GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Watch Out for This Tech Licensing Company’s First Quarter

April 16, 2014 | About:
ICRAOnline

ICRAOnline

0 followers

Technology licensing company Rambus (RMBS) is set to release its first-quarter 2014 results on April 21. In the past quarter, Rambus’ revenue grew roughly 28% that helped adjusted earnings of $0.14 to double from the year-ago quarter. Although it provided a cautious guidance for fiscal 2014, continuing multi-year deal wins and legal settlements are encouraging signs. Let’s find out how it is shaping up for the upcoming quarter.

Multi-Year Deal Wins

Rambus’ patented technologies are very popular among the semiconductor companies as they can produce advanced chips to be used in computer or electronic goods for meeting various consumer needs. Rambus receives royalties for licensing its solutions, which contributes roughly 97% to the company’s total revenue.

This January, Rambus won a 10-year licensing deal from Samsung Electronics (SSNLF). Under the deal, Samsung will use Rambus’ patented technologies in its chips. Additionally, Samsung will implement Rambus’ security technology in its smart phones, tablets and set-top boxes. As a part royalty payment, Rambus will receive $15 million each quarter for the first five years of deal and the remaining amount will vary from quarter to quarter during the second five-year period.

Rambus also clinched a five-year deal with Nanya Technologies last month. Taiwan-based Nanya is a maker of DRAM (dynamic random access memory) chips and will now be able to offer advanced memory solutions to its customers using Rambus’ innovative chip-making technologies.

Legal Battles Cease to Exist

Filing lawsuits for patent infringements are common with semiconductor companies and Rambus is no exception. Rambus had to bear higher legal costs for filing lawsuits and paying penalties when it lost some. This had suppressed the company’s profitability to some extent. Lawsuits do no good to either party as they are dependent on each other – this realization has made Rambus and its customers settle all legal issues proactively.

Last quarter, Rambus put an end to legal disputes with Micron (MU), SK Hynix, LSI Semiconductor (LSI) and STMicroelectronics (STM). Not only this, Rambus signed licensing deals with them which helped it post higher revenue from the year-ago quarter.

Rambus’ recent deal with Nanya also marks an end to a long-drawn legal battle. Ending a legal tussle is a good indication as Rambus can easily avoid costs related to lawsuits and secure profitability. Notably, Rambus saved roughly $15.8 million in litigation expenses (mostly for settling SK Hynix and Micron cases) last year.

Higher Demand for Mobile DRAM

Memory market has faced challenges with the dampening of the PC market. Huge oversupply in the market crippled the supply chain, drastically reducing DRAM pricing. But the market has revived a lot.

With the ongoing decline in the PC market, the DRAM industry is gaining foothold with higher demand for smartphone makers. Although pricing would remain a challenge, growing usage of mobile DRAMs in smartphones will force DRAM makers like Micron, SK Hynix and Samsung to offer innovative offerings to satisfy end-users. Being a major licensing company to all the key memory players, the surge in global mobile DRAM market will benefit Rambus.

Parting Thoughts

Rambus’ fate is closely tied up with the supply/demand metrics of memory market and the ongoing scenario is not that bad. The slightly challenging DRAM pricing environment could reduce the rate of royalty for Rambus, but the multi-year deal wins will secure its revenue stream. Moreover, settling legal suits will be an added advantage as the company can focus more on delivering inventions to its clients. It will be interesting to see how these three factors drive Rambus’ first-quarter performance.


Rating: 5.0/5 (1 vote)

Voters:

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK