When analyzing the report I took some good with some bad. For a stock that is priced for perfection as is ARM, any sign of weakness will draw a red flag. So I have no shame in admitting that I also scoured for "less than perfect" examples on its report.
One such discovery was the fact that although the company logged a 13% increase in revenue from the previous year, that was still 4% below the previous quarter. It's far too early to suggest what that might mean, but I was also unimpressed by its paltry 6% growth in royalties.
In terms of outlook, the company didn't offer very much but did seem enthusiastic about its backlog and licensing pipeline -- both of which were described as "robust." On that note, it added that it sees group dollar revenue for the full year to be in line with what the market already expects -- essentially, revenue of $879 million -- representing an increase of almost $20 million over the full-year consensus estimate in place at the end of January. For the coming quarter, the company expects revenue of $211 million and EPS 15 cents.
Bottom LineOverall, the numbers were good but not great and certainly far from perfect -- even though the market continues to price the company as if it is. As fruitful as its Microsoft partnership might prove to be on top of the relationship it already has with Apple, I still see some challenges ahead for the company as competition within the space is only going to get more intense.
For that matter, consider Intel (INTC), a name that has posed as a sleeping giant for quite some time and now the company appears poised for a resurgence to add more obstacles in front of ARM's ability to grow into its inflated valuation. From an investment perspective, as good as its business appears to be, its stock price suggests that I stay away.
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