The rise of the fifth-generation (5G) mobile internet and cloud computing will fuel U.K. chip design company ARM Holding's growth amid a slowing smartphone market, the company's chief executive told CNBC, after the company reported a 14 percent rise in first-quarter profit.
ARM announced Wednesday first-quarter pre-tax profits came in at £137.5 million ($197.5 million) on revenue, reported in dollars, of $398 million.
Technology licensing revenue rose 11 percent year-on-year in the first quarter while royalties were 17 percent higher. These are two key metrics for investors and were helped by the rise in shipments of chips based on ARM technology that commanded higher royalties.
ARM's technology is in many of the chips in the world's most popular smartphones. Much of the company's past growth has come from the explosion of smartphones but the market is slowing. Globally, smartphone shipments are expected to see their first year of single-digit growth in 2016 of 9.8 percent, according to research firm IDC.
Simon Segars, the CEO of ARM Holdings, said that this trend is something he has "been anticipating for a long time" and the company has been investing in new areas which are being driven by 5G internet, increasingly connected devices in the "internet of things" and cloud computing.
"One thing to remember is that the smartphone market is one of the markets in which ARM technology is used…Our licensees sold 4.1 billion chips in the quarter that we've just reported. Forty-five percent of those were in mobile devices, 55 percent of those were in lots of other things," Segars told CNBC in a TV interview on Wednesday.
"In mobile, (we have a ) very very high market share. In other markets, (we have a) much lower market share. So we are expecting to gain share in critical markets such as networking, as the world moves to 5G, that's going to require a lot more compute performance and we see opportunity for us there. We anticipate growing market share in the data center, in servers. We're anticipating continuing to growth share in embedded, in micro controllers."
In the company's first quarter earnings report, it said that there had been "particularly strong growth" in ARM-based chips for automotive applications, smartcards, smart sensors and power management chips.