The Week Ahead

Market learns to expect the unexpected from ARM
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The Independent Online

Arm Holdings, designer of the microchips that sit in three out of four of the world's mobile phones, is, by several measures, one of the most expensive shares on the stock market. It has remained in high demand throughout the technology rout because of its uninterrupted record of beating the market's forecasts for sales and profits. Of course, that means that 2001 results due this morning had better be good.

Arm Holdings, designer of the microchips that sit in three out of four of the world's mobile phones, is, by several measures, one of the most expensive shares on the stock market. It has remained in high demand throughout the technology rout because of its uninterrupted record of beating the market's forecasts for sales and profits. Of course, that means that 2001 results due this morning had better be good.

Royalties may have fallen, quarter-on-quarter, in the last three months of the year, but ARM has been able to make up for this with some good deals licensing its technology to electronics manufacturers. The chairman, Robin Saxby, should be able to argue that royalty income, which is recognised a quarter in arrears, will pick up again in the next results thanks to stronger sales over Christmas of phones and devices such as the Gameboy Advance.

ARM looks like having made between £12.1m and £14.7m in profit in the fourth quarter, up from £10.4m the year before and giving a total of up to £53m for 2001 as a whole.

Now though, analysts have begun to question the company's longer term growth prospects, and Mr Saxby might face some more searching questions. Does ARM have the technology to be as dominant in third generation mobile telephony as it has been in second? Is the company missing a trick in other areas such as set-top boxes and DVDs? Does he see the communications market returning to its technology bubble growth rates? What happens to his licensing income this year as the likes of Intel, the chip maker, and the telecoms infrastructure firms are slashing capital expenditure?

TODAY: Results: Full year – ARM Holdings; Bradstock; Fairbriar. Interims – Bolton Group International; Sportingbet (Q3).

TOMORROW: The mobile phone operators Vodafone and Orange have both pencilled in tomorrow for the release of their latest subscriber and revenue figures. Vodafone, which last week said the number of its users has now topped 100 million across the world, will be outlining the more important issue of how much they are all spending. ABN Amro reckons figures for the last three months of 2001 will show the slide in revenue per contract subscriber has been halted, although pre-pay subscribers are still forecast to be spending less than in the previous quarter. Vodafone's smaller rival Orange is likely to show stronger growth, and ABN Amro reckons subscriber numbers are up to 36.8 million. The UK has slowed dramatically, it seems, but there is plenty of scope for growth in the French market.

Results: Full year – Aukett; Cosalt. Interims – Dataflex; Games Workshop; Howard Holdings; Kingston Communications (Q3). Trading statements: Vodafone; Orange.

WEDNESDAY: The loss-making mobile telephony technology firm Parthus Technologies has full-year numbers due this week. Like at ARM, analysts will be hoping for continued growth in licensing revenue, since the company advised in October that overall turnover in the fourth quarter will be no greater than in the third. The company will also be asked to restate its promise to break even in the middle of this year. Turnover is expected to be $10.5m in Q4, giving a total of $40.9m for the full year.

Results: Full year – IFX Power; ML Laboratories; Northern Rock; Parthus Technologies; Partridge Fine Art; QA. Trading statements: WH Smith.

THURSDAY: Things have been going well so far in AstraZeneca's bid to beat copycat competitors to its biggest drug, the ulcer treatment Losec. It is still keeping rivals out of the market by fighting them over patents in the US courts – although a legal decision is now just weeks away – and is meanwhile moving Losec users on to its newer drug, Nexium, launched last year. Results this week, which will underline how AstraZeneca has in fact increased its market share in ulcer treatments in the vital US market, will add up the costs to margins of the Nexium launch and aggressive marketing campaign. SG Cowen expects 2001 pre-tax profits were £4.1bn, up from £3.6bn, with a high single-figure percentage rise in earnings, but brokers will be more interested in guidance for the coming year. For a variety of individual reasons, several of the world's biggest drugs companies have been forced to reduce earnings expectations for 2002 in recent weeks, undermining faith in the defensive characteristics of the sector.

The earnings performance from Rio Tinto, the mining conglomerate, should prove impressive against a backdrop of historically low levels of demand for metals and metal prices, according to a preview of 2001 results by Deutsche Bank. Analysts at the broker reckon on net profits, before exceptionals, of just below $1.6bn, up 3 per cent. Rio will be pressed on the outlook in its core markets, such as coal and iron ore, where the economic slowdown has not taken as much of a toll on selling prices as had earlier been feared. Some commentators believe it could switch its acquisition strategy to focus on building its portfolio of diamond interests. And it may also have to write down the value of its Kennecott Utah copper unit, which could wipe anything up to $700m off the bottom line.

Third-quarter results from ScottishPower – forecast to show a recovery in US operating profit after last year's hit from volatility in the wholesale electricity price – should give management the chance to outline its thinking on acquisitions. So far, UK generation assets and natural gas business in the US have been speculated about as potential targets. ScottishPower has only a few loose ends to tie up on the future of its existing subsidiaries, Thus (to be spun off) and Southern Water (being refinanced).

The release of the first Lord of the Rings film should have worked wonders on results from Games Workshop, which is making a board game based on the film. Williams de Broe reckons the six months to early December will show a group profit of £5.3m, up from £4.8m. The main impact from the new game will have been felt over the Christmas period, so analysts will be seeking guidance on sales and the likely boost to second-half figures.

Results: Full year – Arthur Shaw; AstraZeneca; Crest Nicholson; Fitness First; Rio Tinto. Interims – Fairplace Consulting; ScottishPower (Q3). Trading statements: Friends Provident.

FRIDAY: Results: None.

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