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UK's ARM takes more of the profit in slowing smartphone sector

* Q4 revenue up 14 pct, profit up 17 pct, ahead of forecasts

* Says 2016 revenue will be "broadly in line" with consensus

* Says not overly worried about China (Adds further reaction, updates shares)

By Paul Sandle

LONDON, Feb 10 (Reuters) - Britain's ARM Holdings (LSE: ARM.L - news) said more than half of all smartphones sold in the latest quarter contained its most powerful processor technology, helping it grow revenue even as demand cools in markets such as China.

The company's v8 architecture, which analysts say commands 30 percent higher royalties than its forerunner, has filtered down from devices like Apple (LSE: 0R2V.L - news) 's iPhone at the beginning of 2015 to become the industry standard.

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Strong growth in royalty payments, made on each of the 4 billion ARM-based chips shipped in the prior quarter, was behind a 14 percent rise in revenue in the fourth quarter, said Chief Financial Officer Chris Kennedy.

"Chips based on our latest version 8 technology will continue to replace older ARM technology in mobile markets, and gain share in networking infrastructure and servers," he said.

"It will end up in every phone, even down in the low end."

More of the Cambridge-based company's technology is being used by smartphones makers like Samsung for processing and functions like graphics, enabling it to capture more of the value of each device sold.

SPREADING THE RISK

Worries about the strength of demand in China, recently the fastest growing market for technology, is casting a shadow over the industry.

Apple, the source of about 5 percent of ARM's revenue according to analysts, forecast its first revenue drop in 13 years last month on signs of weakness in the Chinese market.

Apple suppliers like Imagination Tech in graphics and Japan Display Inc (Other OTC: JPDYY - news) have been hit by slowing sales of iPhones, but ARM said the growing demand for its technology across different sectors meant it was not overly reliant on one customer or one market.

"Clearly China is an issue for businesses globally," Kennedy said. "For ARM, given our diversification, it's something we focus on but it's not something we are overly worried about."

Analysts, however, noted caution in ARM's outlook. The company said that based on current market conditions revenues for 2016 would be "broadly in line" with expectations, which stand at about $1.64 billion.

ARM's shares were trading down 2 percent at 921 pence at 1235 GMT, after falling as much as 6 percent earlier, as analysts at Liberum said adjusted earnings just missed forecasts, once a one-off royalty catch-up payment was excluded.

They also flagged the outlook."ARM does not typically use the word 'broadly'," they said.

ARM won 51 processor licensing deals in the quarter, including 11 for its latest designs, mainly for use in smartphones and cars. "The computing power on a car is going to up 100 times over the next five years," Kennedy said.

(Editing by Keith Weir)