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Rambus: A Good Close to 2013 with a Cautious Outlook This Year

January 31, 2014 | About:
ICRAOnline

ICRAOnline

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Technology licensing company Rambus (RMBS) displayed good momentum in its fourth-quarter results. However, uncertainty looms as the company forecasted a growth rate of just 6.5% — significantly lower than last year’s 14.0%. This could reflect uncertainty in the company’s LED business and the semiconductor industry as a whole. Let’s take a brief look at the highlights for the quarter.

The Quarter in Brief

Rambus’ fourth-quarter adjusted earnings per share (EPS) doubled year over year to $0.14, but was slightly down sequentially. The year- over-year improvement was largely driven by a 27.8% growth in revenue.

Revenue for the last quarter stood at $73.4 million, up 27.9% from the year-ago quarter. This was primarily driven by the growth in memory technology licensing, coupled with impressive performance of its security technology licensing business. During the quarter, Rambus also signed new licensing agreements with tech giant Samsung Electronics, Micron Technology (MU), STMicroelectronics (STM), LSI Semiconductor (LSI) and SK Hynix. However, the company’s LED lighting business failed to make any significant contribution.

The operating expense of the technology solutions company rose 5% sequentially to $67.2 million. This was the result of a non-recurring impairment charge of $9.7 million, and the restructuring charge that amounted to $2.2 million. However, in comparison to last year’s fourth quarter, the operating expense increase over 9%. The change is due to increase in the cost of sales of its lighting products, impairment and restructring expenses. But adjusted operating expenses dropped 2.3% year over year to $44.2 million. This was due to lower headcount, legal and consulting expenses. But the drop was slightly offset by higher commission expenses.

On a GAAP basis, Rambus posted a loss per share of $0.09, an improvement of $0.05 from the year-ago quarter. Despite higher revenue and lower opex, the net loss was on account of higher interest expenses, provision for taxes and a onetime impairment charge due to the adoption of a revised business strategy.

Although the company did away with legal challenges concerning Garmin and STMicroelectronics, there are still some litigations that are draining money out of Rambus’ pocket.

Legal Settlements 

Rambus continued efforts to defend its patent technology portfolio and has initiated legal proceedings against those responsible for infringement. However, the sheer time, money and effort consumed by lengthy legal proceedings have taken its toll. In the past, Rambus lost money in fines and penalties which consequently suppressed its financial performance considerably.

But even though it did lose money, the fear of legal fines have prompted many tech companies to stay safe and enter into licensing agreements with Rambus.

In fact, last quarter’s revenue growth also came from such licensing agreements with Micron, SK Hynix, LSI and STMicroelectronics.

Looking Ahead

Rambus projected an approximate 6.5% year over year growth in its total customer licensing income including revenue for fiscal 2014. The company expects more business in this space, though there remains a certain degree of uncertainty.

The company has seen good demand for its systems security technology from the payment processing industry in addition to its recent agreement with Samsung which will consequently boost Rambus’ success in this field. As per the agreement, in addition to memory-chip manufacturing design, Samsung will also use Rambus’ security technology in its smart phones, tablets and set-top boxes in the next 10 years. Besides this, the company also expects to tap opportunities with increasing use of set-top boxes, anti-counterfeiting applications and mobile devices.

Parting Thoughts

Rambus’ growing exposure in the systems security space seems encouraging due to its potential of attracting a stable revenue stream. However, lack of momentum in its LED business could keep it under pressure.

Despite expecting new licensing agreements, Rambus has signaled caution with respect to its fiscal year 2014 customer licensing income and revenue growth projections. But with the new design technologies such as R+, DDR3, LPDDR3 coupled with demand growth in systems security technologies, Rambus is expected to retain its growth story in the coming quarters.


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