Microchip manufacturer ARM Holdings, which had prided itself on always meeting – or beating – profit expectations, is one such firm that has finally succumbed to market pressure and was forced to issue its first ever profit warning last week.
The UK-based firm, which produces processors to go in handheld computers, mobile phones and set-top boxes manufactured by other companies, will publish its third-quarter results next week and – although the firm will still avoid dipping into the red – profits will be massively reduced from what was originally expected.
Warnings of a fall in earnings of around 50% beyond what had previously been forecast sent the firm’s share price plummeting by over 60% in one day to 46.75p per share.
This is certainly a far cry from the heady days of the internet boom when the company was trading at a peak of £10 per share.
A profit prediction of £8m on revenues of £33m for the three months to 30 September 2002 even took ARM somewhat by surprise.
The first two months of the quarter had been expected to be slow due to the summer holidays, but when it became apparent that things were not picking up in the last month the company decided to go public with its concerns.
The main problem, according to chief executive Warren East, is that toughening market conditions – the worst the semiconductor market has ever seen – have ’caused some of our partners to delay decisions about licensing our technology’. ARM, however, is fairly confident that it’s in a strong enough position to weather the worst of the storm.
Holding the company’s finances together during this tough time will be a big challenge for chief financial office Tim Score.
The chartered accountant, who formerly worked as finance director for Rebus Group and William Baird, said that a strong balance sheet and ongoing cash generation allowed the company to continue investing in future growth for the firm.
He admitted though that the ‘maintenance of a cost base which balances long term growth opportunities and short term trading pressures’ was still a priority for the firm.
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