While you would think that the British chip designer ARM would be doing well, it appears that a move to cheaper smartphones has hurt its bottom line. The outfit reported slower growth in first-quarter revenue from royalties as the market for high-end smartphones dried up. Royalty sales rose three percent to $144.5 million, the Cambridge, England-based company said in a statement. That compares with a 32 percent increase a year earlier.

What is happening is that people are moving to lower-cost smartphones and ARM's royalties on chips are expanding slower. So even with a market share of 95 percent of mobile phones, ARM can’t expand much more. It is counting on royalty revenue growth this year to come from new businesses such as so-called connected devices, which include wireless-enabled cars and thermostats, and servers.

Chief Executive Officer Simon Segars said in an interview on Bloomberg Television that the smartphone market was still a very vibrant space, but devices get cheaper over time, but they get replaced by more sophisticated devices and that helps replenish the price model.”

Total revenue increased 10 percent to $305.2 million which was more or less what everyone expected. ARM's profit before tax, acquisition costs, and other expenses, rose to $163.39 million in the quarter nearly double the year earlier. “We're pretty optimistic,” Chief Financial Officer Tim Score said in a call with reporters today. “We expect royalty revenue growth to be consistent with where it's been in the last two or three years.”

License revenue, the upfront fee to gain access to ARM's designs, rose 37 percent from a year earlier to $129.9 million. The company recorded 26 licenses in the quarter, including 11 for wearable technology and connected devices, which should lead to an increase in royalty revenues as those devices go on sale.