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Four Reasons Why ARM Holdings plc Is Set To Surge Higher In 2015

In many respects, 2014 was somewhat of a transformational year for ARM Holdings (LSE: ARM). The company spent much of the year redesigning its product offering. Management started to push the company’s new ARMv8-A technology, designed for high-power computing and gave away free software to manufacturers of smart devices. These freebies were designed to give the group a foothold in the growing Internet of Things, or IoT market. 

However, after a year of consolidation, 2015 is set to be a year of solid growth for the company as four key developments are set drive the company’s royalty sales growth and profitability. 

Growing market 

ARM’s components are used in 95% of the world’s smartphones and the company’s fortunes are highly dependent upon the state of the smartphone market.

The smartphone manufacturers with the largest market share are Samsung and Apple, which have either already launched new products or are planning to do so within the next few months, and ARM should benefit from both.

Strong sales of Apple’s new iPhone 6 over the Christmas period should show up in ARM’s fourth quarter trading statement. Samsung is planning to refresh its Galaxy smartphone portfolio during the first half of this year, which should add a further boost to sales for ARM.  

And rumours are already starting to circulate regarding Apple’s next iPhone, which should add yet another product launch sales ‘bump’ to ARM’s earnings during the second half of the year. 

China 

There’s now an increasing demand for smartphones within China, the world’s largest consumer market. In particular, sales of 4G smartphones are poised to take off this year in China, as shipments grow dramatically.

A report from IHS Technology states that sales of smartphones in China hit 72.4m units last year, up from just 4.6m during 2013. Shipments are set to double again to 144.1m units during 2015, rising to 219.8m in 2016 and 298.5m by the end of 2017. ARM is in the perfect position to benefit from this kind of growth.

Higher-royalty chips

And as the world demands increasing amounts of computing power, ARM is set to profit from the rising demand for its higher-royalty ARMv8 chips.

Traditionally, Apple has been ARM’s best costumer for these products, but there are now signs that other mobile vendors — such as Qualcomm, MediaTek and Samsung — want to ramp-up production. This would add yet another boost to ARM’s prospects next year. 

The fourth and final reason why ARM is set to see serious growth during 2015 is also to do with the company’s new ARMv8 processors. Specifically, during 2015 ARM will see the first material contributions from its ARMv8 processors in the enterprise networking and servers market. ARM entered this market during 2013, although sales have been slow to take off. 

All-in-all, a number of factors will contribute to ARM’s growth during 2015 and it could be a record year for the company. Especially when you consider the surging demand for smartphones in China. 

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