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ARM (ARMH) Could Push X86 Out of the Datacenter - Northland Capital Markets

November 16, 2015 7:43 AM EST
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Price: $67.77 --0%

Rating Summary:
    12 Buy, 17 Hold, 2 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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The market for ARM server chips could reach $750M to $1.5B by CY20 or 3% to 5% of the overall market in terms of revenue. Northland Capital Markets analyst, Gus Richard, estimates that will be an incremental $37M to $75M of revenue for ARM Holdings (NASDAQ: ARMH).

MIPS Replacement Is Currently ARM’s Primary Opportunity In Datacenters. MIPS is a dying architecture and is being replaced. The alternatives are x86, ARM or OpenPOWER. Further, the chip suppliers touting ARM as an alternative to x86 in the server market are suppliers of MIPS processors. In our view, much of the recent success of these vendors in the datacenter is around storage and networking and not in the server market. Thus, we see ARM replacing MIPS in new designs and not displacing x86 in server sockets over the next couple of years.

Both the systems and applications software have to be ported from x86 to ARM before the ARM architecture can succeed in the server market. This more than doubles the effort required for a new software release. This is making ARM dead on arrival for classic enterprise environments. However, in the hyperscale datacenter, operators write their own code and are the most aggressive in pursuing an alternative supplier to Intel.

The firm maintained an Outperform rating and price target of $52.

For an analyst ratings summary and ratings history on ARM Holdings click here. For more ratings news on ARM Holdings click here.

Shares of ARM Holdings closed at $46.95 yesterday.



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