Investors hung up on ARM Holdings (LON:ARM) after it said explosive growth in demand for smartphones was tailing off, but some analysts say there's no need to panic.
Shares in the semi-conductor maker fell to an intraday low of 886p, having started the session at 921p, after it said it was witnessing a albeit-expected slowdown in the market.
A slowdown in the Chinese market in particular is jangling nerves, given that the Asian economic powerhouse made up nearly a third of global demand for smartphones as recently as 2014.
ARM acknowledged that increased economic uncertainty may influence consumer and enterprise spending, potentially hitting semiconductor revenues and industry confidence.
But it shrugged off the jitters, saying its technology was keeping up with demand for more powerful and versatile phones.
It said more than half of all smartphones shipped in the fourth quarter featured its latest processor technology - and it was also targeting other markets.
Chief executive Simon Segars said the company was expecting a rapid increase in demand for semi-conductors for cars, a market potentially worth US$15bn.
"Smartphones are getting more sophisticated and the opportunity to put more power in these products is going up," Segars told financial broadcaster CNBC.
ARM, which is thought to get about 5% of its revenue from iPhone giant Apple (NASDAQ:AAPL), is among companies hit by a downturn in demand for smartphones in China.
Chinese demand is now said to be flagging as the initial rush for phones has faded and those consumers still buying are upgrading to more high-tech models.
Followers of the Chinese market are said to be bearish about its prospects as the country’s phone manufacturers revise down sales targets and ship fewer handsets.
Nicole Peng, APAC research director at technology research firm Canalys in Shanghai, said cheap Android devices are unlikely to keep driving growth as Chinese consumers upgrade to middle-market and high-end phones.
“The market has reached saturation,” China-focused business analysis website CKGSB Knowledge reported Peng as saying.
But some sector-watchers remained calm about ARM's prospects, saying its substantial investment in research and development should allow it to thrive.
Head of equity research at Hargreaves Lansdown, Steve Clayton, noted that ARM spent £278mln, or 29% of its sales, on R&D last year.
"That generates a huge amount of intellectual property and creates barriers to entry," Clayton said.
"Customers come to ARM because they know they will get the benefit of that investment."
He added: "Mobile computing will grow for years to come and the spread of ARM cores into new product categories only increases the growth opportunity.
“So although ARM is not obviously cheap per se, the growth opportunities ahead of it look compelling and with net cash of £900mln, it has the wherewithal to chase after them.”
Investec said ARM was not immune to the broader industry trends such as China and smartphone market volatility.
But the broker's analyst Julian Yates said the Cambridge-based company’s diversified business model and increasing royalty rates gave it reason to outperform the broader semi-industry.
Yates said: “We continue to see the stock as a long-term quality play with current weakness as a good entry point. Buy.”
Numis Securities said it believed risk to estimates from the smartphone market was low, with high-teens growth in royalties achievable even in a flat market due to higher royalty rates from ARM’s latest technology.
Analyst Nick James, who has a 'buy' recommendation on the shares, said: “We continue to believe ARM's structural positioning as an enabler of "internet of things", combined with market share gains in network and infrastructure, should enable it to sustain earnings growth in the high teens in the next five years.”
ARM said fourth quarter pre-tax profits rose 17% to £138.7mln on a 19% increase in revenue to £269.1mln against the same period a year ago.
Full-year pre-tax profits rose 24% to £511.5mln on a 22% increase in revenue to £968.3mln.
The company increased its annual dividend by a quarter to 5.63p.