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Can ARM Holdings plc’s Share Price Return To 1,111p?

Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to return to historic highs.

Today I’m looking at ARM Holdings plc (LSE: ARM) (NASDAQ: ARMH.US) to ascertain if its share price can return to 1,111p.

Initial catalyst

Of course, before we can establish whether or not ARM can return to 1,111p, we need to figure out what caused it to reach this level in the first place. 

It would appear that ARM reached this high during December of last year, as a number of City analysts made positive comments about the company’s outlook. In particular, analysts noted that a number of new products set to be released this year from the likes of Apple, Samsung and even Google would send ARM’s sales and profits skyrocketing. In addition, this rally to 1,111p was driven by ARM’s acquisition of Geometrics, a specialist company in the field of graphics technology.

However, since this raft of good news, ARM has come under pressure as some City analysts have warned that increasing competition within the semiconductor industry could dent ARM’s impressive growth rate. 

But can ARM return to its former glory?

Unfortunately, there is actually a very real risk that ARM’s profits will come under pressure during 2014. You see, despite the number of new products hitting the market, all of which are likely to use ARM’s microchips, there is a more worrying trend going on within the semiconductor industry.

Indeed, for some time now smartphone manufactures have been holding less inventory, or stockpiles of microchips. As a result, demand for microchips has fallen somewhat over the past few months, as stockpiles are run down and the market becomes over supplied. Some City analysts believe that this ‘inventory adjustment’ could hit ARM’s earnings by as much as 13% during 2014.  

Having said all of that, ARM is still a market leader and demand for the company’s microchips remains strong. 

For example, within ARM’s latest trading update, management announced that during the reporting period ARM had signed a record number of the license agreements that allow companies to use ARM technology. What’s more, the company’s sales surged 26% for the period reported.

Foolish summary 

So, there is a possibility that ARM could be affected by wider industry trends during the next year or so. However, it seems as if there is still a high demand for ARM’s microchips and the company’s impressive rate of growth leads to me to conclude that overall, ARM can return to 1,111p. 

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In the meantime, please stay tuned for my next FTSE 100 verdict.

> Rupert does own any share mentioned within this article.