By Lisa Fleisher 

LONDON--British microchip designer ARM Holdings PLC reported on Tuesday a 34% rise in third-quarter profit, saying it saw strength in demand for high-tech chips for mobile phones and a pickup in demand for so-called smart objects.

ARM, which designs technology found in chips in more than 95% of all smartphones, said net profit for the three months to Sept. 30 increased to 64.8 million pounds ($104.8 million) from GBP48.5 million a year earlier on a 6% rise in revenue to GBP195.5 million.

The company had expected revenue generated by sales of smartphones using its technology to pick up in the second half, after sluggish growth in the first half of the year. The third-quarter results showed the start of that rebound, with processor royalty revenue in the third quarter increasing 11% over the same period the previous year. ARM said it expected that pace to increase in the fourth quarter.

ARM won't see the effect of strong iPhone sales until the first quarter of 2015, Chief Financial Officer Tim Score said. Apple Inc. said Monday iPhone sales for the third quarter 2014 rose 16% compared with the same period last year. "When you see things like the iPhone 6 selling well, that is a good, healthy sign overall for smartphones and for ARM's royalties," Mr. Score said.

The Cambridge, England-based company said the number of chips shipped based on its technology rose to 3 billion, up 19% from a year earlier. About a third of those are in connected objects, such as health monitors, light bulbs or other products that are increasingly collecting and transmitting data about the use of the products.

The chips in those devices generally cost less and provide ARM with less royalty revenue per chip shipped. The company said it expects the number of chips shipped for those products to outpace more advanced chips for products such as phones. "It's an important part of the growth story," Mr. Score said.

Last month, ARM said it had begun to promote a more sophisticated chip design that would allow manufacturers to give products more advanced functions, such as flashier displays or more advanced audio. The company also introduced a few new products, including an operating system used on chips, to try to speed up the development and use of "smart" products.

ARM said it increased its staff by 400 people, mostly in the research and development and engineering departments.

Write to Lisa Fleisher at lisa.fleisher@wsj.com

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