Smartphone chip designer ARM looks to car computing for growth

[MUNICH] As demand for smartphones slows, chip designer ARM Holdings Plc is looking to the automotive industry to fuel growth over the next five years.

Automotive demand for semiconductors will jump 50 per cent to US$15 billion a year by 2020, Chief Executive Officer Simon Segars said in a Bloomberg Television interview on Wednesday. ARM, whose chip designs are found in most of the world's smartphones, including Apple Inc.'s iPhone, reported royalty revenue trailing analysts' estimates, sending the stock lower.

"We're doing a lot of work now to develop the products that will be shipped in that future period," Segars said, citing driver assistance, in-vehicle automation and self-driving cars as growth markets.

ARM has so far sought to offset waning demand for smartphones by pushing adoption of its latest technology. The more profitable eighth-generation chips, which ARM designs and licenses to other companies to manufacture, helped the Cambridge, England-based company report rising fourth-quarter profit and revenue. Still, fourth-quarter processor royalty payments trailed analysts' estimates by about 4 per cent, Bernstein analyst Pierre Ferragu said in a note to clients.

Shares of ARM declined 3.8 per cent to 904 pence at 9:32 a.m. in London. The stock has lost 15 per cent in the past year.

While the smartphone industry currently accounts for about 45 per cent of ARM's $1.5 billion annual revenue, automotive technologies represented nine of the 51 agreements that ARM signed to license its chips to manufacturers in the fourth quarter. It will take time for such agreements to have a significant impact, though, said Robert Lamb, an analyst at Jefferies in London.

"There are long design cycles in automotive so it's probably going to be three years before ARM-based chips roll in," Lamb said.

Computing power in cars will jump 100-fold by 2020, Segars predicted. Each car will then have an average of $150 of silicon chips, or at least seven times as much as the average smartphone.

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