Arm and Imagination Technologies jump after Samsung's Galaxy S4 launch - The Guardian (blog)

Arm has moved higher after the much trumpeted launch of Samsung's Galaxy S4, which uses its chip designs.

The Cambridge-based company, which also supplies rival Apple's iPhone, have added 22.5p to 945p, helped by analysts at Jefferies raising Arm to buy from hold and lifting their target price from 805p to £13. Arm shares have been under a little pressure recently, as analysts questioned whether its move into the Intel-dominated server market would be enough to outweigh loss of market share in its key tablets and smartphone markets.

But Jefferies does not seem to share those doubts. Their analysts said:

We see development in four market areas (mobile computing, datacentres, networking, Internet of Things) as key to the emergence of Arm as the architecture of choice for the mid-to-long term.

Arm remains well-positioned given: (i) rising royalty rates (cortex-A driven; later ARMv8), (ii) record licensing (estimated backlog of more than $570m), (iii) upcoming tax benefits (dropping to around 17% effective tax rate long term), and (iv) operating expenditure control showing through. Overall, we expect earnings growth (three-year compound annual growth rate of 40%) to continue largely unperturbed through 2013 to 2016.

Meanwhile the S4 launch has also benefited Imagination Technologies, up 10.5p to 550.5p on confirmation the phone uses the company's graphics. But James Goodman at Investec cautioned:

The much anticipated Samsung Galaxy S4 launch was held in New York last night. The phone will ship in some regions (not unexpectedly) with Samsung's Exynos Octa chip (which is based on Imagination graphics). Whilst overall this is clearly very good news for Imagination (and could lead to a 15% 2014 earnings per share upgrade on our estimates), it has been well flagged and a combination of "travel and arrive" and marginal disappointment that it is not a global launch could limit immediate share progress.