SOURCE: ARM Holdings PLC

July 19, 2005 02:01 ET

Arm Holdings Plc Announces Results For The Second Quarter And Six Months Ended 30 June 2005

Cambridge, UK -- (MARKET WIRE) -- July 19, 2005 --


EMBARGOED UNTIL 7.00am BST 19 Jul 2005

ARM HOLDINGS PLC - RESULTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED 30 JUNE
2005


First half 2005 dollar revenues up 22% year on year. Rolling share buyback
programme announced

CAMBRIDGE, UK, 19 July 2005-ARM Holdings plc [(LSE: ARM); (Nasdaq: ARMHY)]
announces its unaudited financial results for the second quarter and the six months ended 30 June 2005

HIGHLIGHTS (US GAAP)


Second quarter ended 30 June 2005

- Total revenues in Q2 2005 at GBP57.8 million, up from GBP55.0 million in
  Q1 2005. Total dollar revenues* in Q2 2005 at $105.5 million, up 21% on 
  the aggregate revenues of $87.3 million(see note 7.14) reported by ARM 
  and Artisan as independent companies in Q2 2004. The acquisition of 
  Artisan was completed on 23 December 2004

- At $81.9 million, dollar revenues* from the original ARM business 25%
  ahead of Q2 2004. Licensing and royalty revenues up in dollar terms* 
  28% and 26% respectively on Q2 2004. 20 licenses for microprocessor 
  cores signed in the quarter. Average royalty rate at 8.5 cents, up from 
  8.1 cents in Q1 2005 and 8.0 cents in Q4 2004

- At $23.6 million, dollar revenues* from the Physical Intellectual
  Property Division (PIPD), the former Artisan business, up 7% on Q2 2004.
  Licensing revenues of $17.9 million at record levels and 26% up on Q2 
  2004. PIPD royalty revenues at $5.7 million, down $2.1 million 
  sequentially due primarily to lower catch-up royalties in Q2 2005 and 
  lower foundry utilization levels in calendar Q1 2005

- Guidance for full year 2005 dollar revenue growth revised to 15-20%.  
  Expectation for full year 2005 sterling revenues and profits unchanged

- Operating margin, excluding acquisition-related charges of GBP6.2
  million and other deferred stock-based compensation of GBP0.5 million, 
  at 31.8%(7.1), comprising 32.1% in the original ARM business and 30.9% 
  in PIPD

- Income before income tax at GBP12.9 million, including acquisition-    
  related charges of GBP6.2 million and other deferred stock-based
  compensation of GBP0.5 million. Income before income tax, excluding   
  these charges, at GBP19.6 million

- Consolidated cash position of GBP154.6 million(7.6) at 30 June 2005.
  Net cash generation of GBP18.6 million in the quarter before payment of 
  the 2004 final dividend of GBP5.8 million

- Earnings per fully diluted share in Q2 2005 of 0.7 pence (3.8 cents
  per ADS**). Earnings per fully diluted share, before acquisition-
  related charges of GBP6.2 million and other deferred stock-based 
  compensation of GBP0.5 million, at 1.0 pence(7.9) (5.6 cents per ADS**)

- Interim dividend of 0.34 pence per share declared, up 21% on 2004
  interim dividend

- Rolling share buyback programme announced, reflecting the strength of
  the Group's balance sheet and the anticipated strong cash flow 
  generation going forward


* Dollar revenues are based on the group's actual dollar invoicing, where
applicable, and using the rate of exchange applicable on the date of the
transaction for invoicing in currencies other than dollars. Approximately 95% of
invoicing is in dollars.
** Each American Depositary Share (ADS) represents three shares.

Commenting on the results, Warren East, Chief Executive Officer, said:

"We are pleased to report 22% growth in dollar revenues across our business in
the first half of 2005. Strong licensing activity in Q2, both in the traditional
ARM(R) microprocessor business and in the Physical IP business, gives us
increased confidence in the potential for sustained growth in royalty revenues
into the future."

Tim Score, Chief Financial Officer, added:

"Given the Group's strong balance sheet, healthy operating margins and
consistent cash flow generation, the Board has decided to supplement the
progressive dividend introduced in 2004 with the announcement of a rolling share
buyback programme. The Group's commitment to revenue growth and investment in
innovative technology remains unchanged."

Operating review

Original ARM licensing and product development

Licensing revenues in the original ARM business have grown sequentially over the
last nine quarters. With 20 licenses for microprocessor cores being signed in
Q2, a total of 37 licenses for microprocessor cores were signed in the first
half of 2005, compared to 34 licenses in the first half of 2004. These 37
licenses comprised 12 multi-use licenses and 25 per-use licenses. As well as
signing licenses for some of our new technologies, our partners continue to sign
licenses for ARM technology that has been available for a number of years. Of
the 37 licenses signed in the first half, eight were for ARM7(TM) family products
and 20 were for ARM9(TM) family products, demonstrating again the longevity of the
ARM technology portfolio. 17 new companies joined the ARM partnership in the
first half, including our first licensee in India, bringing the total number of
semiconductor partners at the end of June 2005 to 157.
Original ARM royalty revenues and unit shipments
Royalty revenues earned in the original ARM business in the first half of 2005
were $62.8 million on 758 million units shipped, up 28% and 34% respectively on
the first half of 2004.

Royalty revenues recognized in Q2 2005 (we receive and report royalty data one
quarter in arrears) were $31.2 million on 369 million units shipped, up 26% and
29% respectively on the same period a year ago. The average royalty rate
reported in the second quarter was 8.5 cents, up for the second successive
quarter. Of the total reported unit shipments in Q2, 30% related to units based
on ARM9 family technology. The mobile segment accounted for 66% of unit
shipments in the second quarter. Units shipped in segments other than mobile
amounted to 124 million, up 44% on Q2 2004. The total number of partners
shipping ARM technology-based product at the end of Q2 is 62, with royalties
being received from one of our partners in China for the first time in the
quarter.

PIPD revenues

Total revenues earned by PIPD in Q2 2005 were $23.6 million, compared to $24.0
million in Q1 2005 and $22.0 million in Q2 2004. Reported revenues in Q2 2005
comprised record license revenues of $17.9 million and royalty revenues of $5.7
million, compared to $16.2 million and $7.8 million respectively in Q1 2005.

PIPD license revenues

As well as being a record quarter for license revenues for PIPD, Q2 has seen a
number of important developments with regard to the adoption of physical IP from
ARM. Having licensed PIPD technology to two traditional ARM semiconductor
partners in Q1, another ARM partner licensed technology from PIPD in Q2.
Further, there have been some important announcements of success in the
traditional PIPD business. In May 2005, ARM and UMC announced that they had
signed an agreement for ARM to provide its Artisan(R) Metro(TM) low-power IP
platform for UMC's advanced 130-nanometer process technology. Also in May, it
was announced that IBM and Chartered Semiconductor Manufacturing are offering
the ARM Artisan Metro low-power platform and the ARM Artisan Velocity(TM)
high-speed PHY series for their jointly developed 90-nanometer common process
platform. In June, it was announced that this collaborative development was
being extended in order to make the low-power platform available for
IBM-Chartered's 65-nanometer low-power common process platform. It was also
announced in June that the ARM Artisan Metro low-power standard cell libraries,
memory compilers and I/Os have been selected for IBM's newest 65-nanometer ASIC
product offering.

PIPD royalty revenues

As with the original ARM business, PIPD receives and reports royalty data one
quarter in arrears. PIPD carries out an ongoing dialogue with its foundry
partners to ensure that royalty payments are accurate and up to date. This
process includes regular audits being carried out by third party accounting
firms. As a result, reported quarterly royalty revenues will often include
amounts which relate to shipments made in prior periods ("catch-up" royalties).
Such amounts are hard to forecast and have varied significantly from quarter to
quarter.

Royalty revenues in Q1 2005 of $7.8 million included approximately $0.8 million
of "catch-up" royalties, implying an underlying level of royalties of $7
million. Royalty revenues in Q2 2005 of $5.7 million do not include any
meaningful "catch-up" royalties. Despite the market share gains made by PIPD in
the quarter, the combination of lower utilization levels and pricing pressure in
the foundries resulted in a sequential reduction of $1.3 million in the
underlying level of PIPD royalties. Underlying royalty revenues in Q2 2004,
excluding "catch-up" royalties, were $5.4 million.

Notwithstanding the sequential reduction in PIPD underlying royalty revenue in
Q2, we remain confident that the medium term trend in PIPD royalties will be
upwards based on the significant increase in the number of license downloads of
PIPD technology in the last 2 years (as with the original ARM business,
royalties typically accrue between 2 and 4 years after a license has been
signed), the increase in the average royalty rate inherent in the majority of
foundry license agreements signed in recent years and the increase in the number
of foundries that have taken licenses to manufacture PIPD technology-based
products.

Market conditions, current trading and prospects

Against the anticipated flatter trading environment in the semiconductor
industry in the first half of 2005, we are encouraged that dollar revenues have
grown in excess of 20% year on year.

Taking into account the first half performance, the level of order backlog at
the end of June and the healthy sales opportunity pipeline going into the second
half, we are confident of achieving year on year dollar revenue growth for the
Group as a whole of between 15% and 20% in the full year 2005. The revision to
our previous guidance for year on year dollar revenue growth of at least 20%
(assuming a normalised base for PIPD revenues in calendar 2004 of approximately
$95 million), takes into account the level of PIPD royalty revenues reported in
the first half of 2005 and the likely growth trajectory of PIPD royalties in the
second half.

Although we have revised guidance for dollar revenue growth our expectations for
sterling revenues, assuming the current dollar/sterling FX rate persists through
the second half of 2005, are unchanged. This is because approximately 95% of the
group's invoicing is in dollars and consequently our sterling reported revenues
benefit from the strengthening dollar.

Financial review
(US GAAP unless otherwise stated)

Second quarter ended 30 June 2005

Total revenues

Total revenues for the second quarter of 2005 amounted to GBP57.8 million. In US
dollar terms*, second quarter revenues of $105.5 million were 21% up on the
aggregate ARM and Artisan revenues of $87.3 million(7.14) in Q2 2004. The
effective US dollar to sterling exchange rate for ARM in Q2 2005 was $1.82
compared to $1.875 in Q1 2005 and $1.77 in Q2 2004.

License revenues

Total license revenues in the second quarter were GBP28.0 million representing
48% of group revenues. License revenues comprised GBP18.1 million from the
original ARM business and GBP9.9 million from PIPD. In US dollar terms*, license
revenues from the original ARM business of $33.0 million in Q2 2005 were 10%
ahead of Q1 2005 and 30% up on Q2 2004. License revenues in PIPD of $17.9
million in Q2 2005 were 10% up on Q1 2005 and 26% up on Q2 2004.

20 licenses for microprocessor cores were signed in the second quarter of 2005.
Nine new partners took a total of nine per use licenses; two for the ARM7TDMI(R)
processor, five for the ARM926EJ(TM) processor, one for the ARM946E(TM)
processor and one for the ARM922T(TM) processor.

A further 11 licenses were signed with 11 of our existing partners. These
comprised one derivative and one upgrade to the ARM7 family, three derivatives
and two upgrades to the ARM9 family, one derivative to the ARM11(TM) family, one
derivative and one upgrade to the SecurCore(TM) family and one upgrade to the
Cortex(TM)-M3 processor.

The Group order backlog at the end of Q2 was approximately 5% down on the level
at the end of Q1 as the 20 licenses for microprocessor cores signed in the
second quarter comprised for the most part licenses for more mature products.
The sales pipeline represents a more typical blend of opportunities for both
newer and more mature products which underpins our confidence that order backlog
will trend upwards in the medium term.

Royalty revenues

Total royalty revenues in the second quarter were GBP20.1 million representing
35% of total group revenues. Royalty revenues comprised GBP17.0 million from the
original ARM business and GBP3.1 million from PIPD. In US dollar terms*, royalty
revenues from the original ARM business of $31.2 million in Q2 2005 were at a
similar level to Q1 2005, notwithstanding the impact of seasonality in mobile
shipments, and were 25% up on Q2 2004.

Development Systems and Service revenues

Sales of development systems in Q2 2005 were GBP6.3 million, representing 11% of
total group revenues, up from GBP5.7 million in Q1. In US dollar terms,
development systems revenues were $11.6 million this quarter, 33% up on Q2 2004.
Service revenues in Q2 2005 were GBP3.4 million representing 6% of total group
revenues.

Gross margins

Group gross margins for the second quarter were 89%, comprising 94% for the
original ARM business and 73% for PIPD.

Operating expenses and operating margins

Total group operating expenses in Q2 2005 were GBP40.0 million, including
acquisition-related charges of GBP6.2 million and other deferred stock-based
compensation of GBP0.5 million. Excluding these charges, operating expenses in
the quarter were GBP33.2 million, comprising GBP27.3 million related to the
original ARM business and GBP5.9 million to PIPD, compared to GBP30.9 million in
Q1 2005.

Total research and development expenses were GBP15.8 million in Q2 2005,
representing 27% of revenues, compared to GBP14.7 million or 27% of revenues in
Q1 2005. Total sales and marketing costs in Q2 2005 were GBP8.3 million or 14%
of revenues compared to GBP8.3 million or 15% of revenues in Q1 2005. Total
general and administrative expenses in Q2 2005 were GBP9.2 million, representing
16% of revenues compared to GBP7.8 million or 14% of revenues in Q1 2005. Of the
net sequential increase in general and administrative expenses of GBP1.4 million
in Q2 2005, GBP1.0 million relates to the net impact of foreign exchange
movements.

Operating margin in Q2 2005 was 20.2% compared to 20.9% in Q1 2005. Operating
margin, excluding acquisition-related charges of GBP6.2 million and other
deferred stock-based compensation of GBP0.5 million, was 31.8%(7.1) in Q2 2005
compared to 32.4%(7.2), excluding non-recurring and acquisition-related charges
of GBP6.0 million and other deferred stock-based compensation of GBP0.3 million,
in Q1 2005. Operating margin of 31.8% in Q2 2005 comprises 32.1% in the original
ARM business and 30.9% in PIPD.

Interest receivable

Interest receivable increased to GBP1.2 million in Q2 2005 compared to GBP1.0
million in the first quarter, due to higher average cash balances.

Earnings and taxation

Income before income tax in Q2 2005 was GBP12.9 million compared to GBP12.5
million in Q1 2005. Income before income tax, excluding acquisition-related
charges of GBP6.2 million and other deferred stock-based compensation of GBP0.5
million, was GBP19.6 million. The group's effective tax rate under US GAAP in Q2
2005 was 22.1%, reflecting the availability of research and development tax
credits in the UK and the US and certain benefits flowing from the structuring
of the Artisan acquisition.

Second quarter fully diluted earnings per share prepared under US GAAP were 0.7
pence (3.8 cents per ADS**) compared to earnings per share of 0.6 pence (3.6
cents per ADS**) in Q1 2005. Earnings per fully diluted share in Q2 2005, before
acquisition-related charges of GBP6.2 million and other deferred stock-based
compensation of GBP0.5 million, were 1.0(7.9) pence per share (5.6 cents per ADS
**) compared to 1.0 pence(7.10) (5.4 cents per ADS**) in Q1 2005, before
non-recurring and acquisition-related charges of GBP6.0 million and other
deferred stock-based compensation of GBP0.3 million.

People

At 30 June 2005 we had 1,223 full time employees compared to 1,179 at the end of
Q1. At 30 June 2005, the Group had 541 employees based in the UK, 463 in the US,
85 in Continental Europe, 90 in India and 44 in the Asia Pacific region. Of the
net headcount increase in the quarter of 44, 31 people joined the design centre
in Bangalore.


Legal matters

In May 2002, Nazomi Communications, Inc. ("Nazomi") filed suit against ARM
alleging willful infringement of Nazomi's US Patent No. 6,332,215. ARM answered
Nazomi's complaint in July 2002 denying infringement. ARM moved for summary
judgment and a ruling that the technology does not infringe Nazomi's patent. The
United States District Court for the Northern District of California granted
ARM's motion, and Nazomi appealed the District Court's ruling. On September 7,
2004, the Court of Appeals for the Federal Circuit heard the appeal and issued
its decision on April 11, 2005. Because, in the opinion of the Court of Appeals
for the Federal Circuit, the District Court did not construe the disputed claim
term in sufficient detail for appellate review, the Court of Appeals for the
Federal Circuit remanded the dispute back to the District Court for further
analysis. The Court of Appeals' decision does not reverse the original decision
of the District Court. A supplementary Markman hearing to assist in a more
detailed claim construction analysis is set for 16 September 2005. Based on
legal advice received to date, ARM has no cause to believe that the effect of
the original ruling by the District Court will not be upheld.

Six months ended 30 June 2005


Revenues

Total revenues for the six months ended 30 June 2005 amounted to GBP112.9
million. In US dollar terms*, first half revenues of $208.7 million were 22% up
on the aggregate ARM and Artisan revenues of $170.9 million(7.15) in H1 2004.
The effective average dollar to sterling exchange rate in the first half of 2005
was $1.85 compared to $1.77 in the first half of 2004.

Total license revenues in the first half of 2005 were GBP52.8 million, being 47%
of total revenues. Total royalty revenues were GBP41.0 million, representing 36%
of total revenue. Sales of development systems were GBP12.1 million, being 11%
of total revenues. Service revenues were GBP7.0 million in the first half of
2005, representing 6% of total revenues.

Gross margins

Group gross margins for the first half of 2005 were 89%, comprising 93% for the
original ARM business and 74% for PIPD.

Operating expenses and operating margins

Total group operating expenses in H1 2005 were GBP77.2 million, including
acquisition-related charges of GBP12.3 million and other deferred stock-based
compensation of GBP0.8 million. Excluding these charges, operating expenses in
the first half were GBP64.1 million, comprising GBP53.3 million related to the
original ARM business and GBP10.8 million to PIPD.

Total research and development expenses were GBP30.5 million in H1 2005,
representing 27% of revenues. Total sales and marketing costs in H1 2005 were
GBP16.6 million or 15% of revenues. Total general and administrative expenses in
H1 2005 were GBP17.0 million, representing 15% of revenues.
Operating margin in H1 2005 was 20.5% compared to 23.2% in the ARM standalone
business in the first half of 2004. Operating margin, excluding
acquisition-related charges of GBP12.3 million and other deferred stock-based
compensation of GBP0.8 million, was 32.1%(7.4) in H1 2005 compared to 24.0%
(7.5), excluding acquisition-related charges of GBP0.1 million and other
deferred stock-based compensation of GBP0.5 million, in H1 2004. The operating
margin of 32.1% in H1 2005 comprises 31.9% in the original ARM business and
32.9% in PIPD.

Interest receivable

Interest receivable was GBP2.2 million for the first six months of 2005.

Earnings and taxation

Income before income tax in H1 2005 was GBP25.4 million. Income before income
tax, excluding acquisition-related charges of GBP12.3 million and other deferred
stock-based compensation of GBP0.8 million, was GBP38.5 million. The group's
effective tax rate under US GAAP in H1 2005 was 24.8%, reflecting the
availability of research and development tax credits in the UK and the US and
certain benefits flowing from the structuring of the Artisan acquisition.

First half fully diluted earnings per share prepared under US GAAP were 1.3
pence (7.2 cents per ADS). Earnings per fully diluted share in H1 2005, before
acquisition-related charges of GBP12.3 million and other deferred stock-based
compensation of GBP0.8 million, were 2.0(7.12) pence per share (10.7 cents per
ADS**).

Balance sheet and cash flow

Intangible assets at 30 June 2005 were GBP434.3 million, comprising goodwill of
GBP362.9 million and other intangible assets of GBP71.4 million, compared to
GBP348.8 million and GBP71.0 million respectively at 31 March 2005. The increase
in goodwill in Q2 2005 is due primarily to foreign exchange movements. Goodwill
is no longer amortized under US GAAP but is subject to impairment on at least an
annual basis. The other intangible assets are being amortized through the profit
and loss account over a weighted average period of five years.

Accounts receivable increased to GBP49.7 million at 30 June 2005 from GBP43.9
million at 31 March 2005. The increase in receivables at the end of Q2 compared
to the end of Q1 is due primarily to the strengthening of the dollar against
sterling and to a lesser extent to the higher revenues reported in Q2. The
allowance against receivables increased to GBP1.5 million at the end of June
from GBP1.2 million at 31 March 2005. Deferred revenues were GBP20.4 million at
the end of June 2005 compared to GBP21.8 million at 31 March 2005.

Net cash generation in Q2 2005 was GBP18.6 million, before payment of the 2004
final dividend of GBP5.8 million in the quarter, giving total cash, cash
equivalents, short-term investments and marketable securities of GBP154.6
million at 30 June 2005.

Share buyback programme and interim dividend

It has been ARM's practice to maintain a strong balance sheet, both to underpin
ongoing investment in research and development (typically around 30% of
revenues) and to retain a cash buffer to enable bolt-on acquisitions. This
practice remains unchanged. However, the enlarged ARM group is expected to
remain strongly cash generative going forward, producing cash on an ongoing
basis which is surplus to our investment requirements.

We intend, therefore, to supplement the payment of dividends to shareholders,
initiated in 2004, with the commencement of a rolling share buyback programme
under the shareholder authority conferred on the company at the Annual General
Meeting. The quantum and frequency of share purchases is not predetermined but
will take into account prevailing market conditions, the short to medium term
cash needs of the business and the level of employee share-based remuneration
going forward. Share purchases will be made only if the directors believe that
it is in the best interests of shareholders generally and will increase earnings
per share. The company intends to hold such shares as treasury shares.

In respect of the year to 31 December 2005, the directors are declaring an
interim dividend of 0.34 pence per share, an increase of 21% over the 2004
interim dividend of 0.28 pence per share. This interim dividend will be paid on
7 October 2005 to shareholders on the register on 2 September 2005.

International Financial Reporting Standards (IFRS)

ARM reports results quarterly in accordance with US GAAP. At 30 June and 31
December each year, in addition to the US GAAP results, ARM has historically
also disclosed results under UK GAAP. Following the introduction of IFRS with
effect from 1 January 2005, ARM will continue to report quarterly results under
US GAAP but will now disclose results additionally under IFRS at 30 June and 31
December each year. IFRS results for the six month periods to 30 June 2005 and
30 June 2004, together with balance sheets as at 30 June 2005, 31 December 2004
and 30 June 2004 are included below.

The operating and financial review commentary above on the US GAAP numbers is
for the most part applicable to the IFRS numbers. The principal impact on ARM's
results of the introduction of IFRS in place of UK GAAP arises from the
introduction of IFRS 2 ("Share-based Payment"), whereby the fair value of
employee stock options issued after 7 November 2002 and outstanding at 31
December 2004 is charged to the profit and loss account. Under UK GAAP the fair
value of stock options was not charged to the profit and loss account. The fair
value of employee stock options charged to the profit and loss accounts for the
six months to 30 June 2005 and 30 June 2004 is GBP11.9 million and GBP3.6
million respectively. The first half 2005 charge of GBP11.9 million includes
GBP6.7 million relating to the fair value of the Artisan employee stock options
which were unvested at the time of the acquisition. The total fair value
attributed to these unvested options of GBP17.5 million will be substantially
charged to the profit and loss account over a period of 3 years. The total
intrinsic value of these unvested options of GBP9.6 million is already being
charged as deferred stock-based compensation under US GAAP, with GBP6.1 million
expected to be charged in 2005.

Based on product development to date, research and development expenditure has
been written off to the profit and loss account as incurred under IFRS. Goodwill
and other intangible assets are reported differently under IFRS than under UK
GAAP, with goodwill being capitalized but not amortized and separately
identifiable intangible assets being capitalized on acquisition and amortized
over their estimated useful lives. The IFRS treatment is similar to the current
treatment under US GAAP.

CONTACTS:
James Melville-Ross/ Juliet Clarke             Tim Score/Bruce Beckloff
Financial Dynamics                             ARM Holdings plc
+44 (0) 207 831 3113                           +44 (0)1628 427800





                                ARM Holdings plc
                Second Quarter and Six Months Results - US GAAP

                  Quarter     Quarter  Six months  Six months  Six months
                    ended       ended       ended       ended       ended
                  30 June     30 June     30 June     30 June     30 June
                     2005        2004        2005        2004     2005 (1)
                Unaudited   Unaudited   Unaudited   Unaudited   Unaudited
                  GBP'000     GBP'000     GBP'000     GBP'000       $'000
Revenues
   Product 
   revenues        54,485      33,296     105,857      64,678     189,696
   Service 
   revenues         3,362       3,644       7,007       7,250      12,556
Total revenues     57,847      36,940     112,864      71,928     202,252

Cost of revenues
   Product 
   costs          (4,548)     (1,261)     (9,461)     (2,639)    (16,954)
   Service 
   costs          (1,638)     (1,266)     (3,048)     (2,588)     (5,462)
Total cost of
revenues          (6,186)     (2,527)    (12,509)     (5,227)    (22,416)

Gross profit       51,661      34,413     100,355      66,701     179,836

   Research 
   and
   development   (15,787)    (12,356)    (30,510)    (24,455)    (54,674)
   Sales and
   marketing      (8,305)     (5,883)    (16,589)    (11,587)    (29,727)
   General and
   administrative (9,157)     (7,129)    (16,994)    (13,420)    (30,453)
   Deferred
   stock-based
   compensation   (2,142)       (242)     (4,502)       (500)     (8,068)
   Amortization 
   of
   intangibles
   purchased 
   through
   business       
   combination    (4,608)        (25)     (8,575)        (50)    (15,366)
Total operating
expenses         (39,999)    (25,635)    (77,170)    (50,012)   (138,288)

Income from
operations         11,662       8,778      23,185      16,689      41,548
Interest, net       1,230       1,638       2,239       3,142       4,012

Income before
income tax         12,892      10,416      25,424      19,831      45,560
Provision for
income taxes      (2,852)     (3,114)     (6,305)     (5,896)    (11,299)

Net income         10,040       7,302      19,119      13,935      34,261

Net income         10,040       7,302      19,119      13,935      34,261
Other 
comprehensive
income:
   Foreign 
   currency
   adjustments     26,886         127      35,630       (122)      63,849
   Unrealized 
   holding
   gain/(loss) 
   on
   available-for
   -sale
   securities, 
   net of
   tax of 
   GBP863,000
   (Q2 2004:
   GBP555,000; 
   1H 2005:
   GBP1,555,000; 
   1H 2004: 
   GBP706,000)    (1,980)       1,294     (3,594)      1,647      (6,440)

Total
comprehensive
income             34,946       8,723      51,155     15,460      91,670

Earnings per share
(assuming dilution)

Shares outstanding
('000)          1,426,944   1,043,053   1,425,572  1,042,691
Earnings per
share - pence         0.7         0.7         1.3        1.3
Earnings per ADS
(assuming dilution)

ADSs outstanding
('000)            475,648     347,684     475,191    347,564
Earnings per ADS
- cents               3.8         3.8         7.2        7.3

(1)     US dollar amounts have been translated from sterling at the 30 June 2005
closing rate of $1.792=GBP1 (see note 1)



                           ARM Holdings plc
                Consolidated balance sheet - US GAAP

                                        30 June 31 December      30 June
                                           2005        2004      2005 (1)
                                      Unaudited     Audited    Unaudited
                                        GBP'000     GBP'000        $'000
Assets
  Current assets:
  Cash and cash equivalents             121,646     110,561      217,990
  Short-term investments                 10,437       5,307       18,703
  Marketable securities                  22,553      21,511       40,415
  Accounts receivable, net of 
  allowance of GBP1,486,000 in 
  2005 and GBP1,451,000 in 2004          49,660      34,347       88,991
  Inventory: finished goods               1,830         897        3,279
  Prepaid expenses and other assets      14,036      16,001       25,152
  Total current assets                  220,162     188,624      394,530

  Long-term marketable securities             -       5,438            -
  Deferred income taxes                   4,206       2,529        7,537
  Prepaid expenses and other assets       1,847           -        3,310
  Property and equipment, net            13,300      14,117       23,834
  Goodwill                              362,913     340,416      650,340
  Other intangible assets                71,363      74,578      127,882
  Investments                             6,741      12,235       12,080
  Total assets                          680,532     637,937    1,219,513

Liabilities and shareholders' equity
  Accounts payable                        4,996       4,110        8,953
  Income taxes payable                   11,045       6,345       19,792
  Personnel taxes                         1,324       1,123        2,373  
  Accrued liabilities (see note 2)       22,298      38,600       39,958
  Deferred revenue                       20,438      21,355       36,625
  Total current liabilities              60,101      71,533      107,701

  Accrued liabilities                         -       1,732            -
  Deferred income taxes                   5,573      12,345        9,987
  Total liabilities                      65,674      85,610      117,688

Shareholders' equity
  Ordinary shares                           691         675        1,238
  Additional paid-in capital            426,662     414,133      764,578
  Deferred compensation                 (7,493)    (12,083)     (13,428)
  Treasury stock, at cost               (7,485)     (7,485)     (13,413)
  Retained earnings                     166,781     153,421      298,872
  Accumulated other comprehensive 
  income:
  Unrealized holding gain on
  available-for-sale securities, 
  net of tax of GBP521,000 
  (2004:GBP2,077,000)                     2,581       6,175        4,625

  Cumulative translation adjustment      33,121     (2,509)       59,353
  Total shareholders' equity            614,858     552,327    1,101,825

  Total liabilities and shareholders' 
  equity                                680,532     637,937    1,219,513

  (1)  US dollar amounts have been translated from sterling at the 30 June 2005
       closing rate of $1.792=GBP1 (see note 1)




                          ARM Holdings plc
               Consolidated income statement - IFRS

                                   Six months   Six months          Year
                                        ended        ended         ended
                                      30 June      30 June   31 December
                                         2005         2004          2004
                                    Unaudited    Unaudited     Unaudited
                                      GBP'000      GBP'000       GBP'000

Revenues
  Product revenues                    105,857       64,678       138,732
  Service revenues                      7,007        7,250        14,165
Total revenues                        112,864       71,928       152,897

Cost of revenues
  Product costs                       (9,461)      (2,639)       (6,735)
  Service costs (see note 4)          (3,765)      (2,792)       (5,505)
Total cost of revenues               (13,226)      (5,431)      (12,240)

Gross profit                           99,638       66,497       140,657

Operating expenses
  Research and development 
  (see note 4)                       (41,486)     (26,428)      (54,674)
  Sales and marketing (see note 4)   (23,289)     (12,216)      (25,546)
  General and administrative 
  (see note 4)                       (19,675)     (14,197)      (32,108)
Total operating expenses             (84,450)     (52,841)     (112,328)

Profit from operations                 15,188       13,656        28,329
Investment income                       2,239        3,142         6,944

Profit before tax                      17,427       16,798        35,273
Tax                                   (5,965)      (5,450)       (9,398)

Profit for the period                  11,462       11,348        25,875

Dividends
- final 2003 paid at 0.6 pence per 
share                                       -        6,118         6,118
- interim 2004 paid at 0.28 pence per
share                                       -            -         2,857
- final 2004 paid at 0.42 pence per     
share                                   5,759            -             -
- interim 2005 proposed at 0.34 pence
per share                               4,670            -             -

Earnings per share
Basic and diluted earnings             11,462       11,348        25,875

Number of shares ('000)
Basic weighted average number of 
shares                              1,366,672    1,019,198     1,026,890
Effect of dilutive securities:
  Share options                        58,212       22,644        22,179
Diluted weighted average number of  
shares                              1,424,884    1,041,842     1,049,069

Basic EPS                                0.8p         1.1p          2.5p
Diluted EPS                              0.8p         1.1p          2.5p

All activities relate to continuing operations.

All of the profit for the period is attributable to the equity shareholders of the parent.



                             ARM Holdings plc
                   Consolidated balance sheet - IFRS

                                   30 June       30 June   31 December
                                      2005          2004          2004
                                 Unaudited     Unaudited     Unaudited
                                   GBP'000       GBP'000       GBP'000

Assets
Current assets:
Cash and cash equivalents          121,646       100,256       110,561
Short-term investments              10,437        66,041         5,307
Marketable securities               22,553             -        21,511
Accounts receivable                 49,660        25,251        34,347
Inventories: finished goods          1,830         1,025           897
Prepaid expenses and other assets   14,036         9,978        16,001
Total current assets               220,162       202,551       188,624

Non-current assets:
Long-term marketable securities          -             -         5,438
Prepaid expenses and other assets    1,847             -             -
Property, plant and equipment       11,030         8,466         9,096
Goodwill                           446,721         2,091       417,079
Other intangible assets             77,248         8,528        84,037
Available-for-sale investments       6,741         8,543        12,235
Deferred tax assets                  5,041         6,189         2,396
Total non-current assets           548,628        33,817       530,281

Total assets                       768,790       236,368       718,905

Liabilities and shareholders' 
equity
Current liabilities:
Accounts payable                     4,996         2,813         4,110
Current tax liabilities             11,045         6,252         6,345
Accrued and other liabilities       24,659        14,809        42,049
Deferred revenue                    20,438        12,632        21,355
Total current liabilities           61,138        36,506        73,859

Net current assets                 159,024       166,045       114,765

Non-current liabilities:
Deferred tax liabilities                 -             -           776
Long-term other payables                 -             -         1,732
Total liabilities                   61,138        36,506        76,367

Net assets                         707,652       199,862       642,538

Shareholders' equity
Share capital                          691           513           675
Share premium account              445,416        82,326       434,026
Share option reserve                61,474             -        61,474
Retained earnings                  157,199       114,457       140,291
Revaluation reserve                  1,643         2,688         5,237
Cumulative translation adjustment   41,229         (122)           835
Total equity                       707,652       199,862       642,538





                           ARM Holdings plc
              Consolidated cash flow statement - IFRS

                                   Six months   Six months         Year
                                        ended        ended        ended
                                      30 June      30 June  31 December
                                         2005         2004         2004
                                    Unaudited    Unaudited    Unaudited
                                      GBP'000      GBP'000      GBP'000

Operating activities
Profit from operations                 15,188       13,656       28,329
Depreciation and amortisation of 
tangible and intangible assets         14,244        6,793       13,059
Loss on disposal of property, plant 
and equipment                              53            2           20
Impairment of available-for sale
investments                               337            -            -
Compensation charge in respect of
share-based payments                   11,944        3,618        7,855
Provision for doubtful debts               35         (85)        (321)
Accounts receivable converted to
available-for-sale investments              -        (112)        (112)
Changes in working capital:
Accounts receivable                  (15,348)      (7,846)      (1,358)
Inventories                             (933)         (94)           34
Prepaid expenses and other assets       2,808          554      (3,659)
Accounts payable                          886          122        1,176
Deferred revenue                      (1,959)        1,500        3,013
Accrued liabilities and other 
creditors                             (4,772)      (3,213)        2,811

Cash generated by operations before 
tax                                    22,483       14,895       50,847
Income taxes paid                     (7,069)      (4,739)     (11,601)

Net cash from operating activities     15,414       10,156       39,246

Investing activities
Interest received                        2,292        3,155        7,233
Purchases of property, plant and        
equipment                              (2,747)      (1,090)      (2,732)
Proceeds on disposal of property, 
plant and equipment                         37           17           23
Purchases of other intangible assets     (389)        (716)      (2,663)
Purchases of available-for-sale
investments                              (132)            -         (50)
Proceeds on disposal of
available-for-sale                          96            -            -
investments
(Purchase) / maturity of short-term
investments                              (699)     (36,977)       24,677
Purchases of subsidiaries, net of cash
acquired                              (14,350)            -     (77,899)

Net cash used in investing activities (15,892)     (35,611)     (51,411)

Financing activities
Issue of shares                         11,406        1,192        1,313
Expenses of issuing share capital            -            -        (360)
Dividends paid to shareholders         (5,759)      (6,118)      (8,975)

Net cash from / (used in) financing
activities                               5,647      (4,926)      (8,022)

Net increase / (decrease) in cash and
cash equivalents                         5,169     (30,381)     (20,187)
Cash and cash equivalents at beginning
of period                              110,561      130,722      130,722
Effect of foreign exchange rate 
changes                                  5,916         (85)           26

Cash and cash equivalents at end of    121,646      100,256      110,561
period


Notes to the Financial Statements

(1) Basis of preparation - reporting currency

The Group prepares and reports its financial statements in UK sterling. Purely
for the convenience of the reader, the US GAAP income statement and balance
sheet have been translated from sterling at the closing rate on 30 June 2005 of
$1.792=GBP1. Such translations should not be construed as representations that
the sterling amounts represent, or have been or could be so converted into US
dollars at that or at any other rate.

(2) Accrued liabilities

Accrued liabilities under US GAAP of GBP22.3 million (2004: GBP38.6 million)
includes: GBPnil million (2004: GBP14.3 million) for acquisition-related
expenses, GBP2.3 million (2004: GBP4.4 million) for staff costs and GBP1.2
million (2004: GBP2.8 million) representing the fair value of embedded
derivatives.

(3) Consolidated statement of changes in shareholders' equity (US GAAP)

                                  Additional     
                           Share     paid-in     Deferred   Treasury
                         capital     capital compensation      stock
                         GBP'000     GBP'000      GBP'000    GBP'000

At 1 January 2005            675     414,133     (12,083)    (7,485)
Shares issued
on exercise of
options                       16      11,390            -          -
Net income                     -           -            -          -
Dividends                      -           -            -          -
Unrealized holding             
  losses on
  available-for-sale 
  securities                   -           -            -          -
Deferred
  compensation
  arising on
  share schemes                -          73         (73)          -
Tax benefits
  on exercise of
  options issued
  as part
  consideration
  for a
  business                     
  combination                  -       1,227            -          -
Amortization
of deferred
compensation                   -           -        4,502          -
Reversal of
unearned
compensation                   -       (161)          161          -
Currency translation           -           -            -          -
adjustment
At 30 June
2005                         691     426,662      (7,493)    (7,485)



                                                Cumulative    
                    Retained      Unrealized   translation
                    earnings    holding gain    adjustment      Total
                     GBP'000         GBP'000       GBP'000    GBP'000
At 1 January
2005                 153,421           6,175       (2,509)    552,327
Shares issued
on exercise of
options                    -               -             -     11,406
Net income            19,119               -             -     19,119
Dividends            (5,759)               -             -    (5,759)
Unrealized
  holding losses
  on
  available-for-sale       -         (3,594)             -    (3,594)
securities
Deferred compensation      
  arising on               -               -             -          -
  share schemes
Tax benefits
  on exercise of
  options issued
  as part
  consideration
  for a
  business                 
  combination              -               -             -      1,227
Amortization
of deferred
compensation               -               -             -      4,502
Reversal of unearned        
compensation               -               -             -          -
Currency
translation
adjustment                 -               -        35,630     35,630
At 30 June
2005                 166,781           2,581        33,121    614,858

(4) IFRS operating expenses

Included within the IFRS income statement for the six months ended 30 June 2005
are share-based payment costs of GBP0.7m (six months ended 30 June 2004:
GBP0.2m; year ended 31 December 2004: GBP0.4) in cost of revenues, GBP6.9m (30
June 2004: GBP2.0m; 31 December 2004: GBP4.3m) in research and development
costs, GBP2.3m (30 June 2004: GBP0.6m; 31 December 2004: GBP1.5m) in sales and
marketing costs and GBP2.0m (30 June 2004: GBP0.8m; 31 December 2004: GBP1.7m)
in general and administrative costs.


Also included within operating costs is amortization of intangibles of GBP4.0m
(30 June 2004: GBPnil; 31 December 2004 GBP0.3m) in research and development
costs, GBP4.3m (30 June 2004: GBPnil; 31 December 2004 GBP0.2m) in sales and
marketing costs and GBP0.3m (30 June 2004: GBPnil; 31 December 2004 GBP0.1m) in
general and administrative costs.

(5) Consolidated statement of changes in shareholders' equity (IFRS)

                          Share  Share premium   Share option   Retained
                        capital        account        reserve   earnings
                        GBP'000        GBP'000        GBP'000    GBP'000

At 1 January
2005                        675        434,026         61,474    140,291
Shares issued
on exercise of
options                      16         11,390              -          -
Profit for the
period                        -              -              -     11,462
Dividends                     -              -              -    (5,759)
Credit in
respect of
employee share
schemes                       -              -              -     11,944
Movement on
  deferred tax
  arising on
  outstanding                 
  share options               -              -              -     (5,551)
Tax benefits
  on exercise of
  options issued
  as part
  consideration
  for a business
  combination                 -              -              -       4,812
Unrealized holding losses     
 on available-for-sale
 investments (net of
 deferred tax of
 GBP1,556,000)                -              -              -           -
Currency translation          
adjustment                    -              -              -           -
At 30 June
2005                        691        445,416         61,474     157,199



                                                   Cumulative     Total
                    Revaluation reserve   translation reserve
                                GBP'000               GBP'000   GBP'000

At 1 January
2005                              5,237                   835   642,538
Shares issued
on exercise of
options                               -                     -    11,406
Profit for the
period                                -                     -    11,462
Dividends                             -                     -   (5,759)
Credit in
respect of
employee share
schemes                               -                     -    11,944
Movement on
  deferred tax
  arising on
  outstanding                        
  share options                       -                     -   (5,551)
Tax benefits on
  exercise of
  options issued
  as part
  consideration
  for a business                      
  combination                         -                     -     4,812
Unrealized
  holding losses
  on
  available-for-sale 
  investments (net of
  deferred tax of
  GBP1,556,000)                 (3,594)                     -   (3,594)
Currency
translation
adjustment                           -                 40,394    40,394
At 30 June 2005                  1,643                 41,229   707,652

(6) Summary of significant differences between US GAAP and IFRS

Goodwill Under both IFRS and US GAAP, goodwill is not subject to amortisation,
but is tested annually for impairment. As permitted by IFRS 1, the Company's
goodwill under IFRS has been frozen at the amount recorded under UK GAAP as at 1
January 2004. Under US GAAP, following the provisions of SFAS 142, "Goodwill and
other intangible assets", the carrying value of goodwill was frozen at the
amount recorded under previous US GAAP as at 1 January 2002. Under both previous
US GAAP and UK GAAP, goodwill was amortised over its useful economic life. Thus,
while ongoing accounting policies in respect of goodwill are similar under US
GAAP and IFRS, the difference in the dates of transition means that different
amounts of goodwill are recorded.

Under US GAAP, certain costs to be incurred on restructuring on business
combination are treated as a fair value adjustment in the balance sheet
acquired. Under IFRS, these costs are expensed post-acquisition. Additionally,
under US GAAP, tax benefits arising from the exercise of options issued as part
of the consideration for a business combination become a deduction to goodwill,
only to the extent that those benefits do not exceed the fair value of the
consideration relating to those options at the appropriate tax rate. Any excess
tax benefits are a deduction to equity. Under IFRS, the full tax benefit is a
deduction to equity.

The 2004 annual report included a provisional assessment of the fair values of
assets and liabilities acquired on acquisition of Artisan Components Inc. on 23
December 2004. Where these provisional values have been amended as estimates
have been refined in 2005, adjustments to fair values have been recorded as
prior year adjustments to goodwill for IFRS purposes. Under US GAAP, these are
recorded as amendments to goodwill in the current period.

Recognition and amortisation of intangibles The Company has taken advantage of
the exemption under IFRS 1 not to apply IFRS retrospectively to business
combinations occurring before 1 January 2004. This means that for business
combinations occurring before this date, the previously reported UK GAAP
treatment has continued to be followed. Under previous UK GAAP, intangible
assets were recognised separately from goodwill only where they could be sold
separately without disposing of a business of the entity. This separability
criterion does not apply under either IFRS or US GAAP. Thus, a number of
intangible assets which are required to be recognised separately from goodwill
under both IFRS 3 and SFAS 142, were subsumed within goodwill under UK GAAP.
Under both US GAAP and IFRS, such intangible assets are amortised over their
useful economic lives. Except in relation to in-process research and development
(see below), there is no difference in accounting policy for intangible assets
recognised as a result of business combinations entered into after 1 January
2004.

In-process research and development Under IFRS, in-process research and
development projects purchased as part of a business combination may meet the
criteria set out in IAS 38, "Intangible assets", for recognition as intangible
assets other than goodwill and are amortised over their useful economic lives
commencing when the asset is brought into use. Under US GAAP, in-process
research and development is immediately written-off to the income statement.
This accounting policy difference gives rise to an associated difference in
deferred taxation.

Valuation of consideration on business combination Under both IFRS and US GAAP,
the fair value of consideration in a business combination includes the fair
value of both equity issued and any share options granted as part of that
combination. Under IFRS, any equity issued is valued at the fair value as of the
date of completion, whilst under US GAAP, the equity is valued at the date the
terms of the combination were agreed to and announced. For options, under US
GAAP, the fair value is based upon the total number of options granted, both
vested and unvested, whilst under IFRS the fair value only includes those that
have vested, together with a pro-rata value for partially vested options.
Furthermore, where there is contingent consideration for an acquisition, under
IFRS this is recognized as part of the purchase consideration if the contingent
conditions are expected to be satisfied, whilst under US GAAP it is only
recognised if the conditions have actually been met.

Deferred compensation Under US GAAP, the intrinsic value of unvested stock
options issued by an acquirer as part of a business combination in exchange for
unvested share options of the acquiree is recorded as a debit balance within
shareholders' funds. This amount is charged to the profit and loss account over
the vesting period of the share options in accordance with FIN 28. Under IFRS,
no such adjustment to shareholders' funds is made on acquisition.

Compensation charge in respect of share-based payments The Company issues
equity-settled share-based payments to certain employees. In accordance with
IFRS 2, equity-settled share-based payments are measured at fair value at the
date of grant, using the Black-Scholes pricing model. The fair value determined
at the grant date of the equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the Company's estimate of
the number of shares that will eventually vest. Under US GAAP, the Company
accounts for share option compensation expense under APB 25, and thus no
compensation expense is recorded where the exercise price of the option is equal
to the share price on the date of grant.

Under US GAAP, the Company recognises a compensation charge in respect of the UK
SAYE plans. The compensation charge is calculated as the difference between the
market price of the shares at the date of grant and the exercise price of the
option and is recorded on a straight-line basis over the savings period. In
addition, certain options attract a charge under variable plan accounting under
US GAAP. Under IFRS, this charge is calculated in the same manner as other
share-based payments, as detailed above.

Under US GAAP, the Company follows variable plan accounting for the LTIP grants,
measuring compensation expense as the difference between the exercise price and
the fair market value of the shares at each period end over the vesting period
of the options. Increases in fair market value of the shares result in a charge
and decreases in fair market value of the shares result in a credit, subject to
the cumulative amount previously expensed. Under IFRS, this charge is calculated
in the same manner as other share-based payments, as detailed above.

Deferred tax on UK and US share options In the US and the UK, the Company is
entitled to a tax deduction for the amount treated as employee compensation
under US and UK tax rules on exercise of certain employee share options. The
compensation is equivalent to the difference between the option exercise price
and the fair market value of the shares at the date of exercise.

Under IFRS, deferred tax assets are recognised and are calculated by comparing
the estimated amount of tax deduction to be obtained in the future (based on the
Company's share price at the balance sheet date) with the cumulative amount of
the compensation expense recorded in the income statement. If the amount of
estimated future tax deduction exceeds the cumulative amount of the remuneration
expense at the statutory tax rate, the excess is recorded directly in equity,
against the profit and loss reserve. In accordance with the transitional
provisions of IFRS 2, no compensation charge is recorded in respect of options
granted before 7 November 2002 or in respect of those options which have been
exercised or have lapsed before 1 January 2005. Nevertheless, tax deductions
have arisen and will continue to arise on these options. The tax effects arising
in relation to these options are recorded directly in equity, against retained
earnings.

Under US GAAP, deferred tax assets are recognised by multiplying the
compensation expense recorded by the prevailing tax rate in the relevant tax
jurisdiction. Where, on exercise of the relevant option, the tax benefit
obtained exceeds the deferred tax asset in relation to the relevant options, the
excess is recorded in additional paid-in capital. Where the tax benefit is less
than the deferred tax asset, the write-down of the deferred tax asset is
recorded against additional paid-in capital to the extent of previous excess tax
benefits recorded in this account, with any remainder recorded in the income
statement.

Employer taxes on share options Under IFRS, employer's taxes that are payable on
the exercise of share options are provided for over the vesting period of the
options. Under US GAAP, such taxes are accounted for when the options are
exercised.


Reconciliation of IFRS profit to US GAAP net income

                                    Six months  Six months         Year
                                         ended       ended        ended
                                       30 June     30 June  31 December
                                          2005        2004         2004
                                     Unaudited   Unaudited    Unaudited
                                       GBP'000     GBP'000      GBP'000

Profit for financial period as 
reported under IFRS                     11,462      11,348       25,875
Adjustments for:
Amortisation of intangibles                358        (50)         (65)
Write-off of in-process research and
development                              (335)           -      (3,612)
Deduct: US GAAP compensation charge in
respect of LTIP                          (611)       (317)        (619)
Deduct : US GAAP compensation charge in
respect of SAYE schemes                  (186)       (184)        (341)
Deduct : US GAAP deferred stock-based
compensation re acquisition            (3,706)           -            -
Add: IFRS compensation charge in respect
of all share-based payments             11,944       3,618        7,855
Employer's taxes on share options            -        (34)         (36)
Utilisation of restructuring provision     533           -            -
Tax on UK and US share options               -       (165)        (515)
Tax difference on amortisation of
intangibles                              (164)           -         (14)
Tax difference on share-based payments   (176)       (281)        (551)
Net income as reported under US GAAP    19,119      13,935       27,977



Reconciliation of shareholders' equity from IFRS TO US GAAP

                                       30 June     30 June  31 December
                                          2005        2004         2004
                                     Unaudited   Unaudited    Unaudited
                                       GBP'000     GBP'000      GBP'000


Shareholders' equity as reported under
IFRS                                   707,652     199,862      642,538
Adjustments for:
Employer's taxes on share options           27          29           27
Utilisation of restructuring provision     533           -            -
Cumulative difference on amortisation of
goodwill                                 2,713       2,713        2,713
Cumulative difference on amortisation of
intangibles                                251        (92)        (107)
Cumulative write-off of in-process
research and development               (4,097)       (150)      (3,762)
Cumulative difference on deferred tax    (178)           -         (14)
Valuation of equity consideration on
acquisition                           (82,435)           -     (82,435)
Valuation of option consideration on
acquisition                             17,476           -       17,476
Deferred compensation on acquisition   (9,579)           -      (9,579)
Deferred tax on share-based payments   (7,899)     (3,089)     (13,274)
Portion of tax benefit arising on 
exercise of options issued on 
acquisition taken to goodwill under 
US GAAP                                (3,928)           -            -
Foreign exchange on valuation of
intangible assets and deferred tax     (5,678)           -      (1,256)

Shareholders' equity as reported under US
GAAP                                   614,858     199,273      552,327



Reconciliation of goodwill from IFRS to US GAAP  

                                       30 June     30 June  31 December
                                          2005        2004         2004
                                     Unaudited   Unaudited    Unaudited
                                       GBP'000     GBP'000      GBP'000

Goodwill as reported under IFRS        446,721       2,091      417,079
Adjustments for:
Amendments to provisional fair values    1,117           -        (736)
Cumulative difference on amortisation of
goodwill                                 2,713       2,713        2,713
Cumulative write-off of in-process
research and development                 (150)       (150)        (150)
Amendment following revised intangible
valuation on acquisition, net of deferred
tax                                          -           -          500
Separately identifiable intangible 
assets                                   (302)       (302)        (302)
Deferred tax on capitalised in-process
research and                           (1,570)           -      (1,318)
development
Portion of tax benefit arising on exercise
of options issued on
acquisition taken                      (3,928)           -            -
to goodwill under US GAAP
Valuation of equity consideration on
acquisition                           (82,435)           -     (82,435)
Valuation of option consideration on
acquisition                             17,476           -       17,476
Deferred compensation on acquisition   (9,579)           -      (9,579)
Contingent consideration               (1,665)           -      (1,665)
Foreign exchange on revaluation of
goodwill                               (5,485)           -      (1,167)

Goodwill as reported under US GAAP     362,913       4,352      340,416


(7) Non-GAAP measures

The following non-GAAP measures, including reconciliations to the US GAAP
measures, have been used in this earnings release. These measures have been
presented as they allow a clearer comparison of operating results that exclude
one-off non-recurring charges and acquisition-related charges. All figures in
GBP'000 unless otherwise stated.



                                           (7.1)     (7.2)        (7.3)
                                         Q2 2005   Q1 2005      Q2 2004

Income from operations (US GAAP)          11,662    11,523        8,778
Acquisition-related charge - 
amortization of intangibles                4,608     3,967           25
Acquisition-related charge - deferred
stock-based compensation                   1,640     2,066            -
Other deferred stock-based compensation      502       294          242
Pro forma income from operations          18,412    17,850        9,045
As % of revenue                             31.8%     32.4%        24.5%



                                                      (7.4)       (7.5)
                                                   1H 2005      1H 2004

Income from operations (US GAAP)                    23,185       16,689
Acquisition-related charge - amortization 
of intangibles                                       8,575           50
Acquisition-related charge - deferred 
stock-based compensation                             3,706            -
Other deferred stock-based compensation                796          500
Pro forma income from operations                    36,262       17,239
As % of revenue                                       32.1%        24.0%



                                          (7.6)     (7.7)        (7.8)
                                         30 June  31 March  31 December 
                                            2005      2005         2004
Cash and cash equivalents                121,646    93,816      110,561
Short-term investments                    10,437    24,956        5,307
Short-term marketable
securities                                22,553    21,975       21,511
Long-term marketable
securities                                     -     1,038        5,438
Pro forma cash                           154,636   141,785      142,817

                                           (7.9)    (7.10)       (7.11)
                                         Q2 2005   Q1 2005      Q2 2004

Net income (US GAAP)                      10,040     9,079        7,302
Acquisition-related charge - amortization
of intangibles                             4,608     3,967           25
Acquisition-related charge - deferred
stock-based compensation                   1,640     2,066            -
Other deferred stock-based compensation      502       294          242
Estimated tax impact of above changes    (1,875)   (1,831)            -
Pro forma net income                      14,915    13,575        7,569
Dilutive shares ('000)                 1,426,944 1,424,612    1,043,053
Pro forma diluted EPS                        1.0p      1.0p         0.7p



                                                    (7.12)        (7.13)
                                                   1H 2005       1H 2004

Net income (US GAAP)                                19,119        13,935
Acquisition-related charge - amortization of
intangibles                                          8,575            50
Acquisition-related charge - deferred stock-based
compensation                                         3,706             -
Other deferred stock-based compensation                796           500
Estimated tax impact of above changes              (3,706)             -
Pro forma net income                                28,490        14,485
Dilutive shares ('000)                           1,425,572     1,042,691
Pro forma diluted EPS                                  2.0p          1.4p



                                                    (7.14)        (7.15)
                                                   1H 2005       1H 2004
                                                     $'000         $'000

ARM reported dollar revenues                        65,346       127,596
Artisan reported dollar revenues (quarter/half year
ended 30 June 2004)                                 21,973        43,341
Aggregate ARM and Artisan dollar revenues           87,319       170,937

Appendix - additional notes to the IFRS statements


1. The Company and a summary of its significant accounting policies

The business of the Company ARM Holdings plc and its subsidiary companies ("ARM"
or "the Company") design reduced instruction set computing (RISC)
microprocessors and related technology and software, and sell Development
Systems, to enhance the performance, cost-effectiveness and power-efficiency of
high-volume embedded applications. The Company licences and sells its technology
and products to leading international electronics companies, which in turn
manufacture, market and sell microprocessors, application-specific integrated
circuits (ASICs) and application-specific standard processors (ASSPs) based on
the Company's architecture to systems companies for incorporation into a wide
variety of end products. By creating a network of Partners, and working with
them to best utilise the Company's technology, the Company is establishing its
architecture as a RISC processor for use in many high-volume embedded
microprocessor applications, including digital cellular phones, modems and
automotive functions and for potential use in many growing markets, including
smart cards and digital video. The Company also licences and sells Development
Systems direct to systems companies and provides consulting and support services
to its licensees, systems companies and other systems designers. The Company's
principal geographic markets are Europe, the US and Asia Pacific.

Incorporation and history ARM is a public limited company incorporated under the
laws of England and Wales. The Company was formed on 16 October 1990, as a joint
venture between Apple Computer (UK) Limited, and Acorn Computers Limited, and
operated under the name Advanced RISC Machines Holdings Limited until 10 March
1998, when its name was changed to ARM Holdings plc. Its initial public offering
was on 17 April 1998.

The Company's wholly-owned undertakings include ARM Limited (incorporated in the
UK), ARM, Inc. (incorporated in the US), ARM Physical IP Inc. (formerly Artisan
Components Inc., incorporated in the US), Axys Design Automation Inc.
(incorporated in the US), ARM KK (incorporated in Japan), ARM Korea Limited
(incorporated in South Korea), ARM France SAS (incorporated in France), ARM
Belgium N.V. (incorporated in Belgium), ARM Taiwan Limited (incorporated in
Taiwan), ARM Consulting (Shanghai) Co. Limited (incorporated in PR China) and
ARM Embedded Solutions Pvt. Ltd. (incorporated in India).

Basis of preparation These interim financial statements have been prepared in
accordance with the accounting policies the Company expects to adopt in its 2005
annual report. These accounting policies are based on the IASs, IFRSs and IFRIC
interpretations that the Company expects to be applicable at that time. The
IFRSs and IFRIC interpretations that will be applicable at 31 December 2005,
including those that will be applicable on an optional basis, are not known with
certainty at the time of preparing these interim financial statements.

The Company's consolidated financial statements were prepared in accordance with
UK GAAP until 31 December 2004. The Company has applied the same accounting
policies and methods of computation in these interim financial statements as
those published by the Company on 4 March 2005 within its 2004 Annual Report,
except as explained in notes 2 and 3 of this appendix, where the effects of
changes in accounting policies arising as a result of the adoption of IFRS are
set out. Reconciliations between previously reported financial statements
prepared under UK GAAP and the IFRS equivalents are presented for profit for the
year ended 31 December 2004 and the six months ended 30 June 2004 and net assets
as at 31 December 2004, 30 June 2004 and 1 January 2004. Further disclosures
required by IFRS 1 concerning the transition from UK GAAP to IFRS are also given
in notes 2 and 3 of this appendix.

IFRS 1 provides certain optional exemptions from full retrospective application
of all accounting standards effective at the Company's reporting date. As
discussed in more detail in the relevant sections below, the Company has taken
advantage of the exemptions relating to: business combinations, cumulative
translation differences and share-based payment transactions. The Company has
not taken advantage of the available optional exemption relating to fair value
measurement of financial assets and financial liabilities at initial
recognition.

These interim financial statements have been prepared under the historical cost
convention as modified by the revaluation of available-for-sale investments and
derivative instruments.

Use of estimates The preparation of these interim financial statements has
required management to make estimates and assumptions that affect the amounts
reported. Actual results could differ from these estimates. Significant
estimates in these interim financial statements include, but are not limited to,
revenue recognition, accounting for investments, provisions for income taxes,
allowance for doubtful debts, impairment of non-current assets, goodwill and
purchased intangible assets and contingencies and legal settlements.

Principles of consolidation The consolidated interim financial statements
incorporate the interim financial statements of the Company and all its
subsidiaries. Intra-group transactions, including sales, profits, receivables
and payables, have been eliminated on consolidation.

Business combinations The results of subsidiaries acquired in the period are
included in the income statement from the date they are acquired. On
acquisition, all of the subsidiaries' assets and liabilities that exist at the
date of acquisition are recorded at their fair values reflecting their condition
at that date.

Goodwill Goodwill represents the excess of the fair value of the consideration
paid on acquisition of a business over the fair value of the assets, including
any intangible assets identified and liabilities acquired. Goodwill is not
amortised but is measured at cost less impairment losses. In determining the
fair value of consideration, the fair value of equity issued is the market value
of equity at the date of completion, the fair value of share options assumed is
calculated using the Black Scholes valuation model, and the fair value of
contingent consideration is based upon whether the directors believe any
performance conditions will be met and thus whether any further consideration
will be payable.

As permitted by IFRS 1, goodwill arising on acquisitions before 1 January 2004
(date of transition to IFRS) has been frozen at the UK GAAP amounts subject to
being tested for impairment at that date. Goodwill is tested for impairment at
least annually. The Company performs its annual impairment review at the
cash-generating unit level. For 2004, goodwill was assigned to the
cash-generating units of the Company. The subsequent impairment test showed no
impairment with respect to goodwill.

Available-for-sale investments Publicly traded investments are classified as
available-for-sale and are carried at market value. Unrealised holding gains or
losses on such securities are included, net of related taxes, directly in equity
via a revaluation reserve. Impairment losses and realised gains and losses of
such securities are reported in earnings. Equity securities that are not
publicly traded are also classified as available-for-sale and are recorded at
fair value. At 30 June 2005 and 2004 and at 31 December 2004, the estimated fair
value of these investments approximated to cost less any permanent diminution in
value, based on estimates determined by management. The Company has applied the
provisions of IAS 32, "Financial Instruments: disclosure and presentation", and
IAS 39, "Financial Instruments: recognition and measurement", from the date of
transition to IFRS and has therefore not taken advantage of the optional
exemption available under IFRS 1, under which the Company could have elected to
apply these standards only from 1 January 2005.

Research and development expenditure All on-going research expenditure is
expensed in the period in which it is incurred. Where a product is technically
feasible, production and sale are intended, a market exists, and sufficient
resources are available to complete the project, development costs are
capitalised and amortised on a straight-line basis over the estimated useful
life of the respective product. The Company believes its current process for
developing products is essentially completed concurrently with the establishment
of technological feasibility which is evidenced by a working model. Accordingly,
development costs incurred after the establishment of technological feasibility
have not been significant and, therefore, no costs have been capitalized to
date. Where no internally-generated intangible asset can be recognised,
development expenditure is recognised as an expense in the period in which it is
incurred.

Impairment charges The Company considers at each reporting date whether there is
any indication that non-current assets are impaired. If there is such an
indication, the Company carries out an impairment test by measuring the assets'
recoverable amount, which is the higher of the assets' fair value less costs to
sell and their value in use. If the recoverable amount is less than the carrying
amount an impairment loss is recognised, and the assets are written down to
their recoverable amount.

Revenue recognition The Company follows the principles of IAS 18, "Revenue
recognition", in determining appropriate revenue recognition policies. In
principle, therefore, revenue is recognised to the extent that it is probable
that the economic benefits associated with the transaction will flow into the
Company.

Revenue (excluding VAT) comprises the value of sales of licences, royalties
arising from the resulting sale of licensees' ARM-based products, revenues from
support, maintenance and training, consulting contracts and the sale of boards
and software toolkits.

Revenue from standard licence products which are not modified to meet the
specific requirements of each customer is recognised when the risks and rewards
of ownership of the product are transferred to the customer.

Many licence agreements are for products which are designed to meet the specific
requirements of each customer. Revenue from the sale of such licences is
recognised on a percentage of completion basis over the period from signing of
the licence to customer acceptance. Under the percentage of completion method,
provisions for estimated losses on uncompleted contracts are recognised in the
period in which the likelihood of such losses is determined. The percentage of
completion is measured by monitoring progress using records of actual time
incurred to date in the project compared with the total estimated project
requirement, which approximates to the extent of performance.

Where invoicing milestones on licence arrangements are such that the proportion
of work performed (calculated on the cost basis described above) is greater than
the proportion of the total contract value which has been invoiced, the Company
evaluates whether it has obtained, through its performance to date, the
probability that the economic benefits associated with the transaction will flow
into the Company and therefore whether revenue should be recognised prior to the
issuance of invoices. In particular, it considers:

- whether there is sufficient certainty that the invoice will be raised 
  in the expected timeframe, particularly where the invoicing milestone 
  is in some way dependent on customer activity; and
- whether it has sufficient evidence that the customer considers that the
  Company's contractual obligations have been, or will be, fulfilled; and
- whether there is sufficient certainty that only those costs budgeted 
  to be incurred will indeed be incurred before the customer will accept 
  that a future invoice may be raised; and
- the extent to which previous experience with similar product groups and
  similar customers support the conclusions reached.

Where the Company considers that there is insufficient evidence that it is
probable that the economic benefits associated with the transaction will flow
into the Company, taking into account these criteria, revenue is not recognised
until there is sufficient evidence that it is probable that the economic
benefits associated with the transaction will flow into the Company. If the
amount of revenue recognised exceeds the amounts invoiced to customers, the
excess amount is recorded as amounts recoverable on contracts within debtors.

Where agreements involve several components, the entire fee from such
arrangements has been allocated to each of the individual components based on
each component's fair value. Vendor-specific objective evidence (VSOE) of fair
value is determined by reference to licence agreements with other customers
where components are sold separately.

Agreements including rights to unspecified products are accounted for using
subscription accounting, revenue from the arrangement being recognised on a
straight-line basis over the term of the arrangement, or an estimate of the
economic life of the products offered, beginning with the delivery of the first
product.

Certain products have been co-developed by the Company and a collaborative
partner, with both parties retaining the right to sell licences to the product.
In those cases where the Company makes sales of these products and is exposed to
the significant risks and benefits associated with the transaction, the total
value of the licence is recorded as revenue and the amount payable to the
collaborative partner is recorded as cost of sales. Where the collaborative
partner makes sales of these products, the Company records as revenue the
commission it is due when informed by the collaborative partner that a sale has
been made and cash has been collected.

In addition to the licence fees, contracts generally contain an agreement to
provide post-contract support (support, maintenance and training) (PCS) which
consists of an identified customer contact at the Company and telephonic or
e-mail support. Fees for post contract support which take place after customer
acceptance are specified in the contract. Revenue related to PCS is recognised
based on VSOE, which is determined with reference to contractual renewal rates,
or, if none are specified, by reference to the rates actually charged on renewal
PCS arrangements for the same level of support and for the same or similar
technologies. Revenue for PCS is recognised on a straight-line basis over the
period for which support and maintenance is contractually agreed by the Company
with the licensee.

The excess of licence fees and post-contract support invoiced over revenue
recognised is recorded as deferred revenue.

Sales of software, including development systems, which are not specifically
designed for a given licence (such as off-the-shelf software) are recognised
upon delivery, when the significant risks and rewards of ownership have been
transferred to the customer. At that time, the Company has no further
obligations except that, where necessary, the costs associated with providing
post contract support have been accrued. Services (such as training) that the
Company provides which are not essential to the functionality of the IP are
separately stated and priced in the contract and, therefore, accounted for
separately. Revenue is recognised as services are performed and it is probable
that the economic benefits associated with the transaction will flow into the
Company.

Royalty revenues are earned on sales by the Company's customers of products
containing ARM technology. Revenues are recognised when ARM receives
notification from the customer of product sales, or receives payment of any
fixed royalties, normally quarterly in arrears.

Revenue from consulting is recognised when the service has been provided and all
obligations to the customer under the consulting agreement have been fulfilled.
For larger consulting projects containing several project milestones, revenue is
recognised on a percentage of completion basis as milestones are achieved.
Consulting costs are recognised when incurred.

The Company makes significant estimates in applying its revenue recognition
policies. In particular, as discussed in detail above, estimates are made in
relation to the use of the percentage of completion accounting method, which
requires that the extent of progress toward completion of contracts may be
anticipated with reasonable certainty. The use of the percentage of completion
method is itself based on the assumption that, at the outset of licence
agreements, customer acceptance is not uncertain. In addition, when allocating
revenue to various components of arrangements involving several components, it
is assumed that the fair value of each element is reflected by its price when
sold separately. The complexity of the estimation process and issues related to
the assumptions, risks and uncertainties inherent with the application of the
revenue recognition policies affect the amounts reported in the financial
statements. If different assumptions were used, it is possible that different
amounts would be reported in the financial statements.

Government grants Grants in respect of specific research and development
projects are credited to research and development costs within the income
statement to match the projects' related expenditure.

Retirement benefit costs The Company contributes to defined contribution plans
substantially covering all employees in Europe and the US and to government
pension schemes for employees in Japan, South Korea, Taiwan, PR China and
Israel. The Company contributes to these plans based upon various fixed
percentages of employee compensation, and such contributions are expensed as
incurred.

Cash and cash equivalents The Company considers all highly liquid investments
with original maturity dates of three months or less to be cash equivalents.

Short-term investments and marketable securities The company considers all
highly liquid investments with original maturity dates of greater than three
months but less than one year to be short-term investments. Any investments with
a maturity date of greater than one year from the balance sheet date are
classified as long-term.

Allowance for doubtful debts Trade receivables are first assessed individually
for impairment, or collectively where the receivables are not individually
significant. Where there is no objective evidence of impairment for an
individual receivable, it is included in a group of receivables with similar
credit risk characteristics and these are collectively assessed for impairment.
Movements in the provision for doubtful debts are recorded in the income
statement.

Inventory Inventory is stated at the lower of cost and net realisable value. In
general, cost is determined on a first-in-first-out basis and includes transport
and handling costs. Where necessary, provision is made for obsolete, slow-moving
and defective inventory.

Property, plant and equipment The cost of property and equipment is their
purchase cost, together with any incidental costs of acquisition. External costs
and internal costs are capitalised to the extent they enhance the future
economic benefit of the asset.
Depreciation is calculated so as to write off the cost of property and
equipment, less their estimated residual values, which are adjusted, if
appropriate, at each balance sheet date, on a straight-line basis over the
expected useful economic lives of the assets concerned. The principal economic
lives used for this purpose are:

Freehold buildings      25 years

Leasehold improvements  Five years or term of lease, whichever is shorter

Computers               Three to five years

Fixtures and fittings   Five to ten years

Motor vehicles          Four years

Provision is made against the carrying value of property and equipment where an
impairment in value is deemed to have occurred.

Acquired intangible assets Computer software, purchased patents and licences to
use technology are capitalised at cost and amortised on a straight-line basis
over a prudent estimate of the time that the Company is expected to benefit from
them, which is typically three to five years. Costs that are directly
attributable to the development of new business application software and which
are incurred during the period prior to the date that the software is placed
into operational use, are capitalised. External costs and internal costs are
capitalised to the extent they enhance the future economic benefit of the asset.

Although an independent valuation is made of any intangible assets purchased as
part of a business combination, management is primarily responsible for
determining the fair value of intangible assets. Such assets are capitalised and
amortized over a period of one to six years, being a prudent estimate of the
time that the Company is expected to benefit from them.

In-process research and development projects purchased as part of a business
combination may meet the criteria set out in IFRS 3, "Business combinations",
for recognition as intangible assets other than goodwill. Management tracks the
status of in-process research and development intangible assets such that their
amortisation commences when the assets are brought into use. This typically
means a write-off period of one to five years.

Operating leases Costs in respect of operating leases are charged on a
straight-line basis over the lease term even if payments are not made on such a
basis.

Currency translation The functional currency of each group entity is the
currency of the primary economic environment in which each entity operates.
These interim financial statements are presented in sterling, which is the
presentation currency of the Company.

Transactions denominated in foreign currencies have been translated into the
functional currency of each group entity at actual rates of exchange ruling at
the date of transaction. Monetary assets and liabilities denominated in foreign
currencies have been translated at rates ruling at the balance sheet date. Such
exchange differences have been included in general and administrative costs.

The assets and liabilities of subsidiaries denominated in foreign currencies are
translated into sterling at rates of exchange ruling at the balance sheet date.
Income statements of overseas subsidiaries are translated at the average monthly
exchange rates during the period. Translation differences are taken directly to
equity via the cumulative translation adjustment. On disposal of a subsidiary
such amounts are recycled to the income statement.

Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.

As permitted by IFRS 1, the balance on the cumulative translation adjustment on
retranslation of subsidiaries' net assets has been set to zero at the date of
transition to IFRS.

Derivative financial instruments The Company utilises forward exchange contracts
to manage the exchange risk on actual transactions related to accounts
receivable, denominated in a currency other than the functional currency of the
business. The Company's forward exchange contracts do not subject the Company to
risk from exchange rate movements because the gains and losses on such contracts
offset losses and gains, respectively, on the transactions being hedged. The
forward contracts and related accounts receivable are recorded at fair value at
each period end. Fair value is estimated using the settlement rates prevailing
at the period end. All recognised gains and losses resulting from the settlement
of the contracts are recorded within general and administrative costs in the
income statement. The Company does not enter into foreign exchange contracts for
the purpose of hedging anticipated transactions.

Embedded derivatives From time to time, the company enters into sales contracts
denominated in a currency (typically US dollars) that is neither the functional
currency of the Company nor the functional currency of the customer. Where there
are uninvoiced amounts on such contracts, the Company carries such derivatives
at fair value. The resulting gain or loss is recognised in the income statement
under general and administrative costs.

Income taxes Income taxes are computed using the liability method. Under this
method, deferred tax assets and liabilities are determined based on temporary
differences between the financial reporting and tax bases of assets and
liabilities and are measured using enacted rates and laws that will be in effect
when the differences are expected to reverse. The deferred tax is not accounted
for if it arises from initial recognition of an asset or liability in a
transaction, other than a business combination, that at the time of the
transaction affects neither accounting nor taxable profit or loss. Valuation
allowances are established against deferred tax assets where it is more likely
than not that some portion or all of the asset will not be realised.

Deferred tax is provided on temporary differences arising on investments in
subsidiaries except where the timing of the reversal of the temporary difference
is controlled by the Company and it is probable that the temporary difference
will not reverse in the foreseeable future. Deferred tax assets and liabilities
arising in the same tax jurisdiction are off set.

In the UK and the US, the Company is entitled to a tax deduction for amounts
treated as compensation on exercise of certain employee share options under each
jurisdiction's tax rules. As explained under "Share-based payments" below, a
compensation expense is recorded in the Company's income statement over the
period from the grant date to the vesting date of the relevant options. As there
is a temporary difference between the accounting and tax bases, a deferred tax
asset is recorded. The deferred tax asset arising is calculated by comparing the
estimated amount of tax deduction to be obtained in the future (based on the
Company's share price at the balance sheet date) with the cumulative amount of
the compensation expense recorded in the income statement. If the amount of
estimated future tax deduction exceeds the cumulative amount of the remuneration
expense at the statutory rate, the excess is recorded directly in equity,
against retained earnings.

As explained under "Share-based payments" below, no compensation charge is
recorded in respect of options granted before 7 November 2002 or in respect of
those options which have been exercised or have lapsed before 1 January 2005.
Nevertheless, tax deductions have arisen and will continue to arise on these
options. The tax effects arising in relation to these options are recorded
directly in equity, against retained earnings.

Earnings per share Basic earnings per share is calculated by dividing the
earnings attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the period, excluding those held in the ESOP and
the QUEST which are treated as cancelled. For diluted earnings per share, the
weighted number of ordinary shares in issue is adjusted to assume conversion of
all dilutive potential ordinary shares.

Share-based payments The Company issues equity-settled share-based payments to
certain employees. In accordance with IFRS 2, "Share-based payments",
equity-settled share-based payments are measured at fair value at the date of
grant. Fair value is measured by use of the Black-Scholes pricing model. The
fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based on
the Company's estimate of the number of shares that will eventually vest.

The Company operates Save As You Earn (SAYE) schemes in the UK and an Employee
Share Purchase Plan (ESPP) in the US. Options under these schemes are granted at
a 15% discount to market price of the underlying shares on the date of grant.
The UK SAYE schemes are approved by the Inland Revenue, which stipulates that
the saving period must be at least 36 months. The Company has recognised a
compensation charge in respect of the UK SAYE plans and US ESPPs. The charges
for these are calculated as detailed above.

The Company also has an LTIP on which it is also required to recognise a
compensation charge under IFRS 2, calculated as detailed above.

The Company has applied the exemption available, and has applied the provisions
of IFRS 2 only to those options granted after 7 November 2002 and which were
outstanding at 31 December 2004.

Employer's taxes on share options Employer's National Insurance in the UK and
equivalent taxes in other jurisdictions are payable on the exercise of certain
share options. In accordance with IFRS 2, this is treated as a cash-settled
transaction. A provision is made, calculated using the fair value of the
Company's shares at the balance sheet date, pro-rated over the vesting period of
the options.

Employee share ownership plans The Company's Employee Share Ownership Plan
(ESOP) and Qualifying Employee Share Ownership Trust (QUEST) are separately
administered trusts which are funded by loans (the ESOP) and loans and gifts
(the QUEST) from the Company, and the assets of which comprise shares in the
Company. The Company recognises the assets and liabilities of the ESOP and the
QUEST in its own accounts and shares held by the trusts are recorded at cost as
a deduction in arriving at shareholders' funds until such time as the shares
vest conditionally to employees.

Investment income Investment income relates to interest income, which is accrued
on a time basis, by reference to the principal outstanding and at the effective
interest rate applicable.

Equity instruments Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.

Dividends payable Distributions to equity holders are not recognised in the
income statement under IFRS, but are disclosed as a component of the movement in
shareholders' equity. A liability is recorded for a final dividend when the
dividend is approved by the Company's shareholders, and, for an interim
dividend, when the dividend is paid.

Provisions Provisions for restructuring costs and legal claims are recognised
when: the Company has a present legal or constructive obligation as a result of
past events; it is more likely than not that an outflow of resources will be
required to settle the obligation; and the amount has been reliably estimated.
Restructuring provisions comprise lease termination penalties and employee
termination payments. Provisions are not recognised for future operating losses.

Interim measurement note

(a) Current tax Current income tax expense is recognised in these interim
financial statements based on management's best estimates of the weighted
average annual income tax rate expected for the full financial year.

(b) Costs Costs that are incurred unevenly during the financial year are
anticipated or deferred in the interim report only if it would also be
appropriate to anticipate or defer such costs at the end of the financial year.

2. Explanation of transition to IFRS

The Company's financial statements for the year ending 31 December 2005 will be
the first annual financial statements that comply with IFRS. These interim
financial statements have been prepared as described in note 1 of this appendix.
The Company has applied IFRS 1 in preparing these interim financial statements.
The last financial statements under UK GAAP were for the year ended 31 December
2004 and the date of transition was therefore 1 January 2004. Presented below
are the reconciliation of profit for the year ended 2004 and the reconciliations
of equity at 1 January 2004 (date of transition to IFRS) and at 31 December 2004
(date of last UK GAAP financial statements) as required by IFRS 1. In addition,
the reconciliation of equity at 30 June 2004 and the reconciliation of profit
for the six months ended 30 June 2004 have been included below as required by
IFRS 1 to enable a comparison of the 2005 interim figures with those published
in the corresponding period of the previous financial year. For explanations of
the nature and effect of the changes in accounting policies as a consequence of
the transition to IFRS, refer to note 3 of this appendix.


(i) Reconciliations of UK GAAP profit and loss account to IFRS income statement
                      Six months ended 30 June 2004 (date of 
                          corresponding interim financial 
                                       statements)
                                          Effect of     
                                  UK  transition to
                                GAAP           IFRS        IFRS
                           Unaudited      Unaudited   Unaudited 
               Notes         GBP'000        GBP'000     GBP'000
                           
Total revenues                71,928              -      71,928
Total cost of
revenues       j             (5,227)          (204)     (5,431)

Gross profit                  66,701          (204)      66,497

Operating
expenses
Research and
development    b,j          (24,455)        (1,973)    (26,428)
Sales and
marketing      b,j          (11,553)          (663)    (12,216)
General and
administrative a,b,e,j,l    (13,341)          (856)    (14,197)

Total
operating
expenses                    (49,349)        (3,492)      52,841

Profit from
operations                    17,352        (3,696)      13,656
Investment
income                         3,142             -        3,142

Profit before
tax                           20,494       (3,696)       16,798
Tax            b,j           (5,731)           281      (5,450)

Profit after
tax                           14,763       (3,415)       11,348

Dividend       f             (2,884)         2,884            -
Profit for
period                        11,879         (531)       11,348



                         Year ended 31 December 2004 (end of last 
                                period presented under UK GAAP)
                                          Effect of     
                                  UK  transition to
                                GAAP           IFRS        IFRS
                             Audited      Unaudited   Unaudited 
               Notes         GBP'000        GBP'000     GBP'000

Total revenues               152,897              -     152,897
Total cost of
revenues       j            (11,799)          (441)    (12,240)

Gross profit                 141,098          (441)     140,657

Operating
expenses
Research and
development    b,j          (50,133)        (4,541)    (54,674)
Sales and
marketing      b,j          (23,899)        (1,647)    (25,546)
General and
administrative a,b,e,j,l    (31,845)          (263)    (32,108)

Total
operating
expenses                   (105,877)        (6,451)   (112,328)

Profit from
operations                    35,221        (6,892)      28,329
Investment
income                         6,944              -       6,944

Profit before
tax                           42,165        (6,892)      35,273
Tax            b,j          (10,153)            755     (9,398)

Profit after
tax                           32,012        (6,137)      25,875

Dividend       f             (8,542)          8,542           -
Profit for
period                        23,470          2,405      25,875


(ii) Reconciliation of UK GAAP profit to IFRS profit



                            Notes   Six months                Year
                                         ended               ended
                                       30 June         31 December
                                          2004                2004
                                       GBP'000             GBP'000
Profit for
period as
reported under
UK GAAP                                 11,879              23,470
Adjustments for:
Amortisation
of recognised
intangibles on
Axys
acquisition                 b                -               (167)
Amortisation
of recognised
intangibles on
Artisan
acquisition                 b                -               (344)
Deferred tax
on intangibles              b,g              -                 204
Goodwill not
amortised
after date of
transition                  a              268               2,103
Dividends
taken directly
to equity                   f            2,884               8,542
Embedded
derivatives
measured at
fair value                  e            (179)               (732)
Deduct: IFRS
compensation
charge in
respect of all
share-based
payments                    j          (3,618)             (7,855)
Add: UK GAAP
compensation
charge in
respect of
LTIP                        j              225                 495
Deferred tax
on share-based
payments                    j              281                 551
Impairment of
available-for-
sale
investment                  l            (392)               (392)

Profit for
period as
reported under
IFRS                                    11,348              25,875


(iii) Reconciliations of equity at 1 January 2004 and 31 December 2004 from UK
GAAP to IFRS


                                         As at 1 January 2004
                                               Effect of     
                                        UK transition to
                                      GAAP          IFRS         IFRS
                                   Audited     Unaudited    Unaudited 
                       Notes       GBP'000       GBP'000      GBP'000

Assets
Current assets:
Cash and cash
equivalents              m,n        30,123        100,599     130,722
Short-term
investments              m,n       129,663      (100,599)      29,064
Marketable securities    m,n             -              -           -
Accounts
receivable                          17,320              -      17,320
Inventories:
finished goods                         931              -         931
Prepaid
expenses and
other assets             k           8,924              -       8,924
Deferred tax
assets                   g,j         3,585        (3,585)           -
Total current
assets                             190,546        (3,585)     186,961

Non-current assets
Long-term marketable                     -              -           -
securities
Property,
plant and
equipment                c          16,583         (6,408)     10,175
Goodwill                 a           2,091               -      2,091
Other
intangible
assets                   b,c         5,456           6,408     11,864
Available-for-
sale
investments              d           4,759           1,487      6,246
Deferred tax
assets                   g,j             -           5,980      5,980
Total
non-current
assets                              28,889           7,467     36,356

Total assets                       219,435           3,882    223,317

Liabilities and shareholders' equity
Current liabilities:
Accounts
payable                              2,691               -      2,691
Current tax
liabilities                          3,140               -      3,140
Accrued and
other
liabilities              e,h        15,868           2,154     18,022
Deferred
revenue                  k          11,132               -     11,132
Dividends to
shareholders             f           6,106         (6,106)          -
Total current
liabilities                         38,937         (3,952)     34,985

Net current
assets                             151,609             367    151,976

Non-current liabilities:

Deferred tax             g               -               -          -
liabilities
Provisions               h              63            (63)          -
Long-term other                          -               -          -
payables

Total
liabilities                         39,000         (4,015)     34,985

Net assets                         180,435           7,897    188,332

Shareholders' equity
Share capital                          512               -        512
Share premium
account                             81,137               -     81,137
Share option reserve                     -               -          -
Retained
earnings         a,b,e,f,j,l       100,874           4,768    105,642
Revaluation
reserve                  d,l             -           1,041      1,041
Cumulative
translation
adjustment               b,i       (2,088)           2,088         -
Total equity                       180,435           7,897   188,332



                                     As at 31 December 2004

                                               Effect of     
                                        UK transition to
                                      GAAP          IFRS         IFRS
                                   Audited     Unaudited    Unaudited 
                       Notes       GBP'000       GBP'000      GBP'000

Assets
Current assets:
Cash and cash
equivalents            m,n          78,193        32,368      110,561
Short-term
investments            m,n          59,186      (53,879)        5,307
Marketable
securities             m,n               -        21,511       21,511
Accounts
receivable                          34,347             -       34,347
Inventories:
finished goods                         897             -          897
Prepaid
expenses and
other assets           k            16,448         (447)       16,001
Deferred tax
assets                 g,j          20,832      (20,832)            -
Total current
assets                             209,903      (21,279)      188,624

Non-current assets
Long-term
marketable
securities                           5,438             -        5,438
Property,
plant and
equipment              c            14,117       (5,021)        9,096
Goodwill               a           459,413      (42,334)      417,079
Other
intangible
assets                 b,c           2,995        81,042       84,037
Available-for-
sale
investments            d             5,313         6,922       12,235
Deferred tax
assets                 g,j               -         2,396        2,396
Total
non-current
assets                             487,276        43,005      530,281

Total assets                       697,179        21,726      718,905

Liabilities and shareholders'
equity
Current liabilities:
Accounts
payable                                4,110           -        4,110
Current tax
liabilities                            6,345           -        6,345
Accrued and
other
liabilities            e,h            38,463       3,586       42,049
Deferred
revenue                k              22,301       (946)       21,355
Dividends to
shareholders           f               5,673     (5,673)            -
Total current
liabilities                           76,892     (3,033)       73,859

Net current
assets                               133,011    (18,246)      114,765

Non-current
liabilities:
Deferred tax
liabilities            g                   -         776          776
Provisions             h                  27        (27)            -
Long-term
other payables                         1,732           -        1,732

Total
liabilities                           78,651     (2,284)       76,367

Net assets                           618,528      24,010      642,538

Shareholders' equity
Share capital                            675           -          675
Share premium
account                              434,026           -      434,026
Share option
reserve                               61,474           -       61,474
Retained
earnings               a,b,e,f,j,l   124,851      15,440      140,291
Revaluation
reserve                d,l                 -       5,237        5,237
Cumulative
translation
adjustment             b,i           (2,498)       3,333          835
Total equity                         618,528      24,010      642,538



(iv) Reconciliation of equity as at 30 June 2004 from UK GAAP to IFRS



                                               Effect of     
                                        UK transition to
                                      GAAP          IFRS         IFRS
                                 Unaudited     Unaudited    Unaudited 
                       Notes       GBP'000       GBP'000      GBP'000

Assets
Current assets:
Cash and cash
equivalents            m,n          15,202        85,054      100,256
Short-term
investments            m,n         151,095      (85,054)       66,041
Accounts
receivable                          25,251             -       25,251
Inventories:
finished goods                       1,025             -        1,025
Prepaid
expenses and
other assets                        9,978              -        9,978
Deferred tax
assets                 g,j          4,084        (4,084)            -
Total current
assets                            206,635        (4,084)      202,551

Non-current assets
Property,
plant and
equipment              c           12,678        (4,212)        8,466
Goodwill               a            1,823            268        2,091
Other
intangible
assets                 b,c          4,316          4,212        8,528
Available-for-
sale
investments            d            5,263          3,280        8,543
Deferred to
assets                 g,j              -          6,189        6,189
Total
non-current
assets                             24,080          9,737       33,817

Total assets                      230,715          5,653      236,368

Current liabilities
Accounts
payable                             2,813              -        2,813
Current tax
liabilities                         6,252                       6,252
Accrued and
other
liabilities            e,h         12,510          2,299       14,809
Deferred
revenue                            12,632              -       12,632
Dividends to
shareholders           f            2,872        (2,872)            -
Total current
liabilities                        37,079          (573)       36,506

Net current
assets                            169,556        (3,511)      166,045

Non-current
liabilities:
Provisions             h               29           (29)            -

Total
liabilities                        37,108          (602)       36,506

Net assets                        193,607          6,255      199,862

Share capital                        513               -          513
Share premium
account                           82,326               -       82,326
Retained
earnings      a,b,e,f,j,l        112,978           1,479      114,457
Revaluation
reserve                d,l             -           2,688        2,688
Cumulative
translation
adjustment             b,i       (2,210)           2,088        (122)
Total equity                     193,607           6,255      199,862


(v) Reconciliation of equity from UK GAAP to IFRS



                              1 January       30 June     31 December
                                   2004          2004            2004
                      Notes     GBP'000       GBP'000         GBP'000
Total equity
as reported
under UK GAAP                   180,435       193,607         618,528
Adjustments for:
Amortisation
of recognised
intangibles on
Axys
acquisition           b               -             -           (167)
Amortisation
of recognised
intangibles on
Artisan
acquisition           b               -             -           (344)
Deferred tax
on intangibles        g               -             -             204
Goodwill not
amortised
after date of
transition            a               -           268           2,103
Dividends not
recognised as
liability
until declared        f           6,106         2,872           5,673
Available-for-
sale
investments
measured at
fair value            d           1,487         3,280           6,922
Deferred tax
on
available-for-
sale
investments           g           (446)          (984)        (2,077)
Deferred tax
on share-based
payments              g,j         2,841          3,089        13,274
Embedded
derivatives
measured at
fair value            e         (2,091)        (2,270)       (2,823)
Foreign
exchange on
valuation of
intangible
assets                b               -              -        1,245

Total equity
as reported
under IFRS                      188,332        199,862      642,538


(vi) Reconciliation of goodwill from UK GAAP to IFRS



                              1 January        30 June  31 December
                                   2004           2004         2004
                      Notes     GBP'000        GBP'000      GBP'000
Goodwill as
reported under
UK GAAP                           2,091          1,823      459,413
Adjustments for:
Amendments to
provisional
fair values           a               -              -         736
Cumulative
difference on
amortisation
of goodwill           a               -            268       2,103
Separately
identifiable
intangible
assets (net of
deferred tax)         b               -              -    (45,996)
Fair value of
deferred
revenue and
costs                 k               -              -       (499)
Foreign
exchange on
valuation of
intangible
assets                b               -              -       1,322

Goodwill as
reported under
IFRS                              2,091          2,091     417,079


3. Explanation of material adjustments to equity at 31 December 2004, 30 June
2004 and 1 January 2004 and to profit for the year ended 31 December 2004 and
for the six months ended 30 June 2004

The transition to IFRS resulted in the following changes in accounting policies:

a.        Goodwill Goodwill is not amortised under IFRS but is measured at cost
less impairment losses. Under UK GAAP, goodwill was amortised on a straight-line
basis over an estimate of the time the Company was to benefit from it. The
change does not affect equity at 1 January 2004 because, as permitted by IFRS 1,
goodwill arising on acquisitions before 1 January 2004 (date of transition to
IFRS) has been frozen at the UK GAAP amounts subject to being tested for
impairment at that date, the results of which assessment indicated no such
impairment.

The 2004 annual report included a provisional assessment of the fair values of
assets and liabilities acquired on acquisition of Artisan Components Inc. on 23
December 2004. Where these provisional values have been amended as estimates
have been refined in 2005, adjustments to fair values have been recorded as
prior year adjustments to goodwill for IFRS purposes. This would not have been
the case under UK GAAP.

b.       Other intangible assets Under IFRS, intangible assets purchased as part
of a business combination may meet the criteria set out in IFRS 3 for
categorisation as intangible assets other than goodwill and are amortised over
their useful economic lives. Under UK GAAP, intangible assets purchased as part
of a business combination are included within the goodwill balance unless the
asset can be identified and sold separately without disposing of the business as
a whole. In August and December 2004, the Company acquired 100% of the issued
share capital of Axys Design Automation Inc. and Artisan Components Inc.
respectively. Both of these business combinations have been accounted for under
IFRS 3. The Company has taken advantage of the exemption under IFRS 1 not to
apply IFRS retrospectively to business combinations occurring before 1 January
2004, the date of transition to IFRS. Thus, at 31 December 2004, GBP76,658,000
of intangible assets recognisable under IFRS 3, but subsumed within goodwill
under UK GAAP, have been reclassified as intangible assets. Amortisation expense
in respect of these intangible assets has decreased profit for the year ended 31
December 2004 by GBP511,000.

Under IFRS, the difference between the book value of the intangible assets for
accounting purposes and the tax value of these assets gives rise to a temporary
difference. A deferred tax liability of GBP30,409,000 at 31 December 2004 has
therefore been recorded. The deferred tax liability is released to the income
statement in proportion to the amortisation of the related intangibles. The
impact is to increase the profit for the year ended 31 December 2004 by
GBP204,000.

As intangible assets and goodwill arising on overseas acquisitions are treated
as foreign currency assets of the acquired entities under IFRS (but not under
the Company's UK GAAP accounting policies), related foreign exchange movements
have been recorded in reserves.

c.        Computer software Under IFRS, computer software is classified within
intangible assets. Under UK GAAP, computer software was classified as a tangible
fixed asset. This change in accounting policy has resulted in a reclassification
between plant, property and equipment and intangibles at 31 December 2004, 30
June 2004 and 1 January 2004.

d.       Publicly traded investments Publicly traded investments are classified
as available-for-sale and are carried at fair value. Unrealised holding gains or
losses on such securities are included, net of related taxes, directly in equity
via a revaluation reserve. Impairment losses and realised gains and losses of
such securities are reported in earnings. Under UK GAAP, these investments were
carried at cost less any impairment charges.

e.        Embedded derivatives Under IFRS, where the Company enters into sales
contracts denominated in a currency that is neither the functional currency of
the Company nor the functional currency of the customer and where there are
uninvoiced amounts on such contracts, such derivatives are carried at fair
value. The resulting gain or loss is recognised in the income statement.
Embedded derivatives were not revalued to fair value under UK GAAP.

f.         Dividends payable Dividends to shareholders declared after the period
end but before the interim financial statements are authorised for issue are not
recognised as a liability at the balance sheet date. A liability for a final
dividend is recognised when the dividend is approved by shareholders; a
liability for an interim dividend is recognised when paid. Furthermore, under
IFRS, dividends are not shown in the income statement but are recorded directly
in reserves via retained earnings. Under UK GAAP, dividends declared after the
period end are recorded in the profit and loss account in the period to which
they relate.

g.       Deferred tax assets and liabilities As required by IAS 1, "Presentation
of financial statements", deferred tax assets and liabilities have been
classified as non-current assets and liabilities respectively. Under UK GAAP,
these were included within current assets and liabilities respectively.
Additionally, as required by IAS 12, "Income taxes", deferred tax liabilities
and assets have been offset where they arise in the same tax jurisdiction. Under
UK GAAP, there was no such right of offset. The transition to IFRS has increased
the Company's deferred tax assets and liabilities as follows:
                                       
                                        1 January   30 June  31 December
                                             2004      2004         2004
                            Notes         GBP'000   GBP'000      GBP'000
Deferred tax
assets as
reported under
UK GAAP                                     3,585     4,084       20,832
Adjustment for:
Deferred tax
on share-based
payments                        j           2,841     3,089       13,274
Deferred tax
arising on
available-for-
sale
investments
measured at
fair value                      d           (446)     (984)      (2,077)
Netting-off of
deferred tax
assets and
liabilities
arising in
same tax
jurisdiction                    g               -         -     (29,633)

Deferred tax
assets as
reported under
IFRS                                        5,980     6,189        2,396

Deferred tax liabilities 
as reported under                               -         -            -
UK GAAP
Adjustments for:
Deferred tax
liability
arising on
recognition of
intangibles on
Axys
acquisition                     b               -         -          795
Deferred tax
liability
arising on
recognition of
intangibles on
Artisan
acquisition                     b               -         -       29,614
Netting-off of
deferred tax
assets and
liabilities
arising in
same tax     
jurisdiction                    g                               (29,633)

Deferred tax
liabilities as
reported under
IFRS                                            -         -          776

h.       Employer's taxes on share options Under IFRS, employer's taxes that are
payable on the exercise of share options are calculated using the fair value of
the Company's shares at the balance sheet date, pro-rated over the vesting
period of the options. Under UK GAAP, this calculation uses the market value of
the Company's shares at the balance sheet date. Additionally, under UK GAAP,
employer's taxes that are payable on the exercise of share options are included
within provisions for liabilities and charges. Under IFRS, this is included
within accrued and other liabilities.

i.         Other reserves As permitted by IFRS 1, the cumulative translation
adjustment has been re-set to zero as at 1 January 2004. This has had no effect
on net equity but has decreased retained earnings by GBP2,088,000 as at December
2004, 30 June 2004 and 1 January 2004 with matching offsetting adjustments to
the cumulative translation adjustment.

j.         Share-based payments The Company issues equity-settled share-based
payments to certain employees. In accordance with IFRS 2 equity-settled
share-based payments are measured at fair value at the date of grant, in respect
of options granted after 7 November 2002 and which were outstanding at 31
December 2004. The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the vesting
period, based on the Company's estimate of the shares that will eventually vest.
Under UK GAAP, the charge recorded represented the difference between the share
price at the date of grant and the exercise price of the option. In addition,
the Company took advantage of an exemption under which no charge was made in
respect of SAYE options. Thus, under UK GAAP, a charge was made only in respect
of the LTIP with no other share-based payments charges being recognised.

As a consequence of accounting for share-based payments, a temporary difference
between the accounting and tax bases arises, and a deferred tax asset is
recorded. The deferred tax asset arising is calculated by comparing the
estimated amount of tax deduction to be obtained in the future (based on the
Company's share price at the balance sheet date) with the cumulative amount of
the compensation expense recorded in the income statement. If the amount of
estimated future tax deduction exceeds the cumulative amount of the remuneration
expense at the statutory rate, the excess is recorded directly in equity,
against retained earnings.

k.        Prepayments and deferred revenue The conventions under which the fair
value of assets acquired and liabilities assumed in a business combination is
determined differ between IFRS and UK GAAP. This has given rise to a difference
in the fair value of prepayments and deferred revenue purchased as part of the
Artisan acquisition.

l.         Reversal of impairments In 2004, a previous impairment of an
available-for-sale investment was reversed. Under UK GAAP, this was taken as a
credit to the income statement. However, under IFRS, this was taken directly to
equity via the revaluation reserve.

m.      Cash Under IAS 7, "Cash flow statements", deposits with a maturity of
less than three months at inception which are convertible into known amounts of
cash are included as cash and cash equivalents. Deposits with a maturity at
inception of between three months and one year are shown as short-term
investments. Under UK GAAP, cash does not include short-term deposits and
investments which cannot be withdrawn without notice and without incurring a
penalty. Such items are shown as short-term investments.

n.       Changes to the cash flow statement The consolidated statement of cash
flows prepared under IFRS presents substantially the same information as that
required under UK GAAP.

Under IFRS only three categories of cash flow activity are required to be
reported: operating, investing and financing. Cash flows from returns on
investments and servicing of finance and cash flows from taxation shown under UK
GAAP are included as operating activities and investing activities respectively
under IFRS. There are no other material differences between the cash flow
statement presented under IFRS and the cash flow statement presented under UK
GAAP.

Independent review report to ARM Holdings plc

Introduction

We have been instructed by the Company to review the financial information for
the six months ended 30 June 2005 which comprises the IFRS consolidated income
statement, the IFRS consolidated cash flow statement, the IFRS consolidated
statement of changes in equity and the IFRS balance sheet at 30 June 2005. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.

Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority.

As disclosed in note 1, the next annual financial statements of the Group will
be prepared in accordance with accounting standards adopted for use in the
European Union. This interim report has been prepared in accordance with the
basis set out in Note 1.

The accounting policies are consistent with those that the directors intend to
use in the next annual financial statements. As explained in note 1, there is,
however, a possibility that the directors may determine that some changes are
necessary when preparing the full annual financial statements for the first time
in accordance with accounting standards adopted for use in the European Union.
The IFRS standards and IFRIC interpretations that will be applicable and adopted
for use in the European Union at 31 December 2005 are not known with certainty
at the time of preparing this interim financial information.

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of Group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.

Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2005.

PricewaterhouseCoopers LLP
Chartered Accountants
Cambridge
19 July 2005

Notes:

(a) The maintenance and integrity of the ARM Holdings plc website is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the website.

(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.

Note

The results shown for Q2 2005, Q2 2004, H1 2005 and H1 2004 are unaudited.

The results for ARM for Q2 2005 and previous quarters as shown reflect the
accounting policies as stated in Note 1 to the US GAAP financial statements in
the Annual Report and Accounts filed with Companies House in the UK for the
fiscal year ended 31 December 2004 and in the Annual Report on Form 20-F for the
fiscal year ended 31 December 2004.

This document contains forward-looking statements as defined in section 102 of
the Private Securities Litigation Reform Act of 1995. These statements are
subject to risk factors associated with the semiconductor and intellectual
property businesses. When used in this document, the words "anticipates", "may",
"can", "believes", "expects", "projects", "intends", "likely", similar
expressions and any other statements that are not historical facts, in each case
as they relate to ARM, its management or its businesses and financial
performance and condition are intended to identify those assertions as
forward-looking statements. It is believed that the expectations reflected in
these statements are reasonable, but they may be affected by a variety of
variables, many of which are beyond our control. These variables could cause
actual results or trends to differ materially and include, but are not limited
to: failure to realize the benefits of our recent acquisitions, unforeseen
liabilities arising from our recent acquisitions, price fluctuations, actual
demand, the availability of software and operating systems compatible with our
intellectual property, the continued demand for products including ARM's
intellectual property, delays in the design process or delays in a customer's
project that uses ARM's technology, the success of our semiconductor partners,
loss of market and industry competition, exchange and currency fluctuations, any
future strategic investments or acquisitions, rapid technological change,
regulatory developments, ARM's ability to negotiate, structure, monitor and
enforce agreements for the determination and payment of royalties, actual or
potential litigation, changes in tax laws, interest rates and access to capital
markets, political, economic and financial market conditions in various
countries and regions and capital expenditure requirements.

More information about potential factors that could affect ARM's business and
financial results is included in ARM's Annual Report on Form 20-F for the fiscal
year ended 31 December 2004 including (without limitation) under the captions,
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," which is on file with the Securities and Exchange
Commission (the "SEC") and available at the SEC's website at www.sec.gov.

The financial information contained in this announcement does not constitute
statutory accounts within the meaning of Section240 (3) of the Companies Act
1985. Statutory accounts of the Company in respect of the financial year ended
31 December 2004 have been delivered to the Registrar of Companies, upon which
the Company's auditors have given a report which was unqualified and did not
contain a statement under Section 237(2) or Section 237(3) of that Act.

About ARM

ARM designs the technology that lies at the heart of advanced digital products,
from wireless, networking and consumer entertainment solutions to imaging,
automotive, security and storage devices. ARM's comprehensive product offering
includes 16/32-bit RISC microprocessors, data engines, 3D processors, digital
libraries, embedded memories, peripherals, software and development tools, as
well as analog functions and high-speed connectivity products. Combined with the
company's broad Partner community, they provide a total system solution that
offers a fast, reliable path to market for leading electronics companies. More
information on ARM is available at http://www.arm.com/

ARM and ARM7TDMI are registered trademarks of ARM Limited. ARM7, ARM9,
ARM926EJ-S, ARM11, SC100, Cortex and DesignStart are trademarks of ARM Limited.
Artisan Components and Artisan are registered trademarks of ARM Physical IP,
Inc., a wholly owned subsidiary of ARM. All other brands or product names are
the property of their respective holders. ARM refers to ARM Holdings plc (LSE:
ARM and Nasdaq: ARMHY) together with its subsidiaries including ARM Limited, ARM
Inc., ARM Physical IP Inc., Axys Design Automation Inc., Axys GmbH; ARM KK, ARM
Korea Ltd, ARM Taiwan Ltd, ARM France SAS, ARM Consulting (Shanghai) Co. Ltd.;
ARM Belgium NV.; and ARM Embedded Solutions Pvt. Ltd.



                      This information is provided by RNS
            The company news service from the London Stock Exchange