Today I am looking at the latest round of bad news to strike two London-quoted heavyweights.
Has tech giant had its chips?
The steady share price downtrend at ARM Holdings (LSE: ARM) during December paused for breath on Tuesday, the stock shrugging off the release of negative news concerning the critical smartphone segment.
Industry experts International Data Corporation (or IDC) today revised down its worldwide sales forecasts for 2015, commenting that it now expects unit sales to clock in at 1.48 billion, up 9.8% from last year’s levels. If realised this will be the first year of single-digit sales growth
The IDC downgraded its estimates “to reflect slowing growth in Asia/Pacific (excluding Japan), Latin America, and Western Europe,” it noted, with sales in China in particular expected to rise by “low single digits” in 2015. Demand in the country rocketed 19.4% in 2014 by comparison.
And the situation is likely to worsen as the decade passes, the IDC said. Total smartphone sales in all regions are expected to rise 4.7% year-on-year in 2019, it said, dragging the five-year compound annual growth rate to 7.4%.
Naturally this should make for alarming reading for ARM Holdings, which is also suffering from slowing off-take in the tablet PC market. But the microchip builder has seen these troubles coming down the line for some time now, resulting in diversification into the white-hot network and servers markets.
And the City believes ARM Holdings’ robust relationships with industry giants like Apple should enable it to maintain its stranglehold on what remains a growing market. Subsequently earnings expansion of 67% and 14% is chalked in for 2015 and 2016 alone.
So although the stock boasts a high P/E ratio of 32.6 times for next year, I reckon the Cambridge firm’s suite of cutting-edge technologies — combined with its initial success in new sectors — makes it an exciting growth selection worthy of such a premium.
Oil outlook continues to sink
Like ARM Holdings, fossil fuel colossus Premier Oil (LSE: PMO) was also subject to a negative assessment of its revenues picture in Tuesday business. But unlike the tech play, I believe the outlook for the ‘oilie’ is far more grave.
Ratings agency Moody’s took the hatchet to its Brent forecasts for 2016 today, reducing its assessment to $43 per barrel from $53 previously. Rising production from OPEC is likely to overshadow demand improvements in the US, China, India and Russia, Moody’s said, and predicted that prices will only rise by around $5 per barrel in 2017 and 2018.
“Increasing consumption will not match the increase in supply,” Terry Marshall, a senior vice-president at Moody’s, said. “It will take time for… large global inventories to unwind, and combined with the possibility of new supply coming online from Iran, we expect oil prices to remain lower for a longer period than previously anticipated.”
With Premier Oil’s top line under increasing pressure as crude prices tumble, and the firm’s capex-heavy operations push net debt higher — this rose to $2.3bn as of October, up from $2.1bn three months earlier — I believe the producer remains a risk too far for savvy investors.