City traders wash their hands of ARM

Chip designer ARM saw its shares go into freefall today despite turning in increased pre-tax profits.

The company's first quarter pre-tax profits are up almost 40 per cent on the same period last year. Strong demand for its designs has pushed profits up to £15.7m from £11.4m last year.

In spite of these encouraging results, the company has today seen 15 per cent slashed from the value of its shares, dragging it down 40.50 points to 229.30 pence as of 12.30(BST).

Warren East, CEO of ARM, told silicon.com he was "very pleased with the start to the financial year". However, he added it was a "complete mystery" as to why the company's share price fell so sharply this morning.

The drop in share value is most likely related to concerns over falling royalty revenues. This is linked to declining chip shipments by its customers and general malaise in the sector.

While the general performance of the company is good - boosted by its strategy of protecting revenues through selling generically designed products into eight different market segments - royalty revenues are down six per cent on the previous quarter to £6.4m.

Jim Tully, chief semiconductor analyst at Gartner Group, said the company still looks good in the longer term. He predicts the semiconductor industry will hit an up-turn during the second half of this year when shipments are expected to "ramp-up".

Tully concluded that provided licence revenues keep growing this will be enough to negate the lost royalties.

The company is also increasing its headcount by 16 to 738.