investments Opportunities with Tier 1 players will emerge Aggressive technology acceleration Proven performance with ARM cores Platform of products Multiple sourcing options Global support & distribution system Why ARM will win: Open Standard ARM is Independent Positioned to amortise development costs across the industry 20

21 Investing to Create Leadership Products Technical leadership Leakage Multidimensional optimization Power, Performance & Area Manufacturability Yield, Test, Repair, Variability Reliability 2 22% better performance ~ ½ the size 1 0 Business leadership Performance ARM Area Typical Foundry Data from actual trial synthesis Design Automation at 65nm, with ARM926 New web-based support system Web-based delivery per IDM My Downloads Engineering resource (PIPD engineers) 21

22 Building Market Share 3D Graphics Processor Peripherals & Interconnect Floating Point Unit ARM Processor On-chip memory Image Pre-Processor 1200 # of New Tape Outs Multiple libraries will be used on a single SoC Different requirements in the system Performance, Power, Area Mix blocks of standard cells Mix types of memories Mix voltage domains Results in optimal, balanced system implementation

23 Growth Creates Value Business Actions Growth Opportunities Cash Returned to Shareholders Growth in non-mobile applications Increasing the ARM Value per consumer transaction Outsourcing or Physical IP development to ARM Share Buybacks 2006 Dividend 23

24 Making Market Share Gains Happen Ian Drew VP Segment Marketing 24

25 How to Drive Market Share? Ensure that ARM technologies are appropriate across the application spectrum Equip the world leading semiconductor manufacturers with ARM technology Drive pull and design wins with OEMs and other value chain partners Total ARM Units (m) Non-mobile Mobile 2000 AGR C 73 %

26 Segments for ARM Applications (Million of Units) TAM 2006 Units Cores /unit* TAM 2006 Cores* 2006 ARM* 2006 Share* Smart Phone % Feature Phone % Low End Voice Phone % Portable Media Players % DSC % STB/HD-DVD/Blue Ray % Networking % Printers % Storage (HDD+Flash) , % 1, , % Smart Card (32 bit) % MCU (32bit) % Others** 5, , % Totals 10,831 11, % bit SoC Source SemiCo 4/07 Automotive * ARM Estimates * * Includes other applications not listed such as 8/16bit, Headsets, DTV, etc Source: Gartner Data, Semico, Instat, IDC, and ARM estimates 26

27 Segments for ARM Applications (Million of Units) Smart Phone TAM 2006 Units Cores /unit* TAM 2006 Cores* 2006 ARM* 2006 Share* % % bit SoC Source SemiCo 4/07 Feature Phone % of ARM 1-3 units shipped Low End Voice Phone % Portable Media Players % DSC % STB/HD-DVD/Blue Ray % Networking % Printers % Storage (HDD+Flash) , % 1, , % Automotive Smart Card (32 bit) 120 >2x Growth 1 over % MCU (32bit) % 5, , % Others** Totals 10,831 11, Significant opportunity for growth 21% * ARM Estimates * * Includes other applications not listed such as 8/16bit, Headsets, DTV, etc Source: Gartner Data, Semico, Instat, IDC, and ARM estimates 27

28 ARM Products in All Segments Gotive - H42 Multifunction Handheld ARM Based Tri-Works - BEAUTY RF PLUS mod. BRF1 ARM 7 Nokia N95 ARM 11 The HTC Advantage X7501 ARM Based Netgear Wireless-N RangeMax Router 2 x ARM9E processors Ford Sync (In-Car Communications & Entertainment System) ARM1136 Wow Wee Robo Sapien ARM Based 28

29 Colour Key for Following Slides Licensed appropriate ARM technology and use it in the associated application. Licensed appropriate ARM technology but only partly or do not use it in the associated application. Have not licensed appropriate ARM technology for the associated application. 29

30 Mobile 30

31 Smart Phone TAM Units (M) Smart Phone Key OEMs Key Si Providers Smart phone trends Functionality is increasing Graphics, GPS, Video, , internet Battery life remains challenging Performance needs to scale with rich content in the phone Multi-radios for ubiquitous connectivity What ARM is providing High performance processors for converged content Small, power-efficient processors for PAN/WAN, GPS, FM Dedicated engines for content-rich applications Software: TrustZone, Java, IEM 31

32 Low End Voice / Feature Phone ARM7 Metro TAM Units (M) Low End Voice Feature Handset trends RF integration (like Bluetooth) in single SoC Focus on System level costs Barriers to entry due to scale needed Driven by emerging markets for ULCH What ARM is providing Enabling saving on silicon area Cortex-M3, ARM7, ARM9 RealView tools for smaller memory foot print High Density Metro Libraries 32

33 Portable Media Players ARM11 ARM9 Metro TAM Units (M) PMP PMP trends Increasing focus on video as well as continued and enhanced MP3 Greater connectivity WiFi & USB Battle between the Phone MP3 and low end Flash based PMP 2GB Flash card only $15 in Asia What ARM is providing Range of cores for the application Dedicated engines for content-rich applications Software: TrustZone, Java, IEM 33

34 Home 34

35 Home Set Top Box and HD-DVD ARM9 ARM11 TAM Units (M) Blue Ray/HD STB/HD-DVD Home trends STBs and DVD require highperformance cores and 3D graphics Digital switch over requires low-cost SoCs that are low-power DCAS and AACS requires flexible onchip security solutions Seamless enjoyment of content between home and mobile What ARM is providing High-performance cores Dedicated engines for application acceleration ESL tools for fast time to market 35

36 Consumer Digital Still Cameras TAM Units (M) DSC ARM7, ARM9, ARM11, Cortex-R4 DSC trends High end: performance for better picture quality Increased number of features Zooming, Vibration reduction, Image recognition Low End: Cost competitive Scalable, compatible solutions Wireless connectivity What ARM is providing Range of cores for a range of performance needs 36

37 Enterprise 37

38 Enterprise Networking ARM9 ARM11 TAM Units (M) Home Networks WiFi/Wimax Enterprise Networks Cortex-A8 Cortex-R4 Cortex-M Networking Trends Integration for lower BOM costs High performance home networks Increasing network intelligence What ARM is providing High performance cores Fabric and I/O Development tools 38

39 Enterprise Printers ARM9 ARM11 TAM Units (M) Printers Cortex-A8 Cortex-R4 Cortex-M Printer trends Ease of printing, user friendliness, interfaces AIO/MFP from single functions Cost competitive, scalable, compatible solutions What ARM is providing Full range of microprocessors cores Fabric and I/O Development tools 39

40 Enterprise Storage ARM9 TAM Units (M) HDD Flash Cortex-R4 Cortex-M Storage Trends Cost decreasing, density increasing Latency and throughput improvements Increasing disc drive sophistication What ARM is providing Industry standard CPU Cores Debug technology Development tools 40

41 Embedded 41

42 Embedded Automotive Cortex-R4F MPCore Cortex-M1 Cortex-M3 TAM Units (M) Body/Convenience Chassis Powertrain Media Auto trends Electronics becoming bigger % of the car BOM Infotainment merging with the CE industry Software becoming more complex as requirements of computation exceed current capabilities Low-power requirements are tough What ARM is providing Industry standard architecture Long-term roadmaps Tools to achieve cost effective solutions simply 42

43 Embedded 32 bit Smart Card ARM7 SC100 SC200 Metro Libraries TAM Units (M) Smart Card 32bit Smart Card trends Increased complexity as the cost of flash reduces Cost competitive solutions required Contact-less mobile payments Re use of lower power, higher functional parts What ARM is providing Specialised security processors Dedicated development tools Low-power Physical IP libraries 43

44 Embedded Standard MCU ARM7 Cortex-M1 ARM9 Cortex-M3 Metro Libraries TAM Units (M) 32 bit MCU MCU trends ASPs are declining Shift to 32 bit as functionality increases Increased connectivity and security Software algorithms increasing in complexity FPGA MCU What ARM is providing Standard Architecture Migration path from 8 bit designs Cost parity with 8 bit Tools to make designs easier 44

45 Segments for ARM in 2010 Applications (Million of Units) 2006 ARM* 2006 Share* TAM 2010 Units Cores /unit* TAM 2010 Cores* Smart Phone % Feature Phone % ,100 Low End Voice % Portable Media Players % DSC 75 56% STB/HD-DVD/Blue Ray 75 14% Networking % Printers 72 57% Storage (HDD+Flash) % 1, ,430 Automotive 62 5% 1, ,974 Smart Card (32 bit) 60 50% MCU (32bit) 90 13% 1, ,900 Others** 186 5% 5, ,760 Totals % Key Growth Areas for ARM Source: Gartner Data, Semico, Instat, IDC, and ARM estimates * ARM Estimates * * Includes other applications not listed such as 8/16bit, Headsets, DTV, etc 45

46 Summary ARM has developed the appropriate technology for use in all target markets The world s leading semiconductor suppliers have licensed appropriate ARM technology OEM and value chain relationships in place to create pull Leveraging success in Mobile into other market segments 46

47 Opportunity Beyond the Microprocessor Simon Segars EVP Business Development 47

48 Evolution 48

49 Consumer trends Social networking has become massively popular 100 million videos watched per day on YouTube 55 million subscribers to MySpace 50,000 videos uploaded to MySpace in a day On-line gaming is growing Broadband allows gamers to connect to other gamers $1bn market in 2006 Evolution in underlying technologies enables social networks, videos and games to go mobile High performance graphics High performance video High data bandwidth 49

50 What s in a Phone? Low-end Phone Voice and text Single ARM processor for baseband and UI 2006*: 450M units 2010*: 370M units CAGR: -5% Feature Phone + simple games, still and basic video camera, some music BB ARM processor and ARM926 apps processor 450M units 550M units 5% Smart Phone + , web browsing, two-way video calling, music, videos BB ARM processor and ARM11 apps processor plus accelerators 100M units 320M units 34% *Source: Gartner Dataquest, Strategy Analytics, ARM Estimates 50

51 The Smartphone is a Multimedia Device High definition video Interactive 3D Gaming Ultra low power Speech & Audio codecs for longer battery life Improved UI: Translucent Menus & anti-aliased text to improve legibility Perspective window graphics to maximize screen real-estate Security enabled to protect user content 51

52 Smart Phone System Design Modem Applications Audio Audio Engine DE CCD / CMOS Video Input Digital Video Analog Audio Audio I/O Image Analysis Video Input Image Video/ Image Processing Encoder Video/ Image Decoder Video Output Graphics & Mali Post 55/200 Video Output Processing AXI BUS Fabric I /O FM and TV Receiver Memory Controller ARM1176 / CPU Cortex A8 DDR Flash Connectivity Storage Key & Touch screen USB Control/PHY Storage Device ARM IP Non ARM IP 52 Digital Video out Analogue Video out LCD

53 How does ARM make this happen? Multimedia processing is ideal for the IP model It s complicated And therefore expensive to do It s about implementing industry standards MP3, H.264, OpenGLES Driven by standards bodies, not semiconductor companies Multimedia components do not differentiate silicon ARM can amortise the cost of developing media processing engines across multiple licensees Our customers can focus on system design and software 53

54 We have Graphics Processors Now Mali55 graphics processing unit World s smallest GPU Rich user interfaces, maps and compelling casual games Hardware acceleration where it was not possible before Shipping today in Zoran APPROACH Multimedia Platform Mali200 graphics processing unit Fully programmable desktop featured GPU for WVGA and beyond HDTV Resolutions for high-end gaming and user interfaces Graphics processor for the convergence and high-end markets 2 licensees to date including Micronas 54

55 Connected Community Ecosystem ARM engages across the gaming community value chain Collaboration for market innovation, tools and product development Value is created when optimized content meets gaming platform New members to join the Connected Community 55

56 We have Audio processors too Lowest power audio & voice processor on the market Enables up to 70% battery life improvement Delivers compelling Performance and Area ($) benefits AudioDE for MP3, VoIP, AEC all things audio Software codecs available through leading suppliers AudioDE is Silicon proven high volume AudioDE Configurable Subsystem shipments in: Portable Media Players (PMP) Mobile phones Bluetooth headsets BRCM

57 And the Hardware glue Tools and IP to create the interconnect to glue everything together and move data around the system AXI 50MHz AXI 166MHz AXI 200MHz AMBA Interconnect Synch bridge Async bridge AMBA Interconnect Matrix Routing Control Routing Control Routing Control Routing Control Routing Control Routing Control Async bridge Synch bridge Register Slice Downsizer AXI - AHB AXI - APB Downsizer AXI 200MHz AHB 32-bit, 70MHz APB 40MHz 57

58 AMBA Designer Right First Time Design AMBA Designer - integrated graphical tool Automating the design of complex AXI-based interconnect, fabric and sub-systems Direct RTL Implementation driven by AMBA Designer The means to move from a specification to implementation Common entry point for all PrimeCell IP Explore IP configurations and fabric using ESL Generates optimized RTL Delivers IP in SPIRIT packaged form End to end SoC optimisation Construct & Configure Simulate Analyze 58

59 Multimedia in the Home STB DTV HD DVD/BluRay CPU ARM1176/A8 ARM1176 Cortex-A8 Graphics (GPU) Mali200/GP2 2D Graphics Solution (Software) Mali200/GP2 Video (VPU) Dual SD/HD Multistd Decode (VideoD1) SD/HD Multi- std Decode (VideoD1) Dual SD/HD Multistd Decode (VideoD1) Audio Software Software Software 59

60 Automotive is also a Target Navigation & Entertainment Dynamic navigation DVB Terrestrial and Satellite TV Audio: MP3, DAB Speech recognition Driver information systems Multiple view camera, night vision ARM technology enabling Multimedia systems: ARM7+DSP enabling Radio ARM9 / AudioDE in Bluetooth speech ARM9 in TomTom GPS ARM11 in TV + Navigation split screen MPCore in integrated infotainment systems Voice Recognition (audio, video, navigation) 60

61 Multimedia Repeat of the ARM Story Consumer pull for media-based applications drives market for media technology Complex processing engines ideally suited to the IP model Requirement for software, middleware, tools, hardware integration and verification ARM can lower cost and accelerate time to market for our customers Power, cost and performance drive our technology Ideal for high volume wireless applications Pull through to other markets Automotive, set top box, digital TV. Multiple licensing opportunities leading to new royalty streams 61

62 End Goal - Increasing the ARM Value 2007 Smart Phone 3G BB - $$ Apps Processor - $$$? WiFi - $ BT - $ Future Smart Phone ARM value - $ x 5 to 7 High-end BB - $$ Apps Processor - $$$ WiFi / WiMax - $ Physical IP - $ BT/UWB - $ Ultra Low Cost Low-end BB - $ Graphics - $$ Audio DE - $ Software - $ ARM value - $ x 1 ARM value - $ x 12 $ = Unit of Royalty 62

63 The Long-Term Financial Opportunity Tim Score Chief Financial Officer 63

64 Contents Business model Revenue analysis Revenue growth drivers Operating margin analysis Operating leverage Cash generation Increasing balance sheet efficiency Why ARM should outperform the SOXX 64

65 Business Model Yields Long-Term Returns Develop leadership-standard technology and license widely Opportunity to broaden ARM technology offer in electronic devices Once deployed, yields royalty into perpetuity Usage across multiple designs and applications Industry timescales provide long-term visibility 65

66 Revenue Analysis CAGR Growth CAGR Revenues ($M) ($M) Processor % 19% Licensing % 12% 5-15% Royalty % 25% 15-20% Physical IP % 9% Licensing % 2% 15-20% Royalty % 26% 15-20% Development Systems/ % 13% 10-15% % 16% 10-20% Services Total Revenues (Pro Forma) 66

67 Revenue Growth Drivers - 1 PD licensing Cortex product cycle at early stage New product launches to drive next cycle More sophisticated applications drive new and upgrade licensing Existing shippers broaden ARM usage Steady stream of new licensees Growth of specialist processors eg Graphics # of Licensees

68 Revenue Growth Drivers - 2 PD royalties Units (m) Royalties are a function of cumulative licensing 474 licenses less than 50% yielding royalty to date 80 of 191 partners shipping 75% of cumulative royalties earned from pre 2001 licenses Increasing ARM value per application Mobile upgrade cycle just beginning Specialist processors, software Offsets impact of mix shift Market share growth beyond mobile

69 Royalty Harvest in Early Stages Note: License unit data only includes Multi-use and Term Licenses 69

70 Revenue Growth Drivers - 3 PIPD licensing PIPD royalties Increasing usage of PIPD technology Traditional Artisan customer base IDMs/large Fabless companies Broader base of foundry licensees Continued catch-up royalty revenues # of New Tape Outs Outsourcing by IDMs/large Fabless companies Increasing design complexity/cost Meaningful proportion of ARM partners regularly licensing physical IP Upgrade cycle across foundries at smaller process geometries Additional product variants More variants at lower geometries Optimised libraries for ARM processors Silicon on Insulator

71 Illustrative Operating Margin Analysis Processor/ Software PIPD/Dev Sys/Services Group Revenues ($m) Revenue ( m) Operating Profit ( m) % 17% 32% FY 2006 Operating Margin Processor margin reflects 13 years of licensing and 8 years of royalty Current processor margin offset by investment in specialist processors Physical IP business is 5-7 years younger than Processors Physical IP margin reflects acceleration in R&D activity Profitability set to improve across the businesses 71

72 Operating Margins at Constant Currency Q Operating Margin as reported 18.5% 26.3% 32.7% 31.7% 30.3% Effective Fx Operating Margin at constant 18.5% 32.2% 36.7% 36.3% 36.9% Operating Margin 2003 rate of $1.61/ 25M Increase in Constant Currency 40% 30% 20% 10% As reported Q At constant 2003 Fx rate 72

73 More Operating Leverage to Come a year of significant investment 25% increase in headcount 335 new heads 2007 year of digestion and productivity But full year effect of 2006 hires Bigger margin benefit in 2008 Business model creates upward pressure on margin Sustainable operating margins in excess of 40% in medium term Headcount/costs related to licensing revenue Engineering resources re-balanced to lower cost territories PIPD technology acceleration Royalties are 100% margin Royalties will continue to grow as proportion of total revenues Operating expenses reduce as % of total revenue 73

74 Cash Generative Business Model Normalised ( Ms) ( M) Total Normalised Net Income Normalised Cash Generation Net Income Cash Generation 74

75 Cash Returned to Shareholders 163m returned to date m 7.3% of share capital bought back since buyback initiated in July 05 Dividends Buybacks Total YTD* Total m Estimated Share Buybacks 2006 Dividend 2007 YTD* *as of 18th May

76 Q1 Capital Structure Update Intend to move to net cash of c 50m by end 2007 Announced step-up in 2007 dividend to new base level 2x 2006 level (1p to 2p per share) Dividends grow broadly in line with earnings thereafter Accelerate buyback in Q2 Q Approximately 100m over next three quarters Ongoing buyback beyond end

77 Why ARM should outperform the SOXX ARM has clear market and brand leadership Sustainable revenue growth higher than the overall industry Business model yields operating leverage High (and increasing) competitive barriers for other entrants High (and increasing) switching costs for customers Lower technology risk Increasing visibility Compelling growth drivers Established processor license base Leading position in handset market Early stage in market penetration beyond mobile Early in royalty harvest from existing licenses Acceleration in PIPD and other licensing streams Increasing cash returns and balance sheet efficiency 77

78 ARM v. SOXX: Starting to Diverge? ARM SOXX 18/5/ /5/2007 Source: Bigcharts.com 78

79 Summary / Q&A Warren East Chief Executive Officer 79

80 Realising Long-Term Economic Value Financial Outcome Business Actions CAGR Revenues ($) Processor Growth Opportunities Licensing Royalty Growth in non-mobile applications Increasing the ARM value per consumer transaction Outsourcing of Physical IP development to ARM 5-15% 15-20% Physical IP Licensing 15-20% Royalty 15-20% Development Systems/Services 10-15% Total Revenues (Pro Forma) 10-20% 80

81 Summary ARM is a unique company in a unique 6 position in the semiconductor industry foundation from which to grow Focused growth efforts will yield financial benefits Still early in the digital life cycle Disciplined management of the company Maximising shareholder value Execution of focused growth strategies Revenue (Normalised to 2002) ARM has built a solid business 5 Semiconductor Industry ($B) ARM Royalty ($M)

82 Q&A 82