arm holdings

ARM designs and licenses low-power microprocessors predominantly for use in mobile devices such as

phones. ARM does not manufacture its chip technology but merely develops and licenses it. The company

has been able to able to build significant market share, with around 95% of all mobile phones currently using ARM cores. A total of 12 billion ARM processor-based devices were shipped in 2014.

The Business

-25%

-15%

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5%

15%

Mar-14 Jun-14 Sep-14 Dec-14 Mar-15

S&P 500 ARMH

Key Numbers

2014 2018

PE TTM 60 50

EPS $1.15 $1.85

Margins

Gross 95.5% 96%

Operating 50% 55%

Net Income 42% 46%

R&D 21% 21%

Growth

Sales 16% 12%

EBIT 18% 14%

Thesis

1

By Daniel Dorman, Julio Escalona and Aaron Mederos

Equity Research│March 17, 2015│NASDAQ: ARMH│ARM HoldingsBuy Recommendation

Price 2018 Target Beta$53 $93 1.2Value $68 Cap. $25bln

Performance 1 yr Beginning March 16, 2015

Increasing smartphone shipments and increasing smartphone share within all phones shipped will drive

royalty growth

Increasingly complex chips within each device increases royalties per device

Increasing penetration of newest technology within all segments raises royalties per device

Increasing market share within enterprise and embedded computing increases licensing and royalty

revenue

Total addressable market growth, through the Internet of Things, will increase both licensing and royalty

revenue

2

The Business

ARM designs and licenses its microprocessor designs which are in turn produced by licensees for a variety of

end uses that can be broadly classified into three categories: mobile, embedded, and enterprise infrastructure.

ARM’s technology is found on

95% mobile devices around the

globe. ARM’s energy efficient

Cortex CPUs and Mali GPUs are

presently used in elite products

from manufactures like

Samsung, Apple, HP, Microsoft,

HTC, LG, Motorola, Lenovo,

Alcatel, and Huawei, just to

mention a few. From

smartphones and phablets to

high definition tablets, ARM

technology is favored by virtually

all OEMs.

Partners like NVIDIA use ARM technology to power infotainment

systems, instrument cluster, and rear seat entertainment (RSE)

systems for more than 35 car models. End customers include

Tesla, Volkswagen Group, Fiat Chrysler, and BMW among

others. Ford infotainment systems also use ARM CPUs.

ARM products are currently in devices that part of the Internet of

Things revolution. ARM Cortex-M series have become the

customary technology used in smartwatches. Products include the

Apple Watch, Pebble, LG ‘G’ and Samsung Gear Live and fitness

products like Fitbit.

ARM technology is used throughout a variety of household

electronics. Partners like Samsung, Sony, Vizio, and Rocketfish

use ARM IP. Companies like Leapfrog, Nintendo, Microsoft, and

Sony manufacture products based on ARM architecture. Nest’s

revolutionary thermostats use an ARM Cortex chip. ARM

designed chips can also be found in

Various municipalities throughout Germany, the United Kingdom,

and the United States use ARM designs to collect and distribute

real-time data about parking spaces both on the street and in

garages allowing cities to reduce traffic congestion or control

parking prices.

ARM’s products are used throughout industry with end uses in

robots, machinery, and medical devices.

Equity Research│March 17, 2015│NASDAQ: ARMH│ARM Holdings

Mobile

Embedded

Vehicles

Wearables

Home

Intelligent City

Industrial & Other

Customers

Apple Watch

Nest Thermostat

Tesla

2

33

The Business

ARM architecture is also used in enterprise products like routers, ethernet switches, printers, and video

conference terminals, among others. Honeywell, Konica, Keda Communications, Fuji, Aperto Networks,

Philips, and Thinklinx Inc. are some of the partners that use ARM’s power efficient technology on their

products.

Catalysts

Royalty Growth

Mobile device royalties are set to grow

dramatically through three different avenues:

The number of smartphones, based on IDC

estimates, is expected to grow at an annual

rate of roughly 10% from 2014 to 2018.

Additionally, the percentage of smartphones

within all mobile phones is expected to grow

roughly 6% each year from 2014 to 2018,

reaching almost 80% of all mobile phones

shipped by 2018.

This growth works to increase royalty revenue

in two ways. First revenue will track the

broader growth trend in mobile devices, as

ARM products are found across all mobile

devices types. Second, as smartphones take a

greater portion of mobile device shipments,

royalties per device will grow significantly.

Based on ARM data, an entry-level

smartphone generates five times more

royalties than a feature phone, while a high-

end device earns the company twenty times

feature phone royalties.

Smartphones are increasingly using more

ARM designs per each chip. Put more

simply, what was at one point two or more

chips are being combined into one chip. This

consolidation coupled with a steady or

slightly increasing chip count per device

translates to more royalties per device.

The following graphic illustrates

managements expectations on royalty

increases when chips are consolidated. The

realization of such an outcome would

outpace our base case assumptions on

royalties.


Enterprise Infrastructure

Increasing Royalties and Operational

Leverage

20%

30%

40%

50%

60%

70%

80%

0.0

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1.0

1.5

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2011 2012 2013 2014 2015 2016 2017 2018

Perc

enta

ge o

f Unit S

ale

sUnit S

ale

s (

Bill

ions)

Feature Phone Smartphone

Smartphone Share

1

2

More Chips in More Advanced Phones

Greater Smartphone Share Boost Royalties

3

4


Catalysts

From public operating metrics, we deduce an approximation

of Royalties per unit within each segment (mobile, home,

enterprise, embedded). Our analysis of end markets and

ARM’s strategy inform our mix and volume estimates from

which we model royalty sales growth.

ARM has seen a significant increase in the adoption of its

newest technologies, which carry the highest royalty rates.

When ARM released its v7 (previous generation) technology,

adoption was initially restricted to high-end devices and

trickled down the entry-level slowly. Their new technology,

v8, has already gained a significant presence, appearing in

20 of the 33 major smartphones announced or released at

Mobile World Congress 2015.

We expect the shift in adoption rates to increase royalties

per mobile device shipped.

We also expect the continued royalty mix shift combined with

above factors to slightly increased the average royalty per

unit ARM will receive in the future.

In addition to ARM’s processor designs, which dominate the

industry, ARM’s Mali graphics processor has seen significant

market share gains. This propelled ARM to the number one

spot in mobile graphics IP vendors. The Mali architecture is

featured in slightly more than 50% of smartphones present

at Mobile World Congress 2015. Many manufacturers use

Mali only in part of their product line. As these manufactures

progress through their product cycle, other mobile graphics

products will be replaced with Mali to standardize the

product line and reduce costs.

ARMs embedded computing products which serve a variety

of end markets, ranging from digital signage, to household

appliances to driver assistance systems. The vastness of

end market applications is reflected in the more than 3,500

microcontroller units ARM’s customers offer. This huge

portfolio offers customers almost any configuration

necessary to meet their specification.

Between ARM’s expertise and the breath of solutions based

off their architecture, ARM was able to gain an additional 5%

of the embedded computing market, growing from 19% in

2013 to 24% in 2014.

We expect Embedded to make up 45% of Royalty unit mix

by 2018.

Royalty Growth Royalty Projections

Mix Projection

Embedded

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13

14

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16

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$0.10

2014 2015 2016 2017 2018

Billio

ns

Mobile LHS Enterprise LHS

Home LHS Embedded LHS

Royalty per Unit RHS Royalty Units RHS

45%

16%5%

34%

Mobile Enterprise Home Embedded

2014

33%

16%8%

45%2018

Market Research

5


Catalysts

ARM’s presence in enterprise infrastructure continually

exceeds company expectations, and now reaches

approximately 10% market share. Of importance is the fact

that these products were all based off of v7. As enterprise

solutions create products based off the v8 architecture,

ARM will not only see replacement sales, but with v8’s

superior power consumption and increased computing

power will increase substantially, leading to further market

share increases. Enterprise Infrastructure market share is

expected to reach 20% by 2020

ARM is positioned to capitalize on the promising potential

and growth in sensors and computing demanded from the

proliferation of internet connectivity. Now commonly

referred to as the Internet of Things, much of this growth

market falls in ARM’s embedded segment. Another aspect

of the scalability of this connectivity is the use of wearables.

ARM can already be found in a slew of wearables, ranging

from Samsung smartwatches to the Apple Watch to Google

Glass. ARM’s products are also prevalent in other tech

products including GoPro products, Nest Learning

Thermostat, Drop Cam, and Smart Locks. Aside from

household and personal items, ARM products can be found

in automobiles, ranging from infotainment systems to

advanced driver assistance systems. As the above list

indicates, ARM already has a substantial foothold in the IoT

space and this position will only continue to grow.

Growing Market Share

Increases in Addressable Market

41%

9%

43%

7%

Asia 50%

North America Europe

Asia Pacific, ex. Japan Japan

Margin Expansion

We expect margin expansion as revenues

increase against the backdrop of relatively

fixed operating costs, revenue mix changes,

and licensing growth continues.

A disproportionate amount of cost of sales

come from physical IP segment, which will

grow slower than other revenue segments,

putting upward pressure on gross margins.

Furthermore, management states that R&D

expenses our paid back after 12 licensing

deals per offering. This payback will drive

operating margins as 163 licensing were

sold last year alone. However, the timing is

somewhat unpredictable, which guides our

projections to the conservative side

(Financials appendix).

20%

30%

40%

50%

60%

88%

91%

93%

96%

98%

Gross Margin LHS Operating Margin rhs

International Wealth

As standards of living rise globally, demand

will increase for more advanced mobile

computing and IoT devices. The potential for

greater than expected growth In living

standards abroad as a result of market

favored reforms will only further support the

bull case for ARM and drive market beating

numbers.

Geographic Breakdown

6


Competition

Competing companies could be also some of ARM’s

semiconductors partners. For example, Synopsys (SNPS) is a

company that provides electronic design automation (EDA),

semiconductor IP, as well as software and services. Synopsys

designs components that serve the same purpose as those

created by ARM. In September, 2014 the two companies signed a

multiyear agreement that allows Synopsys pre production access

to a large portion of ARM’s intellectual property like the latest

ARM Cortex processors for ARMv8-A and ARMv7-A

architectures, ARM Mali graphics processors, ARM CoreLink

system IP, ARM Artisan physical IP, and ARM POP IP. The two

companies have collaborated for over twenty years. We think that

partnerships like this mitigate competition risk for ARM as their

competitors become collaborators; this allows ARM intellectual

property to have a wider reach while customers can step up their

merchandise development cycles and benefit from leading

processes and IP. It also demonstrates that ARM technology is

favored by partners and competitors and has become the industry

leading.

Other Competitors/become collaborator Other Partnerships

In October 2014, ARM announced

a partnership that will optimize

ARMv8-A processor IP for Taiwan

Semiconductor Manufacturing

Company (TSMC) 10FinFET

process technology. TSMC is the

company that replaced Samsung

in manufacturing Apple iPhone 6

and 6 plus A8 chip that is uses

ARM 64-bit architecture. ARM and

TSMC have collaborated on

20SoC and 16FinFET before and

decided to collaborate again for

10FinFET.

Macro Set-Up

0%

1%

2%

3%

4%

5%

6%

7%

Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14

Private fixed investment information processing equipment and software, SAAR, YoY

1 Yr Average

Based on several macro data points within our research venture’s reach, we find the industry and marco-

outlook favorable for ARM, based on semiconductors volume, information technology investment, and

favorable pricing trends.

The graph to the right displays investment in information processing equipment, which generally uses

ARM technology. As one can see, the one year average and Y/Y growth are both increasing.

Investment Accelerating

7


Macro

Positive Pricing Power Trends

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Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14

Yo

Y %

Import (Harmonized System): Electronic integrated circuitsand micro assemblies, NSA

The chart below is an inflation measure of electronic circuitry. It shows a recent

end to unit price deflation in circuitry, indicating ARM’s end markets are some

of the few not suffering from the current global deflationary pressures. After

years of present downward pressure on pricing this market is finally stabilizing

provide a potential impetus for higher margins.

Semiconductors Trending Higher

24

25

26

27

28

29

30

31

Millio

ns

2014

Semiconductors Billings 3 MO Average 1 Year Average

8


Competitors

The largest semiconductor company designs,

manufactures and sells digital technology. Intel’s

main segments are; PC Client Group, Data Center

Group, while its Internet of Things Group, Mobile

and Communications Group, Software and

Services, and Other segments contribute minimally

to revenue.

Intel’s strength has been the computer

microprocessor market as it has dominated this

segment and displaced competitors like AMD and

Texas Instruments. Intel has a moat in the desktop

computer space where it has a large market share

and its Core processors are ubiquitous in the

personal computer space. However, ARM

outperforms Intel in the smartphone and tablet

market as Intel’s mobile segments loses money at

an accelerating pace. Recently, Intel announced it

intends to combine its mobile segment within its

desktop segment. Are analysis of this event is that

Intel is attempting to mask its money losing ventures

into mobile by de-segmenting its operating metrics,

as it continues to fail to adapt to the fastest growing

markets in which ARM has a dominant stronghold.

Beating IntelRelevance of Intel

$(5)

$(3)

$(1)

$2

$4

$6

$8

2012 2013 2014

Mobile and Communications Group

Internet of Things Group

Data Center Group

Intel’s latest effort against ARM is the much

announced Xeon processor. However, we see no

immediate threat to ARM products coming from

Intel. In the Mobile World Congress celebrated this

month in Barcelona, we notice that the ARM v8

technology was used in 70% of the phones

unveiled at the event; also, ARM Mali graphics

were also used in 52% of the phones. All this

points to a wide adoption of ARM technology

among OEMs and supports our view on the

company’s products technological advantage.

We favor ARM as it is solely the designer for its

technology, maintains focus on its engineering

expertise, continues R&D investment, and does

not incur productions costs while competitors like

Intel are hit by production costs, and new product

implementation costs. Qualcomm, Samsung,

MediaTek, and Nvidia, are the main players in

mobile System on Chip (SoC) manufacturing.

Their combined market shares account for the

vast majority of smartphone and tablet chips and

their CPU hardware is based on ARM’s designed

processors for which the company collects

royalties and licensing fees. We think that ARM’s

low power processors have this market cornered

(in fact, gaining share) and could take years for

Intel to keep up with ARM.

Intel’s Mobile Struggles

62%

26%

4%

0% 4% 4%

PC Client Group

Data Center Group

Internet of ThingsGroup

Mobile andCommunicationsGroup

Software andservices operatingsegments

All other

Intel’s Revenue Breakdown

9


Valuation

Free Cash Flows to Equity Model

2014 2015 2016 2017 2018 Term Val

EPS 1.32 1.46 1.63 1.85 $93

Dep. 0.14 0.15 0.16 0.18

Cap Ex -0.11 -0.13 -0.14 -0.16

NWC -0.08 0.04 0.04 0.00

FCFE 1.26 1.52 1.68 1.87

PV of FCFE 1.15 1.26 1.27 64.62

Value $68.29Stock Price $52.87% to fair value 29%

Discount Rate

Beta 1.2

MRP 6.45%

10Yr

Yield 2.24%

CAPM 10.0%

Our free cash flow to equity model uses a pricing method for a 2018 terminal price of $93. Our target

price is based on a trailing PE multiple of 50 times 2018 earnings. The average trailing multiple over the

last five years is 77x. Based on ARM’s historic multiple, this assumption is reasonable and gives us

greater cushion and conviction in our margin of safety, as we assume multiple contraction despite robust

opportunities for growth as a result of the increasing proliferation of microprocessors. The reasons for

ARM’s ostensibly high multiple include the following:

Unmatched margins, with business purely focused on engineering, not production

Fee based revenue model

Impressive growth prospects with proliferation of computing and more advanced computing

technologies

Market leading positions in mobile and embedded markets

Leading innovation of low power consuming technology

Broad diverse applications for ARM architecture

Superior research and development track record and cumulative IP experience

40

60

80

100

120

140

Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

PE - LTM Average

20

25

30

35

40

45

50

55

60

Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

PE - NTM Average

Historic Multiples

Simon Segars – CEOMr. Segars was selected as CEO in July 2013. He joined the company Board in 2005, and has served as EVP, Engineering; EVP, Worldwide Sales; EVP, Business Development; and EVP and General Manager of the Processor and Physical IP Divisions. Mr. Segars has been with the company over 24 years since the introduction of ARM’s early CPU products. He has worked in the development of many of the company products. Mr. Segarsholds a Bachelor of Engineering from University of Sussex and a Master of Science from the School of Computer Science at the University of Manchester. He holds numerous patents in embedded CPU architectures.

10

Tim Score – CFO

Mr. Score has been with the company since 2002 in the

role of CFO and director. He is a Qualified Chartered

Accountant and carries years of experience in corporate

finance. Prior to ARM, Mr. Score served as Finance

Director of Rebus Group Limited from 1999 to 2001; from

1997 to 1999, he was Group Finance Director of William

Baird PLC, which he joined from Group Controller for

LucasVarity plc, where he worked from 1996 to 1997. From

1991 to 1995, Mr. Score served as Group

Financial Controller for BTR PLC.

Mike Muller – CTO

Mr. Muller is a Co-founder at ARM and its Chief

Technology Officer since 2000. He has served as ARM

VP, Marketing from 1992 to 1996 and EVP, Business

Development until from 1996 to 2000. Mr. Muller is also

member of the company board since 2001. Prior to ARM,

he was head of hardware strategy and portable products

development at Acorn Computers.

Graham Budd - COO

Mr. Budd was selected to the position in 2008. He has

served as EVP and General Manager of the Processor

Division and has held numerous leadership roles on the

organization. Mr. Budd joined ARM in 1992 as a design

engineer; he has worked on the design of numerous

ARM's early system-on-chip designs. He is a chartered

engineer.

Management


11

Financials Appendix


ARM Income Statement 2011 2012 2013 2014 2015E 2016E 2017E 2018E

Technology Licensing

Processors 237 287 383 497 591 650 715 787

Physical IP 49 52 65 84 88 93 98 103

Total Technology Licensing 286 340 448 581 680 743 813 890

Technology Royalty

Processors 357 418 495 536 577 637 704 824

Physical IP 49 56 64 61 61 61 61 61

Total Technology Royalty 406 474 559 597 638 698 765 885

Software and Tools 52 55 57 57 58 58 59 60

Services42 45 54 57 63 69 75 83

Total Revenue 786 914 1,118 1,292 1,438 1,568 1,712 1,916

Cost of Sales 89.26 38 50 58 58 58 63 68 77

Gross Income 332.46 747 863 1,059 1,234 1,380 1,506 1,644 1,840

R&D 190 212 232 273 303 331 361 404

S&M 96 102 120 132 146 160 174 195

G&A Expense 106 136 159 179 187 188 188 192

Operating Costs 268.04 393 450 511 584 637 679 724 791

EBIT (Operating Income) 354 417 549 650 743 827 920 1,049

Nonoperating Income - Net 9.62 19 26 31 8 16 16 16 16

Interest Expense - - 0 0 0 16 17 19 21

Pretax Income 73.43 374 443 580 657 743 825 917 1,043

Income Taxes 19.64 106 121 206 105 119 132 147 167

Equity in Earnings of Affiliates - - (1) (6) (6) - - - -

Unusual Expenses 16 5 - 1 - - - -

Net Income 316 367 545 624 693 770 876

EPS (diluted) 0.11 $0.55 $0.68 $0.78 $1.15 $1.32 $1.46 $1.63 $1.85

Diluted Shares Outstanding 470.60 458.67 465.27 470.60 473.70 473.70 473.70 473.70 473.70

12

Financials Appendix


Growth Technology Licensing 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E

Processors 30% 42% 21% 33% 30% 19% 10% 10% 10%

Physical IP 15% 19% 7% 24% 29% 5% 5% 5% 5%

Total Technology Licensing 27% 37% 19% 32% 30% 17% 9% 9% 9%

Technology Royalty

Processors 40% 22% 17% 19% 8% 8% 10% 10% 17%

Physical IP 21% 11% 16% 13% -4% 0% 0% 0% 0%

Total Technology Royalty 37% 21% 17% 18% 7% 7% 9% 10% 16%

Software and Tools 7% -5% 5% 4% 0% 1% 1% 1% 1%

Services -18% 30% 7% 20% 6% 10% 10% 10% 10%

Total Revenue 26% 24% 16% 22% 15.6% 11% 9% 9% 12%

Gross Income 29% 26% 16% 23% 16% 12% 9% 9% 12%

R&D 16% 2% 12% 9% 18% 11% 9% 9% 12%

S&M 6% 15% 6% 18% 10% 11% 9% 9% 12%

G&A Expense 13% 20% 28% 17% 13% 4% 1% 0% 2%

EBIT (Operating Income) 64% 39% 18% 32% 18% 14% 11% 11% 14%

Margins

Cost of Sales 5.70% 4.90% 5.50% 5.20% 4.48% 4.00% 4.00% 4.00% 4.00%

Gross Income 94.3% 95.1% 94.5% 94.8% 95.5% 96.0% 96.0% 96.0% 96.0%

R&D Expenditure 29% 24% 23% 21% 21% 21% 21% 21% 21%

S&M Expenditure 13% 12% 11% 11% 10% 10% 10% 10% 10%

G&A Expenditure 14% 14% 15% 14% 14% 13% 12% 11% 10%

Operating Costs 57% 50% 49% 46% 45% 44% 43% 42% 41%

Operating Income 40% 45% 46% 49% 50.3% 52% 53% 54% 55%

Pretax Income 42% 48% 48% 52% 51% 52% 53% 54% 54%

Income Taxes 22% 28% 27% 36% 16% 16% 16% 16% 16%

Net Income 31% 32% 35% 33% 42% 43% 44% 45% 46%

13

Financials Appendix


Balance Sheet 2011 2012 2013 2014 2015E 2016E 2017E 2018EAssets

Cash 80 76 185 228 343 531 688 685

Short-Term Investments 397 554 641 828 1,048 889 758 702

Short-Term Receivables 210 242 417 260 288 282 291 326

Inventories 4 4 5 4 5 5 6 6

Other Current Assets 47 204 44 37 41 45 49 55

Total Current Assets 738 1,079 1,292 1,358 1,725 1,752 1,792 1,775

Net Property, Plant & Equipment 28 59 61 68 72 78 86 96

Total Investments and Advances 172 263 238 340 359 376 394 422

Long-Term Note Receivable 3 3 5 5 5 5 5 5

Intangible Assets 862 862 1,008 1,004 1,004 1,004 1,004 1,004

Deferred Tax Assets 167 116 108 100 100 100 100 100

Other Assets 4 3 3 3 3 3 3 3

Total Assets 1,974 2,386 2,715 2,877 3,268 3,319 3,383 3,404

Liabilities & Shareholders'

Equity

ST Debt & Curr. Portion LT Debt 5 5 16 6 6 6 6 6

Accounts Payable 13 10 12 18 20 22 24 27

Income Tax Payable 41 27 31 50 50 50 50 50

Other Current Liabilities 228 338 405 332 283 319 369 412

Total Current Liabilities 287 380 464 406 359 397 449 494

Long-Term Debt - 5 2 4 4 4 4 4

Deferred Tax Liabilities 3 2 0 13 13 13 13 13

Other Liabilities 35 39 75 71 71 71 71 71

Total Liabilities 325 426 542 494 448 485 538 583

Common Equity 1,649 1,961 2,172 2,383 2,383 2,383 2,383 2,383

Retained Earnings 437 451 462 438

Total Equity 1,649 1,961 2,172 2,383 2,820 2,834 2,845 2,821

Total Liabilities & Equity 1,974 2,386 2,714 2,877 3,268 3,319 3,383 3,404

14

Financials Appendix


ARM Cash Flows 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E

Cash Flow

Operating Activities

Net Income / Starting Line 197 252 316 367 545 624 693 770 876

Depreciation, Depletion & Amortization 31 21 28 44 58 64 70 77 86

Other Funds 4 26 16 164 78 78 78 78 78

Funds from Operations 233 299 360 575 681 767 842 925 1,041

Changes in Working Capital 71 19 (128) 52 (74) (79) 39 39 4

Net Operating Cash Flow 304 317 232 627 607 689 881 964 1,044

Investing Activities

Capital Expenditures (11) (21) (41) (71) (49) (54) (60) (67) (78)

Net Assets from Acquisitions - (14) - (33) (21) - - - -

Sale of Fixed Assets & Businesses 0 0 - - - - - - -

Purchase/Sale of Investments (17) (13) 2 (11) (5) (5) (6) (6) (7)

Other Funds (241) (218) (122) (296) (236) (191) (209) (228) (255)

Net Investing Cash Flow (269) (266) (160) (411) (310) (250) (274) (301) (339)

Financing Activities

Cash Dividends Paid (48) (68) (83) (108) (143) (187) (243) (308) (438)

Change in Capital Stock 37 14 13 9 (98) (108) (118) (129) (144)

Issuance/Reduction of Debt, Net - - (5) (7) (12) (14) (15) (16) (18)

Net Financing Cash Flow (11) (54) (75) (106) (253) (309) (375) (453) (600)

Exchange Rate Effect (0) (0) (1) (1) 0 (14) (16) (17) (19)

Net Change in Cash 24 (4) (4) 109 44 115 215 193 85

15


Markets Appendix

ARM is investing with its partners to homogenize the basic software building blocks, to permit the car manufacturers and its supplier to focus on areas of value add and differentiation around the user interface. ARM is heading towards a future that incorporates simpler advanced user interfaces in the car and provides continuous access to content as a user transfers from their home, to the car and to the office.

Embedded

Smart Cards

In-vehicle Infotainment

ARM defines "Embedded Computing" as equipment that carries out computing functionality, yet is provided as a "black box". This means preloaded applications, and no capability for the users of the equipment to add new hardware functionality or new applications. Applications include digital signage, ATM machines and factory automation. Unlike personal computers, these systems are have considerably higher levels of reliability, which places tighter demands on the system architect in terms of thermal considerations and temperature range of operation.

Across a number of applications, there is an increased need for more performance, either due to increased algorithm complexity, integration of multiple, discrete MCU systems into a single entity or the inclusion of wireless/wired connectivity. The rapid growth of the 32-bit controller market, coupled with ARM efforts to standardize low level software libraries further accelerates the availability of software libraries optimized for use on the Cortex-M family of embedded processors, reducing the learning curve for new microcontroller developers and improving time to market for new devices.

Smart cards are perhaps the single largest application of embedded microcontrollers by volume. They are evolving from relatively simple single application chips to high capacity multi-application secure devices. The Mobile Segment is a key driver for new technology in the smart card market with the once humble SIM card becoming a true multi-application card. Since all GSM handsets carry SIM cards, it is a device primed for carrying: payment, ticketing, loyalty, physical access control and many more applications that require some level of offline secure functionality. Over-the-air provisioning of new applications is driving the need for additional processing power and storage.

Embedded Computer

General Purpose MCUs

Smart Meter

The spiraling costs of residential and enterprise energy requirements are forcing public utility companies across the world to be more efficient in the way they manage power. Utility companies are starting to deploy electronic metering systems that capture and transmit usage information with the long-term goal to empower and educate users as to the real-time cost and impact of using an appliance at a particular moment in time.

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