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ARM Holdings (LSE:ARM) CEO Warren East appeared on MSNBC in an interview conducted by Steve Sedgewick, Anchor of “Squawkbox Europe”, and guest host Moorad Choudhry, Treasurer, Corporate Banking, at RBS. Although the interview was conducted a month ago, Mr. East offered some salient insights about the business that underscore the company’s continuing outstanding performance as seen in its annual report (see ARM Releases 2011 Annual Report) and its recent strategic gains in the digital electronics sector (see also ARM Stars at Mobile World Congress). All information in this article is drawn directly from the interview manuscript, which is also available on the ARM website.
Interview Highlights
Mr. Sedgewick noted that Mr. East had been typically cautious forward looking statement in the unaudited results report earlier that month, something that many CEO’s are doing during the current economic crises. Mr. East responded that “We’re drawing people’s attention to what’s going on in the outside world, but the markets that ARM technology goes into are continuing to grow strongly. We’re seeing huge growth right across the range.”
Mr. Choudhry expanded on the CEO’s response, noting that ARM does not seem to be “influenced by the wider macroeconomic conditions.” Mr. East explained that not only is the company highly diversified in its customer base, but also in its total global coverage. But he also emphasized that their business model is about partnership with their customers more than a simple buy-sell relationship. “We licence our technology to all the big companies in the semiconductor world. (By using our technology in their products,) Other people add value around that, and so we’re always working with the winners.”
Mr. Sedgewick, citing ARM’s shares trading at almost 70 times earnings at the time, and the £7.5 billion market cap, speculated that ARM might be considering offers by others, such as Apple, to acquire the company. Mr. East responded succinctly, “The short answer is no.” To some extent, he explained, partner companies already have access to their technologies through their licensing agreements. Furthermore, ARM’s technologies are advanced by their relationships with their customers’ competitors. Although that information is never shared directly, it drives design ideas which eventually improve the end products. A player such as Apple would eventually lose that benefit as a result of a takeover.
As far as investors are concerned, Mr. East painted a pretty clear picture. He explained that “this is a very long term business” and that “investors benefit in the long run” because the business model is “also very profitable and cash generative.”
At the conclusion of the interview, Mr. Sedgewick asked Mr. East what he considered to be the most exciting thing for ARM looking forward. Fully cognizant of the announcements that the company would be making in the ensuing 30 days, Mr. East responded, “I think for 2012 we’re going to have Windows on ARM. That’s very exciting. And we’re going to see ARM coming out in servers and that’s also exciting.”
Company Spotlight
ARM Holdings designs, licences, and supplies intellectual property semiconductors for semiconductor and system companies
According to their website, “ARM designs the technology that is at the heart of advanced digital products.” The company supplies the rapidly expanding high tech digital and wireless industry with a range of products that includes microprocessors, video engines, enabling software, high-speed connectivity hardware, cell libraries, embedded memories, and peripherals.
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