ARM investors riding high after three-year surge

Bloomberg reports this morning that ARM Holdings, the British designer of chips that power the Apple iPhone among other devices, has generously rewarded shareholders over the past three years.

In fact, the company has been the top performer on the benchmark FTSE 100 Index no matter how you slice it: six months, 12 months, 18 months, two years or three, it's all upside.

Despite a catalyzing presence in the rapidly growing mobile market, analysts remain negative on the stock. But investors are watching the gains roll in.

In a way, ARM's performance is unsurprising. The company has positioned itself as a gatekeeper to the hundreds of millions of smartphones sold each year, allowing its earnings -- $137.5 million in 2010 -- to balloon as the market does.

Peter Woodifield quotes Thornburg International Value Fund manager William Fries, who hits it right on the head:

We got it right because we felt we understood the business model. A small piece of every handset is a nice business.

The business model, of course, being the lucrative licensing of chip designs. ARM said in April that an astounding 1.85 billion microprocessors using its designs were shipped in 1Q11.

That's good news for ARM's investors, among them Janus Capital Group, which owns 5.4 percent of the company.

Will it stay ahead of the pack? There's plenty of room left to run: smartphones are just now besting their less-intelligent counterparts as the majority of the U.S. market, and the rest of the world is likely to follow.

And that doesn't include the tablet market, which is just beginning to find its footing but has yet to make big enough waves to begin rocking traditional computers, not to mention any of the other embedded applications that will surface as "intelligent appliances" begin to arrive to market.