ARM Investment Case

September 2010

1 ARM Overview ARM is the world’s leading semiconductor IP company

. Licensing and royalty business model delivers operational leverage and robust cash generation

. Gaining share in long-term secular growth markets

. Strong competitive position for long- teesusaabegorm sustainable growth

2 Disaggregation of the Semi Industry . Technical progress drives industry evolution . Increased comppylexity has ex ponential effect on desi gn costs . Rising costs create need for specialisation and outsourcing

Billions of transistors 12 Increasing complexity 2000 per chip of processor design 10

1500 8 Vertical ASIC Fabless IP Driven exity ll SliSuppliers VdVendors SiSemis DiDesign 1000 6 4 500 2 Design Relative Comp 0 0 System Design & 99 00 01 02 03 04 05 06 07 08 ARM7 ARM9 ARM9E ARM11 Cortex A MftManufacturer Distribution IP Fully 350 Increasing complexity Millions of lines of code 300 of physical IP 300 in an embedded Vertically EDA 250 250 operating system Integrated EDA mplexity 200 200 ASIC Manufacture 150 150 100 Vendor 100 Manufacture Fab 50 Relative Co 50 Equipment 0 0 v2.2 v3.0 v3.1 v4.0 1970s 1980s 1990s Today Sources: ARM estimates

3 ARM Technology . Advanced digital products incorporating more and more ARM technology

Processor IP – Design of the brain of the chip Physical IP – Design of the building blocks of the chip Software development tools

4 ARM Introduction . Global leader in the development of semiconductor IP . R&D outsourcing for semiconductor companies . Innovative business model yields high margins . Upfront license fee – flexible licensing models . Ongoing royalties – typically based on a percentage of chip price . Technology reused across multiple applications . Long-term, secular growth markets

Base of over 690 licenses Grows by 60-80 every year

More than 230 potential royalty payers

4 bn ARM-based chips in ’09 25% CAGR over last 5 years

5 Creating OEM Pull . OEMs play essential role in ARM business model

. Key O EM re lat io ns hips d rive techn ol ogy . Roadmaps developed in partnership . Proven long-term success in multiple segments

6 Cumulative Licensing Drives Royalties . Licensing base typically grows by 60-80 licenses every year . Internet-connected consumer electronics from smartphones to DTV . Embedded applications such as microcontrollers and hard disk drives . Growing base yields royalty revenues over long period . LdiLeading sem icon ductor compan ies have ma dlde long-term, strategic commitments to ARM technology . Applicability of ARM technology broadens over time ~300 $150m Significant Royalty Potential Licenses from Recent Licenses $125m +34 2006-10

+87 $100m 2001-05 Pre-2001 +61 $75m ~300 Licenses +62 >690 $50m +61 $25m +71 ~100 Licenses $0m H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1

2005 2006 2007 2008 2009 H110 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

7 Key Growth Drivers

Growth in mobile applications Growth . Opportunities . Increasing value of ARM technology per device . More chips and higher priced chips

Increasing the . Growth beyond mobile ARM value . Increasing ARM penetration into broader per transaction range of digital products Growth in non-mobile applications . Growth into new technology outsourcing . Physical IP, graphics IP and video IP increase Extending IP Outsourcing ARM’s value per device and penetration

8 Increasing Value and Penetration

Mobile Phones Mobile Computers Digital TV & STB PC & Peripherals Microcontrollers

ARM processors can be found in Smartphones are evolving into ARM market share ~30% in ARM technology can be found in Microcontroller market is very more than 95% of mobile phones mobile computers brands such as Samsung, Sony many products in the home office large with mainly low-cost chips . 30m unit market in 2009 Bravia and Vizio . Disk drives (65% share) Average of 2.5 ARM-based chips . Forecast 500m units in 2014 . Printers (60%) ARM’s market share ~6% but per mobile phone, with smart- Digital TV becoming more . Networking (20%) such as growing rapidly phones containing between 2 and internet connected, requiring ARM in applications processor broadband router, WiFi, BT 5 ARM-based chips web-browsers, plug-ins and PC- used to run: and femto cell ARM processors used in: class OS. Driving need for . User interface, operating smarter processor such as ARM . Electric motor controllers Typical smartphone drives six syy,stem, browser and p pglug- As these products become more . Monitors and sensors times more royalty than typical ins, email, gaming capable and more efficient, they “dumb-phone” ST is market leader and recently . Medical applications ARM processors also used in: create more opportunity for ARM announced they are moving to . Industrial robotics . Hard disk drive controller ARM ARM processors used in: . Toys . WiFi, Bluetooth, WiMAX . 2G/3G baseband connection . 2G/3G baseband connection . Applications processor . GPS, WiFi, Bluetooth . Touchscreen, camera

252.5 AbfAverage number of Royalty Unit Split ARM-based chips 2.5 4,000 per phone Embedded Home 15% 2.0 2.1 3,500 Non-Mobile Enterprise Mobile 6% 1.9 3,000 16% 37% 1.5 1.6 2,500 151.5 2,000 63% 1.0 1.2 6% 1,500 9% Mobile 1,000 0.5 65% 20% 500 0.0 0 2005 2006 2007 2008 2009 H1-10 2005 2006 2007 2008 2009

9 Growing the Licensing Base

Cumulative licenses Processor Roadmap in 2010 Estimated Royalty (Q2 2010 licensing shown in parenthesis*) Opportunity for 2014 ARMv7 CtCortex A15 Application Cortex-A Smartphone, mobile computing, DTV Processors 78 (+2) Family and infrastructure 3bn units ARMv6 Three l ead li censees s igne d up per year ARM11TM 44 (+5) Family Heron Real-time ARMv5 Cortex-R Embedded Family Engine management systems, baseband and hard disk drives 10bn units 18 ppyer year ARM9TM Initial lead licensees signed up Family ARMv4

Cortex-M ARM7TM FilFamily Cortex-M4 Micro- Family 267 (+2) controllers 66 (+6) Motor control, industrial control, 16bn units 173 embedded audio per year Mali licenses = 29 (+1), Others = 21 (+1) First shi pment s expect ed i n H1 2011 *Note: Licensing numbers adjusted for licenses that are no longer expected to generate royalties.

10 Latest Technology Drives Royalty Growth

11 Royalties Outperform Industry

H1 2010: ARM Outperforms Industry Q2 2010: 1.4b units up ~95%

250 50% Industry units (ex-memory)* up ~40% ARM Royalty Revenue

Industry Growth Rate* 40% ARM mobile shipments up ~60%

($M) 200 ARM Growth Rate Growth 30% Industry shipments into mobile phones growing about 40% year-on-year 20% 150

R ARM digital TV shipments up >100% Revenue

10% ate (%) Strong market share gains with market growing 100 about 30% year-on-year 0% Full Year Royalty -10% ARM microcontroller shipments up >100% 50 Strong market share gains with MCU market -20% ARM

H1 growing about 80% year-on-year

0 -30% 2005 2006 2007 2008 2009 H1 2010 Advanced processor reported shipments ARM $ Royalty CAGR (05-09) = 12% Cortex units up ~10 fold Industry $ Revenue CAGR (05-09) = flat

* Source: SIA May 2010 Offset 1 quarter to align with ARM’s royalty revenue

12 Opportunity for ARM

Low Cost Phones Lower Cost Smartphone Smartphone Mobile Computer Ultra Low Cost Ultra Low Cost Ultra Low Cost Ultra Low Cost

350m 450m 800m 500m devices in 2014 devices in 2014 devices in 2014 devices in 2014

Apps Processor - $$$ 3G BB - $$$ Apps Processor Apps Processor - $$$ WiFi / BT / GPS - $ and baseband - $$$ 3G BB - $$$ Touchscreen - $ WiFi / BT /GPS - $ WiFi / BT /GPS - $ Baseband Modem - $ Touchscreen/Camera - $ Camera - $ Touchscreen/Camera - $ 1 x $ 5 x $ 8 x $ Storage10 x- $

$ = Unit of Royalty

13 ARM’s Opportunity at all Price Points e Volum

OiOpportunity

$1-2 $3-6 $10-15 >$25 Average Selling Price of a Semiconductor Chip ARM Usage Today

14 Segments for ARM in 2009

Devices Shipped 2009 Chips/ TAM 2009 2009 2009 (Million of Units) Devices Device Chips ARM Share Smart Phone 230 2-5 1,000 850 85% Feature Phone 600 1-3 1,200 1,000 85% Low End Voice Phone 300 1 300 280 95%

Mobile Portable Media Players 180 1-3 250 180 75% Computing (CPU-only*) 30 1 30 <1 1% Digital Camera 100 1-2 150 90 60% Digital TV & Set -Top-Box 300 1-2 370 100 30% Networking 570 1 570 100 20% Printers 120 1 120 70 60% obile

MM Hard Disk Drives & SSD 550 1 550 350 65% Automotive 1,200 1 1,200 120 10% Non- Smart Card 3,400 1 3,400 200 6% Microcontrollers 4,500 1 4,500 270 6%

Others** 1,300 1 1,300 350 25% Source: ABI, Gartner, Semico, Instat, IDC, Totals 13, 500 15, 000 3, 900 26% andARMd ARM est imates * Applications processor only * * Includes other applications not listed such as headsets, DVD, game consoles, etc

15 Segments for ARM in 2014

Devices Shipped TAM 2009 ‘09 ARM TAM 2014 Chips TAM 2014 Key Growth (Million of Units) Chips Share Devices /unit Chips Areas for ARM Smart Phone 1,000 85% 800 3-5 3,200 Feature Phone 1,200 85% 450 1-3 900 Low End Voice Phone 300 95% 350 1 350

Mobile Portable Media Players 250 75% 200 1-2 300 Computing (CPU-only*) 30 1% 500 1 500 Digital Camera 150 60% 120 1-2 200 Digital TV & Set -Top-Box 370 30% 450 1-4 800 Networking 570 20% 800 1-2 900 Printers 120 60% 200 1 200 obile

MM Hard Disk Drives & SSD 550 65% 1,100 1 1,100 Automotive 1,200 10% 2,000 1 2,000 Non- Smart Card 3,400 6% 5,500 1 5,500 Microcontrollers 4,500 6% 9,000 1 9,000

Others** 1,300 25% 3,600 1 3,600 Source: ABI, Gartner, Semico, Instat, IDC, Totals 15, 000 26% 25, 000 29, 000 andARMd ARM est imates * Applications processor only * * Includes other applications not listed such as headsets, DVD, game consoles, etc

16 Extending the Model . Physical IP and multimedia IP markets represent further outsourcing opportunity . Technology complexity increasing, drives cost and risk . ARM develops technology and amortises costs over many licenses . Additional royalty streams per chip

Physical IP Multimedia IP . Leading-edge physical IP available . 29 licenses for graphics and video from 250nm to 20nm . 2009 best ever year for licensing . Foundries licensing ARM technology for next generation processes . Added Samsung and Mediatek . Over 30 platforms yielding royalties . First licenses now delivering royalties . 12 of top 20 semis are driving ARM royalties from foundries LG Renoir (Mali graphics processor) LG Xenon (Mali video processor)

17 Physical IP Licensing Base

ARM develops and licenses physical IP for . Platforms Licensed 32/28 45/40 65nm 90nm 130nm 180nm leading ASIC, foundry and fabless semis by Foundry -250nm Chartered   . 32/28nm licenses signed with all Dongbu   advanced foundries GLOBALFOUNDRIES  Grace  . Over 30 companies have licensed 73 HHNEC  platforms on process nodes from IBM (CMOS &SOI)    250nm to 28nm Magnachip  Samsung  . Five new platforms licensed in H1-10 SMIC    . Higher than historical average Tower  TSMC       UMC    Vangaurd  . Over 30 platforms yielding royalties X-Fab  . 6 platforms driving royalties at advanced nodes at 65nm or below Fabless, ASIC and IDM Customers . 12 of top 20 semis are driving ARM royalties from foundries

18 PIPD’s Market Development

. PIPD market share has grown steadily PIPD Market Share by No of Wafers* 25% 19% 20% . All major foundries licensed physical IP 20% 16% 15% 10% 5% . Foundry wafer volume expected to double 0% 2007 2008 2009 as IDMs continue to outsource * 200mm equivalent wafers

50 Foundry Market Forecast . ARM well positioned for long-term 40

t Size 30 afers) ee x2 royalty growth 20 (m w (m

Mark 10 . Advanced foundries signed up for 0 geometries at 45nm and below 2009 2014 Source: Gartner, December 2009 . Leading fabless semis starting to make Forecast by Node outsourcing decisions 50 ≤ 45 nm 40 65 nm x8 ize ers)

SS ≥ 90 nm ff 30 x2 20

(m wa(m x1.5 . Creates opportunity for growth as Market 10 0 advanced nodes are forecast to become 2009 2014 fastest growing nodes Source: Gartner, December 2009

19 Extending IP Outsourcing: Media

Growing the Media Processor Growing Shipments in Mobile Licensing Base and Non-Mobile Applications . 29 licenses for graphics and video . More Mali-based chips shipping into mobile . 3 companies renewed commitment to and consumer electronics devices using Mali technology in Q2 2010 LG Renoir LG X enon Other Design Wins 29 (Mali graphics processor) (Mali video processor) (digital TV, navigation, gaming 2010 1 and mobile computing) 20 2009 13

2008 8 4 2007 4 Pre-2007, 2 Licenses Partners Royalty Payers

20 Competitive Landscape . ARM had ~30% market share of total embedded processor market in 2008 – up from ~20% in 2006 . Remaining 70% mostly customers’ proprietary designs . Some market-share held by smaller IP companies . Customers will outsource when … . No longer able to monetise investment in differentiation . OEM wan ts ARM-bdltitlbased solution to lower cos ts . Key areas of competition . NtbkNetbooks – expansititfARMthlbtdtion opportunity for ARM technology but modest royalty impact in short term . Microcontrollers – ARM developpging as the standard ; removin g structural cost . Physical IP – ARM well positioned as leading semiconductor companies consider outsourcing; processor synergy with physical IP

21 Visibility of Future Growth . Good visibility of customer long-term product roadmaps and technology needs . Rarely revert to in-house designs . Re-equip with next generation technology every 1-2 years . Long-term strategic relationships and licensing sales cycles give 6-18 months visibility . Backlog contributes meaningful revenue each quarter

. Royyyalty revenues p rovide increasin g visibilit y . Critical mass, diversity of end-market applications and growing market share . Revenues recognised one quarter in arrears

22 From Revenue to Profits and Cash

H1 2010 Revenues $m £m %revs 95% of revenues earned in Licensing 90.0 57.9 30% US dollars Royalty 159. 8 106 55% Other 43.8 28.4 15% Royalties approximately 55% of revenues Total 293.6 192.3 100%

COGS 23.7 R&D expensed as incurred Gross Margin 94.0%

Approximately 50% of costs in USD Operating Costs 101.1 10% move in $/£ impacts EPS Operating Margin 41.4% by ~15%

Profit Before Tax 81.1 Operating margins and earnings will increase as royalties grow EPS 4.38p

Cash generative, debt free Free Cash Flow £202.3

23 Strong Balance Sheet and Cash Generation . Healthy margins drive strong

cash generation £100m Strong Cash Generation £90m . Net cash of £202m at end H1 2010 £80m £70m Expect to retain cash rich balance £60m . £50m sheet £40m £30m £20m £10m £0m . Total cash return of £386m 2005 2006 2007 2008 2009 H1-10 over 6 years 3.0p Dividend Growth . £125m via dividend 2.5p 2.0p . £261m via buyback 1.5p

. Progressive dividend policy 1.0p . H1 2010 interim dividend increased 0.5p Interim by 20% 0.0p 2005 2006 2007 2008 2009 H1-10

24 ARM – Investment Case Summary . World leading position in a long-term secular growth market . Attractive long-term licensinggyy and royalty business model . Substantial license base drives future royalty growth . About half of customers currently paying royalty . Licensing base incrementing by 60-80 new licenses each year . 4 billion ARM-based chips shipped in 2009, 25% CAGR over 5 years . Technology becoming more broadly applicable . 95% market penetration in cellphones; increasing value per phone . IiIncreasing penet ttibdbilration beyond mobile . Extending the business model with video, graphics and physical IP . Royalty growth drives margin expansion . Royalty stream generates growing and increasingly predictable cash flow

25