ARM (LON: ARM) posted its quarterly earnings after the markets closed in London on Tuesday, which saw revenues and profits rise on the back of its popularity in the mobile market but growth in servers was non-existent.
The chip designer saw revenue jump 22% to $339 million in the first quarter of the 2015 fiscal year thanks to the release of flagship phones like the Samsung (KRX: 005930) Galaxy S6 and Apple’s (NASDAQ: APPL) iPhone 6. Analysts were expecting an average of $335 million. Profit came in at $126.9 million.
ARM’s growth in revenue, and expectations for future growth, are based on the higher royalty rates it is charging for its v8 architecture. ARM’s v8 architecture is found in the current generation iPhone and iPad devices, and will be used in future flagship phones launching in the fall and early 2016.
While ARM is enjoying revenue growth from new market segments like Internet of Things, ARM has not had much luck securing server wins. The ARM server revolution has failed to take off. While HP’s (NYSE: HPQ) Moonshot servers have made some gains in the market, they have failed to make serious headway into a sector dominated by Intel’s (NASDAQ: INTC) Xeon. In addition, AMD’s (NASDAQ: AMD) announcement that it’s planning to discontinue its microserver efforts have made the future of ARM-based servers uncertain.
ARM’s revenue and profit growth in mobiles is healthy enough, and there’s no pressing reason for the company to diversify into servers. However the company always needs to seek out new revenue streams, and it will continue to make an effort to penetrate the market in a serious way. The company admits it’s in development mode right now, but it’s confident that the market will continue to grow.
“I don’t think that server shipments are going to be a material driver of royalty this year. I think we’re still in the development phase of that. You can buy an ARM-based server right now,” Simon Seagers, ARM’s CEO said during its earnings call. “It’s great that companies like Gigabyte have announced more boards based on ARM v8-A for the server space. So it’s progressing forwards.”
ARM’s president of product groups Pete Hutton said to ZD Net that going forward ARM will have a lot of work ahead of it, but no challenge is impossible for the company.
“Yes [we will hit it], but it’s a lot of work. It’s not so much work on the hardware side, we have silicon. The work is trying to figure out the applications that are going to deploy widely and then get the software,” he said.
“It can ramp fast. We went from nothing to five percent of the enterprise networking market based on one design. It could be that fast.”