Chairman’s statement

2007 was another successful year for ARM and we entered 2008 with the Group order backlog at its highest- ever level, the physical IP business better positioned to capitalise on the long-term growth opportunity, and good royalty revenue momentum based on the continuing proliferation of ARM technology into an ever- broader range of digital devices.

Results and dividend

The increasingly widespread adoption of ARM technology in consumer electronic devices was illustrated in 2007 by the 18% increase in the reported total shipments of ARM Powered® products to 2.90 billion units, up from the reported 2.45 billion units in 2006. ARM’s strong financial performance continued in 2007 with dollar revenue growth of 6% to $514.3 million and a 24% increase in the year-end order backlog compared to 2006.

Strong cash generation over several years has enabled us to invest in research and development, to make acquisitions of businesses with complementary technology and to return cash to shareholders through dividends and the share buyback programme. The board is recommending a final dividend of 1.2 pence per share, bringing the total for the year to 2.0 pence per share, an increase of 100% over the dividend paid in respect of 2006.

We see a return of cash to shareholders through dividends as part of a package of measures to make the best use of the business’s cash resources and we plan to continue the rolling share buyback programme initiated in July 2005. During 2007 we purchased a total of 94.5 million shares at a total cost of £128.6 million.

The market

We were pleased with ARM’s performance in 2007 against a backdrop of slower growth in the semiconductor industry. Full-year dollar revenue growth at approximately twice the rate of the industry, and strong licensing momentum in our Processor Division throughout the year, confirm our continuing market share gains. Although 2007 was a challenging period for revenue in our Physical IP Division, the reallocation of resources during the year towards the development of leading-edge physical IP technology, together with changes to management and organisational focus, positions the business well for growth in 2008.

Geographic expansion

In 2007, ARM continued to strengthen its position as a global entity across all regions. In the year, 42% of revenue arose from customers in North America, 41% from the Asia Pacific region and 17% from Europe. Royalties from China- based chip designers increased by 27%, with seven new licenses signed with design teams in China during the year.

People

2007 has been a year of growth with consolidation and simplification, building on the investments in businesses and employees during 2006. I thank all employees worldwide for the contribution they have each made to the progress achieved by ARM in 2007 in the increasingly demanding market in which we operate. At 31 December 2007 we had 1,728 full time employees compared to 1,659 at the end of 2006. Of these 650 are based in the UK, 523 in the US,190 in Continental Europe, 292 in India and 73 in the Asia Pacific region.

Board changes

As previously announced, we were very pleased to welcome Young Sohn as an independent non- executive director on 2 April 2007. He has extensive experience in the semiconductor industry both in Silicon Valley and in Asia. A more detailed biography is included on page 23. He was appointed to the Audit and Remuneration Committees with effect from 15 May 2007. Peter Cawdron, who had been an independent non-executive director since 1998, retired from the board as planned at the Annual General Meeting (AGM) on 15 May 2007. The board is indebted to Peter for the excellent contribution he has made over the past nine years, in particular as senior independent director and Chairman of the audit committee.

Doug Dunn
Chairman

ARM Partners have shipped more than 10 billion ARM microprocessors since ARM was founded.