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ARM Holdings plc Message Board

  • dewey_duhawk dewey_duhawk Oct 11, 2013 5:56 AM Flag

    Justifying the Multiple

    In a recent MF article, the author suggests that to justify the ARMH multiple, the company needs to grow FCF by 25%/year for 10 years. Compounding 25% for 10 years is 8X. That means to justify the current price that the ARMH has to grow 8X in 10 years. To do that, I think they would need to crush INTC and then conquer two other planets and crush the INTCs that reside there. What are the two other planets that ARMH intends to conquer?

    Seriously, what are you people thinking. INTC is somewhere between one year and infinity ahead of the ARMH "community" on process technology- read "cost" and "battery life". INTC has the X86 legacy. INTC has just partnered with GE, ATT and CSCO on IoT. I think ARMH is partnering with QCOM and the French (who just announced massive layoffs) on IoT- good luck with that. Where is that 8X going to come from? You have made no headway in servers and INTC just launched Quark in IoT. How do you think you can dominate both of those. Even if you keep mobile (and you are losing the tablets right now), you cannot justify half the share price.

    Get out now!

    Yes, I am short and under water, but not for long.

    Sentiment: Strong Sell

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • When Intel wins, only Intel wins. To a much lesser extent, their customers win because they are selling into competitive commoditized markets -- look at Dell. Intel keeps most of the profits in chip making to themselves. When ARM wins, the foundries win, the chips vendors win etc. There's many winners. ARM keeps a small share of the profits when their IP gets used. The majority share is with the ARM ecosystem. If you look at the industry as a whole, a lot of people are behind ARM and very few people are behind Intel. If technically Intel and ARM create equivalent products, which is expected to be the case, industry sentiment will favour ARM. At the 20000 ft level this is the justification for the high P/E, a secular shift in microprocessor technology from Intel to ARM.

      • 1 Reply to khitchdee
      • You are forgetting about someone. If you don't take care of the customer, someone else will. the ARMy is not taking care of the customer the way INTC can. I don't think that Verizon, ATT and the other carriers care who they buy phones from. They want the best at the lowest price before their competitors get them.

        Also, in the PC market, the box makers have not been doing their job for a long time. HP and Dell didn't deserve much of the pie or they would have gotten more.

        Sentiment: Strong Sell

    • ARM will drop to 30s within 6 months.

    • The "problem" with many Intel longs such as yourself is that you don't understand ARMH. I dont mean that personally, but it's almost as if many INTC longs have replaced AMD with ARM.

      While the current valuation and growth prospects are questionable you are misunderstanding the "story" - it's not all about ARMH winning and INTC losing (as with AMD and Intel). Depending on your source of information, the target market (in terms of units) is forecast to grow 10+ times over the next decade. The real question is can the royalties grow in line with those unit shipments? The fact is Intel has no product (including Quark) that could be a big part of this unit growth story. You can now get ARM microcontrollers for 50 cents...

      As for Intel and ARMH in mobility, it's not ARM bringing the "battle" to intel, but QCOM and the rest. Intel has to win against QCOM for mobile phone domination, not ARM. QCOM is not AMD, it's well managed, has the IP, has the cash (more than Intel) and is the king-of-the-hill. Add in Samsung, Apple and you can see the kind of challenge that Intel has. Tablets, are a little different. If windows takes off (with the legacy OS), then Intel will win that one.

      As for Servers. Servers was the thing that attracted me to Intel as a stock, and it's something I know a lot about:) While the current ARM based servers have little penetration, ARM (the company) have always said the main push will come in 2014 (with the 64bit ISA). Technically, the ARM solutions are interesting and will certainly gain traction, it's just a case of how much (or how little) and if they hit Intel in the pocket. However, I'm not as cynical about ARM in servers as I used to be. With Apples A7, you can see the kind of impact that ARM64 could have.

      Intel has always had a process lead over the ARM world, but it hasn't had any impact so far...that may change, or it may not...

      • 2 Replies to theblueredmonk
      • A7 will hurt QCOM and others because
        1. proves that there is no such thing as "good enough". Only INTC has a chip equal to or better than A7. Lenovo, Motorola, etc. have only one place to go. The race will be between Apple and INTC, but Apple will need to drag ARMH and TSMC with them. All other chip designers will be left behind and INTC will pick up the business.

        2. Costs- A7 costs Apple $19 (direct cost) without design amortization, profit or communication capability. The Qcom chip costs them over $30. If Qcom had an A7 (that worked well on a variety of systems instead of just one phone), their COST, with amortization and communication capability, would be at least $50. (Yes, you can dream that TSMC will build it on 20 nm reducing the cost, but how likely is that in the next two years? By then, INTC will be at 10 nm.) Next year, INTC will have a chip with higher performance and longer battery life than A7 with communication capability. Their direct cost will certainly be less than $30 because of the 20 nm mode. They can profitably sell their chips at QCOMs cost. This is going to cause a huge margin squeeze in the ARMH community. Do you really think that ARMH royalty rates will go up?

        Sentiment: Strong Sell

      • "Depending on your source of information, the target market (in terms of units) is forecast to grow 10+ times over the next decade."
        This is exactly my point. The market is already 1 billion smart phone units and there are not 10 billion people on earth. Yes the IoT could grow 10X.

        "With Apples A7, you can see the kind of impact that ARM64 could have." All ARM64 in A7 proved was that Apple could do it for no other reason than bragging rights. As far as I can see, A7 maybe on par with INTC only because Apple is a closed system so their huddles were low compared to other ARMH community members. A7 is going to be a big problem for ARMH for several reasons.

 
ARMH
47.29-0.23(-0.48%)Jan 27 4:00 PMEST

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