A Conference Call With the Company Will be Audiocast Today at 08:30 at http://www.arm.com/ir.

CAMBRIDGE, England, October 28 /PRNewswire-FirstCall/ -- ARM Holdings plc [(LSE: ARM); (NASDAQ: ARMH)], the world's leading semiconductor intellectual property supplier, announces its unaudited financial results for the third quarter and nine months ended 30 September 2008

    Highlights (US GAAP unless otherwise stated)
      - Highest ever quarterly revenues at $134.4m, up 7% year-on-year
      - Normalised operating margin at 33% (US GAAP 21%)
      - Normalised PBT at GBP24.9m (US GAAP GBP16.3m), up 17% (US GAAP 36%)
      - Normalised EPS at 1.38p (US GAAP 0.92p), up 23% (US GAAP 46%)
    Processor Division (PD): Strong licensing platform driving royalty
    momentum
     - Total revenue at $90.7m, up 7% year-on-year
       - Licensing revenues up 18% sequentially to $35.5m
       - Royalty revenue up 30% year-on-year
         - One billion units reported in a quarter for the first time
    Physical IP Division (PIPD): Licensing leading technology nodes to IDMs
    and foundries
     - Total revenue at $21.4m, up 4% year-on-year
       - Licensing revenues decreased 17% sequentially to $10.4m
       - Royalty revenue at a record $11m, up 38% year-on-year
         - Underlying royalty revenue up 21% to $9.3m
     - Leading-edge technology development yields long-term strategic
       deals
        - STMicroelectronics buys 40nm platform license
        - 32nm and 28nm collaboration with the Common Platform technology
          partnership
    Continuing cost discipline
      - Headcount at end Q3 marginally lower than at start of year
      - Normalised Q3 operating expenses higher at GBP40.8m (US GAAP
        GBP49.1m) due primarily to stronger dollar
      - Operating margins and earnings likely to benefit further from
        stronger dollar
    Strong cash generation continues
      - GBP22.5m cash generated in the quarter
      - GBP8.6m share buyback in Q3
      - GBP66m net cash at the end of Q3

Outlook

Following the sequential improvement in PD licensing revenues and the signing of key strategic deals in PIPD in Q3, the license opportunity pipeline remains robust as we enter the fourth quarter.

Although the global macroeconomic conditions make the near-term trading environment uncertain, based on the order backlog, robust licensing pipeline and underlying momentum in royalties, we expect that group dollar revenues in Q4 2008 will be at least in line with expectations. In addition, we anticipate that profits and earnings will benefit further from the strengthening of the dollar against sterling.

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

'In Q3, ARM delivered the best quarterly revenue performance in its history and we continue to see strong demand for ARM's technology including long-term commitments for our physical IP technology by industry leaders.

Growth of at least 30% year-on-year in royalty revenues for both PD and PIPD provides further evidence of the increasing use of ARM's technology in a broadening range of consumer electronics products.

We are encouraged to see that the inherent operating leverage in the ARM business model, combined with sound cost discipline and the recent strengthening of the dollar against sterling, has given rise to earnings growth in Q3 of more than 20% on dollar revenue growth of 7%.'

    Q3 2008 - Revenue Analysis
                            Revenue ($m)***           Revenue (GBPm)
                        Q3 2008 Q3 2007 % Change Q3 2008 Q3 2007 % Change
    PD
    Licensing            35.5    42.4    -16%     19.2    21.5     -10%
    Royalties            55.2    42.6     30%     29.2    21.1      38%
    Total PD             90.7    85.0      7%     48.4    42.6      14%
    PIPD
    Licensing            10.4    12.7    -18%      5.6     6.2     -10%
    Royalties1           11.0     8.0     38%      5.9     4.0      49%
    Total PIPD           21.4    20.7      4%     11.5    10.2      13%
    Development Systems  14.6    12.3     18%      7.8     6.1      27%
    Services              7.7     7.6      1%      4.0     3.9       3%
    Total Revenue       134.4   125.6      7%     71.7    62.8      14%

1 Includes catch-up royalties in Q3 2008 of $1.7m (GBP0.9m) and in Q3 2007 of $0.3m (GBP0.1m).

    YTD 2008 - Revenue Analysis
                             Revenue ($m)***             Revenue (GBPm)
                        YTD 2008 YTD 2007 % Change YTD 2008 YTD 2007 % Change
    PD
    Licensing            102.1    125.1    -18%      52.8     64.1    -18%
    Royalties            161.0    127.7     26%      83.1     64.3     29%
    Total PD             263.1    252.8      4%     135.9    128.4      6%
    PIPD
    Licensing             34.8     43.6    -20%     17.9     21.9     -19%
    Royalties1            29.7     23.6     26%      15.4     11.9     30%
    Total PIPD            64.5     67.2     -4%      33.3     33.8     -1%
    Development Systems   44.9     40.0     12%      23.1     20.2     14%
    Services              24.3     24.0      1%      12.3     12.4     -1%
    Total Revenue        396.8    384.0      3%     204.6    194.8      5%

1 Includes catch-up royalties in YTD 2008 of $3.6m (GBP1.9m) and in YTD 2007 of $2.4m (GBP1.2m).

    Q3 2008 - Financial Summary
                                      Normalised*              US GAAP
    GBPM
                               Q3 2008  Q3 2007  % Change Q3 2008  Q3 2007
    Revenue                      71.7     62.8     14%      71.7     62.8
    Income before income tax     24.9     21.3     17%      16.3     12.0
    Operating margin             33.0%    31.8%             21.0%    16.9%
    Earnings per share (pence)   1.38     1.12     23%      0.92     0.63
    Net cash generation**        22.5     21.1      7%
    Effective fx rate ($/GBP)    1.88     2.00

    YTD 2008 - Financial Summary
                                      Normalised*              US GAAP
    GBPM
                               YTD 2008 YTD 2007 % Change YTD 2008 YTD 2007
    Revenue                     204.6    194.8      5%    204.6     194.8
    Income before income tax     67.4     65.4      3%     41.1      36.7
    Operating margin             31.7%    31.3%            18.9%     16.6%
    Earnings per share (pence)   3.71     3.43      8%     2.31      1.97
    Net cash generation**        62.7     46.6     35%
    Effective fx rate ($/GBP)    1.94     1.97

* Normalised figures are based on US GAAP, adjusted for acquisition-related, share-based compensation and restructuring charges. For reconciliation of GAAP measures to normalised non-GAAP measures detailed in this document, see notes 6.1 to 6.27.

** Before dividends and share buybacks, net cash flows from shareoption exercises, disposals of available-for-sale investments and acquisition consideration - see notes 6.14 to 6.18.

*** 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.
    Financial review
    (US GAAP unless otherwise stated)
    Total revenues

Total dollar revenues in Q3 2008 were $134.4 million, up 7% on Q3 2007. Sterling revenues of GBP71.7 million, up 14% on Q3 2007.

Year-to-date dollar revenues in 2008 amounted to $396.8 million, up 3% on 2007.

License revenues

Total dollar license revenues in Q3 2008 fell by 17% to $45.9 million, representing 34% of group revenues, compared to $55.1 million in Q3 2007. License revenues comprised $35.5 million from PD, up 18% sequentially, and $10.4 million from PIPD.

Year-to-date dollar license revenues amounted to $136.9 million, down 19% on 2007.

Backlog at 30 September 2008, whilst lower than at the half year, was approximately 30% higher compared to backlog at 30 September 2007.

Royalty revenues

Year-on-year, total dollar royalty revenues in Q3 2008 were up 31% at $66.2 million, representing 49% of group revenues, compared to $50.6 million in Q3 2007. Royalty revenues comprised $55.2 million from PD and $11.0 million from PIPD (including $1.7 million of 'catch-up' royalties).

Underlying royalties of $9.3 million for PIPD were up 21% year-on-year.

Year-to-date dollar royalty revenues amounted to $190.7 million, up 26% on 2007.

Development Systems and Service revenues

Sales of development systems in Q3 2008 were up 18% to $14.6 million, representing 11% of group revenues, compared to $12.3 million in Q3 2007. Consistent with previous years, development system revenues decreased sequentially in the third quarter due to seasonality.

Service revenues in Q3 2008 were up 1% year-on-year at $7.7 million, representing 6% of group revenues, compared to $7.6 million in Q3 2007.

Year-to-date development systems dollar revenues were $44.9 million, up 12% on 2007. Service dollar revenues were up by 1% to $24.3 million.

Gross margins

Gross margins in Q3 2008, excluding share-based compensation charges of GBP0.2 million (see below), were 89.9 % compared to 89.8% in Q3 2007.

Year-to-date gross margins, excluding share-based compensation charges of GBP0.8 million, were 89.3% compared to 89.7% in 2007.

Operating expenses and operating margin

Total operating expenses in Q3 2008 were GBP49.1 million (Q3 2007: GBP45.5 million) including amortisation of intangible assets and other acquisition-related charges of GBP4.6 million (Q3 2007: GBP4.8 million), GBP3.3 million (Q3 2007: GBP4.2 million) in relation to share-based compensation charges and related payroll taxes and restructuring charges of GBP0.4 million (Q3 2007: GBP0.1 million). The total share-based compensation charges of GBP3.5 million in Q3 2008 are included within cost of revenues (GBP0.2 million), research and development (GBP2.4 million), sales and marketing (GBP0.5 million) and general and administrative (GBP0.4 million). Normalised Q3 and year-to-date income statements for 2008 and 2007 are included in notes 6.24 to 6.27 below which reconcile US GAAP to the normalised non-GAAP measures referred to in this earnings release.

Operating expenses (excluding acquisition-related, share-based compensation and restructuring charges) in Q3 2008 were GBP40.8 million compared to GBP37.5 million in Q2 2008 and GBP36.5 million in Q3 2007. The sequential increase in operating expenses this quarter is due primarily to the strengthening of the dollar against sterling which has had two effects: firstly, an increase in the sterling value of the group's US dollar denominated costs (which account for about half of total costs) and secondly, the impact of accounting for derivative instruments is a net charge in Q3 2008 compared to a net credit in Q2 2008. Costs continue to be carefully managed with group headcount at the end of Q3 marginally lower than at the start of the year (see People section below).

Normalised research and development expenses were GBP15.7 million in Q3 2008, representing 22% of revenues, compared to GBP15.3 million in Q2 2008 and GBP14.8 million in Q3 2007. Normalised sales and marketing costs in Q3 2008 were GBP11.4 million, representing 16% of revenues, compared to GBP10.9 million in Q2 2008 and GBP10.3 million in Q3 2007. Normalised general and administrative expenses in Q3 2008 were GBP13.7 million, representing 19% of revenues, compared to GBP11.3 million in Q2 2008 and GBP11.4 million in Q3 2007. The increase in operating expenses due to the strengthening dollar explained above is reported for the most part within general and administrative expenses.

Normalised operating margin in Q3 2008 was 33.0%(6.1) compared to 31.5% (6.2) in Q2 2008 and 31.8% (6.3) in Q3 2007.

Total operating expenses for the first nine months of 2008 were GBP143.3 million, including acquisition-related, share-based compensation and restructuring charges of GBP13.6 million, GBP10.3 million and GBP1.6 million respectively. Excluding these charges, operating expenses for the first nine months were GBP117.8 million, compared to GBP113.6 million in 2007, an increase of 4%.

Normalised operating margin in the first nine months of 2008 was 31.7%(6.4) compared to 31.3% (6.5) in 2007.

Earnings and taxation

Income before income tax in Q3 2008 was GBP16.3 million compared to GBP12.0 million in Q3 2007. After adjusting for acquisition-related, share-based compensation and restructuring charges, normalised income before income tax in Q3 2008 was GBP24.9 million (6.6) compared to GBP21.3 million (6.8) in Q3 2007.

The group's effective tax rate under US GAAP for the full-year 2008 is expected to be in the range 27-28%, reflecting the availability of research and development tax credits and taking into account the benefits arising from the structuring of the Artisan(R) acquisition.

In Q3 2008, fully diluted earnings per share prepared under US GAAP were 0.92 pence (4.9 cents per ADS****) compared to earnings per share of 0.63 pence (3.8 cents per ADS****) in Q3 2007. Normalised fully diluted earnings per share in Q3 2008 were 1.38 pence (6.19) per share (7.4 cents per ADS****) compared to 1.12 pence (6.21) (6.8 cents per ADS****) in Q3 2007.

Balance sheet

Intangible assets at 30 September 2008 were GBP410.8 million, comprising goodwill of GBP382.7 million and other intangible assets of GBP28.1 million, compared to GBP344.7 million and GBP30.6 million respectively at 30 June 2008. The increase in goodwill at the end of Q3 arises from the stronger dollar at the end of Q3 compared to the end of Q2.

Total accounts receivable were GBP66.2 million at 30 September 2008, comprising GBP48.8 million of trade receivables and GBP17.4 million of amounts recoverable on contracts, compared to GBP60.3 million at 30 June 2008, comprising GBP42.9 million of trade receivables and GBP17.4 million of amounts recoverable on contracts. Days sales outstanding (DSOs) were 55 at 30 September 2008 compared to 45 at 30 June 2008.

Cash flow and share buyback programme

Net cash at 30 September 2008 was GBP66.0 million (6.11) compared to GBP50.6 million (6.12) at 30 June 2008. Normalised cash generation in Q3 2008 was GBP22.5 million (6.14).

During the quarter, GBP8.6 million of cash was returned to shareholders through the purchase of 7.8 million own shares. Operating review

Backlog

At the end of Q3 2008, backlog was lower than at the end of Q2 2008 but approximately 30% higher than a year ago. We enter Q4 with a robust opportunity pipeline for licensing.

PD Licensing

ARM signed 13 processor licenses in Q3.