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ARM designs the technology that lies at the heart of advanced digital products, from wireless, networking and consumer entertainment solutions to imaging, automotive, security and storage devices.
ARM’s product offering includes 32-bit RISC microprocessors, graphics processors, enabling software, cell libraries, embedded memories ,...Read more
Deutsche Bank downgrades 'overvalued' ARM Holdings to 'sell'September 03 2012, 11:27am
DB analyst Kai Korschelt believes ARM’s high valuation will come under pressure as falling smartphone chip prices impact royalty growth.
He also noted that Intel’s odds to gradually gain market share in mobile are improving, while the Windowson- ARM ramp could be below expectations.
Korschelt said the current high valuation reflects a sustainable ‘Goldilocks’ scenario, which would see ARM remain a pure-play on mobility shielded from smartphone commoditization and maintain its 100 percent position in smart phones and tablets and gain market share in the PC market from Intel.
According to the analyst, competitive pressure from Intel could increase from 2013 onwards, while accelerating erosion of smartphone and chip ASP’s could start to impact royalty revenue growth.
“Despite reflecting many of ARM’s long-term growth drivers such as rising royalty rates and penetration of new markets in our model, we expect ARM’s EPS growth to slow down to mid-teens,” said Korschelt.
“Coupled with higher market share uncertainty and chip ASP erosion in mobile, we believe the stock can de-rate over time and downgrade from hold to sell.”
The analyst has also reduced his target price for the stock to 400 pence per share from 465 pence previously.
This morning, shares in ARM dropped 2.5 percent to 560 pence, valuing the group at £7.71 billion.