Rambus Inc (RMBS) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to this Rambus Inc. quarterly conference call. Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Satish Rishi. Please go ahead, sir.

Thank you, operator, and welcome to the Rambus fourth quarter and year end 2007 conference call. I am Satish Rishi, Chief Financial Officer. And with me today are Harold Hughes, our President and CEO, and Sharon Holt, Senior VP of Sales, Licensing, and Marketing. Tom Lavelle will not be joining us today, as he is attending the opening arguments that are taking place as we speak in the case in San Jose.

The press release for the results that will be discussed here today have been filed with the SEC on Form 8-K. If you want a copy of the release, please visit our website at www.Rambus.com, on the Investor Relations page, under financial releases.

A replay of this conference call will be available for the next week at 888-203-1112. You can hear the replay by dialing the toll-free number, and then entering ID number 7774674 when you hear the prompt. In addition, we are simultaneously webcasting this call, and a replay can be accessed on our website beginning today at 5:00 p.m. EDT.

Before I begin, I need to advise you that the discussion today will contain forward-looking statements regarding our financial prospects, pending litigation, and demand for our products, among other things. These statements are subject to risks and uncertainties, which are more fully described in the documents we filed with the SEC, including our 8-Ks, 10-Qs, and 10-K. These forward-looking statements may differ materially from our actual results.

Now, I will turn the call over to Harold. Harold.

Thanks Satish, and good afternoon everyone. Reflecting on 2007, we faced a number of extraordinary challenges. We have talked about these challenges extensively in past calls. We entered 2007 having received the SEC's liability findings, but still awaiting their remedy order. Further, at that point we were neck-deep into the restatement, and the independent investigation was in full swing.

We now enter 2008 with the investigation closed, the restatement completed, and the enormous amount of work required to comply with the SEC's remedy order largely behind us. This puts us on much stronger footing than we were a year ago. In addition, we have been making good progress on our strategy of focusing on four key markets, Computing, Gaming, HDTV, and mobile, as was demonstrated by our accomplishments in the fourth quarter.

First, back in November we announced at Intel and signed a Memorandum Of Understanding, to evaluate the XDR memory architecture on its state-of-the-art process technology. This is an opportunity for us to showcase the value of our advanced memory solution to Intel, and we hope this leads to further engagements with them. Both companies have dedicated resources to this evaluation project, and we are excited with the prospects of working closely with the Intel design team.

Also during the quarter, we announced the signing of our first HDTV deal for XDR with Toshiba. Again, it is an opportunity to showcase the benefits of the XDR architecture. The intercompute functionality is being integrated into HDTV, to deliver an increasingly rich set of features, thus resulting in more semiconductor content. IDT estimates that shipments that semiconductor shipments into HDTV will reach 6.9 billion this year, which compares favorably with the 7.5 billion of semiconductors going into the gaming market.

HDTV manufacturers are looking for high performance at low cost, in order to provide advanced features at aggressive price points. XDR is a great solution that delivers the needed bandwidth in the fewest devices.

Another exciting development was the announcement by Qimonda, to begin shipping samples of its 0.5-gigabit XDR DRAM. This is an important milestone, as just one year ago when we announced Qimonda license for XDR. And now, thanks to our aggressive implementation plan Qimonda has begun shipping samples. This speaks not only to Qimonda's committment to XDR product, but the growing customer pull for XDR bandwidth capacity, XDR's high bandwidth capacities. With Qimonda's announcement, XDR customers can be assured of a growing supply base for our leadership product.

There were a number of interesting developments during the Consumer Electronics Show in January. Warner Brothers that had been releasing films in both Blu-ray and HD-DVD, announced it would now release exclusively in the Blu-ray format. The fact that Sony shipped 1.2 million PS3's in North America during the holiday season, a number greater than the entire installed base of HD-DVD, players has not been lost on the studios. Having more films available exclusively on Blu-ray certainly bodes well for the sale of PS3s, more PS3s, and for us is obviously a virtuous cycle.

Also at CES, the Toshiba Spurs Engine was on display with XDR DRAM. Spurs Engine is a high performance screen processor, derived from the cell broadband engine and integrates four of the cell [SPE] performance RISC cores, with hardware dedicated to decoding and encoding, MPEG-2 and H.264 video. It uses XDR memory to achieve the high data transfer rate for amazingly rich media performance. The growing shipments of the PS3 and the introduction of Spurs Engine, we are seeing increased traction for our leadership XDR memory architecture in the market.

At the heart of Rambus is our engineering talent and passion for innovation. Our engineers continue to advance the state-of-the-art, and in November, we introduced groundbreaking innovations as part of our Terabyte Bandwidth Initiative. In this initiative, we demonstrated three new memory signaling technologies that facilitate blazingly fast data rates. These technologies will ultimately enable a memory architecture that can deliver an unprecedented terabyte per second of memory bandwidth.

The three innovations announced were 32X data rate, enabling 32 bits of data per clock cycle, Fully Differential Memory Architecture, an industry-first implementation of differential signaling, for both data and command/address, and FlexLink Command/Address, which is the industry's first full-speed point-to-point Command/Address link. We have demonstrated these key innovations in Silicon, not in PowerPoint, at our Rambus Developers Forum in Japan, and we will feature these demonstrations next week at DesignCon in Santa Clara. Speaking of innovation, our engineers and scientists continue to invent and develop technologies for advanced memory architecture, high speed logic interfaces, and low power interface solutions.

One measure of the pace of innovation at Rambus is our growing patent portfolio, which at the end of the year stood at 684 issued patents, and another 539 applications pending. It is through this continued commitment to innovation that we can deliver extraordinary value to our customers, enable breakthrough products, and enrich the lives of consumers.

Looking forward to 2008, we are committed to the continued development of innovation which leads the industry, such as our recently announced Terabyte Bandwidth Initiative. Further we will continue to drive the adoption of our new chip XDR memory architecture into our focus markets, and we will reenergize the licensing of our world-class portfolio of patented innovations.

As Satish mentioned, Tom is in court today, attending the opening arguments of the latest phase of the Hynix trial before Judge White. Micron and Nanya are also parties to this phase, as the trial is in progress, we will limit today's legal update to look at an upcoming calendar of events. Also before Judge White is the Markman Hearing, pertaining to additional patent claims scheduled for March 24 and 25.

Regarding our appeal of the FTC order, there is a hearing before the DC Circuit Court scheduled for Valentine's Day, February 14. Finally, the next case management conference in the price fixing case before Judge Kramer in San Francisco is scheduled for February 8, and with that, I will turn the call over to Satish to review the financials.

Satish?

Thank you, Harold. As reflected in our press release today, we finished Q4 '07 with revenues of $40.5 million, down 3% from the previous quarter, and down 23% from the year-ago quarter. We closed 2007 with full year revenues of $180 million, down 8% from the previous year. As we have outlined in the past, the decrease in revenue was primarily due to the direct and indirect impact on the FTC orders, and a scheduled decrease in patent royalty payments. Operating expenses for the fourth quarter were $72.6 million, up 25% from the previous quarter, and up 36% from the fourth quarter of last year.

For the full year, operating expenses were up 6%. These operating expenses include stock-based compensation, and expenses related to restatements in both years, IRS 409A related payments made in early 2007, some severance payments in 2007, and a bonus paid to a law firm in mid-2006. To provide a better comparison period to period, I am excluding expenses related to these activities from my discussion.

So excluding stock-based compensation, restatement expenses, severance, and other adjusting items, operating expenses in this quarter at $52.3 million, were up 16% from the previous quarter, and 38% from the quarter year-ago. The primary driver for this was higher litigation expense.

For the year, adjusted operating expenses at $175.7 million, were up 15% over the prior year. The increase was due to higher SG&A, including higher general litigation, audit, and accounting costs, as well as higher engineering associated with an ongoing program, we increased our investment in core technology development and leadership products. Since litigation expense is one of the major drivers of the increase in expenses, let me provide some additional color on litigation costs.

For the quarter, costs related to general litigation were $16.1 million, up 37% as compared to the third quarter of 2007, and up 209% from the fourth quarter of last year. Given all the pending cases, our legal teams have been busy. We are spending on litigation as an essential part of a strategy to defend our intellectual property. However, the timeline for the cases is difficult to predict, and each case, as you know, has its twists and turns. This explains why in the first half of the year, litigation expense was about $11.7 million and for the second half was more than double, at $27.8 million.

For the full year, we incurred litigation expenses of $39.5 million, up 37% from the prior year. Our adjusted operating loss for the quarter was $11.1 million, an increase of $8.5 million from the previous quarter, and a change from a profit from the fourth quarter of 2006. For the full year, our adjusted operating income of $4.2 million was down 90% from the prior year. Overall cash, defined as cash, cash equivalents, and marketable securities, excluding restricted cash, was $441 million, a decrease of approximately $4 million from the third quarter of 2007, and up $5 million from the year-ago.

Now I will give you some thoughts regarding the first quarter guidance. This guidance reflects our reasonable estimate, and our actual results could differ materially from what I am about to review. We expect first quarter revenue to be between 35 million and $40 million. This is a conservative estimate, and does not include the impact of any one-time licensing deals that we may sign during the quarter.

We expect operating expenses excluding stock-based compensation to be between 50 and $58 million. Litigation expenses are difficult to predict, because we do not control timelines and requests from the Court, nor do we control the actions that adversaries may take, which may cause us to incur additional unplanned expenses in any particular quarter. Included in the range of operating expense I just gave you, our general litigation expenses of between 12 to $18 million, a wide range given the level of activity predicted this quarter.

That concludes our prepared remarks. Operator, would you please open the call for questions?

Yes, sir. (OPERATOR INSTRUCTIONS)

I can see from the number of questions that many of the likely questionnaires are in Court as we speak. So let us call this call to an end, if we may. Thank you.

Well, thank you. Thank you all for your involvement with the call. At this point in time, since there are no questions. Operator, we will end the call. Thank you.

Thank you, sir. This does conclude today's conference call. We appreciate your participation. You may disconnect at this time.