ARMH Arm Holdings Plc ADS Each Representing 3 Ordinary Shares (MM)

By Stu Woo 

LONDON-- ARM Holdings PLC said Wednesday that revenue and profits grew in the first quarter of 2016 compared with a year earlier, though the British chip designer warned that economic uncertainty could slow the industry the rest of the year.

The Cambridge, England-based tech company said revenue grew to GBP276.4 million ($396.4 million) in the three months ended March, up 21% from GBP227.5 million in the same period in 2015. Profit rose to GBP91.5 million, up 7.6% from a year earlier.

Both figures beat analysts' expectations, sending shares up 3.22% in early trading.

ARM makes money from licenses and royalties from the chips it designs. While the company currently designs the architecture for more than 95% of the world's smartphone chips, it is seeking to increase its market share in the networking industry and the server industry, which Intel Corp. dominates. To do so, ARM spent GBP86.3 million on research and development in the first quarter, up 38.3% from the same period in 2015.

"The return on these investments is in line with our expectations, and will drive our future royalty and license revenue growth, and enable us to extend our opportunities and to create new revenue streams," ARM Chief Executive Simon Segars said.

ARM said that in the first quarter of 2016, the company saw its technology gaining share in its target markets, drawing strong demand from a wide range of companies.

The company said it expects its revenue for the rest of 2016 to be in line with market expectations, but it added that "macroeconomic uncertainty remains, and could influence consumer and enterprise spending, potentially impacting semiconductor sales and industry confidence."

Sanford C. Berstein analyst Pierre Ferragu said ARM is at risk of performing below expectations in the second half of 2016 and in 2017. That is in part because first-quarter royalties on processors, $191.9 million, came in below his forecast, implying that growth significantly slowed.

"We were not expecting that kind of slowdown as early in the year, but more for the second half and 2017," Mr. Ferragu said.

Write to Stu Woo at Stu.Woo@wsj.com

(END) Dow Jones Newswires

April 20, 2016 04:48 ET (08:48 GMT)

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