ARM slides following Citi downgrade

|About: ARM Holdings, plc (ARMH)|By:, SA News Editor

A week after ARM (ARMH -2.1%) sold off in response to its Q1 results, Citi has downgraded the CPU core developer to Neutral.

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.

Subscribe for full text news in your inbox