H&Q Notebook: ARM -- A Real-Life Rambus

Also, items on Qwest's partnerships and Gemstar's prospects.
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SAN FRANCISCO -- Those wondering how well Rambus (RMBS) - Get Report will do once the memory-enhancing chip standard rolls out can look to British-based ARM Holdings (ARMHY) for signs.

Like Rambus, ARM doesn't actually produce anything. Instead it licenses its designs for Reduced Instruction Set Computer-based processors, or RISC-based processors, which are popular in cell phones and handheld devices because they consume less power than x86-based chips.

And like Rambus, which designs memory chips, ARM has been around since 1990. ARM started out as a joint venture between

Apple Computer

(AAPL) - Get Report

, chipmaker

VLSI

(VLSI)

and British-based

Acorn Computers

. The company went public in 1998.

But unlike Rambus, ARM has already taken off. CFO Jonathan Brooks, speaking at the

Hambrecht & Quist Technology Conference

, described its chip as the fastest-growing performance processor. The design is now used for chips in all

Oki

phones and in products from

Nokia

(NOK) - Get Report

and

Qualcomm

(QCOM) - Get Report

, as well as for every Strongarm chip that

Intel

(INTC) - Get Report

will sell.

Some 10 million ARM-chips shipped in 1997; that grew to 50 million in 1998, resulting in a 59% revenue growth year-on-year.

And the beauty of the ARM model -- like the Rambus model -- is that since the company does no manufacturing, it can keep costs down. In the first quarter of this year, it generated a 24% profit margin before taxes, just shy of its target of 25%.

Brooks also reminded investors that each time a licensee is signed on, products don't generally ship for about two years. So while 15 companies are now shipping ARM-based chips, there are a total of 31 licensees; that means, within two years, you can expect to see new ARM-based products from another 16 companies. And once a company is signed on, the ARM-based chips will likely ship for years.

"When you get these things established," Brooks said, "They tend to stay a long time."

-- Marcy Burstiner

In Bed With Qwest

Look for

Qwest

(QWST)

to keep making friends in the bandwidth business.

In recent months the upstart phone and data carrier has paired with service providers ranging from Baby Bells such as

BellSouth

to DSL start-ups such as

Covad

and

Rhythms NetConnections

(RTHM)

in an effort to extend its long-distance network to corporate customers and consumers.

"You'll see more of this in the next several months," CEO Joe Nacchio told a packed room of investors. Nacchio, an

AT&T

(T) - Get Report

alumnus, said, "We have to continue to push to get local broadband connectivity."

-- Kevin Petrie

A Buried Gemstar

SAN FRANCISCO --

Gemstar

(GMST)

CEO Henry Yuen dazzled investors this morning with statistics that showed off the company's hidden facets.

Gemstar should be a household name. Its technology is embedded in most televisions, cable boxes and video recorders shipped worldwide. Gemstar is the inventor of

VCR+

, which simplified the tasks of videotaping programs and making the flashing 12 o'clock stop, said Yuen. VCR+ is the worldwide leader in its product group and has been Gemstar's main driver of revenue growth. However, Yuen said the market is maturing, with growth starting to slow to about 10%.

But don't worry. Gemstar has already prepared for that with a new product called electronic program guide, or EPG, which makes it even easier to veg out in front of the TV. "To borrow some Internet terms, it's like a browser or search engine" for television, Yuen said. The fiscal year ended March 31, 1998 was the first year EPG generated any significant income, about $50 million, he said.

Another product that will leverage EPG and include interactive advertising has also been launched but hasn't contributed any significant income yet. But Yuen predicted, "We expect some coming soon."

Please stand by.

-- Medora Lee