After Fitbug Holdings PLC’s Success, Can ARM Holdings plc Recover This Year’s Losses?

ARM HoldingsFitbug Holdings has seen its shares sky-rocket by 591% during the past five days, after the company revealed that its products were now being stocked by US retail chain Target as well as J Sainsbury — that’s a total of 2,093 stores. Not only is this great news for Fitbug, but it’s a great vote of confident for the wearable technology market.

Fitbug produces a pocket-sized, wearable device that tracks your movement, helping you to achieve fitness goals and monitor sleep patterns. The device transmits data to a smartphone and is the latest in wearable technology.  

Wearable technology, combined with the Internet of Things, or IoT for short, is the tech world’s latest fad. Put simply, IoT devices communicate with each other over the internet or wireless networks, giving objects the ability to communicate with other objects. A market that ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US) is trying to dominate.  

Grabbing market share 

ARM has been diversifying its product offering during the past few months, to try and draw in customers. The company has been giving away free software to manufacturers of smart devices — even if they are built by rivals — in an attempt to cement its position in the IoT market. 

So far, this strategy is seeing some success. Indeed, the company recently reported that during the third quarter royalty payments rose 9%, compared to growth of only 2% during the second quarter.  However, the company’s revenue growth received a significant boost from the strong US dollar, which distorted results. Specifically, while ARM reported revenue growth of 12% in US dollar terms for the third quarter, on an underlying basis, in sterling, revenues only increased by 6%. 

Strong demand 

Nevertheless, there appears to be a strong demand for ARM’s technology, with 43 new processor licenses signed by the company during the third quarter. Year to date, the company has signed 110 processor licenses.

Things should only get better for the company as it moves into the fourth quarter. ARM is set to benefit from the launch of Apple’s new iPhone and iPad. Additionally, as ARM’s components are used in 95% of the world’s smartphones, the company should see a boost in demand for its products over the key Christmas shopping period. And according to some analysts, this year should be a bumper year for high-spec semiconductor producers like ARM.

This thesis is based on the fact that at present, mobile network operators are aggressively pushing the sales of 4G mobile devices. ARM has a strong hold over the 4G smartphone market because the company’s semiconductors are some of the only products on the market that meet the processing demands of these devices. 

So all in all, it seems as if ARM is set to profit from the surging demand for high-end smartphones, as well as the rising demand for devices that can connect to the IoT.  

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings and owns shares in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.