Second try at ARM short following results

After an unsuccessful short on chip designer, ARM Holdings (ARM), in mid-2010, I am trying to make a profit by selling the shares this time round at £6.15. Q4 2010 results were strong with revenues of £407 million for the year, up 34% year on year, which was well above forecasts. Underlying 2010 profits jumped by 73% to £167.4m.

On the news, the management team have been heavily selling shares. Chief executive Warren East sold 290,000 shares at 574.69p each, Finance director Tim Score sold 197,250 shares at 581.5p each, 2/3 of his shares. Finally, Executive director, Mike Inglis sold his entire holding of 196,000 shares at 574p.

Today the shares hit £6.10, up 18% on the week and 200% in the last year.The ratings for forward price/earnings are very demanding at 57. Though the shares are highly rated because of they are a key designer of smart phone chips, they have shot up because of continued takeover rumours. Given the shareholder sales news, this now seems very unlikely in the short term. President of ARM, Tudor Brown, has said in an interview last week that speculation that the company could become a takeover target is misguided and ignores the importance of the chip designer staying independent, "ARM's architecture has become ubiquitous in the mobile market, where it licenses its technology to chip makers, but does not build chips of its own, keeping it away from direct competition with its customers. All of our first-line customers are competitors with each other and we we manage this sort of unholy alliance ... and we manage that through being independent and equal to them all,"

I will keep a tight 10% stop loss on this short and see how things go. Second time lucky on ARM, but less luck than pure fundamentals!