Rambus Inc (RMBS) 2010 Q1 法說會逐字稿

Welcome to the first-quarter 2010 Rambus Inc. conference call. (Operator Instructions). As a reminder, this conference may be recorded. Now I would like to turn the conference over to our speaker, Satish Rishi. Sir, please go ahead.

Thank you, operator. Welcome to the Rambus first-quarter 2010 conference call. I am Satish Rishi, CFO. And on the call today are Harold Hughes, our President and CEO; Tom Lavelle, Senior VP and General Counsel; and Sharon Holt, Senior VP of Licensing and Marketing.

The press release for the results that will be discussed here today has been filed with the SEC on Form 8-K. 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 68105210 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 PM Pacific time.

I need to advise you that the discussion today will contain forward-looking statements regarding our financial prospects, pending litigation, and demand for our technologies, among other things. These statements are subject to risks and uncertainties, which are more fully discussed in the documents we file with the SEC, including our 8-Ks, 10-Qs and 10-Ks.

These forward-looking statements may differ materially from our actual results, and we are under no obligation to update these statements.

Further, as we have in previous calls, we will discuss non-GAAP financial results on the call today. And we have posted on our website reconciliations of these non-GAAP financials to the most directly comparable GAAP measures. You can find a copy of our earnings release and a reconciliation on our website at www.Rambus.com on the Investor Relations page under Financial Releases.

Before I turn the call over to Harold, I would like to take a few minutes to talk about how we will report revenue for deals like the $900 million Samsung agreement we announced in January. For an agreement as a Samsung agreement, generally accepted accounting principles, or GAAP, requires us to identify the elements of a multiple element arrangement, establish the accounting fair value of each element, and allocate the consideration received to each element based on these calculated fair values.

The accounting elements of the Samsung agreement contained past and future royalties, resolution of litigation, and Samsung's equity investment in Rambus, as well as the MOU. Of the $425 million paid by Samsung in the first quarter, $137.1 million was recognized as revenue, $95.9 million was recognized as a contra operating expense, that is a reduction in operating expenses, which we are calling gain from settlement. And $192 million was recognized in shareholder's equity.

For the remainder of this year Samsung will pay us $25 million every quarter, of which we will recognize $14.7 million in revenue, and the balance of $10.3 million in gain from settlement. All $25 million will be recognized in the quarters received, and all of it will flow to the operating income line, but we are required to allocate between revenue and gain on settlement.

In the first quarter of 2011 the allocation will change to a revenue of $18.8 million, and $6.2 million to gain from settlement. And starting in the second quarter of 2011 the allocation will be to 100% of revenue.

Don't think it is simple. Given this complication of allocations, and in order to continue to provide meaningful insight into our performance and outlook, we are introducing this quarter a new metric which we have termed customer licensing income. This includes the revenue and other amounts recognized in the income statement associated with customer licensing, in this case the gain from settlement.

So for the current quarter the customer licensing income is $257.8 million, which includes $161.9 million of revenue and $95.9 million from gain from settlement. We will use this new metric when we provide guidance later in the call. And we will be happy to address any questions during the Q&A.

With that, I will turn the call over to Harold.

Thanks, Satish, and good afternoon everyone. The first quarter of 2010 was a pivotal one for Rambus. We view the Samsung agreement signed in January as a transformational event for the Company. It helped drive customer licensing revenue of $257.8 million. That was a new metric described by Satish a few moments ago. And record revenue of $161.9 million.

It demonstrates the success of our value creation strategy, which is to innovate, drive adoption and monetize. At the foundation of that strategy is innovation. And our commitment to innovation has never faltered. Since I joined the Company as CEO at the beginning of 2005, the challenges we have faced had been legion. Nonetheless, during that time we have put a high emphasis on continued investment in innovation. We have focused on creating an environment that would attract and retain some of the best minds in our industry.

Samsung recognized the technical capabilities of the Rambus team, and the advantages and bringing together the strengths of our two companies. We have worked together on XDR DRAM for over five years. And most recently Samsung launched its 1 gigabit density XDR DRAM.

Now that Samsung has a broad patent license, it enables our Company to work together on development of future platform solutions. As the leader of the memory market, Samsung has the strongest capability to bring new technologies to market. We believe they are a terrific partner, and look forward to collaboration on solutions for mobile, graphics, high-end compute, and high-speed NAND memories.

As we have said all along, collaborating with industry leaders like Samsung has always been our goal. We have amply demonstrated that we will litigate if necessary to defend our intellectual property. But much preferred is working with partners like Samsung to create great products that will benefit consumers and generate long-term value for our shareholders. And these reasons are why we view the agreement as transformational.

More recently we announced the renewal of the AMD patent license. Both Samsung and AMD agreements recognize the ongoing value of our patent, our portfolio of patented inventions. It is value that reaches beyond that of the original family of patents developed by our founders. And its value that was created by sustained commitment to innovation over the course of many years and has resulted in 970 issued patents and another 674 pending applications.

That commitment has also -- was also demonstrated by the great progress made by our technology initiatives during the course of the quarter. In February, just a year after its launch, our mobile memory initiative culminated in the introduction of the groundbreaking Mobile XDR memory architecture. This platform offers a high-bandwidth, low power memory solution, tailored to the power and performance requirements of next generation mobile products.

The Mobile XDR memory architecture delivers data rates of up to 4.3 gigabits per second, with unmatched power efficiency. With this breakthrough performance mobile platforms can achieve over 17 gigabytes per second of memory bandwidth from a single Mobile XDR DRAM device. Bandwidth like to this makes possible advanced applications, like HD video capture and 3D gaming. And Mobile XDR memory's superior power efficiency means that users can have an additional 30 minutes or more of battery life under these demanding applications.

We have demonstrated the Mobile XDR memory architecture at the Mobile World Congress in Barcelona. And just last week showcased it at the Intel Developer Forum in Beijing. We are receiving positive feedback on the architecture from potential customers. We think Mobile XDR is going to be a key enabler of next generation mobile phones.

Also at IDF Beijing, Rambus Fellow Craig Hampel delivered a talk on the benefits of the threaded module architecture. Like the prototype we co-developed with Kingston, threaded modules can significantly increase performance of industry-standard memories.

As multi-core computing becomes pervasive, DRAM memory subsystems will be severely challenged to deliver the required data throughput. Our module threading technology employs parallelism to deliver the higher memory bandwidth needed for multicore systems. It also reduces overall power consumption, something the industry is clamoring for. And it is another great example of the fruits of our innovation efforts.

We have also seen very strong interest in our lighting and display technologies. LED EDGE-lit solutions using our patented MicroLens technology hold great promise for both general lighting and for backlighting of LCD displays. LED backlighting of LCD displays will soon be ubiquitous across our focus markets.

We recently hired two additional industry veterans, [Dr. Tearan Drain] and Marc McConnaughey, to help us build momentum in our lighting and display business. We demonstrated prototypes of our lighting and display technology at a number of industry events around the world, including CES and DesignCon in the US, Mobile World congress Barcelona, Display Search Taipei, and IDF Beijing.

Creation of our lighting and display technology business demonstrates how Rambus can be a magnet for innovators. Our environment that fosters innovation, our licensing strength, and our business strategy all make Rambus a great home for teams of innovators to create new businesses. With the Rambus platform, inventors can see their work adopted in the market and realize the value that they have created.

Consistent with our strategy of growth through diversification, we plan to build more businesses like lighting and display. We will get great benefit from the strengths of the Rambus platform, and deliver even greater value to customers and shareholders of this Company of inventors. With that, I will turn the call over to Tom.

Thanks, Harold, and good afternoon everyone. For the legal update let's start with the ITC. The ITC's Administrative Law Judge found three Rambus patents were infringed by NVIDIA, and not invalid. While two Rambus patents were infringed, but found invalid by Judge Essex. Both sides filed petitions for review by the full commission in this matter, and the commission decided to review validity issues with respect to all five patents, but not the Administrative Law Judge's finding of infringement. We expect a final determination by the commission on or about May 24 of this year.

Turning to the coordinated appeals of the Hynix and Micron cases, oral argument was heard before the Court of Appeals for the Federal Circuit on April 5 in Washington DC. The issues being discussed were Hynix' appeal of the $397 million judgment against them, and our appeal of the Micron Delaware decision. Given the timing, and the fact that Chief Judge Michel is expected to retire soon, we are expecting the results of this hearing sooner than usual, possibly as early as the end of May. We are confident in our arguments and look forward to the outcome.

Moving now to the price-fixing case in San Francisco. We continue to have pretrial hearings before Judge Kramer where various issues are being discussed. Judge Kramer has yet to reset a trial date as issues remain relative to our Samsung settlement. We continue to seek a trial date so we can begin the process of presenting our case to a jury.

There have been a number of updates over the past quarter relative to the re-exams in the United States Patent and Trademark Office. Some of the latest involves re-exams of a certain Farmwald-Horowitz patents that were at issue in the Hynix and Micron cases.

The US PTO has issued a notice of intent to reissue a certification -- re-examination certificate confirming certain claims in 105 patents, including one claim that was found infringed and valid in the Hynix case. This essentially concludes the re-exam proceedings relative to this patent.

Also, the PTO has issued an advisory office action in the re-examination proceedings for the 918 patent. The advisory office action essentially confirms two claims within the patent that were found valid and infringed by Hynix, but maintained the rejection of another claim within the patent.

Just today we learned that the US PTO has issued a re-examination certificate on our 195 patent, a Farmwald-Horowitz patent as well, also asserted in some of our cases where all of our claims were confirmed by US PTO.

As we said many times the re-exam process is a long one with multiple iterations of briefs and responses. It is important to remember that our patents remain valid and enforceable during the entire process. That is it for the legal update, and next I will turn the call back to Satish.

Thank you, Tom. For the first quarter of 2010 customer licensing income was $257.8 million, of which $161.9 million was recognized as revenue and $95.9 million was recognized as a gain from settlement.

Customer licensing, as well as revenue for the previous quarter, was $30.8 million. And the increase in customer licensing income was due to the Samsung agreement, partially offset by lower patent royalties and base station (inaudible) royalty. The increase in customer licensing income from a year ago was also due to the Samsung agreement, partially offset by lower patent royalties.

Operating expenses, excluding the gain from settlement from the Samsung agreement, for the first quarter was $55.6 million, up 17% from the previous quarter, and up 28% from the first quarter of last year. These operating expenses include approximately $7.8 million of stock-based compensation, $0.5 million related to cost of restatement, and $4.7 million related to Samsung settlement bonus accrual, which we had announced in March.

Last quarter included approximately $7.6 million of stock-based comp, and $0.5 million related to the cost of restatement. Operating expenses in the quarter a year ago included $8.4 million of stock-based comp, and a credit of $13.16 million for recovery of restatement costs.

To provide a better comparison period over period, I'm excluding expenses and credits related to stock-based comp, past investigations, and the Samsung settlement bonus accruals from our discussion going forward.

Excluding these expenses, adjusted operating expenses in this quarter were $42.5 million, up 8% from the previous quarter, and down 13% from the quarter a year ago. The increase from the previous quarter was driven by a full quarter of expenses related to our Lighting and Display Technology Group, or LDT, which we acquired in late December.

We also had higher seasonal expenses related to sales taxes and benefits that typically occur in the first quarter and the first half of the year, and higher patent development costs, offset by lower litigation expenses in this quarter.

The decrease from the previous year was primarily due to lower litigation expenses, offset in part by higher expenses from the assimilation of LDT, and higher patent development costs. As a side note, litigation for the quarter was $7 million, down 33% from the prior quarter, and down 61% from the quarter a year ago.

Our adjusted operating income for the quarter was $215.2 million, as compared to a loss of $8.6 million in the previous quarter, and a loss of $21.4 million in the quarter a year ago.

During the quarter we paid withholding taxes of Samsung payments totaling $42.6 million. We recorded provision for income taxes of $45.7 million for the quarter, which is primarily composed of the withholding taxes and AMT. Since we continue to maintain a valuation allowance against our US deferred tax assets, our tax provision is based on our anticipated cash tax payments related to the quarter.

While we are on cash, and defined as cash, cash equivalents and marketable securities, excluding receipts of cash, was at $669 million, an increase of $208 million from the previous quarter. This was primarily due to the [$318] million we received from Samsung, net of the withholding taxes, less $137 million we paid to settle the 0% convertible notes that matured in February 2010. We also repurchased 1.2 million of outstanding shares for approximately $26.5 million during the quarter.

Now I will give you some thoughts regarding the second quarter. I need to remind you that this guidance reflects our reasonable estimate and our actual results can differ materially from what I'm about to review.

For the second quarter we expect customer licensing income to be between $45 million and $49 million, of which $35 million to $39 million will be recognized as revenue, and approximately $10 million as a gain from settlement.

We expect operating expenses to be between $45 million and $50 million. This includes a credit from the gain of settlement of approximately $10 million, an estimate of litigation expenses of $5 million to $8 million, stock-based comp of approximately $8 million, and a Samsung settlement bonus accrual of approximately $5 million.

For the rest of the year we also expect to pay withholding taxes of approximately $4.1 million per quarter on the quarterly Samsung payments. Until we release our full valuation allowance we will continue to record these taxes in a provision for income taxes.

Before we open the call for questions, we would like to address a couple of inquiries we received from stockholders via e-mail or through our website. The first question is, now that you have settled with Samsung, when can we expect to re-sign Elpida?

I will take that one. As we have mentioned previously, we are in active discussions with Elpida. They have been an important partner for us for many years. We understand you would like a definitive schedule for signing Elpida, but given the nature of negotiations, we cannot unilaterally commit to a timeframe.

The important thing to remember is there are always trade-offs in negotiations. I make these comments as a general philosophy rather than specifically for the Elpida engagement.

There is always a trade-off in negotiations between the speed of close and the terms of the agreement. We know what we want to achieve in the renewal with Elpida, and we are working toward that goal. That being said, I want to make it clear that we will not rush to close an agreement that does not meet our objectives.

Thanks, Sharon. The next question is, why did AMD renew their patent license with you now? And why can't you disclose a dollar value of the renewal?

So clearly you would have to ask AMD for their viewpoint, but I can certainly share Rambus' view on this question. We said last quarter that 2010 is a year of renewals for us. AMD was one of the licenses up for renewal later this year. In the existing agreement we have with AMD there was a provision that AMD should notify us of their intent to renew their license before the end of that current license's term.

We received a notice from AMD stating that pursuant to the terms of the Rambus AMD patent license agreement, AMD has elected to exercise its right to renew the agreement. We believe AMD, like Samsung, understands the underlying value of licensing our portfolio of patented innovation. And unlike their competitors, they recognize the benefit of being able to offer their customers licensed solutions.

The payments we will receive from AMD over the next five years will be calculated based on the growth in their business, comparing their 2010 results to their 2005 revenues. Thus far AMD is having a great year with record Q1 revenue of $1.57 billion.

The other significant renewals that are coming due this year include Toshiba, Panasonic, and Renesas Electronics. Renesas Electronics is the merged entity of Renesas Technology and NEC Electronics. This was effective April 1 for those who weren't aware. We are in discussions with all of these companies, and at this stage we are optimistic about our prospects for timely renewal.

Thanks, Sharon. The next question is, with the Farmwald-Horowitz patents -- family of patents expiring this month, how does Rambus plan to address its long-term revenue goal?

To be more precise, some of the Farmwald-Horowitz patents actually run into 2011, but that is somewhat beside the point. As I said in my prepared remarks, we have continued to invent since the beginning of the Company, and certainly have continued through this period. The decision by Samsung and AMD to take a license we believe is a very strong testament to the value that those two firms place on our patents, our [post] Farmwald-Horowitz patents.

We have committed to not too long ago at an analyst meeting to drive revenue to $500 million a year, a significant portion of which would come from DRAMs, about $300 million, and $200 million from the memory controller area. Obviously, Sharon is working hard on that. And as you heard from her previous remarks, we are making some progress there.

Thanks, Harold. So at that I will open the call up to questions.

(Operator Instructions). Jeff Schreiner, CapStone Investments.

Tom, thank you very much for the informative recap. I just want to follow-up on a statement you made to make sure I am clear and understand it properly. I think you said the panel did not review the infringement charges won by Rambus, just the validity. And if this is the case, what impact would that have on the limited exclusion order being more certain if the validity is confirmed?

I think you are referring to the commission in the ITC case, not the panel, which I usually hear that as the CIFC, so I -- you're asking about the ITC, correct?

Correct.

We can all speculate on what the commission really wants to look at. They are only looking at, from what we can see, validity issues. As I indicated, three of the patents were found not invalid and infringed. The other two patents were found not invalid, but infringed. We can all speculate on what that means, but I don't see it as a bad sign.

Would we expect to hear something about the limited exclusion order from the ITC on or around the 24th if the decision was favorable for Rambus?

I think we will hear one way or the other, yes, whether it is favorable or not.

Okay. I was just wondering, moving on real quickly, I am wondering how maybe, Sharon, the NVIDIA decision, if positive, would impact the recently signed license with AMD? And the guidance you gave, you talked about the revenue levels from today versus where they were before. Would that suggest that we would be likely greater than the prior $15 million a year that was signed between AMD and Rambus?

As I mentioned in my remarks, the methodology that will be used to determine the forward going amounts that AMD will pay us was built into the current license agreement. And it is based on a comparison of their revenues in this year, and they are on a fiscal year which mirrors the calendar year, to their revenues in 2005.

So we obviously know what they were in 2005. We have to wait until the end of 2010 to be able to complete the calculation. But there was a predetermined methodology. And by exercising their option to renew, unless for some other reason they would desire to come back and change the terms of the agreement and enter into a new negotiation, which I have no indication they would like to do at this point in time, it is purely a mathematical calculation as to what those payments will be going forward. So they would not be impacted in any way by any other deals we would sign in the meantime or any litigation outcome.

Okay. Then I was wondering, Tom, just turning back real quick, how soon after favorable -- assuming favorable [cap] decision could you receive the money from Hynix?

That is a good question. Assuming we win the Fed Circuit with respect to Hynix, their next step presumably would be to make -- file a petition for Certiorari to the Supreme Court, if they choose to do that. And given the timing of things, there are any number of other steps they could take. So there is a lot of speculation in that.

But I think it is entirely possible that we could collect the funds that are in escrow and the funds that are subject to the bond, and possibly the rest of the funds sometime this year. I think that is possible. I don't want to predict that is going to happen. But given the unusual timing of the Fed Circuit decision, that may -- that could happen.

Okay. Thank you very much for answering my questions.

Mike Crawford, B. Riley & Co.

One question. Just to clarify the way the US PTO review process works. So it is my understanding that claims are valid until there has been some kind of a final rejection. Even if there is an interim stated so-called rejection that those claims are enforceable and presumed valid until a final end.

So in the case of Farmwald-Horowitz patents that have expired, or expiring, what is the use of continuing to look at claims if they were deemed to have been valid for the whole life of the patent?

That is a good question, but I think the answer is probably the fact that there is an awful lot of damages tied up in people who have been infringing the Farmwald-Horowitz patents over a number of years, many of whom are already in court with us. If the patents are found to be invalid the ability to collect those backward looking damages is obviously not available.

To the extent that the patents are found valid, and they seem to be doing relatively well as they go through the US PTO re-exam process, they owe us the money, assuming they don't find some other defense that gets them off the hook. So it is really for backward looking damages where it is really relevant.

Okay, thanks, Tom. In that regard, and I really don't want to name names here, but if you could just give a broad brush of approximate number of companies that have been put on notice regarding those old patents. The approximate duration of time that they have been put on notice, and any kind of estimated [TAM] covered by this set of companies would be much appreciated.

This is Sharon. I will take that question. Let me start with your inquiry first about the number of companies. I am not going to give specific numbers. I did make a comment at our analysts meeting last month that if you look at the top 20 or top 25, depending on which companies' research you're looking at, list of semiconductor companies, most of those companies are relevant to us. If you look at our memory and memory controller innovations that we are licensing, looking at those lists gives you a pretty good idea of who the candidates would be.

Speaking about the length of time people have been on notice, I am definitely not going to assess that. That is obviously very confidential and relevant to ongoing negotiations.

But with respect to the size of the market, I can comment on that. Harold said a few minutes ago what our high-level objectives are over the next few years in terms of revenue. But if you want to take a look specifically at the DRAM and DRAM controller markets, we obviously can put some numbers around that. This year based on the latest market projections the DRAM market is expected to be roughly $32 billion.

So we have already licensed Samsung. That represents about one-third of the market, maybe a little bit more. And Hynix, as a result of the ongoing litigation with them, has been paying a compulsory license into an escrow account. So a portion of the market for this year is already licensed. That leaves us roughly half of the market, and of course more once Hynix becomes unlicensed when they have finished paying out the compulsory license yet to go after.

Over the longer run, over the next few years, we have set a target for ourselves. And it is a goal, it is not a firm commitment by us, but a target that we would like to achieve of $300 million in revenue addressing the DRAM market.

If you look on the controller side of the equation, in 2010 this year we estimate the available market for memory controllers at about $46 billion. Now a chunk of that is already licensed. If we take out Intel, which based on the terms of their previous agreement with us, could be considered licensed for this period, and we take out our other licensees, we think that gives us a market still to address in the $15 billion to $20 billion range.

Now that is a much more fragmented market than the DRAM. And if you refer back to the top 20 or 25 semiconductor companies, you can see that. That means we have more companies to address to go after that TAM. But our longer-term revenue objective there to address that market is $200 million per year. So if you add up the $300 million over the longer term for DRAM, the $200 million for controllers, that gets you to the $500 million projection that Harold discussed earlier.

Michael Cohen, MDC Financial Research.

My first question would be for Sharon. Sharon, you mentioned earlier on the call that the licenses up for renewal this year are Toshiba, Panasonic and Renesas. I was wondering if you could give us the quarter -- the last quarter that they're going to be making payments?

Under the terms of the current agreement -- so each of the agreements has some unique provisions, so I don't want to be definitive about this. Toshiba and Panasonic and Renesas -- and let me remind you that is the new Renesas Electronics entity, which is a combination of what was NEC Electronics and Renesas Technology. So any [fee] in Renesas each had license agreements with us previously. Now we are in the process of discussions with the new entity about a license.

It also looks like you have like three separate Toshiba licenses -- actually four of them that were announced and two separate Panasonic licenses. Do they all expire this year?

No, no. That is a good question. Let me clarify that. As you know, many of these customers have a broad patent license in place with us. And those are the licenses that we are talking about that will be expiring during the course of this year. But those customers also have, in some cases, multiple technology license agreements with us, where we are actually helping them design interfaces into their end products.

Those agreements last for the life of the product and do not have definitive expiration dates. So the agreements you asked about specifically are not expiring this year.

Okay, like XDR and (multiple speakers) products.

Correct.

Without disclosing anything confidential, could you give us the quarter, which would be the last quarter that we kind of get the bulk of the payments from the companies?

The agreements expire at different times, not all at the same time during the year.

My next question is -- this one is probably for Harold. You mentioned that -- or Harold mentioned that some of the Farmwald-Horowitz patents run to 2011. And that was new for me. I'd thought that the [whole tree] referenced priority back to the original 898 applications, which I think was April 18 of 1990. Could you give us a clue to some of the Farmwald-Horowitz patents that go out to 2011? And have any of them ever been asserted in any of the suits?

Let me give that one to Tom.

There are just a few. I don't want to give an exact number. It is two or three that had been extended. And you're correct, they did all originate from the original 1990 application, but were extended for various reasons in the US PTO. So there are two or three approximately patents that will expire in 2011. I can't recall off the top of my head whether they were asserted in any of the cases to date.

If maybe that is something you could follow-up with on maybe the next call or something, that would be (multiple speakers).

Sure.

Sure, will do.

The next question I have is it looks like from the SEC filing the AMD license actually happened about a week before the New York Analyst Day. I was wondering if that is true, how come we didn't learn about it at the New York Analyst Day?

Let me answer that. I think we received a letter, but we had not taken action on it at the time, when we had the Analyst Day. So when we got back we had the letter, and that is when we went and made the announcement in the 8-K at that point in time.

There debate whether it was material or not, and we decided that regardless of materiality it is something which the investors would need to know about, so we decided and filed an 8-K. Although you'll recall when we initially did the AMDD on (inaudible) deal back in 2005 and 2006, we did not issue any 8-Ks at that point in time.

Okay, I appreciate you clearing that up. And it looks like the next question is about XDR2. It looks like that was originally announced in the conference call for the second quarter of 2005. I believe none of it is in production yet, and I was wondering, can you clarify, is there any XDR2 in production? And if not, when you anticipate it will go into production, if ever?

I will take that question. No, there is not any XDR2 in production, although we do continue to work with our customers on, if you will, derivatives of the original XDR product, most recently the 1 gigabit XDR device. And last year we also announced in conjunction with a couple of our partners some higher speed versions of XDR.

When would we expect any announcement, certainly there is not anything imminent. One thing I think that is important to understand about our strategy is, it is obviously important for us to keep innovating. That is foundational to our strategy. We work on defining new leadership products to propose solutions that we believe will be needed by our customers for future applications.

Whether those come to fruition specifically as we envision them or not, whether it is XDR2, or we end up calling it XDR Yellow or XDR Green or something else is less relevant to us than the fact that the new innovations are being adopted in our customers' future products.

So we are indeed working with many of our customers on next generation gaming and graphics solutions. Whether what ultimately finds its way into those designs is XDR2 or some other next generation product that utilizes Rambus technology, it is too early to tell. But we are engaged aggressively out there, and will be a player, but not ready to say what the actual product solution will be.

Now that almost all the Farmwald-Horowitz patents have expired, I was wondering if you could share some thoughts about the significance of what Barth 1 technology brings? And also maybe some thoughts on why you feel that the Ware patents might survive the invalidity challenges presented against it?

This is Tom. With respect to Barth, I think the answer ought to be relatively obvious that it is a series of patents that we have asserted and have done relatively well with the ITC so far. And that they tend to read on an awful lot of the controller industry based on the claims construction that we have gotten on the Barth case.

With respect to the Ware patents, we think we have good arguments. We have made those to the ITC, and we will see how those arguments go when they issue their ruling later sometime in May, we expect.

In Barth 1 you just only referred to controllers. Since it is a protocol, is it equally implemented on the DRAM site?

It certainly can be.

I guess my last question would be, Harold previously mentioned that he would prefer to wait until after the CAFC to likely settle with Hynix, unless it was some sort of very creative deal. I wondering if you can share some thoughts again now that we have seen the oral arguments in terms of waiting for a decision before you would probably be serious about settlement?

I don't think my opinion has changed, frankly. And Sharon, Tom, add your thoughts. We believe we did well in that hearing. And it is certainly to our advantage to run that out and then negotiate from a much stronger position.

It is unlikely that, as I think I said, Hynix would be in a position or be interested in making an offer that would meet our expectations with that unknown out there. So it is almost a self-serving structure.

We are always willing to talk.

Okay. Thank you very much for taking my call. I appreciate it.

Hamed Khorsand, BWS Financial.

Let me start off with a simple one. Could you repeat the revenue guidance please?

We had said the customer license income was $45 million and $49 million.

As far as the Mobile XDR goes, you said earlier your people are evaluating the architecture. That is phase 1 of the process, correct, before you -- into a cell phone?

It is actually a fairly complicated process, because you have the handset companies, and then of course their chip suppliers. So there is usually someone that supplies the applications processor to them, and then a memory supplier. So from Rambus' perspective we actually have to work with all three of those types of companies in a particular value chain in order to make a design win happen.

But a larger issue right now, and where we are with the architectural level, I mean, the industry is clearly at a crossroads, where the next generation smartphones need a level of performance that is way, way above the current generation. And yet, obviously, because it is a mobile platform, power consumption has to be kept to a reasonable level.

So the industry has been in the process of looking at multiple different ways to solve that problem. We believe that Mobile XDR fills a gap in the market for the next generation. We continue to get positive feedback from the various players in those ecosystems about that. And so we are in the process of meeting with many companies, as I said, handset application processor and DRAM supplier, trying to get some alignment on really what the requirements are going to be for those next generation platforms. And then of course trying to get key partners to align with us to provide the solutions for the handset customers.

So it is a multistage process. It is a complicated process. I certainly don't want to underplay that. But we feel very strongly that the solution that we have proposed fills the needs of the market a couple of years out in time. And we are going to work very hard to make sure that the Mobile XDR solution is a part of those next generation platforms.

Is Samsung considering the Mobile XDR?

We have been an active dialogue with Samsung since the settlement and the announcement of the MOU. One of the areas that was defined in the MOU was next generation mobile solutions. And clearly Mobile XDR is the first of what we hope will be many future solutions that we can discuss with that Samsung.

As far as this year goes from a product standpoint, any likelihood where revenue from Flash derived technology would be significant for Rambus?

I am sorry, from Flash technology?

From Flash.

Not significant, no.

Well, thank you everyone for your interest. We look forward to seeing some of you at our annual shareholders meeting next Thursday. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's program. Thank you for your participation. And have a wonderful day.