ARM points to bottom

Former FTSE 100 star ARM today revealed financial results that bring good news to the semiconductor industry.

ARM's profits slumped last year after it took a heavy hit, along with the other players in the languishing market. In 2000, profits before tax were £35.4m on revenues of £100.7m. Last year these figures had dropped to £13.8m and £40.2m respectively.

But could an industry-wide bounce back be on the horizon? Figures for the first half of this year look good and there has certainly been a fair deal of talk from analysts to indicate this. ARM today posted a pre-tax profit of £31.9m for the first six months of 2002, up from £23.6m for the equivalent period in 2001. Revenue was up 25 per cent at £85.3m.

The company's CEO, Warren East, told silicon.com he "finds it hard to be anything other than pleased with the results".

But what about the rest of the industry? The IT business has desperately been searching for a sign that might point to a return to better days. But such signs, it has to be said, are a little thin on the ground.

Jim Tully, chief semiconductor analyst at Gartner, said: "Most of it... is down to macroeconomic factors. But this downturn is unlike others in the past, which have usually been caused by pricing fluctuations. This time it is a demand driven downturn - effectively people have stopped buying."

But Tully predicts growth by the end of this year will be "slightly on the positive side of flat". Okay, maybe not the answer the industry is after, but no one was expecting any comeback to be remarkable.

But put all the evidence together and it suggests that by the end of this year things should be turning around. Tully added: "We expect a general upturn for everyone playing in the market from foundries to IP vendors."

Even still, the key word to remember is 'slow'. Data from IDC and Gartner indicates that while the end of this year could see conditions begin to pick up, strong growth is still a way off.

So what about Toshiba's surprise at a sudden surge in demand for its chips? It took the unusual move of cancelling staff holidays to get feet back on the production floor. But don't get too excited.

Figures from the World Semiconductor Trade Statistics body suggest only Asia Pacific will show positive growth this year. Japan, the Americas and Europe will all have to wait until next year when the worldwide average growth rate is expected to hit 21.7 per cent.

And East himself warns that a good performance from his company is "probably not an indicator for the industry as a whole".

Significantly, though, he adds ARM's licence figures for the first half of this year are "well up on last year and customers probably wouldn't be buying licences if they aren't confident".

So when the industry does finally lift its head above the parapet, who will be best positioned to take advantage of the upswing?

Tully's prediction is that companies who sell across a broad range of industries, such as STMicroelectronics, could be the real winners. Those with a very specific focus could lose out.

But for the time being ARM is not going to lose sleep over the state of the industry. East added: "We're not sitting here ringing our hands about it because that's just not productive."