Investment: Upbeat prospects for chip designer

INTERNET STOCKS may be the flavour of the moment. But in recent months canny investors have been ignoring the hype and paying more attention to ARM, the British computer chip designer that is taking the semiconductor world by storm.

Yesterday shares in ARM surged to a new high of 1,825p, up 100p, as the Cambridge-based group beat analysts' forecasts with a 59 per cent jump in revenues to pounds 42.3m for the year to December. Pre-tax profits more than doubled to pounds 9.4m.

The shares have trebled in value since ARM floated on the London and Nasdaq exchanges last April, taking the company's market value close to pounds 900m.

ARM designs sophisticated processor chips that use relatively little power, making them perfect for use in battery-powered machines.

Chips based on the group's designs can be found in Psion organisers, mobile phones and portable games consoles such as Sony's new Pocketstation.

ARM does not make the chips itself but licenses the designs to large manufacturers.

In the process, the company has signed up an impressive array of names. Last year Hewlett Packard, the US giant, and Matsushita and Toshiba, the Japanese groups, signed up for licenses. ARM also linked up with Intel, the chip giant.

Around 50m ARM-designed chips were shipped last year, compared to just 10m in 1997. Since the beginning of the year, the company has signed up another four licensees.

But Robin Saxby, ARM's chief executive, is aiming higher. "There are 150 semiconductor companies in the world and only 30 are licensees," he says. Ultimately, he wants every electronics group to license ARM's technology as well.

According to City analysts, ARM's revenues are set to grow sharply over the next few years as demand for mobile computing increases. "They are in absolutely the right place at the right time," one says.

And even though ARM is now valued at 21-times last year's revenues, experts are still positive on the shares.