Electronics IP Industry - Q4 2012

                                                                   MARCH 8, 2013

Electronics IP Industry – Q4 2012

by Russ Henke - Contributing Editor
Posted anew every four weeks or so, the EDA COMMENTARY delivers to its readers information concerning the latest happenings in the EDA industry, and at least once a quarter also covers similar happenings in the MCAD/MCAE space, reporting on vendors, products, finances and new developments. Frequently, feature articles on selected public or private EDA & MCAD/MCAE companies are presented. Brought to you by EDACafe.com. If we miss a story or subject that you feel deserves to be included, or you just want to suggest a future topic, please contact us! Questions? Feedback? Click here. Thank you!


This is the  MARCH 8, 2013 article for the EDACafe.com EDA Commentary, which covers the “Electronics IP Industry for Q4 2012.”

The IP FINANCIAL RESULTS for Q3 2012 were presented back on December 02, 2012. To read the December 02, 2012 EDA COMMENTARY entitled, "The Electronics IP Industry - Q3 2012", click here.  

In this series of articles we return our quarterly attention to the phenomenon of the rise of Intellectual Property (IP) in the world’s Electronics Industry, an important  segment of Electronic Design Automation (EDA) that Henke Associates began reporting on separately in EDACafe.com in 2003. 

Back then at the start, we covered eight (8) publicly-traded IP companies from around the world (called the "Group-of-8" or "G8"), as representative of the financial state of the then very immature IP Industry. In an early action that foretold its sophisticated understanding of what the IP segment might become,  ARM absorbed Artisan Components in 2004; much later, Mentor Graphics acquired LogicVision in 2009; and Synopsys bought Virage Logic in 2010. So these days, when we report on the Electronics IP Industry quarterly financials, the G5 listed below are included: 


EDA IP Vendor Results for Q4 2012  


On February 05, 2013 ARM Holdings plc announced its unaudited financial results for the fourth quarter ended December 31, 2012.  

Progress on key growth drivers in Q4 2012    

  • Growth in adoption of ARM®processor technology
    • 36 processor licenses signed for a broad range of applications, from smart phones and mobile computers to medical devices and microcontrollers 
    • Momentum continues in computing, servers and networking applications with the signing of two ARMv8 architecture licences, six ARMv8 processor licenses and three ARM Cortex™-A15 processor licences

  • Growth in shipments of chips based on ARM processor technology
    • 2.5 billion chips shipped 
    • Processor royalty revenue grew 21% year-on-year, driven by strong growth in Cortex-A and Mali™-based chips

  • Growth in outsourcing of new technology 
    • 7 Mali graphics processor licenses signed 
    • 5 physical IP based POP™ IP products licensed 

Warren East

Warren East,  ARM's Chief Executive Officer, said , “ARM has seen good revenue and earnings growth throughout 2012. Customers are developing products to meet the needs of the "post -PC era" and are driving demand for ARM's most advanced technology. In Q4 2012 ARM again saw influential market-leaders demonstrating their commitment to ARM technology by licensing its latest products. Royalty revenue has also grown strongly during Q4 underpinned by ARM’s market share gains and an increased royalty percentage from Cortex-A class processors being deployed into smart phones and tablets."

Mr. East  continued, ”2013 brings exciting opportunities and challenges as ARM enters competitive new markets where we are well positioned to succeed with leading technology, an innovative business model and a thriving ecosystem of partners.”

ARM Guidance

ARM reported that it entered 2013 with a robust opportunity pipeline for licensing and a record order backlog. Market share gains in long-term growth sectors look set to continue as ARM partners introduce new chips based on ARM technology. ARM believes that the global macro-economic environment continues to be uncertain with possible low growth for some time. This low growth will influence  consumer and enterprise spending will inevitably impact semiconductor revenues and industry confidence. However, assuming the macroeconomic situation does not deteriorate significantly, ARM expects group dollar revenues for the full-year to be at least in line with current market expectations.

In recent quarters, the year-on-year growth of ARM’s processor royalty revenues has outperformed the semiconductor industry by 15-20%. ARM’s royalty revenues for Q1 2013 are based on actual shipments in Q4 2012. Relevant data for the fourth quarter of 2012 suggests that semiconductor revenues were marginally up year-on-year. Assuming year-on-year royalty growth based on similar trends and given the positive outlook for license revenues, total ARM revenues in the first quarter of 2013 are expected to be around $250 million.

ARM Total Revenues in US$ reached $262.8 million in Q4 2012,  up 21% compared to $207.0 million in Q4 2011. For all of 2013, REVENUES WERE $913.2 MILLION, UP 16% OVER $785 MILLION IN 2011.

Gross margins

Gross margins in Q4 2012, excluding share-based payments charges of £0.6 million (see below), were 95.1% compared to 94.6% in Q3 2012 and 96.0% in Q4 2011.

Full-year gross margin, excluding share-based payment costs of £2.1 million, was 94.8% compared to 95.1% in 2011.

Operating expenses and operating margin

Total IFRS operating expenses in Q4 2012 were £98.9 million (Q4 2011: £84.1 million) including share-based payment costs and related payroll taxes of £15.6 million (Q4 2011: £13.2 million), and amortisation of intangible assets and other acquisition-related charges and impairments of £3.6 million (Q4 2011: £5.1 million).

Total share-based payment costs and related payroll tax charges of £16.2 million in Q4 2012 were included within cost of revenues (£0.6 million), research and development (£8.3 million), sales and marketing (£2.6 million) and general and administrative (£4.7 million).

Total IFRS operating expenses for the full-year 2012 were £336.9 million compared to £315.2 million in 2011.

Normalised income statements for Q4 and full-year 2012 and 2011 are included in notes 11.13 to 11.16 below which reconcile IFRS to the normalised non-IFRS measures referred to in this earnings release.

Normalised operating expenses were £79.7 million in Q4 2012 compared to £72.3 million in Q3 2012 and £65.8 million in Q4 2011. Given the strong revenue and bookings performance in the quarter, Q4 operating expenses included incremental bonus and sales commission costs of approximately £5 million. There was also a charge of approximately £2 million due to the impact of a weaker dollar on the accounting for derivative instruments.

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