Apple Inc.’s Record Results Are Great News For ARM Holdings plc

Technology giant Apple (NASDAQ: AAPL.US) reported a blow-out set of quarterly results this week, driven by record sales of iPhones and a strong demand for Apple products within China. 

And while Apple’s results were great news for the company’s shareholders, the results were also good news for Apple’s suppliers. ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US) is one of Apple’s key suppliers.

Smashing forecasts 

Apple smashed Wall Street forecasts for the quarter, reporting sales of $74.6bn for the three months ending 27 December, up nearly a third from the same period last year. During the quarter the company sold 74.5m iPhones and reported a profit of $18bn, which was the biggest profit ever reported by a public company.

ARM is clearly set to benefit from this strong performance by Apple. Initial indications suggest that thanks to Apple’s strong performance, ARM is set to report blow-out fourth quarter results. 

High expectations 

Before Apple announced its fourth-quarter results, ARM’s management was already expecting a strong fourth-quarter performance. In particular, At the end of the third quarter, ARM’s management stated:

 “ARM enters the final quarter of 2014 with a robust opportunity pipeline that points to both strong license revenues in Q4 and a sequential increase in order backlog. With market data underpinning the short-term outlook for royalty revenues…”

Management then went on to say that the company expected to report revenues of around $350m for the three months to December. Apple actually beat its own estimates for sales by 10%, so ARM could be set to report a similar out performance. 

Actually, some of Apple’s other suppliers have already started to report fourth-quarter results. For example, K Hynix, a supplier of memory chips to Apple posted record fourth-quarter profit that beat analyst estimates. 

Hynix reported net income for the period of $1.5bn, surpassing analyst estimates by nearly a third. 

However, ARM doesn’t just provide chips for Apple, it also supplies Samsung and unfortunately, Samsung has been hurt by Apple’s success. Specifically, Samsung’s mobile phone sales during 2014 fell by 21% as competition increased in the Chinese market.

Nevertheless, Apple’s phone sales eclipse those of Samsung, so ARM is unlikely to report a noticeable impact from falling Samsung sales. 

What’s more, ARM’s sales are set to receive a further boost over the next two years as Apple is planning to remove Intel Corporation from its supply chain. Macs and other iOS devices will be installed with processors that use ARM architecture in the future, compared to the current Intel set-up.  

Set to surge 

So all in all, figures suggest that ARM is set to report record revenues and profit for the fourth quarter and the company's shares could be set to surge following the news. 

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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.