ARM profits beat, but CEO warns about rising costs

U.K.-based chip designer ARM holdings reported better than expected earnings on Wednesday, but the company's new CEO Simon Segars told CNBC that the rising cost of production was "an issue".

"The quarter's been very strong...there's been great progress across our business," he told CNBC Europe's "Squawk Box", though he conceded the rising cost of building chips makes "people become risk averse and that is an issue for us."

ARM Holdings reported £86.6 million ($133 million) in adjusted pre-tax profit in the second quarter, up 30 percent from the year-ago period. Revenues rose to £171.2 million, a gain of 26 percent.

But shares of the company closed down 1 percent on the day.

The Cambridge-based company said it had seen growth in the shipments of chips, licenses and adoption of ARM processor technology. A total of 2.4 billion ARM-based chips were shipped in the second quarter, up 20 percent year-on-year, the company said.

Asked about the battle between smartphone makers, such as Apple and Samsung, Segar said it didn't really matter to the company.

"We're in pretty much in every smartphone that's being made right now. A lot of competition out there is good, it provides choice to consumers."

ARM's products have been able to fight off increased competition from companies like Intel, Segars said, adding that competition was good as it encouraged innovation.

"We talk about the opportunities for growth. This entry level for devices has huge growth potential. The business is growing, we employ a lot of people and the business is cash generative, so we're able to return cash to investors. The strength of the business allows us the flexibility to continue to do that while investing in R&D."

"ARM enters the second half of 2013 with a record order backlog and a robust opportunity pipeline," a statement from the company said. "Building on our strong performance in the first half, we expect overall Group dollar revenues for full year 2013 to be at least in line with market expectations."

These are the first set of results since Segars took over as chief executive from Warren East on July 1.