By Philip Stafford and Maija Palmer

Sales at Arm Holdings (LSE: ARM.L - news) fell during the three months to September because of the weak dollar and slow business at an intellectual property company it bought three years ago, a deal that has faced considerable scepticism.

Arm, whose microchip designs are used in about 98 per cent of the world's mobile phones, said sales in the period were £62.8m, down from £64.8m a year ago and short of analysts' expectations of £68m.

Warren East, chief executive, blamed the dollar and the IP division, formerly know as Artisan (LSE: 974826.L - news) .

Arm bought Artisan for $913m in 2004. Artisan designs libraries of components used to make up computer chips. As chips become more complicated, with more information squeezed on to a smaller space, Arm believes more microprocessor makers will want ready-made components to speed up design.

However, it is having to devote engineering resources to get Artisan ready for the next generation of smaller chips.

Mr East "was absolutely confident that buying Artisan was the right thing to do. When we bought it, we said it would take four to seven years to position the business and we're only two-and-a-half-years into the process."

Pre-tax profit in the period fell from £12.6m to £11.9m while earnings per share fell 0.1p to 0.6p. The shares dropped 4½p to 145p.

FT Comment

Artisan is a big gamble. If Texas Instruments, Qualcomm (NASDAQ: QCOM - news) or Broadcom (NASDAQ: BRCM - news) can be persuaded to use Artisan's library of components, the acquisition will be worth its price. But the pay-off remains unclear. In the meantime, the rest of Arm's business stands to benefit from smartphones, which include more Arm-designed chips and generate more royalties. For investors who believe the iPhone is the start of a mass trend, Arm remains attractive.