ARM Holdings Earnings Focus Seen on Durability

LONDON–ARM Holdings PLC  is scheduled to report earnings from the first quarter Tuesday morning in London. Here’s what you need to know.

EARNINGS FORECAST: Earnings of 8 cents a share is the median of 13 estimates, according to FactSet.

REVENUE FORECAST: Analysts project revenue of $340 million, up from $305 million a year earlier.

WHAT TO WATCH:

STRONG QUARTER, BUT SOFTER YEAR?

Analysts are confident that the results on Tuesday will be in line with the robust expectations, but the real question will be whether that strength will continue into the second quarter and beyond. Concerns were fueled last week when ARM customer Taiwan Semiconductor Manufacturing Co. said smartphone sales would likely be slower than expected. This is in part due to weaker demand because of falling currencies in Europe and other markets. Credit Suisse said the “focus will be on whether ARM can deliver on this acceleration in its royalties revenue stream going into [the second quarter].”

WATCH OR WAIT?

Though there hasn’t been a teardown of the Apple Watch yet, most analysts assume ARM technology is in the highly anticipated wrist piece. Still, it is too early to see the expected strong demand reflected in ARM’s results, because the company doesn’t earn royalties until chips based on ARM designs go out the door. Besides, company officials say their bottom line isn’t greatly affected from quarter to quarter by one product. Watches such as Apple’s will start to have an impact once hundreds of millions of units are sold each year by Apple and other competitors. “If that all falls into place, you could see a positive impact to ARM three to five years down the line,” said Patrick Moorhead, president of research firm Moor Insights & Strategy.

HOLD ONTO THE PHONE:

Smartphones remain the dominant driver for ARM, and the question is whether currency shifts will have a real effect on consumer buying. The successes of the Apple iPhone 6 and 6 Plus and the new Samsung Galaxy S6 are positive for ARM. Mr. Moorhead said the Samsung royalties might not show up until next quarter. Additional adoption of 64-bit and big.LITTLE technologies could help drive royalty rates up.