ARM Holdings plc Preliminary Results for Q4 2015 and FY 2015 February 10, 2016
Welcome Stuart Chambers Chairman
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 1995. 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, including the commercial credit environment and uncertainties arising out of the financial market and liquidity crises, and capital expenditure requirements. ARM does not intend or assume any obligation to update or revise these forward-looking statements in light of developments which differ from those anticipated. 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, 2014 including (without limitation) under the captions, Risk Factors and Operating and Financial Review and Prospects, which is on file with the Securities and Exchange Commission (the SEC ) and available at the SEC s website at www.sec.gov. 3 ARM 2016
Business Update Simon Segars Chief Executive Officer
2015: Technology adoption and investment Royalty revenues up 31% in 2015 Higher rates on chips containing advanced ARM technology Licensing revenues up 1% in 2015 Following a strong year for licensing in 2014 Increased profits and cash returns Normalised EPS up 25% 200m of cash returned via buy-back and dividend Increased investment in the business New initiatives to accelerate share gains in Servers and Networking Creating new revenue streams from IoT $1,489m Group revenue 14.8 billion chips shipped 173 processor licences ~50% of smartphones shipped contained an ARMv8-A processor 25% increase in dividend 5 ARM 2016
Investing for long-term growth Mobile Computing Investing to generate more value More advanced processors Closer collaboration with market leaders Networking and Servers Investing to accelerate market share gains New software ecosystems Supporting deployments Embedded Intelligence and Automotive Investing to create new revenue streams New architectures for secure, connected devices New markets and opportunities 6 ARM 2016
Investing for the 2020 opportunity Mobile Computing Networking and Servers Embedded Intelligence and Automotive $40bn $31bn in 2015 $36bn $28bn in 2015 $45bn $31bn in 2015 7 ARM 2016
2015: Progress in mobile computing Strong demand for ARM s current technology ~50% of smartphones contained an ARMv8-A processor ~40% of smartphones contained a Mali GPU ARM Mali is the world s #1 shipping graphics architecture ~10% of smartphones contained an octa/deca core processor 8 ARM 2016
Q4 2015: Progress in mobile computing Strong demand for ARM s next-generation technology 9 ARM 2016 Continued innovation in mobile performance Nine licences signed for future-generation mobile technology Bringing ARMv8-A technology to sub-$50 smartphones Cortex-A35 and Mali-470 target entry-level mobile devices and wearables First Built on ARM Cortex Technology licence signed for multiple next-generation processors Cortex-A processors adapted to a customer s requirements
2015: Progress in networking infrastructure Networking market changing rapidly - opportunity for Partners to deploy advanced ARM technology 15% share in Networking Infrastructure in 2015 Up from 10% in 2014 New ARMv8-A networking chips announced in Q4 From access points to switching and routing to data centre and storage Creating the software ecosystem that enables operators to develop future services OPNFV core and virtual machines running on ARM based systems 10 ARM 2016
2015: Progress in networking infrastructure Further progress with OEMs Application Current design wins Wireless Wired Wireless access Mobile backhaul Wired access Aggregation/Core High-end enterprise/data centres Enterprise Low/mid enterprise equipment Storage and Security 11 ARM 2016
2015: Progress in servers ARM partnership is innovating the data centre ARM servers are shipping today Multiple chip vendors and server OEMs in production All major Linux OSes and key workload packages now have ARM releases Three early deployments at Tier 1 cloud companies Three more at research institutions with High Performance Compute 12 ARM 2016 Image courtesy of OVH Group
2015: Progress in embedded intelligence ARM is the #1 MCU architecture * ARM controller shipments up 25% in 2015 Shipments of older 8-/16-bit MCUs down 5% (Source: WSTS) Bringing advanced capabilities to low-cost devices DSP functionality for data analytics biosensors, motor controllers, automation Opportunity increasing with secure and connected MCUs Signed in Q4: second Cordio licensee and second ARMv8-M architecture licensee 13 ARM 2016 * Source: IHS 2015, based on MCU revenues
From 8-bit logic to 32-bit intelligence Light sensor Digital display Analog instruments 14 ARM 2016
From 8-bit logic to 32-bit intelligence Wireless communications Traffic monitoring Early fault detection Bluetooth LE Smartphone integration Data logging Electronic dashboard Advanced driver assistance In-vehicle infotainment 15 ARM 2016
The car is becoming a supercomputer 20 20 15 12! $15bn TAM 2020 4 4-10 46 10 8 10 12 10 12 Z0.1 Conditions Z0.5 Z0.1 +10 45 16 ARM 2016
2015: Progress in automotive Embedded Enabling a 100x increase in automotive compute The market is moving to ARM-based microcontrollers Sales of 8/16-bit MCUs declined 5% in 2015 Sales of 32-bit MCUs up XX%, ARM-based MCUs up XX% ARM partnership is innovating in IVI *, ADAS **, chassis and drive systems Needs something about adoption ARM is collaborating with automotive OEMs More advanced Computer microcontrollers vision, virtualisation and brings security opportunities for higher royalty rates Extending Cortex-M family with DSP functionality and improved security Next-generation ARM technology is designed for automotive Introducing ARMv8-A Cortex-A53 for IVI for and low-cost ADAS - ARMv8-R embedded for safety-critical devices systems - ARMv8-M for enhanced security with rich operating systems and graphic user interfaces 17 ARM 2016 * In-vehicle Infotainment ** Advanced Driver Assistance Systems
Investment generates growth Next-generation technology is being licensed today End-user engagements are accelerating share gains Advanced technology drives higher royalty rates 18 ARM 2016
Financial Update Chris Kennedy Chief Financial Officer
Q4 2015 financial highlights Group revenues $408m up 14% year-on-year Up 19% year-on-year in GBP Normalised operating costs 124m, up 23% Increased R&D investment Total headcount up 21% YoY Stronger dollar than a year ago Strong financial performance Group Revenue (GBP) Q4 2014 +19% 269m Q4 2015 Normalised Opex (GBP) Q4 2014 +23% 124m Q4 2015 Normalised EPS (p) Q4 2014 +14% 8.2p Q4 2015 Normalised profit before tax 139m up 17% Effective tax rate of 16.2% Normalised EPS of 8.2p up 14% 20 ARM 2016
FY 2015 financial highlights Group revenues $1,489m up 15% year-on-year Strong royalty growth due to increasing penetration of more advanced technology Normalised opex 432m, up 20% Ongoing investments in R&D and business infrastructure to maintain new technology innovation, market share gains and new revenue streams from new markets Investing in Future Technology R&D Spend 2014 +28% 215m 2015 Total Headcount 2014 +21% 3,975 2015 1,037 Other employees up 12% 2,938 Engineers up 24% Investing for Long-term Returns Normalised EPS 30.2p up 25% ARM is still benefiting from the phased introduction of patent box tax, lower UK corporation tax, and international R&D tax credits Group Revenue (GBP) +22% 968m Normalised EPS (p) +25% 30.2p Dividend EPS (p) +25% 8.78p 2014 2015 2014 2015 2014 2015 21 ARM 2016
80bn 70bn 60bn 50bn 40bn 30bn 20bn ARM s opportunity continues to broaden Proportion of chips with processors is increasing Chips by volume Total industry* Chips with processors ARM shipments 5% CAGR 2006-2015 10% CAGR 2006-2015 10bn 20% 0bn CAGR 2006-2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Proportion of chips by volume 25% 5% 68% 21% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ARM is gaining share within Chips with processors market Chips with processors ARM-based chips 22 ARM 2016 * Data source: WSTS, January 2016 and ARM, Industry volume excluding analog and memory
Sizing the larger opportunity ARM s opportunity is growing as more chips become smart and require processors ARM processors now shipping in battery controllers, flash memory controllers and smart sensors 10% increased volume and value of ARM s opportunity in 2020 See roadshow slides for details 23 ARM 2016
ARM s long term growth opportunity Smartphones view of 2020 broadly unchanged ~15% royalty CAGR 2015-2020 Beyond smartphones opportunity could grow more strongly as ARM gains share in multiple end markets Royalty revenue expected to outperform the semiconductor industry by ~15ppt Licence revenue expected to grow 5-10% over the medium term 24 ARM 2016
Capital structure for long-term strength ARM intends to retain a strong balance sheet Reinvest back into the business to maximise long-term returns Accelerating and extending product portfolio through acquisitions Investment plans sustained throughout industry and macroeconomic cycles ARM intends to continue to reinvest in the business Engineering headcount nearly doubled since 2011 ARM acquired ten companies/teams in past ten quarters In 2015: Sunrise Micro Devices, Sansa, Wicentric and Carbon Design Cash reserves ( m) 424 520 706 862 2011 2012 2013 2014 951 2015 Maintaining robust business with flexibility and fire-power 266 Investing in the business ( m) 288 357 380 Sustaining growth for the long-term 506 2011 2012 2013 2014 2015 Acquisitions Normalised operating costs 25 ARM 2016
Capital structure for long-term strength Cash reserves ( m) FY 2015 net cash generation of 361m Ended Q4 with net cash of 951m 424 520 706 862 951 ARM intends to purchase shares to keep share count flat over medium term ARM bought back 9m shares in FY2015 2011 2012 2013 2014 2015 Maintaining robust business with flexibility and fire-power Increasing returns to shareholders ( m) 86 108 Dividend has increased 25% CAGR over past five years 42 52 69 2011 2012 2013 2014 2015 Cash returned by way of ordinary dividend 26 ARM 2016
Outlook Full Year 2016 Group USD revenue broadly in-line with market expectations Based on current view of the semiconductor industry Assumes increased economic uncertainty does not further impact end-market spending Processor licensing: robust pipeline of opportunities Processor royalties: ARMv8-A penetration in mobile and share gains across other markets can continue royalty outperformance vs the industry Normalised operating costs for Q1 2016 in the range 127m to 129m 27 ARM 2016
Q&A
Thank you The trademarks featured in this presentation are registered and/or unregistered trademarks of ARM Limited (or its subsidiaries) in the EU and/or elsewhere. All rights reserved. All other marks featured may be trademarks of their respective owners. Copyright 2016 ARM Limited
Accounting for the increasing opportunity ARM s Total Available Market (TAM) is increasing as old chip designs that did not contain processors are replaced by new technology Latest additions to TAM: battery controllers, flash memory controllers and smart sensors ARM already has multiple design wins and royalty payers in each of these markets These are high volume chips with low ASPs The addition of these chips has increased 2015 volume TAM by +40%, the value TAM by +20% Our new TAM tables splits out the opportunity for ARM in application processors (where Cortex-A and Mali have opportunities) and in embedded processors (which are more typically served by Cortex-R and Cortex-M processors) 30 ARM 2016
Markets for ARM: 2015 and 2020 Application Chip Function Device Shipments Chip Shipments 2015 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 1,000 700 70% 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 300 140 20 15% 400 180 +5% Networking - Home and Office 700 200 30% 780 +4% Automotive Apps Processors 68 65 >95% 450 +34% 90 100 Control 2,700 200 7% 3,500 +5% Embedded Apps Processors 500 350 70% 1,000 +15% Intelligence Connectivity 600 300 50% 5,000 +53% 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 31 ARM 2016
Markets for ARM: 2015 and 2020 The following chip types are distributed across the categories shown on the previous page Industry Shipments 2015 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% 11,000 +17% Controller chips 37,000 9,000 24% 54,000 +8% - General purpose controllers 9,000 2,250 25% 15,000 +11% - Smart cards 11,000 2,900 26% 14,000 +5% - Automotive controllers 2,700 200 7% 3,500 +5% - HDD/SSD controllers 700 650 93% 1,000 +7% - Flash memory controllers 6,000 1,500 25% 10,000 +11% - Smart sensor controllers 5,000 1,000 20% 7,000 +7% - Battery controllers 2,600 500 20% 3,500 +6% Year Market Share 2011 22% 2012 24% 2013 28% 2014 30% 2015 32% Total (in millions) 46,500 14,800 32% 71,000 +9% Source: Gartner, WSTS and ARM estimates 32 ARM 2016
Markets for ARM: 2014 Application Chip Function Device Shipments Chip Shipments 2014 ARM Chips Market Share Mobile Apps Processors 1,650 1,450 >85% 1,650 Computing * Connectivity and Control 8,500 3,200 35% Consumer Apps Processors 900 600 67% 3,400 Electronics ** Connectivity and Control 7,000 2,500 36% Enterprise Servers 20 >0 <1% Infrastructure Networking - Infrastructure 270 130 13 10% Networking - Home and Office 650 175 27% Automotive Apps Processors 60 55 >95% 85 Control 2,550 125 5% Embedded Apps Processors 350 250 70% Intelligence Connectivity 400 200 50% Control 18,000 3,500 19% Total (in millions) 40,000 12,000 30% * Includes smartphones, tablets, laptops. * * Includes voice-only mobile phones, desktop PCs, computer peripherals, wearables, white goods, etc. Source: Gartner, WSTS and ARM estimates 33 ARM 2016
ARM s expanding opportunity Share 2015* TAM 2015 TAM 2020 Mobile Application Processors 85% $18bn $25bn Includes smartphones, tablets and ARM addressable laptops Networking Infrastructure 15% $13bn $16bn $18bn Servers <1% $15bn $20bn Embedded Intelligence 25% $21bn $30bn Includes microcontrollers, smartcards and non-mobile connectivity. Excludes automotive 34 ARM 2016 * 2015ARM Market Share by Volume Total Available Market (TAM)
ARM s expanding opportunity Share 2015* TAM 2015 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 35 ARM 2016 * 2015 ARM Market Share by Volume Total Available Market (TAM)