26 Oct 07. Sales at Arm Holdings fell during the three months to September because of the weak dollar and slow business at an intellectual property company it bought three years ago, a deal that has faced considerable scepticism. Arm, whose microchip designs are used in about 98 per cent of the world’s mobile phones, said sales in the period were £62.8m, down from £64.8m a year ago and short of analysts’ expectations of £68m. Warren East, chief executive, blamed the dollar and the IP division, formerly know as Artisan. Arm bought Artisan for $913m in 2004. Artisan designs libraries of components used to make up computer chips. As chips become more complicated, with more information squeezed on to a smaller space, Arm believes more microprocessor makers will want ready-made components to speed up design. However, it is having to devote engineering resources to get Artisan ready for the next generation of smaller chips. Mr East “was absolutely confident that buying Artisan was the right thing to do. When we bought it, we said it would take four to seven years to position the business and we’re only two-and-a-half-years into the process.” Pre-tax profit in the period fell from £12.6m to £11.9m while earnings per share fell 0.1p to 0.6p. The shares dropped 4½p to 145p.
FT Comment: Artisan is a big gamble. If Texas Instruments, Qualcomm or Broadcom can be persuaded to use Artisan’s library of components, the acquisition will be worth its price. But the pay-off remains unclear. In the meantime, the rest of Arm’s business stands to benefit from smartphones, which include more Arm-designed chips and generate more royalties. For investors who believe the iPhone is the start of a mass trend, Arm remains attractive. (Source: FT.com)
29 Oct 07. Over the past few years the UK’s engineering companies have not been able to bulk up through deals and buying sprees, even had they wanted to. Outside buyers prepared to pay racy multiples for anything on offer have left dispirited chief executives in the listed world unable to find reasonably priced assets. Those few deals conducted in public have mainly been in the buoyant aerospace sector, with UK groups acting as sellers rather than shoppers. That is not necessarily a bad thing. A fairly indiscriminate buying binge between 1999 and 2001 in response to softening margins left quite a hangover. As the economic environment turned, unintegrated new units rapidly became millstones, and balance sheets groaned. Smiths Group lost a long-held reputation for acquisitive prowess with its £2bn takeover of TI group. Both Cookson and Invensys were forced into refinancing by rights issue. Some are still in the process of dismantling those empires; FKI, lacking interested buyers, now looks likely to demerge the logistics businesses it jumped into at the start of the decade. The private equity scramble for engineering companies seems to be over, at least for now. But average operating margins for the capital goods sector are back in the 12-13 per cent range last seen during the late nineties peak. Banks are still keen to lend to investment grade corporates, and for the engineers as a group, leverage is low – average net debt stands at only about one times current earnings before interest, tax, depreciation and amortisation. So buying complementary businesses to find additional cost savings is a likely response to the prospect of slowing earnings growth, and preferable to simply buying back stock. Cookson’s recent half-billion-pound agreed offer for Foseco may just be the start of this process. Investors should be wary of new Napoleons, but the prospect of mergers and acquisitions should support the sector for some time yet. (Source: FT.com)
29 Oct 07. Safran Finds Buyer for Broadband Unit. Safran has granted exclusive negotiation rights to Gores Group, following an offer by the American private equity firm to buy its Sagem Communications, valued at €383m ($552m), the French aero-engine an