Smartphone chip giant ARM Holdings, PLC reported slightly disappointing financial results for the first quarter of 2014 due to what it called an "inventory correction" following a global dip in smartphone sales during the final months of 2013.
The number of smartphones shipped worldwide during 2013 topped 1 billion for the first time, but global sales grew only 0.9% during the fourth quarter, according to market research firm IDC, which had expected to see an increase of 2.8% in unit sales during the period.
The 1,004.2 million smartphones shipped during the full year 2013 was 4.8% higher than 2012, but the unexpected dip left ARM resellers and chip-design licensees with unsold inventory that not only caused first-quarter sales to slow, but raised fears that the market for smartphones had become saturated and would begin to decline, according to an April 23 Reuters story.
That drop in sales held down revenue from the sale of ARM-licensed chip designs, which grew only 3% despite an increase in unit sales of 11%, according to an earnings report the company posted April 23.
The company staved off a serious revenue drop by signing a total of 26 licensing deals, six of them with new licensing customers.
That brought overall revenue up 16% compared to first quarter 2013, though pre-tax profit was only 9% compared with 44% a year ago.
The bobble in revenue growth caused some analysts to worry that the market for smartphones was becoming saturated, or that phone manufacturers were beginning to shift toward silicon from Intel, which has struggled to catch up to rivals, most of which license ARM designs for their own chips.
Both Apple's 64-bit A7 "desktop-class" iPhone 5S chip and Qualcomm's massively powerful new Snapdragon 808 and 810 chips are based on ARM's designs, however.
The impressive performance and quick success of the A7 helped reinforce ARM's reputation in smartphone CPU design and attract a total of 26 licensing deals during the first quarter -- six of them with new customers, according to SeekingAlpha.
ARM designs power 95% of smartphones and 80% of digital cameras, according to ZDNet, but the company has diversified into other markets as well. ARM's 64-bit Cortex-A57 is the basis for the Opteron A1100 chips powering the data-center servers AMD predicted would take over a quarter of that market by 2019.
ARM's Mali graphics processors are showing up in larger numbers of digital TVs and embedded devices and its Cortex-M chips "can be found in most of the internet of things and wearable devices that have been announced to date," ARM CEO Simon Segar told ZDNet.
Growth in those areas will continue to sustain the company, but its core smartphone business shows signs of bouncing back at a pace stronger than the 19% growth IDC predicts for 2014, which is low only compared to the 39% growth smartphone sales posed during 2013. By 2018, smartphone sales may have atrophied to a healthy, mature 6.2%, according to predictions in IDC's February 26 report.
ARM licensee Taiwan Semiconductor Manufacturing Co (TSMC), the world's largest contract chip manufacturer and accounts for more than half of ARM's total royalties, told Deutsche Bank analysts it expects to post record revenues during the second quarter, indicating a much stronger smartphone market than most analysts assumed, ARM CFO Tim Score said at a press conference April 23.
"There has been an inventory correction in smartphones, that looks to be unwinding," Reuters quoted Score as saying. "We saw TSMC showing very strong guidance for their second quarter, which will inform our Q3 royalties."