Email
Apple’s positive results overnight should have given a lift to a key supplier like Arm.
And so they did initially. But Arm’s own update showed third quarter revenues falling short of expectations, up 12% to $320.2m compared to forecasts of around $326m. Even with upbeat comments about future smartphone demand and improving royalty revenues, the chip maker’s shares fell 45.5p or more than 5% to 806p.
Analyst reaction was, as is often the case, mixed. Credit Suisse issued an outperform rating but Societe Generale kept its sell rating:
Guidance for fourth quarter is underwhelming with dollar sales flagged at ‘about €350m’, i.e., only in line with current consensus. Arm still sees strong licensing support but year on year growth appears to be slowing as we expected. We were looking for €340m in fourth quarter sales; today’s guidance implies fourth quarter 15% year on year growth so some improvement versus 12% in the third quarter but Arm had been expecting a strong improvement in the second half of 2-14. This is probably enough (as not a clear miss) to support the shares near term but our medium term view of slowing growth and an adverse mix effect remain.
Liberum analysts also marked the shares a sell, saying:
Arm’s third quarter sales were 1% below our forecast and earnings per share was 1% above at 5.92p. In its outlook statement Arm says that it has entered the fourth quarter with a pipeline that points to strong licence revenues and a sequential increase in order backlog. It therefore expects to meet market expectations for the quarter.
While licensing continues to be strong for the company, we expect royalty growth to disappoint as smartphone and tablet growth continues to slowdown.
But Liberum was more positive on two other Apple suppliers, Imagination Technologies and Laird. It said:
[Apple’s] beat in the quarter was driven by iPhone shipments (39.3m versus 38m estimate) with weakness in iPad shipments (12.3m versus 13m estimate). Apple is Imagination’s largest customer accounting for around 30% of revenue. Also helpful for Laird (20% of revenue from Apple) which has greater exposure to the iPhone than iPad.
Imagination added 5.75p to 203.5p while Laird was lifted 3.8p to 294.7p.
Overall, markets regained some of their poise, partly on talk that the European Central Bank may buy corporate bonds as part of its attempts to help stimulate economic growth and fight deflation. Meanwhile Chinese GDP showed the country’s econony expanded by 7.3% between July and September, lower than the previous quarter’s 7.5% but slightly higher than forecast. In the US came better than expected existing home sales for September.
However Britain’s public sector finances continue to worsen, with the country borrowing £11.8bn in September, 15% more than a year ago.
With European markets higher and Wall Street opening on a positive note, the FTSE 100 finished 105.26 points or 1.68% higher at 6372.33. Chris Beauchamp, market analyst at IG, said:
Leaving aside the small point of whether the ECB is actually considering a new bond purchase programme, the reports of a possible plan were enough to give markets the additional momentum they needed, building on the broadly upbeat atmosphere created by Apple’s excellent earnings last night. The broad turnaround in sentiment has been quite remarkable, with the doom callers of last week falling silent as buyers step back in. As usual, the market got carried away, and the steep declines of late have tempted in the dip buyers once more.
With Brent crude edging higher after recent falls, helped by the Chinese GDP data, oil companies moved higher. Tullow Oil added 18p to 526.5p, while Royal Dutch Shell A shares rose 64.5p to 2163.5p.
But Reckitt Benckiser fell 105p to $50.10 as its latest update disappointed the market while Whitbread, down 28p at £42, suffered a bout of profit taking.
With some more optimistic signs about the Ebola virus, the recently hard hit travel companies recovered some ground despite the rise in the oil price. British Airways owner International Airlines Group rose 8.6p to 370p, cruise company Carnival climbed 101p to £23.47, while Thomas Cook added 7.7p to 117.8p.
Tui Travel, in the throes of merging with its parent company Tui AG, was 16.5p better at 365.7p after a buy note from Oriel Securities. The broker said:
The merger is a logical transaction which should bring useful cost and tax savings and facilitate greater co-operation under common ownership. In addition there is good scope to improve returns in both companies and to optimise the capital structure - the shares offer good upside.
Bringing the two companies under common ownership should generate significant cost savings of €65m per annum, enhancing the combined earnings before interest and tax by 7%-8%. In addition, there will be significant tax savings.
Finally Aim-listed clinical research organisation Venn Life Sciences added 0.5p to 18.75p after it unveiled a €1.2m contract to conduct phase IV clinical trials for a global pharmaceutical company specialising in allergic diseases.
