ARM Holdings Plc - Results For The Second Quarter and Six Months Ended 30 June 2005

First half 2005 dollar revenues up 22% year on year. Rolling share buyback programme announced

CAMBRIDGE, UK, 19 July 2005 — ARM Holdings plc [(LSE: ARM); (Nasdaq: ARMHY)] announces its unaudited financial results for the second quarter and the six months ended 30 June 2005

HIGHLIGHTS (US GAAP)

Second quarter ended 30 June 2005

• Total revenues in Q2 2005 at £57.8 million, up from £55.0 million in Q1 2005. Total dollar revenues* in Q2 2005 at $105.5 million, up 21% on the aggregate revenues of $87.3 million(see note 7.14) reported by ARM and Artisan as independent companies in Q2 2004. The acquisition of Artisan was completed on 23 December 2004
  
• At $81.9 million, dollar revenues* from the original ARM business 25% ahead of Q2 2004. Licensing and royalty revenues up in dollar terms* 28% and 26% respectively on Q2 2004. 20 licenses for microprocessor cores signed in the quarter. Average royalty rate at 8.5 cents, up from 8.1 cents in Q1 2005 and 8.0 cents in Q4 2004
  
• At $23.6 million, dollar revenues* from the Physical Intellectual Property Division (PIPD), the former Artisan business, up 7% on Q2 2004. Licensing revenues of $17.9 million at record levels and 26% up on Q2 2004. PIPD royalty revenues at $5.7 million, down $2.1 million sequentially due primarily to lower catch-up royalties in Q2 2005 and lower foundry utilization levels in calendar Q1 2005
  
• Guidance for full year 2005 dollar revenue growth revised to 15-20%. Expectation for full year 2005 sterling revenues and profits unchanged
  
• Operating margin, excluding acquisition-related charges of £6.2 million and other deferred stock-based compensation of £0.5 million, at 31.8%(7.1), comprising 32.1% in the original ARM business and 30.9% in PIPD
  
• Income before income tax at £12.9 million, including acquisition-related charges of £6.2 million and other deferred stock-based compensation of £0.5 million. Income before income tax, excluding these charges, at £19.6 million
  
• Consolidated cash position of £154.6 million(7.6) at 30 June 2005. Net cash generation of £18.6 million in the quarter before payment of the 2004 final dividend of £5.8 million
  
• Earnings per fully diluted share in Q2 2005 of 0.7 pence (3.8 cents per ADS**). Earnings per fully diluted share, before acquisition-related charges of £6.2 million and other deferred stock-based compensation of £0.5 million, at 1.0 pence(7.9) (5.6 cents per ADS**)
  
• Interim dividend of 0.34 pence per share declared, up 21% on 2004 interim dividend
  
• Rolling share buyback programme announced, reflecting the strength of the Group’s balance sheet and the anticipated strong cash flow generation going forward

* Dollar revenues are based on the group’s actual dollar invoicing, where applicable, and using the rate of exchange applicable on the date of the transaction for invoicing in currencies other than dollars. Approximately 95% of invoicing is in dollars.

** Each American Depositary Share (ADS) represents three shares.

Commenting on the results, Warren East, Chief Executive Officer, said:

"We are pleased to report 22% growth in dollar revenues across our business in the first half of 2005. Strong licensing activity in Q2, both in the traditional ARM® microprocessor business and in the Physical IP business, gives us increased confidence in the potential for sustained growth in royalty revenues into the future."

Tim Score, Chief Financial Officer, added:

"Given the Group’s strong balance sheet, healthy operating margins and consistent cash flow generation, the Board has decided to supplement the progressive dividend introduced in 2004 with the announcement of a rolling share buyback programme. The Group’s commitment to revenue growth and investment in innovative technology remains unchanged."

Operating review

Original ARM licensing and product development

Licensing revenues in the original ARM business have grown sequentially over the last nine quarters. With 20 licenses for microprocessor cores being signed in Q2, a total of 37 licenses for microprocessor cores were signed in the first half of 2005, compared to 34 licenses in the first half of 2004. These 37 licenses comprised 12 multi-use licenses and 25 per-use licenses. As well as signing licenses for some of our new technologies, our partners continue to sign licenses for ARM technology that has been available for a number of years. Of the 37 licenses signed in the first half, eight were for ARM7™ family products and 20 were for ARM9™ family products, demonstrating again the longevity of the ARM technology portfolio. 17 new companies joined the ARM partnership in the first half, including our first licensee in India, bringing the total number of semiconductor partners at the end of June 2005 to 157.

Original ARM royalty revenues and unit shipments

Royalty revenues earned in the original ARM business in the first half of 2005 were $62.8 million on 758 million units shipped, up 28% and 34% respectively on the first half of 2004.

Royalty revenues recognized in Q2 2005 (we receive and report royalty data one quarter in arrears) were $31.2 million on 369 million units shipped, up 26% and 29% respectively on the same period a year ago. The average royalty rate reported in the second quarter was 8.5 cents, up for the second successive quarter. Of the total reported unit shipments in Q2, 30% related to units based on ARM9 family technology. The mobile segment accounted for 66% of unit shipments in the second quarter. Units shipped in segments other than mobile amounted to 124 million, up 44% on Q2 2004. The total number of partners shipping ARM technology-based product at the end of Q2 is 62, with royalties being received from one of our partners in China for the first time in the quarter.

PIPD revenues

Total revenues earned by PIPD in Q2 2005 were $23.6 million, compared to $24.0 million in Q1 2005 and $22.0 million in Q2 2004. Reported revenues in Q2 2005 comprised record license revenues of $17.9 million and royalty revenues of $5.7 million, compared to $16.2 million and $7.8 million respectively in Q1 2005.

PIPD license revenues

As well as being a record quarter for license revenues for PIPD, Q2 has seen a number of important developments with regard to the adoption of physical IP from ARM. Having licensed PIPD technology to two traditional ARM semiconductor partners in Q1, another ARM partner licensed technology from PIPD in Q2. Further, there have been some important announcements of success in the traditional PIPD business. In May 2005, ARM and UMC announced that they had signed an agreement for ARM to provide its Artisan® Metro™ low-power IP platform for UMC’s advanced 130-nanometer process technology. Also in May, it was announced that IBM and Chartered Semiconductor Manufacturing are offering the ARM Artisan Metro low-power platform and the ARM Artisan Velocity™ high-speed PHY series for their jointly developed 90-nanometer common process platform. In June, it was announced that this collaborative development was being extended in order to make the low-power platform available for IBM-Chartered’s 65-nanometer low-power common process platform. It was also announced in June that the ARM Artisan Metro low-power standard cell libraries, memory compilers and I/Os have been selected for IBM’s newest 65-nanometer ASIC product offering.

PIPD royalty revenues

As with the original ARM business, PIPD receives and reports royalty data one quarter in arrears. PIPD carries out an ongoing dialogue with its foundry partners to ensure that royalty payments are accurate and up to date. This process includes regular audits being carried out by third party accounting firms. As a result, reported quarterly royalty revenues will often include amounts which relate to shipments made in prior periods ("catch-up" royalties). Such amounts are hard to forecast and have varied significantly from quarter to quarter.

Royalty revenues in Q1 2005 of $7.8 million included approximately $0.8 million of "catch-up" royalties, implying an underlying level of royalties of $7 million. Royalty revenues in Q2 2005 of $5.7 million do not include any meaningful "catch-up" royalties. Despite the market share gains made by PIPD in the quarter, the combination of lower utilization levels and pricing pressure in the foundries resulted in a sequential reduction of $1.3 million in the underlying level of PIPD royalties. Underlying royalty revenues in Q2 2004, excluding "catch-up" royalties, were $5.4 million.

Notwithstanding the sequential reduction in PIPD underlying royalty revenue in Q2, we remain confident that the medium term trend in PIPD royalties will be upwards based on the significant increase in the number of license downloads of PIPD technology in the last 2 years (as with the original ARM business, royalties typically accrue between 2 and 4 years after a license has been signed), the increase in the average royalty rate inherent in the majority of foundry license agreements signed in recent years and the increase in the number of foundries that have taken licenses to manufacture PIPD technology-based products.

Market conditions, current trading and prospects

Against the anticipated flatter trading environment in the semiconductor industry in the first half of 2005, we are encouraged that dollar revenues have grown in excess of 20% year on year.

Taking into account the first half performance, the level of order backlog at the end of June and the healthy sales opportunity pipeline going into the second half, we are confident of achieving year on year dollar revenue growth for the Group as a whole of between 15% and 20% in the full year 2005. The revision to our previous guidance for year on year dollar revenue growth of at least 20% (assuming a normalised base for PIPD revenues in calendar 2004 of approximately $95 million), takes into account the level of PIPD royalty revenues reported in the first half of 2005 and the likely growth trajectory of PIPD royalties in the second half.

Although we have revised guidance for dollar revenue growth our expectations for sterling revenues, assuming the current dollar/sterling FX rate persists through the second half of 2005, are unchanged. This is because approximately 95% of the group’s invoicing is in dollars and consequently our sterling reported revenues benefit from the strengthening dollar.

Financial review
(US GAAP unless otherwise stated)

Second quarter ended 30 June 2005

Total revenues

Total revenues for the second quarter of 2005 amounted to £57.8 million. In US dollar terms*, second quarter revenues of $105.5 million were 21% up on the aggregate ARM and Artisan revenues of $87.3 million(7.14) in Q2 2004. The effective US dollar to sterling exchange rate for ARM in Q2 2005 was $1.82 compared to $1.875 in Q1 2005 and $1.77 in Q2 2004.

License revenues

Total license revenues in the second quarter were £28.0 million representing 48% of group revenues. License revenues comprised £18.1 million from the original ARM business and £9.9 million from PIPD. In US dollar terms*, license revenues from the original ARM business of $33.0 million in Q2 2005 were 10% ahead of Q1 2005 and 30% up on Q2 2004. License revenues in PIPD of $17.9 million in Q2 2005 were 10% up on Q1 2005 and 26% up on Q2 2004.

20 licenses for microprocessor cores were signed in the second quarter of 2005. Nine new partners took a total of nine per use licenses; two for the ARM7TDMI® processor, five for the ARM926EJ™ processor, one for the ARM946E™ processor and one for the ARM922T™ processor.

A further 11 licenses were signed with 11 of our existing partners. These comprised one derivative and one upgrade to the ARM7 family, three derivatives and two upgrades to the ARM9 family, one derivative to the ARM11™ family, one derivative and one upgrade to the SecurCore™ family and one upgrade to the Cortex™-M3 processor.

The Group order backlog at the end of Q2 was approximately 5% down on the level at the end of Q1 as the 20 licenses for microprocessor cores signed in the second quarter comprised for the most part licenses for more mature products. The sales pipeline represents a more typical blend of opportunities for both newer and more mature products which underpins our confidence that order backlog will trend upwards in the medium term.

Royalty revenues

Total royalty revenues in the second quarter were £20.1 million representing 35% of total group revenues. Royalty revenues comprised £17.0 million from the original ARM business and £3.1 million from PIPD. In US dollar terms*, royalty revenues from the original ARM business of $31.2 million in Q2 2005 were at a similar level to Q1 2005, notwithstanding the impact of seasonality in mobile shipments, and were 25% up on Q2 2004.

Development Systems and Service revenues

Sales of development systems in Q2 2005 were £6.3 million, representing 11% of total group revenues, up from £5.7 million in Q1. In US dollar terms, development systems revenues were $11.6 million this quarter, 33% up on Q2 2004. Service revenues in Q2 2005 were £3.4 million representing 6% of total group revenues.

Gross margins

Group gross margins for the second quarter were 89%, comprising 94% for the original ARM business and 73% for PIPD.

Operating expenses and operating margins

Total group operating expenses in Q2 2005 were £40.0 million, including acquisition-related charges of £6.2 million and other deferred stock-based compensation of £0.5 million. Excluding these charges, operating expenses in the quarter were £33.2 million, comprising £27.3 million related to the original ARM business and £5.9 million to PIPD, compared to £30.9 million in Q1 2005.

Total research and development expenses were £15.8 million in Q2 2005, representing 27% of revenues, compared to £14.7 million or 27% of revenues in Q1 2005. Total sales and marketing costs in Q2 2005 were £8.3 million or 14% of revenues compared to £8.3 million or 15% of revenues in Q1 2005. Total general and administrative expenses in Q2 2005 were £9.2 million, representing 16% of revenues compared to £7.8 million or 14% of revenues in Q1 2005. Of the net sequential increase in general and administrative expenses of £1.4 million in Q2 2005, £1.0 million relates to the net impact of foreign exchange movements.

Operating margin in Q2 2005 was 20.2% compared to 20.9% in Q1 2005. Operating margin, excluding acquisition-related charges of £6.2 million and other deferred stock-based compensation of £0.5 million, was 31.8%(7.1) in Q2 2005 compared to 32.4%(7.2), excluding non-recurring and acquisition-related charges of £6.0 million and other deferred stock-based compensation of £0.3 million, in Q1 2005. Operating margin of 31.8% in Q2 2005 comprises 32.1% in the original ARM business and 30.9% in PIPD.

Interest receivable

Interest receivable increased to £1.2 million in Q2 2005 compared to £1.0 million in the first quarter, due to higher average cash balances.

Earnings and taxation

Income before income tax in Q2 2005 was £12.9 million compared to £12.5 million in Q1 2005. Income before income tax, excluding acquisition-related charges of £6.2 million and other deferred stock-based compensation of £0.5 million, was £19.6 million. The group’s effective tax rate under US GAAP in Q2 2005 was 22.1%, reflecting the availability of research and development tax credits in the UK and the US and certain benefits flowing from the structuring of the Artisan acquisition.

Second quarter fully diluted earnings per share prepared under US GAAP were 0.7 pence (3.8 cents per ADS**) compared to earnings per share of 0.6 pence (3.6 cents per ADS**) in Q1 2005. Earnings per fully diluted share in Q2 2005, before acquisition-related charges of £6.2 million and other deferred stock-based compensation of £0.5 million, were 1.0(7.9) pence per share (5.6 cents per ADS**) compared to 1.0 pence(7.10) (5.4 cents per ADS**) in Q1 2005, before non-recurring and acquisition-related charges of £6.0 million and other deferred stock-based compensation of £0.3 million.

People

At 30 June 2005 we had 1,223 full time employees compared to 1,179 at the end of Q1. At 30 June 2005, the Group had 541 employees based in the UK, 463 in the US, 85 in Continental Europe, 90 in India and 44 in the Asia Pacific region. Of the net headcount increase in the quarter of 44, 31 people joined the design centre in Bangalore.

Legal matters

In May 2002, Nazomi Communications, Inc. ("Nazomi") filed suit against ARM alleging willful infringement of Nazomi’s US Patent No. 6,332,215. ARM answered Nazomi’s complaint in July 2002 denying infringement. ARM moved for summary judgment and a ruling that the technology does not infringe Nazomi’s patent. The United States District Court for the Northern District of California granted ARM’s motion, and Nazomi appealed the District Court’s ruling. On September 7, 2004, the Court of Appeals for the Federal Circuit heard the appeal and issued its decision on April 11, 2005. Because, in the opinion of the Court of Appeals for the Federal Circuit, the District Court did not construe the disputed claim term in sufficient detail for appellate review, the Court of Appeals for the Federal Circuit remanded the dispute back to the District Court for further analysis. The Court of Appeals’ decision does not reverse the original decision of the District Court. A supplementary Markman hearing to assist in a more detailed claim construction analysis is set for 16 September 2005. Based on legal advice received to date, ARM has no cause to believe that the effect of the original ruling by the District Court will not be upheld.

Six months ended 30 June 2005

Revenues

Total revenues for the six months ended 30 June 2005 amounted to £112.9 million. In US dollar terms*, first half revenues of $208.7 million were 22% up on the aggregate ARM and Artisan revenues of $170.9 million(7.15) in H1 2004. The effective average dollar to sterling exchange rate in the first half of 2005 was $1.85 compared to $1.77 in the first half of 2004.

Total license revenues in the first half of 2005 were £52.8 million, being 47% of total revenues. Total royalty revenues were £41.0 million, representing 36% of total revenue. Sales of development systems were £12.1 million, being 11% of total revenues. Service revenues were £7.0 million in the first half of 2005, representing 6% of total revenues.

Gross margins

Group gross margins for the first half of 2005 were 89%, comprising 93% for the original ARM business and 74% for PIPD.

Operating expenses and operating margins

Total group operating expenses in H1 2005 were £77.2 million, including acquisition-related charges of £12.3 million and other deferred stock-based compensation of £0.8 million. Excluding these charges, operating expenses in the first half were £64.1 million, comprising £53.3 million related to the original ARM business and £10.8 million to PIPD.

Total research and development expenses were £30.5 million in H1 2005, representing 27% of revenues. Total sales and marketing costs in H1 2005 were £16.6 million or 15% of revenues. Total general and administrative expenses in H1 2005 were £17.0 million, representing 15% of revenues.

Operating margin in H1 2005 was 20.5% compared to 23.2% in the ARM standalone business in the first half of 2004. Operating margin, excluding acquisition-related charges of £12.3 million and other deferred stock-based compensation of £0.8 million, was 32.1%(7.4) in H1 2005 compared to 24.0%(7.5), excluding acquisition-related charges of £0.1 million and other deferred stock-based compensation of £0.5 million, in H1 2004. The operating margin of 32.1% in H1 2005 comprises 31.9% in the original ARM business and 32.9% in PIPD.

Interest receivable

Interest receivable was £2.2 million for the first six months of 2005.

Earnings and taxation

Income before income tax in H1 2005 was £25.4 million. Income before income tax, excluding acquisition-related charges of £12.3 million and other deferred stock-based compensation of £0.8 million, was £38.5 million. The group’s effective tax rate under US GAAP in H1 2005 was 24.8%, reflecting the availability of research and development tax credits in the UK and the US and certain benefits flowing from the structuring of the Artisan acquisition.

First half fully diluted earnings per share prepared under US GAAP were 1.3 pence (7.2 cents per ADS). Earnings per fully diluted share in H1 2005, before acquisition-related charges of £12.3 million and other deferred stock-based compensation of £0.8 million, were 2.0(7.12) pence per share (10.7 cents per ADS**).

Balance sheet and cash flow

Intangible assets at 30 June 2005 were £434.3 million, comprising goodwill of £362.9 million and other intangible assets of £71.4 million, compared to £348.8 million and £71.0 million respectively at 31 March 2005. The increase in goodwill in Q2 2005 is due primarily to foreign exchange movements. Goodwill is no longer amortized under US GAAP but is subject to impairment on at least an annual basis. The other intangible assets are being amortized through the profit and loss account over a weighted average period of five years.

Accounts receivable increased to £49.7 million at 30 June 2005 from £43.9 million at 31 March 2005. The increase in receivables at the end of Q2 compared to the end of Q1 is due primarily to the strengthening of the dollar against sterling and to a lesser extent to the higher revenues reported in Q2. The allowance against receivables increased to £1.5 million at the end of June from £1.2 million at 31 March 2005. Deferred revenues were £20.4 million at the end of June 2005 compared to £21.8 million at 31 March 2005.

Net cash generation in Q2 2005 was £18.6 million, before payment of the 2004 final dividend of £5.8 million in the quarter, giving total cash, cash equivalents, short-term investments and marketable securities of £154.6 million at 30 June 2005.

Share buyback programme and interim dividend

It has been ARM’s practice to maintain a strong balance sheet, both to underpin ongoing investment in research and development (typically around 30% of revenues) and to retain a cash buffer to enable bolt-on acquisitions. This practice remains unchanged. However, the enlarged ARM group is expected to remain strongly cash generative going forward, producing cash on an ongoing basis which is surplus to our investment requirements.

We intend, therefore, to supplement the payment of dividends to shareholders, initiated in 2004, with the commencement of a rolling share buyback programme under the shareholder authority conferred on the company at the Annual General Meeting. The quantum and frequency of share purchases is not predetermined but will take into account prevailing market conditions, the short to medium term cash needs of the business and the level of employee share-based remuneration going forward. Share purchases will be made only if the directors believe that it is in the best interests of shareholders generally and will increase earnings per share. The company intends to hold such shares as treasury shares.

In respect of the year to 31 December 2005, the directors are declaring an interim dividend of 0.34 pence per share, an increase of 21% over the 2004 interim dividend of 0.28 pence per share. This interim dividend will be paid on 7 October 2005 to shareholders on the register on 2 September 2005.

International Financial Reporting Standards (IFRS)

ARM reports results quarterly in accordance with US GAAP. At 30 June and 31 December each year, in addition to the US GAAP results, ARM has historically also disclosed results under UK GAAP. Following the introduction of IFRS with effect from 1 January 2005, ARM will continue to report quarterly results under US GAAP but will now disclose results additionally under IFRS at 30 June and 31 December each year. IFRS results for the six month periods to 30 June 2005 and 30 June 2004, together with balance sheets as at 30 June 2005, 31 December 2004 and 30 June 2004 are included below.

The operating and financial review commentary above on the US GAAP numbers is for the most part applicable to the IFRS numbers. The principal impact on ARM’s results of the introduction of IFRS in place of UK GAAP arises from the introduction of IFRS 2 ("Share-based Payment"), whereby the fair value of employee stock options issued after 7 November 2002 and outstanding at 31 December 2004 is charged to the profit and loss account. Under UK GAAP the fair value of stock options was not charged to the profit and loss account. The fair value of employee stock options charged to the profit and loss accounts for the six months to 30 June 2005 and 30 June 2004 is £11.9 million and £3.6 million respectively. The first half 2005 charge of £11.9 million includes £6.7 million relating to the fair value of the Artisan employee stock options which were unvested at the time of the acquisition. The total fair value attributed to these unvested options of £17.5 million will be substantially charged to the profit and loss account over a period of 3 years. The total intrinsic value of these unvested options of £9.6 million is already being charged as deferred stock-based compensation under US GAAP, with £6.1 million expected to be charged in 2005.

Based on product development to date, research and development expenditure has been written off to the profit and loss account as incurred under IFRS. Goodwill and other intangible assets are reported differently under IFRS than under UK GAAP, with goodwill being capitalized but not amortized and separately identifiable intangible assets being capitalized on acquisition and amortized over their estimated useful lives. The IFRS treatment is similar to the current treatment under US GAAP.

 Full Results Tables for the Second Quarter and Six Months Ended 30 June 2005 (126Kb PDF)

Independent review report to ARM Holdings plc

Introduction

We have been instructed by the Company to review the financial information for the six months ended 30 June 2005 which comprises the IFRS consolidated income statement, the IFRS consolidated cash flow statement, the IFRS consolidated statement of changes in equity and the IFRS balance sheet at 30 June 2005. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority.

As disclosed in note 1, the next annual financial statements of the Group will be prepared in accordance with accounting standards adopted for use in the European Union. This interim report has been prepared in accordance with the basis set out in Note 1.

The accounting policies are consistent with those that the directors intend to use in the next annual financial statements. As explained in note 1, there is, however, a possibility that the directors may determine that some changes are necessary when preparing the full annual financial statements for the first time in accordance with accounting standards adopted for use in the European Union. The IFRS standards and IFRIC interpretations that will be applicable and adopted for use in the European Union at 31 December 2005 are not known with certainty at the time of preparing this interim financial information.

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the disclosed accounting policies have been applied. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance. Accordingly we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Review conclusion

On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2005.

PricewaterhouseCoopers LLP
Chartered Accountants
Cambridge

19 July 2005

Notes:

(a) The maintenance and integrity of the ARM Holdings plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the website.

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

Note

The results shown for Q2 2005, Q2 2004, H1 2005 and H1 2004 are unaudited.

The results for ARM for Q2 2005 and previous quarters as shown reflect the accounting policies as stated in Note 1 to the US GAAP financial statements in the Annual Report and Accounts filed with Companies House in the UK for the fiscal year ended 31 December 2004 and in the Annual Report on Form 20-F for the fiscal year ended 31 December 2004.

This document contains forward-looking statements as defined in section 102 of the Private Securities Litigation Reform Act of 1995. These statements are subject to risk factors associated with the semiconductor and intellectual property businesses. When used in this document, the words "anticipates", "may", "can", "believes", "expects", "projects", "intends", "likely", similar expressions and any other statements that are not historical facts, in each case as they relate to ARM, its management or its businesses and financial performance and condition are intended to identify those assertions as forward-looking statements. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a variety of variables, many of which are beyond our control. These variables could cause actual results or trends to differ materially and include, but are not limited to: failure to realize the benefits of our recent acquisitions, unforeseen liabilities arising from our recent acquisitions, price fluctuations, actual demand, the availability of software and operating systems compatible with our intellectual property, the continued demand for products including ARM’s intellectual property, delays in the design process or delays in a customer’s project that uses ARM’s technology, the success of our semiconductor partners, loss of market and industry competition, exchange and currency fluctuations, any future strategic investments or acquisitions, rapid technological change, regulatory developments, ARM’s ability to negotiate, structure, monitor and enforce agreements for the determination and payment of royalties, actual or potential litigation, changes in tax laws, interest rates and access to capital markets, political, economic and financial market conditions in various countries and regions and capital expenditure requirements.

More information about potential factors that could affect ARM’s business and financial results is included in ARM’s Annual Report on Form 20-F for the fiscal year ended 31 December 2004 including (without limitation) under the captions, "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations," which is on file with the Securities and Exchange Commission (the "SEC") and available at the SEC’s website atwww.sec.gov.

The financial information contained in this announcement does not constitute statutory accounts within the meaning of Section240 (3) of the Companies Act 1985. Statutory accounts of the Company in respect of the financial year ended 31 December 2004 have been delivered to the Registrar of Companies, upon which the Company’s auditors have given a report which was unqualified and did not contain a statement under Section 237(2) or Section 237(3) of that Act.

About ARM

ARM designs the technology that lies at the heart of advanced digital products, from wireless, networking and consumer entertainment solutions to imaging, automotive, security and storage devices. ARM's comprehensive product offering includes 16/32-bit RISC microprocessors, data engines, 3D processors, digital libraries, embedded memories, peripherals, software and development tools, as well as analog functions and high-speed connectivity products. Combined with the company's broad Partner community, they provide a total system solution that offers a fast, reliable path to market for leading electronics companies. More information on ARM is available at http://www.arm.com/

ARM and ARM7TDMI are registered trademarks of ARM Limited. ARM7, ARM9, ARM926EJ-S, ARM11, SC100, Cortex and DesignStart are trademarks of ARM Limited. Artisan Components and Artisan are registered trademarks of ARM Physical IP, Inc., a wholly owned subsidiary of ARM. All other brands or product names are the property of their respective holders. ARM refers to ARM Holdings plc (LSE: ARM and Nasdaq: ARMHY) together with its subsidiaries including ARM Limited, ARM Inc., ARM Physical IP Inc., Axys Design Automation Inc., Axys GmbH; ARM KK, ARM Korea Ltd, ARM Taiwan Ltd, ARM France SAS, ARM Consulting (Shanghai) Co. Ltd.; ARM Belgium NV.; and ARM Embedded Solutions Pvt. Ltd.