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Executives

D. Warren A. East - Chief Executive Officer, Director and Member of Disclosure Committee

Tim Score - Chief Financial Officer, Director, Member of Compliance Committee, Member of Disclosure Committee and Member of Risk Review Committee

Analysts

Nick James - Numis Securities Ltd., Research Division

Sandeep S. Deshpande - JP Morgan Chase & Co, Research Division

Francois Meunier - Morgan Stanley, Research Division

Didier Scemama - BofA Merrill Lynch, Research Division

Gareth Jenkins - UBS Investment Bank, Research Division

Janardan Menon - Liberum Capital Limited, Research Division

Simon F. Schafer - Goldman Sachs Group Inc., Research Division

Sumant Wahi - Redburn Partners LLP, Research Division

Andrew M. Gardiner - Barclays Capital, Research Division

Jerome Ramel - Exane BNP Paribas, Research Division

Amit B. Harchandani - Citigroup Inc, Research Division

ARM Holdings (ARMH) Q4 2012 Earnings Call February 5, 2013 4:30 AM ET

D. Warren A. East

Okay. All right. Good morning, everybody. Thank you very much for coming. I looked at the number of people in the room here, and I said, "Oh it's quite depleted." and Tim's getting with the semiconductor vernacular now, and so he said, "Oh, it's only partially depleted." But there we are.

Good morning, and welcome to our results obligatory statements, and we're going to start off. I'm going to give an update on the business, a romp through of what we've been up to in 2012 and in Q4, in particular. A little bit of a longer-term view towards the end, and then Tim will follow up with numbers in the usual way.

So let's start off with the highlights for Q4. Well, Q4 was a fantastic finish to 2012. We saw our continued momentum in licensing and so 36 licenses in the last quarter. That's another year of over 100 licenses in the full year.

At the start of the fourth quarter, we held our Tech Con event in Santa Clara. And that event and around that event, we launched our v8 products, the Cortex-A50 Series. And indeed, in Q4, we saw some more licensing of those v8 products. And now they're launched, then we're sort of relaxing a little bit on the lead partner licensing as we get closer to silicone on those devices. So that was a good start to the quarter. I'll come back to some of the detail of licensing a bit later.

In terms of how shipments performed in the industry at large, we saw a continuation of outperforming the semiconductor industry. And we've got a few slides or a few pictures in the slides later showing this gap of outperformance is increasing as ARM is targeting a wider range of end applications. But it was particularly pleasing to see when we step back and look at the year as a whole, growth in Cortex-A and Mali shipments, and we've got some of the statistics on that. We normally talk about the outsourcing model and the increasing traction there, and it was another quarter of good licensing for Mali and for processor optimization packages. So all of that came together and enabled us to deliver increases in revenue profits. The normal pie chart that we put up there, you can see the split of revenues. And revenue is up 21%. Profit is up 16%, and Tim will talk about the numbers there.

Now, I'm going to step back a little and look backwards 5 years. One of the key drivers for what's been going on with ARM's business over recent years has been the PC era, and more importantly, the sort of beginning of the end of the PC era, such that now we're talking in our statement this morning about the post-PC era. So we thought it worthwhile having a little look from a sort of longer-term perspective.

If you go back to 2007, there were about 400 million devices shipped in the year that connected to the Internet. And most of those, a good 2/3 of those, were effectively a PCs, and the ARM-based smartphones really were only a small portion of that. And there were a number of devices with other architectures as well. And a few years ago and we -- 2007 is conveniently 5 years. It's also the year of the launch of the iPhone. So it's sort of generally, like, started the smartphone wave.

It's instructive to think about the applications. And at that stage, there were thousands, major parts in the tens of thousands but only just, thousands of third-party software applications running on the PC, which provided a very powerful ecosystem around those products.

Now fast forward to today, and we'll call it the post-PC era or the beginning of the post-PC era. And you can see the number of devices connected to the Internet have grown by a factor of 4. It's now 1.6 billion devices connected to the Internet. And that is, as many of you have heard me say, it's from the palm of your hand, sort of 2-inch screens, 4-inch screens right up to 84-inch screens in digital TVs. And these are all Internet-connected screens. And when we look at the architectures sat behind there, then you can see that the ARM architecture is sat behind about 3/4 of this massively increased volume. And PCs are still there, of course, and people still buy PCs. And people will want to continue buying PCs going forward as well.

What we mean is not that the PC is finished, but actually, digital products are now much more than just PCs. But it's instructive to look at the applications and the strength of the ecosystem, because we've moved from a situation of thousands, even low tens of thousands of apps to now millions of apps that are available. And of course, these millions of apps have been downloaded billions of times. Some 1.4 million apps between iOS and Android available at the moment and about 40 billion downloads. So the huge growth from 400 million to 1.6 billion has really been driven by smartphones, tablets and an increasing diversity of form factors.

So what's going to happen going forward? Well, it's a very competitive market, and who knows what is going to happen to those market shares. But what we would say is that this is all opportunity for ARM architecture going forwards, as the 1.6 billion devices grows by further factor of about 2.5 to, we think, about 4 billion Internet-connected screens over the next 5 years. And obviously, we're not making any particular comments here about the strength of the ecosystem. Clearly, people are going to be building on those 1.4 million applications, and software developers will be free to choose the platforms that they choose.

So that's the sort of context around PCs, and we know that PCs, tablets, smartphones, smart TVs is a very important area. It's very competitive space, but it's a very important area for our business over the next 5 years. So I thought it was worth that slightly longer-term perspective.

Back to the business, and we'll look first at royalty revenue process. The royalty revenue just under half of ARM's total revenue. For Q4, that was up about, just a bit over 20% year-on-year. The industry at this particular period, marginally down year-on-year. That outperformance of the industry, 24% shown on the chart on the right, and we're breaking that down into approximately 11% market share gains, approximately 7% due to the customers choosing to adopt Mali alongside our Cortex-A products and about 6% due to the higher value of the Cortex-A products in the first place. So that's sort of effectively what happened in Q4. It's instructive to note that, that sort of roughly 20% stood for quarters throughout the year.

What did that mean in total? Well, Q4 ARM's business usually has a little seasonal component. And we quite often see an uptick in Q4, and we saw that uptick. We said at the half year, it's likely to be a bit more muted than it has been in the past. It was a little bit more muted than it has been in the past, but that still produced 2.5 billion units in Q4, making a total of 8.7 billion chips for the year as a whole. When we look at the outperformance on royalty for the whole year, that comes out at 19%. As I say, it's about 20%.

And the chart on the bottom right is a chart that you've seen many times before, and we continue to extend that to show the continuity. ARM is not impervious to the cyclical market here. And when the industry shipments fall, ARM's shipments fall as well, but not by as much; or rather, when industry growth declines, ARM growth is held back a little. But that outperformance is actually increasing over the years. It's moved from a sort of 10% to 15% outperformance to more like a sort of 15% to 20% outperformance.

What are the sorts of products that are driving that? Well, these are the sorts of products that we see. And the reason for this slide is twofold: One is to show that this huge range of products and the dotted lines refer to some kind of connectivity. Now it doesn't have to be screens, which are connected to the Internet. And indeed, as we look forward and contemplate the Internet-of-Things, then the vast volume of devices probably won't have screens.

I visited CES a few weeks ago, and I've been going to CES for the last several years. If I think about CES in 2010, 2011, then it was very much about the bottom right-hand corner of this slide, consumer-oriented products and a great place to go collection of nerds and so on. And what we saw in 2010, 2011 was a few microprocessor-controlled light switches and security devices and so on. But quite often, you could look at these and you can tell that, "Hey, there's an 8-bit microprocessor in here," to give somebody else a push-button interface instead of a rotary interface and that sort of thing. Not really very smart. 2013 was a different CES. For me, CES 2013 was all about this whole slide. Now clearly, it's sort of been a gradual process from one place to the other. It hasn't been a sudden switch in 2013. But we really are seeing a plethora of healthcare products, metering products aimed at energy efficiency, home security products and so on. And you can tell these devices are much smarter devices because they are connected to the Internet, either directly or indirectly by some form of mobile phone-type hub. And that connectivity is enabling people to talk about services, which apply on top. And obviously, the commercial potential in those services is what drives the volume adoption of the end products. And that is clearly going to be a driver for ARM royalty going forward. It's clearly been sort of part of the story in 2012, 2013.

So in 2012, we said it's 8.7 billion chips. I'm not going to go through this slide. This slide has a few pictures, examples of some of the new products in 2012. But really, this slide is an advert for the tabulate slides, which we've included in the appendices at the back of the book and will appear on our roadshow slides and will appear in the Investor Relations section of our website.

As is -- has become the habit over recent years, Jonathan and Ian and the team have updated the numbers, which includes looking at revised numbers from Gartner and other analysts. And so we have put 3 slides in. We've restated 2011 slightly. And in particular, there's some updates in the networking section and the embedded sections. So that the total volume available for us in 2011, we now think, was a little bit more than we thought a year ago. And that means our market share is a little bit less than we thought it was a year ago. So we're restating that down to 29% for 2011.

And on the same basis, then in 2012, our market share has increased from 29% to 32%. When you actually do look at the slides in the appendix, you'll see that, that's a continuation of the theme for the last several years where market share increases by, between 2% and 4% per annum. And so 2012 was no different in that respect from any of the others. And we would expect that our market share should continue to increase based on the design wins that we're seeing, but recognizing that it's a competitive world. And just because things have increased by 2% to 4% over recent years, we have to make our own judgments about the rate of that increase in market share going forwards. But the slides are there. They're updated, and we're also showing a slight increase in the volume for when we look out 5 years. And we're now expecting 2017 total volumes to stretch to about 41 billion units. The other interesting observation about that slide in the appendix is that the feature phone sector we're saying, effectively feature phones, will turn into low-end phones and low-end smartphones. And so there's a 0 in that line now. So that's royalties.

Let's switch to licensing. And licensing is really what creates the opportunity for future royalties. The quarter saw 9 new licensees, which is something which has been happening as we've been targeting a wider range of applications, so we're bringing more companies into the ARM partnership. We now have over 320 ARM partners, and just under 1/2 of them are shipping products these days. But it was a good quarter. We saw, as I mentioned at the start, increased licensing of our v8 technology. We're very much at the start of the wave of licensing of v8.

Embedded in the 36 license agreements, there were 15 Cortex-A licenses, which is good to note. And along with those Cortex-A licenses, another 2 companies adopted big.LITTLE. So we now have 16 people on big.LITTLE. And we saw licensing of Mali graphics processors for phones, tablets and TVs. So that's the story on licensing.

Continuation of this sort of increasing the number of licenses out there creates an opportunity for future royalty. Another year of over 100 licenses, in the chart at the bottom. And the chart on the right-hand side is again a chart with which you're familiar, and you can see that the latest licenses from the last several years, nearly -- well, just over 400 actually, but I was going to say nearly 1/2 of the installed license base is a little bit less than half, really not contributing a huge amount in terms of royalty revenue so far. So that's clearly a great potential, and of course, many of those licenses, the more recent licenses have been for the higher-value products, the Cortex-A-type products and 15 of them in the last quarter.

Some of the drivers behind licensing are, of course, the new markets. And it's worth just sort of commenting here. As you know, our processor roadmap has several different sections. There's the applications processor, the Cortex-A products and the Mali products. These really are about screens. Screens of all different sizes, but they're starting to be about servers and some networking equipment as well. We anticipate apps processor market opportunity in 2017, about 4 billion units.

At the bottom of the slide, we talk about the Cortex-M family. These are the microcontrollers. And these are embedded, industrial, medical, security and so on. This is the Internet-of-Things, and screens are not obligatory in this space. The value of some of the chips is obviously much lower than for application processors, but the volume is significantly higher. And we're anticipating a market opportunity there of over 20 billion units in a few years' time. The devices, which either have screens or the Internet-of-Things devices, are connected to the Internet. And increasingly, the volumes of data, which are used and generated by these devices, is putting demand on the infrastructure and the servers and the network equipment that connects things taking too much energy. That is stimulating demand for people to use energy-efficient technology.

I'm not saying ARM is the one and only answer to this. But ARM is one of the tools in the kitbag for these equipment providers to drive down the energy consumption of the infrastructure and server products. And that, amongst other things, is driving demand for our Cortex-R series products. And we anticipate between 10 billion and 15 billion units of market opportunity in that space in a few years' time. So it's those significant opportunities, which are attractive to our semiconductor partners, which is what's driving our license business at the moment and driving interest. And we talk about healthy pipeline going forwards.

Let's switch to physical IP. It was a year of great execution for our physical IP business. Physical IP is definitely now. You can see in our processor optimization package chart on the top right-hand side. Now it's inextricably linked to our processors. Many of our partners are choosing to use ARM physical IP to create deterministic solutions, so that they know what they're going to get out of an ARM microprocessor implementation.

The arrows on -- in the graphic on the bottom right-hand side of the slide, when you look at that in detail, show that using appropriate optimization packages, people can achieve implementations, which achieve higher performance, smaller area, and therefore, cheaper devices and are more power-efficient devices as well. And that applies to our microprocessors, the red and the blue part, but also to our graphics processors as well. And we introduced our graphics processor optimization package in 2012 as well.

If I look at the underlying physical IP technology that we license to the foundries on the left-hand side of the slide, it was another quarter where we did some more platform licensing. The encouraging thing here is that ARM physical IP is now absolutely at the leading edge of semiconductor process technology. So the new platform licenses sold during the quarter were engaged on 14-nanometer work with the leading foundries. And if you look at where this stuff is starting to generate royalty, then we saw our first 28-nanometer royalties as well during this quarter.

Clearly, ARM physical IP is being adopted more, because you can see underlying physical IP royalty outgrowing the foundry growth as well, so 17% placed [ph] 7%. So that's it for physical IP, and that's it for a brief runaround the business as in 2012.

I think it's worth because some of the costs that we're bearing in 2012 and some of the investments that we're making in 2013 is actually about a longer-term story. And this is about addressing the sort of challenges that face our business in the medium term. Clearly, we are investing in R&D. You can see us building the headcount. This is because the technology that we're working with is getting more complex. It's getting much harder to implement. We're facing more uncertainty in those technology developments, and rather than simply face the uncertainty, we're investing in people. And we're investing in tools to get around some of those challenges. And when we deliver on those challenges, then consumers and businesses are able to benefit because they have even more capable devices that are even more power-efficient.

One of the other reasons we need to invest in technology development is because it's a competitive environment out there. I've just painted a picture showing fantastic market opportunity. Obviously, that's attractive to everybody; not just ARM. And we absolutely need to make these investments to ensure that our technology is thoroughly competitive.

We've always invested in partnerships, and ARM tends to work with a few leading-edge companies, whom we describe as the thought leaders. And what you do is work closely with these thought leaders. They've got their eyes on the future, the pulse on what's actually happening. And then we can apply that learning to the fast followers. Now the interesting thing is, of course, that thought leaders aren't thought leaders forever. Industries change and evolve, and we do need to invest more than just in the thought leaders. And that is why we will spend time, we will spend money. And one of the reasons we are increasing the headcount is not just in R&D. It's also investing in partnerships with some of the fast followers, some of the players, who are enabling technology that sit alongside these companies to enrich our ecosystem. So there is some investment there.

You also saw us in 2012 investing some patent-risk mitigation. The MIPS patent portfolio is an example of this where we acquired some rights to the MIPS patent portfolio. Obviously, MIPS are in the business of microprocessor licensing. That patent portfolio was potentially, particularly, a risk to ARM's business. And we needed to invest in that in acquiring those rights. And as our technology becomes more prevalent, clearly, we are exposed to a wider range of technologies, therefore, a wider range of other peoples' patents. And that's why we need to continue to invest in patent-risk mitigation.

And of course, with an eye on the future, people often ask us in one-on-ones, "How do you guard against disruptive technology? How do you know when somebody isn't designing something, which is going to undermine your future microprocessor business?" Well, of course, the real answer is we don't. But the right answer is that even though you don't, you spend a heck of a lot of time and effort worrying about who those people might be, keeping tabs on universities, investing in appropriate startups, interesting enabling technologies that probably half of the people in the room haven't heard of, that we need to do because they might be technologies that help us at some stage in future. And so you see us with seed funding different technology companies.

As we're exploring new businesses, you'll see us apply the classic ARM partnership approach working with Consortia, things like the Linaro Consortium, moving out from just mobile into the enterprise space. And you see us do some acquisitions. You also saw us launch a joint venture in the security space. So there are some future challenges, and that's what really lies behind some of the investments that we make today and why today's costs doesn't necessarily match up with today's business.

I've gone on for long enough. A summary at this point is the business is in very good shape. Our license revenues are continuing to be strong. And it's really new product development, a competitive environment out there that is stimulating our partners to invest in new ARM technology. That trend continued during 2012, it's set to continue in 2013. Shipments of ARM-based chips, the results of the labors of those semiconductor partners and ARM. That's continuing to outperform the industry. So we're continuing to invest in the ecosystem to enable that. It's very encouraging to see the extension of the outsourcing model in our graphics business, in our physical IP business, starting to generate additional royalty revenue. So the value that we get when somebody ships one of these chips, actually, is starting to increase. And we saw that as a trend in 2012. And as I've just said, we're continuing to invest in new technology, and the good news is we're able to do that at the same time as increasing revenues and profits.

And Tim is going to talk about that now in some more detail. Thank you.

Tim Score

Thanks, Warren. Good morning, everyone. So Warren's given a fairly progressive overview of the quarter, so you'd probably be relieved to know I've got 4 slides, which are not going to repeat everything he said, but probably just going to give you a little bit of guidance on the models and a little bit more insight into the Q4 P&L.

We've talked about the revenue overall, up 20%, 21% in the quarter year-on-year, very strong in licensing 26%; strong in royalty 17%. And Warren's talked about the relatively to the market, and we know that it's Cortex-A shipments and Mali helping to drive that.

I am, however, going to focus more on the -- if you like, the trajectory of the 21% revenue increase becoming a 16% PBT increase, becoming a 10% earnings increase, because important to understand that in terms of when we look forward into Q1 and the rest of 2013.

The underlying costs in Q4, as we said in the release, were about GBP 73 million. There were 2 issues in there that increased it up to GBP 79.7 million as reported. One of those is the mark-to-market charge, which ARM followers will be aware, tends to move around in the plus or minus GBP 2 million, depending on what the quarter end exchange rates are.

For those eagle-eyed on the 31st December, the dollar blew out to $162.50 for sort of a 1-day only offer, and then came back, sort of $160 and below when people came back to work. So very transient, but actually had an impact on our mark-to-market. So there was a small charge there.

The more important one was related really to our Q4 performance, both in terms of the overall corporate bonus that is paid to all of our employees on 1-year revenue and profit targets, because the Q4 performance was much stronger than we had expected by the end of Q3. We were obviously accruing a bonus, expecting a slightly lower result. When we got the Q4 result, we need to true up the bonus accrual that we'll be making through the year to cater for that result. That was part of the uplift, so obviously, that goes away.

And the other one was sales commission payments to our sales force. You've seen in the release that the order backlog is up 25% sequentially in a quarter where license revenue was as high as it's been. That tells you that the bookings that were taken in the quarter was very high, and therefore, sales commissions again were higher than the normal ongoing level. So a combination of those 2 factors meant that we did GBP 80 million of pretax profit. But sort of in a sense, those won't recur. I mean the corporate bonus would only be at the elevated level in 2013 if we shot through the budget again. So you can expect -- if we did our budget, the bonus next year will be lower than we've seen in 2012. If we shoot through our budget, which would probably be a good outcome for us all and the bonuses would be higher. But certainly, bonus payments in Q1, Q2, you can expect to be lower than we've seen in Q4.

The other issue we had in Q4 was the tax rate. I've been messaging a sort of 25% normalized tax rate for 2012. And that's what it was in the 9 months to the end of September. There are a couple of issues in the U.S. that are actually -- one is a short-term timing difference, which was the timing of the legislation of the R&D tax credits in the U.S. You can only realize the benefits of the U.S. R&D tax credit when the legislation is passed. In all previous years, the legislation has been passed in Q4. This time, it was passed on the 2nd of January, so slightly annoying because I'm having to stand here explaining to you why that benefit gets taken in our Q1 numbers not in our Q4 numbers as normal. That was one issue.

There's another piece of law in California that was passed in November, which changed the way that companies who operate in California, how their income gets taxed in California. And the good news is the change in methodology means that less of our income going forward is going to be taxed in California. The short-term impact of that is we have some deferred tax assets that we need to, as it says in the release, derecognize, because we had been assuming higher taxes in California going forward. But because we're going to be paying less, then not all of those deferred tax assets will be recovered in the fullness of time. We needed to write them down. Again, a one-off issue. Good news, we're going to be paying less tax in California going forward.

Putting all that aside, that Q4 noise on tax, as we know, the Patent Box regime that we've talked about before, we talked about on the Analyst Day, comes into effect in April. We get 60% of the benefit of that in year 1 and 10% per year in the subsequent 4 years. And for ARM, a lot of our profits are earned from qualifying patents, as defined by that regime. And therefore, as of now, my guidance is that the full year effective normalized rate will be about 20% in 2013.

Okay, so that's the kind of Q4, why the P&L is the way it is. I suppose the other thing to say is you'll also see in the release that the guidance for the underlying OpEx in Q1 is 75, 77. I said a few minutes ago that underlying, it was 73 in Q4, removing the incremental bonus and the FX charge. So 73 going to 76, reflecting some overall employee cost inflation that tends to kick in at the beginning of the year. And obviously, we've been hiring people, so there's a sort of full quarter effect of hires that we've been making. So it takes us into that sort of 75 to 77 range for Q1, we think. But that's assuming that sort of neutral mark-to-market.

Clearly, if the quarter ended tomorrow with the dollar/sterling where it is, we have an -- we'd have a mark-to-market credit in Q1. But obviously, there's a lot of water gone to the bridge before 31 March.

So standing back and looking at the full year. Again, I don't want to repeat what Warren has said, but you've seen us -- it's been another year of investment in people and in business infrastructure. Net headcount up 276 in the year, about 80% of those people being in research and development, but also commercial feet on the street, back office, support functions and accommodating the growth that we're seeing and then we're going to see in the future. And that investment will continue in 2013, may be broadly at the similar level, but we'll have to see how the overall environment plays out. It's very early on in the year to make specific judgments about our level of recruitment, but we would envisage something broadly similar to what we've seen in the last couple of years.

Notwithstanding that investment, of course, we've seen very strong net cash generation, especially in the second half of the year. And we are recommending a full year of final dividend for 2012 up 35% on last year's final, which, overall, would be a 29% increase in the full year dividend, taking it to 4.5p.

Licensing and backlog. You have heard me talk about $35 million of licensing being the base, plus or minus. You've heard me talk about 60 and 65 and 70. And this morning, you've seen us report 85, so I'm sure you're all interested in my guidance as to what the base is for 2013. And I think the answer to that question is about 75, again, plus or minus. Are there going to be quarters in 2013 where our licensing starts with an 8? Probably. Could there be one where it starts with a 6? Maybe. Should we panic if there is? No. Licensing is inherently lumpy, but the backlog is high. The underpinning of licensing is higher, obviously without record backlog. So 75 plus or minus is how we see it based on backlog and based on opportunity pipeline of licensing opportunities that are either in-flight now or we would expect them to be in-flight later in the year. And of course, other things will come on to the radar later that we have, we're not yet seeing.

And what that chart -- I mean, which we introduced a couple of quarters ago was really there to show -- because I think the question -- we've always said licensing is a mid- to high-single digit revenue growth stream over periods. Yes, and before the downturn, it was 9%. It then went down. It then bounced up, and then it's been growing strongly in the last couple of years.

And the question was, have all your Christmases at once? Is this just a bounce back out of the downturn? Is it sustainable? And what we're saying is yes, from this elevated base, we're still guiding. If you look out multiple years, mid- to high-single digit on top of this base has been growing out more than 20% per annum for the last couple of years. And yes, one of the main reasons we say that, of course, is that chart on the right, which shows how the backlog has grown over the last 5 years and how license revenue has grown over the last 5 years is quite a big gap to close, which of course, is closed by the recognition of license revenue over time. So 75 million plus or minus, mid to high-single digits growth rate sustainable over multiple years, we believe.

And so the outlook. Okay, we came into the year, as we've said, licensing pipeline looks good. Order backlog is high, up 25% in Q4 based on the sort of new products and new markets that we're going into, but it does remain lumpy, so GBP 75 million plus or minus. In terms of royalties, we grew royalties 21%, as you saw in Q4. These are processor royalties. We grew processor royalties 17% in the full year 2012. The market in Q4 '12 versus Q4 a year ago, which is obviously, a relevant relationship when looking at Q1 royalties, was slightly up, flat to slightly up.

So based on all that, you -- it's reasonable to expect that ARM's royalties in Q1 could be 20%-ish up year-on-year. Q1 royalties last year were 93. That would take you somewhere into the 110, 112, 115 area if we were continuing to grow at around that sort of 20% plus.

So looking at our -- taking that license revenue guidance, looking at recent royalty growth, looking at the development of PIPD, development systems, in the round, we think that's around $250 million, plus or minus likely for Q1.

Normalized OpEx, as I said earlier, 75 million to 77 million. And then a reminder at the bottom that it is very early on in the year. We are living in low-growth times, to be kind. And whilst we may think that sort of catastrophic risk has reduced, we're still living in low-growth times, and there can be negative influence on consumers and on the semiconductor industry, so we need to be careful. But assuming it doesn't deteriorate significantly from where we are now, we would be confident in saying that our full year revenues will be, at least, in line with where we currently are, which is about 10 30, $1.030 million.

And I think with that, we'll open up for Q&A.

D. Warren A. East

I think we've got the first one there, towards the front on this side, couple in the front row there.

Question-and-Answer Session

Nick James - Numis Securities Ltd., Research Division

It's Nick James from Numis here. Just a couple question. First was on the OpEx. You've highlighted the need for investment in the business. I guess just to understand your thoughts on the longer-term potential for operating margin expansion is the fact that now we're kind of looking at other markets beyond the very high-volume mobile one. I mean there's less of an opportunity for operating margin expansion as we've seen previously. And then the second one would just be in terms of looking at the level of outperformance we can expect this year. Obviously, last year was a very strong growth year for high-end smartphones. It now feels like the growth in smartphones moving much more to the lower end. Does that change the degree of outperformance you see relative to the semiconductor market?

Tim Score

Okay, I mean I'll do the first one. I mean there's no real change to how we see the investment proposition here. I think we're -- on a quarterly set of results, we're sort of focusing on the costs and why we're investing. But it doesn't really change the view that there's operating leverage inherent in this model. You got generic technology that's becoming more and more applicable to more end markets. And we don't see step changes in our cost structure. It doesn't mean that everything we've told you about margins before has to be rewritten. I think there's a very valid question about -- you've got 45%, 46% margin today. What's it going to be in 5 years' time? Is it going to be 50%? Is it going to be 55%? Is it going to be 60%? Warren's point is in 5 years' time, the relationship between our revenue and our costs, they're not going to relate directly to each other. One's going to be based on costs incurred in the past, and one's going to be about revenues to be earned in the future. And it could well be that this business is much more valuable in terms of its potential to generate profits and cash with a 50%, 55% margin than with a 60% margin, which may mean that royalties are a higher percentage revenue, the business is more mature, et cetera. So we don't think of it, specifically, in terms of margin. We think of it in terms of our investment opportunity and our ability to generate profit. But you should certainly expect margin to be higher and continue on this gradually increasing trend.

D. Warren A. East

And the second part of the question was about royalties, shipments and outperformance of the industry and did we feel that with slowing growth in smartphones the outperformance was likely to change. I think the slowing growth in smartphones is arithmetic. There are estimates out there, by the way, for still significant growth in smartphones in 2013. So I don't think we're going to see a massive change there. And I would also point out that as some of this smartphone growth is fueled by effectively low-end smartphones, and sometimes that's perceived as a bad thing strangely for ARM's business, which is of course, a complete fallacy, because a low-end smartphone is typically replacing a simpler phone. And ARM is still earning perhaps 5x as much royalty on a low-end smartphone as on a simple phone. So those changing dynamics in smartphones, I don't think really makes a massive difference. And whereas historically, as we saw on the chart, with sort of outperformance has been in the 10% to 15% range, I said it's in the 15% to 20% range. Whether it's 21%, 19%, 22% or 17%, we can't really tell you what it's going to be at the moment. But it's going to be in that range rather than the 10% range. I think Sandeep was next, actually.

Sandeep S. Deshpande - JP Morgan Chase & Co, Research Division

Sandeep Deshpande, JPMorgan Cazenove. Couple of questions. Firstly, on licensing. I mean you've been growing licensing extremely strongly over the last few years. Can we have a comment on -- I mean is this going to be -- what is the long-term growth rate on licensing that you are looking at in your own model at this point? Secondly, on the royalty per device, I mean you are seeing this uplift in per -- as you move towards these latest-generation Cortex-A processors and the latest generation -- but at the same time, you saw a small dip from last quarter to this quarter. Can you make a comment was it that some other businesses are growing, which is causing a dilution in the royalty per device? And then finally, this guidance on the first quarter in terms of revenue, Tim, maybe you can make a comment. In the last 12 years, you've never given a quarterly revenue guidance. What's changed?

Tim Score

Did you say 12 years?

Sandeep S. Deshpande - JP Morgan Chase & Co, Research Division

Yes.

Tim Score

Wow. I thought it was 11 in 3 weeks' time. No, I mean on that -- lots of points, Sandeep. We don't often specifically mention it. You're right. Funnily enough, we did this time last year actually. If you look at your Q4 '11 release, you'll see we pointed to 200, so it's not unprecedented. I mean our job is to guide the market the best way we can. And if we think it's appropriate to put in a specific number, then that's what we will do. Sometimes we do, sometimes we don't. As I say, it's all about guiding the market the best way we can. I mean on the licensing, it's really what I said up there, Sandeep. I think from having had these periods of much higher than historic growth in licensing, when we look forward, look at the backlog, look at the customers, look at the markets we're entering, look at our technology roadmaps, we see a mid- to high-single digit percentage growth rate from here out into the medium term.

D. Warren A. East

And the middle question was about royalty rates. I don't think we see a change to the long-term upward pressure with higher-value microprocessor cores in applications processors pushing the royalty rate up. In any given quarter, then the actual answer is going to depend on relative growth rates of those types of products versus things like microcontrollers versus low-cost connectivity devices that are also going into things like smartphones and tablets. And so, now on a given quarter-by-quarter basis, then don't read too much into the numbers. The medium-term trend is Cortex-A, Cortex-A plus Mali, Cortex-A plus Mali plus physical IP, multiprocessors. We've got to the stage in 2012 where we're starting to see the Cortex-As with -- about 1 in 4 Cortex-A had a Mali attached to them in the last quarter. We're seeing physical IP being attached as well and contributing. And as we look forward, we'll see big.LITTLE drive things like multiprocessors as well. So the long-term trend is there to stay. Goodness, where do we start? Let's have some over this side because I think they're quite keen as well.

Francois Meunier - Morgan Stanley, Research Division

Francois from Morgan Stanley. The first question would be about the royalty rate. On average for the company, I think, last year it was 1.2%. If you could give us an update of where it is today, for 2012? Second question is about servers. If you could give us a bit of update in this market? I'm pretty sure that chips are being tested at the moment by most of the end customer being on Facebook or whatever. What's the feedback so far from the end customers? And how long do you think it would take for an IT department, in a bank or whatever to have a try and basically give up Intel?

D. Warren A. East

Okay, so on the royalty rate question, I don't have a specific number for you. It's a little bit higher in my head.

Tim Score

It's a little bit higher.

D. Warren A. East

Yes. There is -- and it's a little bit higher last year that it was the year before, and it will be a little bit higher this year than it was last year because of the answer I gave to Sandeep's question. And that trend is absolutely in place.

Francois Meunier - Morgan Stanley, Research Division

[indiscernible]

Tim Score

Think of those sorts of numbers. And actually, it doesn't necessarily need to be higher. I mean obviously, if the microcontroller bow wave was totally overwhelming, it could actually be a little lower, and royalty revenues could be even bigger, right? So it is, it's not sort of totally in a sense a reasonable comment that it is a bit higher, but it is. The incremental percentages that Warren talked about are outweighing more volumes at the 1%, so it's gradually going up.

D. Warren A. East

That's a, as I said, an answer to the last question. It is going to fluctuate a bit on a quarter-by-quarter basis. On service, yes, we're seeing increased momentum. We are in a stage closer. We're 12 months closer to 2014, and therefore, the appearance of sensible commercially available ARM-based service, we are more certain that timescales actually aren't changing as though we are transitioning from there being no servers to some servers. And 2014 is when it's going to be sort of something that you can actually notice. In terms of the feedback that's coming back, so far, the experimental work is actually exceeding expectations. The original sort of theoretical stuff has been proved and more, and that is fueling some enthusiasm. And you saw some announcements in 2012, and I think we'll see some more in 2013. Let's move down that one -- oh, sorry here we go -- first?

Didier Scemama - BofA Merrill Lynch, Research Division

Didier Scemama from Bank of America Merrill Lynch. I just wanted to ask 2 questions. I've seen you signed or you announced 16 big.LITTLE partners, which is quite a big number, I think. So I was just wanting to get a sense from you as to what sort of applications we should expect to see big.LITTLE? And also more importantly, if we're going to expect to see big.LITTLE in the lower tier of the smartphone market over the coming years? That would be my first question. I've got a follow-up.

D. Warren A. East

Okay. Big.LITTLE, we are seeing in smartphones and tablets. That's where it's happening first. You've got to have the sort of workload, which is quite variable, so that you can have some workload, which are compute-intensive; and some workloads which are compute-light. And then you can get the real benefit of big.LITTLE by using the appropriate-sized engine for the appropriate workload. That applies in phones, in smartphones. It applies in tablets. At the moment, it's clearly a sort of leading-edge technology thing, but I don't see why, over the coming years, the sort of normal trends we see in the technology space, which is something that gets introduced at the high end and it trickles down, I think you will see that in lower-end smartphones. It's going to be some years away before it gets sort of price points that are sensible, but it will definitely happen.

Didier Scemama - BofA Merrill Lynch, Research Division

Great. And then the other question is obviously over the last 12 months, there's been a lot of debate, about your key competitor driving more low-end processor technology ahead of your foundry partners. However, I think over the last few weeks, we found out that the SMC is going to ramp 20-nanometer quite a bit ahead in terms of volumes that perhaps the market expected. And Samsung is alluding to a 14-nanometer FinFET, perhaps, as early as later this year or second half of this year. So I was just wondering if you combine process technology from your partners on the manufacturing front with big.LITTLE, is it possible that your performance per watt versus your key competitor, in fact, increase in the coming quarters or years?

D. Warren A. East

Well, obviously, we hope so. We have not really subscribed to this notion that Intel should have a long-term significant technology lead. Clearly, the business model is much easier for Intel to get to a new node ahead of the foundries. The foundries, as I've said before, have to support many customers, and it's a more challenging task for them. But 2012 has seen the foundries, the TSMC, Samsung, GLOBALFOUNDRIES have all talked about their leading-edge roadmap. And UMC is starting to talk about it as well now. And so the same equipment is available for everybody, and there's no reason why Intel should have a long-term sustainable lead. They just have a sort of little league because it's easier for them to service effectively 1 customer instead of several. And as you saw me talk about up there, processor optimization packages for 14-nanometers, our physical IP team are engaged with these foundries. You see in the release, we talk about Samsung taping out 14-nanometer Cortex-A7 based test chips with ARM and Cadence, and so it's real.

Didier Scemama - BofA Merrill Lynch, Research Division

On the embedded front in this, last quarter, Renesas announced a Cortex-A8 microcontroller. And yesterday, Atmel announced a Cortex-A5 microcontroller. So of course, it's probably too premature to talk about an increase in royalty rates for microcontrollers, but is it unthinkable that medium to long term, that royalty rate also creeps up in addition to what we know as sort of 1% base business?

D. Warren A. East

Yes, it's not unthinkable. However, the reason we talk about microcontrollers and the low ASPs is because there is a relationship between ASPs and volume. And in the microcontroller space when we talk about 23 billion units, then what really drives the high volume is the low-end product. It's true today that you can buy ARM-based microcontrollers for tens of cents. You also have to pay more than $10 for some ARM-based microcontrollers. Microcontroller covers a multitude of different applications, and some of these devices are quite sophisticated. But the more expensive ones are going to be much lower volume relatively.

Gareth Jenkins - UBS Investment Bank, Research Division

Gareth Jenkins, UBS. Just a few, if I could. Warren, you talked about challenges of implementation. And I just wondered, what precisely, apart from security that you mentioned, what precisely you were talking to? Have you had any challenges, for example, with the foundries implementing big.LITTLE, or are there any kind of challenges that you're finding shorter term? And secondly, I just -- I guess unit volumes in handsets is down 3% for the industry, Europe 5%. Can you talk about your mobile royalty revenue growth year-over-year, please? And then, I guess lastly, it looks like your graphic share maybe pushing close to 30%. I think this time last year, you talked about a target for Mali of over 100 million units. I just wondered if you could talk to a 2013 target?

D. Warren A. East

Right. Three questions. First one on challenges. We have this slide in about challenges, not to talk about a specific challenge, but simply to explain that execution -- and execution, I hope in the business, has been pretty good and will hopefully continue to be pretty good. I'm simply pointing out that we need to spend some money to make it good. And as these devices get more complex, then there are many, many more variables involved in creating processors. big.LITTLE is just one example. Now, if you're trying to simulate 300,000 transistors, it's easier than trying to simulate 1 billion transistors, much easier. And you need a lot more machine cycles and a lot more brain cycles to work out how to and then to effectively simulate the more complex device. That's it. It's a generic comment rather than anything specific. The next question was about mobile, and I think the best thing we can say there is when we gave some very specific guidance or specific information a quarter or so ago, we probably made a bit of an error giving too much information to the financial community, because some of our customers also can get access to this information. Reverse engineer it and use it in commercial negotiations, so we're not going to make that mistake again. I said that once before. But if we look at Q4, then mobile units were up about 5%, and mobile value was up just over 20%, 21%. On graphics and our share, then we expect the increase in share to continue. You've seen the graphics licensing. Licensing doesn't guarantee royalty because we have to get design wins, as well as get the licensing. But the sort of upward trend on our graphics volumes we expect to continue and its fourfold increase in 2012. I'm not sure that we're expecting a fourfold increase in 2013. Obviously, easy to increase off of small numbers, but it's going to be significant, and it's going to follow tablets and smartphones.

Janardan Menon - Liberum Capital Limited, Research Division

It's Janardan from Liberum Capital. A couple of questions. One is just on your Q1, on your Q4 royalty seasonality. Last year, you pulled out the Q1 trend because you said that you pulled forward some revenue into Q3 on the royalty side, on the PD royalty side. Normal seasonality, previously, was for a rise in your Q4 shipments on the actual quarter basis. So I'm just wondering, is that seasonality changing now that you're getting a drop in your quarter-on-quarter royalties? And is this the way of the future, which is that your Q1 recognized royalty revenues will always be down from Q4 levels? The second is just on the Windows 8 Windows RT front. RT has got off to a bit of a disappointing start. How do you see that evolving going forward, and how do you see the ARM ecosystem gaining traction in the Windows 8 operating system? And how long do you think that process could take? And lastly, your licensing is rising very fast and your number of architectural licenses seem to be increasing. Is that a trend that you're going to see more and more a bigger and bigger share of architecture license amongst your overall licensee base, which will keep nudging up your licensing levels in future?

Tim Score

Yes, thanks, Janardan. I mean, on the first one, I think it's difficult to talk about seasonality. And the fact that seasonality will stay the same, et cetera, et cetera, I think what we're -- what I was pointing to there was the relationship that we saw between Q4 royalties last '11 and in Q1 '12. It's probably the most recent information we have of how the current market, the seasonal impact of the current environment how it plays out. And the sort of 20%-plus growth that I was talking about year-on-year are also consistent with what we did in Q4 and what we did in the full year 2012 for a growth rate. So you're sitting here today with very few royalty reports and seeing guidance from our partners, which as usual, some is just really quite positive sequentially, some is negative. That seems like the best information we have to guide at the moment, but I'm not making any prediction about what seasonality might mean going forward relative to how it's been in the past, but I think last year was probably a good indicator.

D. Warren A. East

Okay. Next question was Windows RT, what do we think about Windows RT. Well, 2012 was the launch of RT, and our expectation was really satisfied that Microsoft proved they could bring a Windows operating system up on ARM technology. And it works, and it's fine. It is a very controlled release that Microsoft had done. They have very tightly controlled the number of chips, chip companies they're working with and the number of chips that they're working with and the number of OEM customers whom they're working with as well. And that is a matter for Microsoft. I believe that their 2013 plans are similarly very tightly controlled. But if you want to probe on that, you'll have to push a bit harder with Microsoft. As far as we're concerned, we're pleased to see the platform running on ARM. We think that the world needs multiple operating systems, and we stick with our usual principle of being pretty agnostic. And the rate at which Microsoft takes share or not from other operating system is a matter for Microsoft. But we're going to target the full range of operating systems that are out there. On the licensing forecast and architecture licenses, I think you have seen a bit of incremental architecture licensing over the last year, and likely, over the next year or so as well for 2 reasons. As we target a newer, broader range of applications, as we get into things like networking infrastructure and servers, so we're exposing ourselves to different semiconductor players. And so, for example, Cavium's license back in the summer of 2012 as an example of that, where they've sort of previously been a MIPS house and adopted ARM for some of their networking applications. The other thing that we're doing at the moment is going through a transition from ARM architecture version 7 to architecture version 8. So the existing architecture licensees are thinking about upgrading. And for those 2 reasons, we are going through a period of seeing sort of some increased architecture licensing. But those are the reasons. There's not a fundamental shift in the business model. Simon? And then I think we'll keep on with the pace.

Simon F. Schafer - Goldman Sachs Group Inc., Research Division

Simon Schafer, Goldman Sachs. Just wondering, actually, on this incremental upside surprise for licensing. So the new architecture, is this yet again another big step-up in the amount of royalties that you can charge? If I think back about the schedules that you had, specifically, since -- so the initial Cortex generation, there was obviously a step-up, as is the case with the A15. But how should we think about the type of value that you could extract on your royalties a few years down the line, based on some of this incremental licensing activity that you will have today?

D. Warren A. East

Okay. So it's a continuation of the trend as we've moved into the initial wave of Cortex-A through more sophisticated versions of Cortex-A, so the royalty rate has increased. As we're delivering more value to the semiconductor partner, then we're expecting to be paid for that incremental value. Version 8 is another increment again, and we're expecting to be paid for that. And where as in the past, we've done sort of 1%, 1.25% up to sort of 1.75%, generally, version 8 architecture licenses, the number starts with a 2.

Tim Score

We'll going to do Sumant here at the front.

Sumant Wahi - Redburn Partners LLP, Research Division

It's Sumant from Redburn Partners. I guess when you have good results, you tend to notice some of the negative niggles as well, so if you don't mind, I have 2 on that. First is on option expense, it's up 45% Q-on-Q and up 14% year-on-year. So could we do something, or could you do something about on how to solve this sort of volatility we may see in terms of reported earnings? And then at the second question is to do with the PIPD segment results. When I look at it, I mean -- and I think I asked you this question in Q4 2011 as well, in terms of what could we see in the next 5 years in terms of operational profitability of that particular business. It's still negative 20%, so I'm just wondering if there's a strategy I could view over the next 5 years, how you could bring it up to the processor division sort of profitability or even to breakeven?

Tim Score

Yes, I mean on option expense, unfortunately, with the option accounting, there is volatility. And there is volatility, specifically, when you get big moves in shares prices. And the fact that our share price moved significantly in Q4 meant that there is, in a sense, the option charge or elements of the share-based remuneration charge went up as well. If you look at back over the last sort of 8 quarters, it sort of uniformly below that level and will go lower again in the future. Now there are various debates about how this should be disclosed and accounted. What we try and do is set it out very clearly in the same way that we always have done, which is: here's our normalized numbers; here's our option charge; here's the subtotal without the option, with the option charge included; and here are some of the other noncash accounting items. And so in a sense, we extract the volatility, but we appreciate it. It's there. And the reason it's there this time is because of the spike in the share price in the fourth quarter. I think the most -- when we talk about this to investors, I think the most important issue is dilution and how much, how many shares are you issuing to your workforce every year? And that has remained consistent, typically, under 1% and is unchanged. Now that gets translated into accounting rules that are volatile, mainly because of share price movements. PIPD segments, I think Warren explained that a lot of the value of PIPD is to the wider ARM. And a lot of the value of the PIPD brings to ARM doesn't actually go through the PIPD segment. It goes through in the processor division. I mean the other thing to note is, as you say, there's a margin improvement from last year. But we've been investing in that division quite heavily, because as Warren said, it's now acknowledged as the leading third-party provider physical IP. Multiple foundries are wanting us to work on multiple projects at the leading edge, and that's requiring more people, which is why you see that result. But I mean strategically, I think PIPD is more important and more valuable to ARM now than it's been any time since the acquisition.

Andrew M. Gardiner - Barclays Capital, Research Division

Andrew Gardiner from Barclays. Just again on the licensing. You highlighted in one of the slides, Warren, the increasing gap between your backlog relative to the licensing revenue in the quarter. But with your comments also around, sort of shift from v7 to v8 and more customers at this point having to consider that, those upgrades and around architecture licensing, do you think that gap is going to widen for the time being before we start to see it narrow? And what does that mean for -- is that inherent in your mid- to high-single digit long-term guidance, or could it perhaps outperform that?

D. Warren A. East

I think the mid- to high-single digit long-term guidance stays. I don't think we should look at that graph too closely on a quarter-by-quarter basis. The reason it's over multiple years is because it's meant to show that, hey, there's a trend over a handful of years, and we have the backlog to support the increased level of licensing. When you get in to quarter-by-quarter, I mean look at the last quarter it's just shifted quite a lot. That is exactly because of the new technology, and we are having this little wave of people licensing new technologies. When we sell somebody a v8 license at the moment for -- or a license for a v8 product, we don't recognize revenue, so 100% of that is going to go into backlog. And that is going to cause the gap to widen because you've got backlog growing and license revenue not happening as a result of that order. That's going to happen for a few quarters. And as Tim said in the presentation, license revenue is lumpy. Sometimes, that's because orders happen on a Friday or then it's the end of the quarter and there's the following Monday. And that sort of thing can make a big difference to the actual numbers. So don't look at it on a quarter-by-quarter basis, my advice.

Andrew M. Gardiner - Barclays Capital, Research Division

Just quickly for Tim, on the -- sort of the updated tax guidance. I think previously, you said medium term, you were looking for the -- your tax rate to step down to something around 17%, largely driven by the Patent Box. But with these other changes, you're seeing -- the California change and others, where is that -- are we now even lower than that, or is 17% still a good spot to be?

Tim Score

I think once we have the full benefit of Patent Box out in, effectively, 5 years' time, then all other things being equal, and of course, they won't be, sort of mid-teens erring still to the 17%. But we are held by the California issue. But yes, that -- on a sort of 5-year view of our tax charge, that's getting a little bit in the noise.

D. Warren A. East

Okay. We have room for 2 more. Let's have these 2, and we'll come to you afterwards, okay?

Jerome Ramel - Exane BNP Paribas, Research Division

Jerome Ramel, Exane BNP Paribas. Just to come back to the manufacturing part of the story from your -- from the foundries. It seemed on 14- and 16-nanometer node FinFET from the foundries is not a 14 or 16. At the gate length, it's still a 20-nanometer node. So it really seemed to me that Intel has the lead. And more importantly from a cost perspective, I mean Broadcom and other companies said that for the first time at 20-nanometer node, they don't see a price improvement. So I'm just wondering if that negative trend might actually be a positive trend for ARM as customers might be forced to accelerate the roadmap and ask for more leading-edge core from ARM?

D. Warren A. East

It's certainly a feasible line of thought. I mean I maintain that what matters is not the geometry, whether it's 14, 16, 20 but what matters is what performance do you get out of the processor? How much area does it take up on the silicone, and how much does it cost to produce the chip. And that's what really matters. And companies like Broadcom traditionally operate a little bit behind the leading edge of process technology, and they find that a very successful formula. It enables them to get products out to market much quicker because there's much less uncertainty in the implementation, and that's what works for their business. The good thing about the ARM business is that we supply our processors to a range of different companies. Some of whom swear by operating just below -- behind the leading edge like that. Others choose to operate at the leading edge, swallow the uncertainty and the iteration and go for the leading edge. And what matters to us is semiconductor companies getting ARM chips out at the right levels of performance for the market at the right price for the market. And we recognize that different people have different approaches, and we have to support all those approaches. The last question?

Amit B. Harchandani - Citigroup Inc, Research Division

Amit Harchandani, Citigroup. My question would be on networking. What do you see in the networking space in terms of competitive dynamics? And on a 3- to 5-year view, how do you see enterprise networking contributing as a percentage of your royalties? And as a quick follow-up, in terms of the investment in the MIPS portfolio, do you see an opportunity to make money out of this rather than just purely being a mitigation or an insurance kind of an act?

D. Warren A. East

Okay. On networking, yes, we do expect to see ARM's presence in networking increase. Over a 5-year period, I don't think you're going to see it be massive at 2017. 2012 was a year of design wins. It was a year of license enabling with companies like, like Cavium, like Freescale, like LSI Logic and so on. And some of those have the design wins with their customers. But there is a period now of implementation. And then those products will get introduced, and they'll get phased out or introduced in phases. Things like the rollout of 4G networks, which is happening now around the world is a great stimulus for people to think about, "Okay, so when we're coming to upgrade this network, how we're going to make it more power-efficient and use leading-edge technology?" That's where ARM plays a role. Right now, the things that are getting installed are not based on ARM technology. They're based historically on -- a lot of PowerPC architecture is out there. As for monetizing the MIPS patent portfolio, we did that primarily for what it said on the slide, which is patent-risk mitigation. We're not interested in monetizing the MIPS patent portfolio. We're interested in monetizing the ARM architecture, and that's what we're doing.

I think with that, in the interest of time, I do apologize if people have got some additional questions. We're going to have to bring it to halt. Thank you very much.

Tim Score

Thank you.

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