ARM Holdings reports strong quarterly growth, but not immune from recession

ARM Holdings is one chip company that hasn’t been hurt by the recession in a big way, as evidenced by its decent quarterly sales report today. Behind the growth is the increasing use of sophisticated processors inside consumer electronics gadgets and cell phones.

As other chip companies struggle with huge losses, it’s worth noting why ARM stands out.

Founded in 1990, the Cambridge, England-based company had a very early start desiging low-power microprocessors. Chips based on the ARM architecture generate milliwatts, while typical Intel microprocessors for personal computers generate as much as 60 watts. That’s why you see ARM processors used in a wide variety of handheld devices where battery life is a critical feature.

ARM also pioneered the “chip less” business model. It doesn’t make chips. It doesn’t even sell chips under a brand name, as many so-called fabless companies do. The company designs cores, or the fundamental building blocks of a customizable chip, and then licenses them to all comers. Samsung makes ARM-based processors that are used in the Apple iPhone.

With this model, ARM has been a big success of the intellectual property, or IP licensing, business model. In 2008, the company said its customers shipped 4 billion processors. Quarterly revenue for the fourth quarter was $149.4 million, up 15 percent from a year ago. Earnings per share was up 54 percent. Full-year revenues were $546.2 million, up six percent, while EPS was up 21 percent.

There are more than 580 licensees now. Even with a superior business model, the company will take some hits in the coming year because of the economic slowdown. The company forecasts revenue for the year will be about $460 million, down 18 percent from a year ago.

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