Strong growth in Licensing sales at chip designer ARM Holdings helped the company beat expectations in the fourth quarter, according to Investec.

Group sales came in at $262.8m during the last three months of 2012, up 21% year-on-year and ahead of the broker's $238m estimate.

This was driven by the 26% growth in Licensing sales to $85.2m, 18% ahead of Investec's (and consensus) estimate of $72m. Royalties of $121.9m (+21%) also came in ahead of forecasts of $115m.

"The licence order backlog was up 25% sequentially which suggests strong underpinning to future licence revenue," the broker said.

However, costs were $7.0m higher than expected; the broker explained that $2.0m of this was due to foreign exchange and $5.0m was from extra bonus payments due to the sales beat.

"ARM has proved again it is the standout play in the tech sector. Our recent move to 'hold' was predicated in the stock hitting our 900p target price which was based on our FY16E royalty scenario analysis.

"The upside beat on the licence performance should be enough to help the stock consolidate following its very strong run. At this stock price, the key will be on the sustainability of this licence level".

Investec has placed its 900p target price under review.

Shares were up 4.2% at 929.5p by 10:45 in London.

BC

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