ARM’s (NASDAQ:ARMH) 3Q 08 results outperformed our expectations and current macroeconomic uncertainty has not deterred the company from reiterating its FY 2008 total revenue guidance first offered in 4Q 07. Although deteriorating consumer demand is expected to impact ARM’s Licensing segment, Royalty revenue growth coupled with favorable currency movements will help ARM in the near term.
Based on the current scenario, ARM does not expect to see a decline in top-line in FY 2009, making the company a rarity in the semiconductor industry. However, in view of limited visibility in FY 2009 and declining consumer demand in the context of recessionary conditions, we do not anticipate significant growth momentum in the year. Despite our belief that ARM has strong fundamentals, given that the ARM common stock has outperformed the broader FTSE 100 Index and the majority of leading technology stocks in the last six months, we believe that the company’s fundamental strength is already factored into the current stock price.
While we have raised our total revenue and margin estimates for FY 2008 to factor in the higher-than-anticipated 3Q 08 results and expected momentum in 4Q 08, our FY 2009 total revenue expectation has been lowered significantly in view of tough macroeconomic conditions and deteriorating end-market demand. We have slightly revised upwards our adjusted operating margin estimate for FY 2009, primarily in anticipation of lower Research and Development expense in the year. Subsequently our adjusted net margin estimate for FY 2009 has also been revised. We have introduced FY 2010 estimates in this report. We expect revenue and margin growth to continue in FY 2010.
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