20 Years of Growth Delivering Future Opportunities Annual Report and Accounts 2010 Overview Non-Financial Kpis
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20/20 vision 20 years of growth delivering future opportunities Annual Report and Accounts 2010 Overview Non-Financial KPIs Key Performance Indicator Context Performance ARM’s royalty revenue opportunity ARM licences Building the base of is driven by the cumulative licences that will drive number of licences and partners 06 +61 utilising our technology. future royalties 07 +62 08 +61 09 +87 10 +91 743 The royalty revenue generated from Shipments of ARM processor-based chips bn Growing the number the sale of ARM processor-based chips of ARM processor- is helping to drive our profitability. 06 2.4 based chips 07 2.9 08 4.0 09 3.9 10 6.1 A typical smartphone contains more Average ARM processor-based chips per phone Increasing the ARM processor-based chips than a value that ARM gets voice-only phone. As smartphone 06 1.5 shipments have become a higher 07 1.6 for every mobile proportion of the overall handset market, so the average number of 08 1.9 handset sold ARM processor-based chips per 09 2.0 phone has increased. 10 2.5 ARM estimates that the total Market penetration Increasing ARM’s addressable embedded chip market in 2010 amounted to 22 billion. Only Hard disk Digital Micro penetration in target Year drives TVs controllers three billion of those chips went end-markets into mobile phones, illustrating the 06 40% 15% 1% much larger opportunity in consumer 07 50% 20% 2% electronics, real-time processing and 08 55% 25% 4% embedded computing. 09 65% 30% 6% 10 85% 35% 10% ARM believes that we can provide Cumulative licences Developing new the semiconductor industry with complementary technologies utilising Multimedia Physical IP technology to Year licences platforms the same business model; generating generate future additional licence fees and more 06 2 40 royalty streams. 07 6 50 royalty streams 08 14 60 09 28 68 10 39 77 Our people are our strength for Number of employees Investing in ARM’s designing the next generation of product development technology, and for growing and Year Employees Engineers Percentage maintaining the ARM partnership. 06 1,659 1,049 63% capability and 07 1,728 1,102 64% 08 1,740 1,071 62% operational execution 09 1,710 1,024 60% 10 1,889 1,191 63% Highlights What happened in 2010? Future opportunities More influential market leaders ARM has good visibility of the licensing announced long term commitments opportunity pipeline, with more market to developing their roadmaps around leaders looking to licence and deploy 743 ARM technology, including Freescale, ARM technology in a broad range of Cumulative royalty-bearing processor Fujitsu, Microsoft, NVIDIA, Texas end markets. licences signed at end of 2010. Instruments and Samsung. These agreements helped to drive revenues and backlog to their highest ever levels. In 2010, the shipments of ARM ARM expects unit shipments and processor-based chips grew by more royalty revenue to grow faster than than 50%, and royalty revenues grew the semiconductor industry as ARM 6.1bn by 40%, outperforming the industry continues to gain share. Our partners reported shipping which grew 23%. over six billion ARM processor-based chips in 2010. In 2010 smartphone shipments Smartphone shipments are expected to grew by more than 50%, driving the continue to increase. ARM technology average number of ARM-based chips continues to be incorporated into 2.5 per handset to 2.5, an increase of simpler phones. On average there are now 2.5 about 25%. ARM processor-based chips in every mobile phone handset. In 2010, ARM gained share in its target ARM’s market share gain looks end-markets as major semiconductor set to continue as more major companies increasingly deployed semiconductor companies will start 85% ARM processor-based chips. to ship their first ARM processor-based We now have 85% penetration in chips over the next few years. the hard disk drive market. In 2010 we continued to see strong ARM expects licensing and market licensing for both our multimedia and share to continue to grow as more physical IP technologies. semiconductor companies bring 77 their ARM technology-based products Six semiconductor companies are now Cumulative royalty-bearing foundry paying ARM multimedia royalties, and to market. platform physical IP licences by the physical IP royalties accounted for 13% end of 2010. of total ARM royalty payments. During 2010 ARM increased the ARM expects to continue to invest in its engineering team by 15%, and kept employees, and over the medium term, the operational team broadly flat. we expect that we will be able to grow 63% our revenues faster than our costs. Of our employees are engineers. Overview Financial KPIs Revenue $m Sterling revenues £m 06 199.0 202.5 82.1 483.6 06 107.8 110.6 44.9 263.3 07 208.8 217.9 87.6 514.3 07 104.1 110.7 44.4 259.2 08 266.8 189.7 89.7 546.2 08 147.7 103.5 47.7 298.9 09 244.3 164.1 81.1 489.5 09 155.4 98.5 51.1 305.0 10 335.3208.2 87.8 631.3 10 217.7 132.5 56.4 406.6 Royalty Licensing Other Royalty Licensing Other ARM’s revenue growth is sustained by our customers About 95% of ARM’s revenues are in US dollars, incorporating ARM technology in more of their product lines. but only about half of our costs are US dollar-based. Profit from operations £m Operating margin % 06 49.2 81.8 06 18.7 31.1 07 39.7 82.1 07 15.3 31.7 08 59.9 97.7 08 20.1 32.7 09 45.6 95.1 09 15.0 31.2 10 107.0 164.3 10 26.3 40.4 Profit under IFRS Normalised profit Operating margin under IFRS Normalised operating margin Growing revenues and continued financial discipline drive ARM’s financial discipline balances long-term R&D investment ARM’s profitability. with cost control to improve operating margins over time. Earnings per share pence Dividend pence 06 3.43 5.02 06 1.00 07 2.59 4.79 07 2.00 08 3.39 5.66 08 2.20 09 3.11 5.45 09 2.42 10 6.36 9.34 10 2.90 Diluted EPS under IFRS Normalised diluted EPS Revenue growth and margin expansion drive higher earnings ARM has a progressive dividend policy, growing the dividend per share. through industry cycles. Normalised net cash generation £m Cumulative cash returned £m 06 52.2 06 31 93 124 07 60.2 07 50 222 272 08 95.3 08 77 261 338 09 86.1 09 106 261 367 10 179.9 10 141 261 402 Dividends Share buybacks Net cash at the end of 2010 was £290 million. Regular Reliable cash generation allows for cash to be licences and robust royalties deliver a reliable cash flow. returned to shareholders. Overview Introduction Overview How ARM makes money ARM’s strategy ARM is the world’s leading semiconductor intellectual property (IP) supplier ARM’s strategy is for our technology to continue to gain share in long-term structural growth markets such as mobile phones, consumer electronics and embedded digital devices. Overview Business review 20/20 vision 02 How ARM makes money 06 ARM’s progress against strategy Over two decades ARM has grown from ARM is the world’s leading semiconductor During 2010, ARM continued to start up to potential ubiquity. This has intellectual property supplier. The outperform the semiconductor industry. been achieved through the combination technology we design is at the heart of 91 new licences helped to increase the of the best technology, the best business many of the digital electronic products industry adoption of ARM and a 55% model, the best ecosystem, built around sold in 2010. The revenue generated by increase in unit shipments increased people with vision and who excel in ARM technology, combined with strong ARM’s penetration. This helped result technology development. Together these financial discipline, has resulted in robust in increases to ARM’s revenue, profits combine to give a great opportunity for profitability and cash generation. and cash. future growth. 04 ARM’s strategy 14 20 years old and with a view to 2020 ARM’s strategy is for our technology 16 It’s better to be lucky and smart to gain share in long-term structural 18 A model business growth markets, such as mobile phones, 20 Eco friendly consumer electronics and embedded 22 Partnership in action digital devices. 26 The ideas lab 28 Forward momentum Financial review Governance Financial statements 30 Financial review of 2010 38 Chairman’s statement 72 Independent auditors’ report Tim Score, CFO, reviews ARM’s financial Doug Dunn, Chairman, underlines the 74 Consolidated income statement performance in 2010, our capital structure importance that ARM places on good 74 Consolidated statement of and principal risks and uncertainties. corporate governance and CR. comprehensive income 35 Risks and risk management 41 Board of directors 75 Consolidated balance sheet ARM has a robust risk management Meet the ARM team. 76 Consolidated cash flow statement 77 Consolidated statement of changes process to identify and assess risks and 44 Corporate governance to manage risk mitigation activities. in shareholders’ equity How ARM has applied the principles 78 Notes to the financial statements 36 Trends, risks and opportunities of good governance in 2010. 120 Company balance sheet/UK GAAP There are a number of industry trends 52 Corporate responsibility report 121 Notes to the financial statements/ that will generate risks to ARM’s current ARM is committed to implementing UK GAAP business, but also opportunities for and developing best practice Corporate 127 Independent auditors’ report further growth.