ARM shares soar on Apple bid rumors

By David Goldman, staff writer

NEW YORK ( -- Shares of ARM Holdings rose sharply Thursday on renewed speculation that Apple would bid for the mobile phone chip designer, according to a news report.

ARM's (ARMH) stock rose more than 9% Thursday in early trading on the Nasdaq. Overseas, the stock rose 7%, but soared as much as 30.7% on the London Stock Exchange before losing much of those gains. A Reuters report said traders were buying up the stock on market rumors of possible takeover interest from Apple.

A little-known British company, ARM has long been rumored to be a takeover target for Apple after ARM-designed chips landed in the iPhone and iPad. The so-called "A4" chips are manufactured by Apple, but ARM helped to draw up the blueprint for the processor and collects a licensing fee for each mobile device that Apple sells.

Given Apple's reliance on ARM's technology, many analysts and investors have speculated that an outright purchase of the company would make sense for Apple to ward off the risk of ARM going to a competitor. But since almost all of Apple's competitors are reliant on ARM as well -- including deep-pocketed Google (GOOG, Fortune 500) -- a bidding war would likely ensue should Apple make an offer.

ARM took in less than $500 million in sales last year, but analysts have said the company is well-positioned to capitalize on the surging growth of smart phones and tablet computers. ARM chips have made their way into about 20 billion mobile devices over the past 19 years, according to the company, and it licenses processor designs to 220 companies around the world, including giants like Qualcomm (QCOM, Fortune 500), Texas Instruments (TXN, Fortune 500), Nvidia (NVDA) and Samsung, in addition to Apple.

As a result, traders have speculated that the company could fetch as much as $8 billion, according to The London Evening Standard. But that could be affordable for Apple, which is sitting on about $40 billion in cash.

The chips inside iPads and iPhones exemplify ARM's business model: ARM actually doesn't make anything. Instead, it develops and licenses the basic chip designs for mobile devices. The strategy has paid off, as company has developed into the "Intel (INTC, Fortune 500) of mobile" -- the company's chips are in practically all of world's cell phones.

ARM declined to comment and Apple could not immediately be reached. In April, ARM CEO Warren East told British newspaper The Guardian that a deal with Apple or any other company would not make sense.

Shares of Apple (AAPL, Fortune 500) were unchanged Thursday morning. To top of page

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