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Arm Holdings priced for continued success but potential competition and the difficulties for ARM powered Windows 8 devices may hit sentiment
The launch of Amazon’s colour tablet device and a slew of new Smartphone’s underpin the growth potential for ARM Holdings (LON:ARM). However, in the short-term a possible slowdown in this year’s fourth quarter could hit the highly rated shares while the success of Windows 8 on ARM chips is also uncertain.
As a highly rated growth company ARM shareholders have seen their fair share of stock price volatility. It is therefore worth nothing that the group CEO, Warren East, has sounded a note of caution on growth for Q4 2011 as weakness in the consumer electronics field could cause royalty growth to slow.
The market, meanwhile, appears to have focused on a slew of high profile Smartphone and tablet launches as well as the launch of Windows 8 next year. While new devices do underpin the long-term story, high priced consumer electronics purchases can also be sensitive to consumer sentiment.
A further key consideration for ARM is that the take-up of Windows using ARM chips may be slower than anticipated. This is as the prospects of Windows 8 - officially announced in June and is expected to be launched in late 2012 - being written to run natively on ARM chips has caused much investor excitement and seen the stock move ahead.
A further potential threat to sentiment and sales of ARM chips is the likely launch of Intel chips in Google handsets next year. An agreement was recently made between Intel and Google and, while the details released have been scant, the Intel CEO did say that he expects the first Intel phones to be (Google) Android based and to come out in 2012.
Despite the possibility of a more sober immediate future, the long-term outlook for ARM continues to be robust. A key recent announcement has been the Amazon Kindle Fire. The Android-based Kindle Fire is Amazon’s first colour tablet and has an aggressive price point at US$199 as well as access to Amazon’s huge library of content.
The impressive Smartphone line-up should also help ARM chip sales with the iPhone 4S receiving record pre-orders at over 1 million devices. Samsung meanwhile has been successful in its Smartphone offerings and is soon to unveil the Google Nexus Prime. This device will unveil the latest Android update which is called Ice Cream Sandwich.
HTC, Samsung and Motorola have been the key challengers to the iPhone. The key for ARM is that the Android platform has made the Smartphone more affordable helping to boost its high end chip sales which generate higher licence royalty.
ARM is priced for continued success but potential competition and the difficulties for ARM powered Windows 8 devices may hit sentiment. However, whilst the risks of the stock pulling back on short-term economic weakness remain, there is no denying the compelling growth story on offer.
