While ARM's licensing growth remains strong (+37% Y/Y in Q1 and +27% in Q4), investors have been nervous about slowing royalty growth. Royalty revenue (based on the prior quarter's shipments) only rose 8% Y/Y and 7% in Q4, thanks in large part to slowing chip shipment growth (+11% and +16%).
Moreover, the numbers suggest ARM's royalty/chip is declining in spite of growing mobile adoption of technologies that boost its royalty rate, such as 64-bit instruction sets, big.LITTLE, and dual/quad-core CPUs. ARM suggests growing shipments of microcontrollers, smart sensors, and low-end smartphones are pressuring its royalty rates for now.
ARM, long granted steep multiples by the Street on account of its near-monopoly position in the CPU core licensing space, currently goes for 24x 2015E EPS.
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