Market Report: ARM charges ahead on bid talk and tablet hopes

The return of bid rumours and the prospect of higher revenues underpinned ARM as the FTSE 100 booked its sixth consecutive session of gains last night.

The chip-maker was in focus as speculators revisited theories of interest from Intel, the American semiconductors giant. The chatter failed to gain much traction, however, with traders pinning the rise on optimism ahead of Intel's quarterly numbers, which were due after the close last night, and on revenue projections from Goldman Sachs, whose analysts ran through the likely impact of the growth in the market for tablets such as Apple's iPad. The broker said that besides the boost from the iPad, which is believed to draw on ARM's technology, the Cambridge-based group stands to benefit from growing demand for tablets in general.

On Goldman's numbers, tablets will make up 5 to 10 per cent of the PC market in 2011-12. But that could swell to 15 per cent over the next five years, and could potentially balloon to "35-40 per cent of the PC unit market within a 10-year period". "This suggests an incremental revenue opportunity of up to $300m ... over the next 10 years to ARM Holdings, compared to the company's total 2009 royalty revenue run-rate of $133mn (more than two-thirds of which are based on royalties for mobile phones)," the broker said as ARM gained 9.9p to 308.9p.

overall, the market gained ground despite Moody's downgrading Portugal's credit ratings by two notches, with the FTSE 100 advancing by 2 per cent, or 104 points, to 5,271.02 and the FTSE 250 adding around 1.7 per cent, or 164.24 points, to close at 9,938.4.

The downside was limited, with only one blue chip closing in the red. British Sky Broadcasting, though managing to avoid slipping into negative territory, was among the underperformers on the benchmark index, closing flat at 695p as the market awaited further news on News Corporation's bid.

The cheer was down to overnight figures from Alcoa, the US aluminium producer, which kicked of the quarterly reporting round with better-than-expected results. The numbers, which were supplemented by news of higher-than-expected profits at the rail company CSX, drove the mood around the miners, with stocks recouping losses sparked by Monday's weaker-than-expected report on Chinese imports. Antofagasta was the strongest, gaining 30.5p to 932.5p, while the Eurasian Natural Resources Corporation rose by 28.5p to 883.5p and Anglo American gained 29.5p to 2,414.5p.

Banks were also strong last night, with Barclays rising by 12.65p to 312.6p following a push from Morgan Stanley. "Although the [European] stress tests will be closely watched, the FSA has already run stringent tests on the UK banks and Barclays is unlikely to fail," the broker said, reiterating its "overweight" view on the stock. In the wider sector, the Royal Bank of Scotland gained 1.72p to 46.4p, while Lloyds closed at 63.89p, up 1.63p.

Elsewhere, Goldman Sachs boosted Unilever, the consumer goods giant which rose by 54p to 1,898p, after the broker added the stock to its widely followed "conviction buy" list. "We believe that the market is underestimating the returns and growth potential from [its] exposure to emerging markets and a reduction in restructuring [spending]," Goldman said, revising its target price to 2,430p. "A new management team under a strengthened incentive structure gives us further confidence."

Further afield, Goldman also support JD Wetherspoon, the pubs group, which was more than 7 per cent, or 30.6p, stronger at 437.7p after the broker abandoned its negative stance. "We believe value price points and planned estate growth leave it well positioned in a sub-sector in which we expect limited growth over the next year," Goldman said, moving the stock to "neutral" from "sell".

Also on the upside, Game rose by nearly 9 per cent, or 5.45p, to 67.7p as traders bought in on the feedback from an investor and analyst event earlier in the week. "Given a UK video games market that has declined by 16 per cent in the first half of 2010, there was some evidence of improving momentum, with a pipeline of innovative new products," Collins Stewart said, repeating its "buy" view and adding: "There were no grounds for changing numbers, but at least some reassurance that like-for-like declines should moderate through the second half of the year."

the market rally kept Yell in positive territory, with the directories group firming up by 0.24p to 26.64p even as UBS scaled back its estimates for full-year earnings before interest, tax, depreciation and amortisation, citing the weaker dollar. The broker said that while further cuts were possible, this was partially reflected in the valuation.

Turning to the half-yearly numbers due later this month, UBS noted that the "outlook remains key, with management having suggested [that] second quarter revenue declines will be similar to that of the first quarter". "Implicitly, Yell needs to see second-half revenue declines improve to 5-6 per cent to reach consensus full-year assumptions of -7/8 per cent," the broker said, maintaining its "buy" view.