Arm Holdings - armed and ready On a bright sunny day, when the birds are singing, few people clutch an umbrella. It feels a little like that at Arm Holdings, the successful British chip designer. As third-quarter earnings on Tuesday demonstrated, the sun is beaming down at present. Helped by growing demand for its end-customers" smartphones and tablets, Arm's revenues were up by a fifth at £145m, £5m higher than consensus forecasts and driven by both licensing fees and royalties (which now account for more than half the total). Earnings also beat expectations, with operating margins holding steady at 45 per cent. Arm, moreover, is guiding towards strong licensing revenues ahead - it talked of a "record" backlog and "robust pipeline" - although there was more caution over royalties. A "modest sequential increase" is expected in the fourth quarter. And from a financial perspective, matters look enviable; aided by positive cash generation, Arm now has a positive net cash balance of £500m. So what's not to like? Well, the valuation. With the shares up 5 per cent to 623p on Tuesday morning, Arm trades at 37 times the consensus estimate for 2013 earnings, and 30 times the 2014 figure. The enterprise value is 12 times expected 2013 sales. Even by the standards of the tech sector, that looks rich. True, Arm's earnings per share grew 30 per cent last year (and even more strongly in 2010). But this growth rate, while solidly double-digit, is slowing, and more likely to be in the 15-20 per cent range in 2013 and 2014. There are also some clouds on the horizon. Growing competitive pressure from Intel is one, as the US company tries to make inroads into Arm's near-monopoly position in its core mobile market. Such worries could eventually blow over - but they have kept Arm shares in the 550-650p range for more than a year. It is hard to see that changing.