Swiss broker Credit Suisse has today updated its forecasts for chip maker ARM Holdings so as to reflect the changes made to its forecasts for the handset industry in 2013.

More specifically, analyst Kulbinder Garcha has raised his smartphone market volume estimates by 6%/15% and tablet estimates by 5%/13% for 2012/13.

Ironically enough, growth in emerging markets is set to drive chip set prices - and the resulting royalties for ARM - lower by 2% per year. Thus, for example, the sub-$200 smartphone category is expected to grow from 19% of global volumes to 43% from 2012 to 2015, as emerging markets power smartphone growth and represent 70% of annual shipments by 2017.

Even so, royalties per smart phone are still expected to grow at a 1.6% per cent compound annual rate through 2017 as customers license more expensive IP that commands higher royalty rates, as well as take-up more Mali graphics.

As well, high-end networking could become more material, Credit Suisse says. The broker explains that: "We factor in royalty revenue potential from ARM IP, such as Cortex A15, being used in network infrastructure equipment as ARM takes share from PowerPC and MIPS. This segment could comprise 7% of processor royalties by 2016."

Interestingly, given the difficulty of trying to value quickly growing companies, the analysts explain that ARM trades at 33.7x/41.0x our 2013/2014 EPS estimates, which is the midpoint of Microsoft's historical 20x-60x FY2 range during its growth phase.

Lastly, Credit Suisse raises its price target to 780p from 645p before, even though it maintains its recommendation at hold.

AB

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