AR M Holdings plc 110 Fulbourn Road Cambridge CB1 9NJ ARM Holdings plc United Kingdom Annual Report & Accounts 2012 Telephone +44 (0)1223 400400 Facsimile +44 (0)1223 400410 www.arm.com Annual Report & Accounts 2012 ARM Holdings plc ARM ARM WE ARE CONNECTING INTELLIGENCE ARM ARM ARM More information available online at: www.arm.com/reporting2012 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview 01 Financials and risk 45 – Chairman’s overview 02 – Financial review 46 – Operational highlights 04 – Risk management 52 – Financial highlights 05 – Our business model 06 Governance 55 – Chairman’s introduction 56 Our marketplace 08 – Board of directors 59 – Corporate governance 62 – Where the market is now 09 – Directors’ report 73 – Where the market is heading 10 – Remuneration report 78 Strategy and performance 11 Financial statements 92 – Our strategy for long-term growth 12 – Independent auditors’ report to the members of ARM Holdings plc 92 – Consolidated income statement 94 Our partnership approach 21 – Consolidated statement of comprehensive income 94 – Warren East, Chief Executive Officer – Consolidated balance sheet 95 Ecosystem strategy 22 – Consolidated cash flow statement 96 – Mobile computing 24 – Consolidated statement of changes – Machine-to-machine 28 in shareholders’ equity 97 – Network infrastructure 32 – Notes to the financial statements 98 – An external perspective 36 – Company balance sheet/UK GAAP 142 – Notes to the financial statements /UK GAAP 143 – Independent auditors’ report to the members Our commitment 40 of ARM Holdings plc 149 – Corporate responsibility and sustainability within ARM 41 – ARM’s wider role 42 Glossary and Group directory 150 – Glossary 150 – Group directory 151 – Key shareholder information 152 This report has been printed on Cocoon Offset a paper which is certified by the Forest Stewardship Council® and contains 100% recycled waste. The paper is Process Chlorine Free (PCF) made at a mill with ISO More information available online at: 14001 environmental management system www.arm.com/reporting2012 accreditation. This report was produced using the pureprint® environmental print technology, a guaranteed, low carbon, low waste, independently audited process that Designed and produced by reduces the environmental impact of the Radley Yeldar. www.ry.com printing process. Printed using vegetable oil based inks by a CarbonNeutral® printer certified to ISO 14001 environmental management system and registered to EMAS the Eco Management Audit Scheme. ARM, ARM Powered and Artisan are registered trademarks of ARM Limited. ARM7, ARM9, ARM11, Cortex, Cortex-A7, Cortex-A9, Cortex-A15, POP, Mali and Connected Community are trademarks of ARM Limited. WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview Our marketplace Strategy and Our partnership Our commitment Financials and risk Governance Financial statements performance approach ARM WE DEVELOP AND DEPLOY ENERGY-EFFICIENT TECHNOLOGY THAT GIVES A SMART CONSUMER ProDUCt iTS INTELLIGENCE. WE HAVE ASSEMBLED AN ECOSYSTEM OF LEADING ComPANIES, ENABLING THEM TO CONNECT AND COLLABoraTE. TOGETHER WE arE CREATING SomE OF THE worLd’S MOST INNOVATIVE ProDUCTS. Creating shareholder value ARM processor‑based Profit before tax Normalised profit chips shipped Revenues under IFRS before tax 8.7bn £577m £221m £277m 1 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 ARM Holdings plc Annual Report & Accounts 2012 Chairman’s overview CoNNECTING THE DoTS ARM develops and licenses processor and other technology designs that leading semiconductor companies incorporate into silicon chips. These chips go into a wide range of mobile, consumer and embedded electronics that are connecting people to their friends, their workplace and their personal data. We are paid a one-off licence fee for a company to gain access to each design, and we receive a royalty payment for every chip that contains ARM technology. 2012 Financial summary Success in a challenging environment During 2012, Group revenue grew 16% ARM is developing and licensing advanced to $913.1 million (£576.9 million). Revenue technology for the mobile and embedded Sir John Buchanan growth has enabled us to continue to invest computing markets. Our latest technology is Chairman in more staff and infrastructure to develop also opening up new markets such as PCs, and deploy new technology. Balancing servers and enterprise networking, and we increased revenue growth and investment saw our first design wins in 2012. plans, we were able to increase the dividend by 29% to 4.5 pence per share following an ARM is facing well funded competition in these increase in normalised profit before tax by 20% new markets and also in the smartphone to £276.5 million. The IFRS profit before tax market where ARM has a high share. ARM increased by 41% to £221.0 million. and our Partners are continuing to innovate and develop new technology to make products 2012 Operational highlights that are even more capable in a wide range of 2012 Financial summary consumer and embedded electronic devices. • ARM signed 110 processor licences as more companies made commitments to using The ARM team Licence revenue ($339.3m) ARM technology in future products The knowledge and creativity of our people and the ability to deliver customer satisfaction • 8.7 billion ARM processor-based chips in an ever demanding and competitive + 19% reported as sold, representing a 32% share environment are all key determinants of our of the total available market Royalty revenue ($473.9m) success. We continue to attract outstanding • Google and Microsoft both announced ARM people and in 2012 we hired a net 276 processor-based mobile computers using additional employees, the majority of them + 17% versions of their PC operating systems and engineers. These new hires were a mix of new graduates and experienced talent from Other revenues ($99.9m) application software all over the world. • ARM’s Cortex-A class processors were + 7% shipped in about 700 million phones, tablets and TVs Profit before tax under IFRS £221.0m Normalised profit before tax £276.5m 2 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 Overview Our marketplace Strategy and Our partnership Our commitment Financials and risk Governance Financial statements performance approach WE arE LIVING IN AN INcrEasINGLY DIGItaLLY CONNEctED WORLD. PEOPLe arE CONNEctING TOGETHER WHEREVER THEY GO USING THEIR PHONES ANd MOBILE COmpUTErs. Board changes Early impressions On a personal note, I would like to thank the I feel privileged to have been invited to The clear ARM strategy continues to serve the Board, Warren and the leadership team, become Chairman of this fine company. Group well. The delivery of it shows quality, and all of ARM’s employees for their effective Doug Dunn announced his plans to retire as as do the leadership, talent development and contribution in 2012. I look forward to Chairman and a director at the 2011 AGM, strong culture. Innovation thrives through a continuing to work in the ARM team as we and handed over to me following the AGM wide range of mutually beneficial partnerships. plan, invent, design, deploy and support our in May 2012. Doug had been on ARM’s Board That is an impressive base. However, we must products and help our Partners create and from 1998, and served as Chairman since not underestimate the challenges of the wider realise their future ambitions. 2006, giving many years of leadership economic environment nor of the strength and guidance to CEO Warren East and and quality of the competition in the markets the ARM executive team. we serve. Sir John Buchanan In May 2012, Tudor Brown, President, Looking forward retired from ARM, the company he helped We are living in an increasingly digitally to found in 1990. Tudor has made an connected world. People are connecting excellent contribution to ARM, its employees together wherever they go using their phones and Partners over the past 22 years. and mobile computers. Machines are Mike Inglis, Chief Commercial Officer, becoming smarter and their connections retires in March 2013. In his 11 years at ARM, enable more effective control and more Mike has run marketing and sales, and was efficient energy use. ARM technology is highly General Manager of the Processor Division. suitable for our Partners to take advantage Young Sohn, non-executive director, also of these trends. We intend to develop and stepped down from the Board in December deploy the right technology to maximise the 2012 to take up an executive position outside benefit for our Partners, communities, the Group. shareholders and employees. The Nomination Committee is actively seeking new candidates as independent non-executive directors with in depth knowledge and experience of the technology sector. Doug, Tudor, Mike and Young leave with our deep thanks and good wishes for the future. 3 WorldReginfo - 390b1ff1-ea87-48cb-9945-c4e32c196de2 ARM Holdings plc Annual Report & Accounts 2012 Operational highlights ProGRESSING OUR STraTEGY ARM introduced its latest 64-bit processor technology, which Read more on page 32 opens up new markets such as computing, enterprise networking and servers. 15 companies have licensed this technology including AMD, AppliedMicro, Broadcom, Calxeda, Cavium, HiSilicon, NVIDIA, Samsung and STMicroelectronics. ARM maintained a >95% market share of smartphones and Read more on page 14 tablets, with shipments of its most advanced Cortex-A family processors increasing by more than 100% year-on-year. Shipments of ARM-based processors in non-mobile devices grew Read more on page 15 25% in the year, driven by increasing penetration in digital TVs, microcontrollers and wireless networking chips. Microsoft launched Windows 8/RT, its latest PC operating system Read more on page 24 which now includes support for ARM processor-based chips. ARM’s Mali 3D graphics processor shipments increased Read more on page 18 three-fold year-on-year with important design wins in the Samsung Galaxy SIII and Hisense digital TV. ARM announced advanced physical IP to accelerate the Read more on page 18 implementation of ARM’s processors and graphics processors on next generation manufacturing processes to 14nm and below.