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ARM Holdings plc Message Board

  • khitchdee khitchdee Dec 6, 2012 5:40 AM Flag

    How I justify the high P/E

    If we look at the events of the past 5 years over a 15-20 year span, what's been happening is ARM's microprocessor IP has proved itself in a hotly contested mobile device market, warding off challenges from the most dominant player in the microprocessor technology space, Intel, successfully. Intel started addressing the "low power" market, which means uses for microprocessors at around 1W power dissipation, around 2006 after it sold of its ARM derived XScale business to Marvell. It has tried to displace ARM for the last 6 years unsuccessfully and from the looks of will be unable to displace it ever, since ARM in the meantime has firmly entrenched itself in the industry. The only other player in the microprocessor space, MIPS has fallen by the wayside. What this means going forward, if we look at it over a long time span, is that ARM has established a position for itself in mobile devices as a microprocessor supplier of choice. From this (niche) vantage point, it can, over time, encroach on other market segments where microprocessors are used such as servers, which it's started looking into and eventually PCs. It has the right business model to do this when its competitor has the deep pockets and staying power that Intel has. ARM's strength lies in the fact that being a small company that only supplies the IP, its effective strength against Intel comes from it multiple licensees who add their domain-specific value to its IP and build chips. So its entrenched and its got staying power. I think these two factors when projected forward could lead to a scenario where it dominates microprocessor technology applications which means its effective market presence could grow substantially. Of course this is assuming that the demand for microprocessor based computing remains.

    The thing to note is that in this space, changes in the industry play out over say 5 years. It takes an Intel about 4 years to go from concept to a new microprocessor. This when they have been developing them for the last 40 years. Therefore, when looking at performance in this industry you have to take a longer term perspective than what you're used to.

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    • The following link provides some useful information on ARMH, Intel, and AMD:

      http://seekingalpha.com/article/1056861-where-are-the-intel-bulls?source=yahoo

      • 1 Reply to alal6662001
      • If we look at ARMH over the span of the next decade, the biggest risk it could face is that at the low end of the IC power consumption spectrum, customers may move away from microprocessor based solutions. If this were to happen, ARM could still cater to several other markets, but its growth in the internet of things market if one were to materialize could get curtailed. Volume wise, this could be a larger segment than all the others combined. However, revenue wise, it may not be as big. To address such a risk, ARM would have the option of creating IP that is not microprocessor based. In fact, with its acquisition of Artisan and its forays into graphics, its already broadening its offerings out from just microprocessor IP.

 
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