Rambus Inc (RMBS) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Rambus Inc. first quarter 2011 conference call. (Operator Instructions). I would now like to turn the call over to your host, Satish Rishi. Please go ahead.

Thank you, operator, and welcome to the Rambus first quarter 2011 conference call. I'm Satish Rishi, CFO, and on the call are Harold Hughes, our President and CEO, Tom Lavelle, Senior VP and General Counsel, and Sharon Holt, Senior VP and GM of the Semiconductor Business Group.

The press release for the results that will be discussed here today have been filed with the SEC on Form 8-K. A replay of this conference call will be available for the next week at 800-642-1687. You can hear the replay by dialing the toll-free number and then entering id number 58589190 when you hear the prompt. In addition we are simultaneously web casting this call and a replay can be accessed on our website beginning today at 5 PM Pacific time.

In an effort to help provide greater clarity in our financials we have modified the format for reporting our numbers to align with the way we run the business. We are using a non-GAAP pro forma format in our press release beginning with Q1 report, and we will use the same format in the future. With that said, let me 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 described in the documents we filed with the SEC including our 8-K, 10-Q's and 10-K's.

These forward-looking statements may differ materially from our actual results and we are under no obligation to update these statements. Further, as mentioned, we will discuss non-GAAP financial results 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 earnings release and the reconciliation on our website at www. Rambus.com on the investor relations page under financial releases. Now I will turn the call over to Harold.

Thanks, Satish, and good afternoon, everyone. In the first quarter we signed two more patent license renewals with the announcement of new agreements with Panasonic and Toshiba. With these agreements we have now successfully renewed all of the patent licenses signed in 2005. Achieving this result has been a major focus of the licensing team and reflects great credit on their efforts in reaching this milestone. All told, we have now signed a total of eight new or renewed license agreements in 2010 and the first quarter of 2011. Our ability to sustain and renew relationships with companies like Panasonic and Toshiba is the result of our continued commitment to innovation. Innovation is at the heart of this Company's ventures.

Through our commitment of innovation we have been able to continue to develop technology which helps our customers achieve breakthrough performance, performance levels in their products. Thanks to the work of Rambus engineers and scientists we ended the first quarter with over 1,200 issued patents and another 900 pending applications. And our engineers and scientists are constantly pushing the envelope of performance. At the end of January we announced the latest development in our Terabyte Bandwidth Initiative. These include setting new records in memory signaling performance. We demonstrated techniques that advanced differentially signaling for SOC to memory interfaces to a ground breaking 20 gigabits per second. Also as part of this initiative, we showcased innovations that can extend single ended memory signaling to an unprecedented 12.8 gigabits per second.

These data rates are two to three times faster than anything that's available in the fastest memory devices commercially available today. This breakthrough level performance has been achieved at unmatched power efficient and implemented in silicon, that we demonstrated at DesignCon. This mitigation and backwards compatibility are big issues for the implementation of any new memory technology. As part of the Terabyte Bandwidth Initiative, we developed a key new innovation called FlexMode Interface technology to address these needs. FlexMode technology allows both differential and single ended memory interfaces to be implemented in a single SOC package with no extra pins. Normally a multi mode memory controller interface would come with a penalty in extra pins, extra area and higher cost. FlexMode technology eliminates this overhead penalty by dynamically reassigning signal pins to either data or command and address, depending on the type of memory used. This enables a seamless transition from today's single ended memories like DDR3 or GDDR5 to advanced differential memories of the future.

For more information, we have a new video about the Terabyte Bandwidth Initiative and innovations like FlexMode technology available on Rambus.com. The demand for higher memory performance is constant regardless of the application space. That demand is particularly voracious in the mobile market with the rapid growth of Smartphones and tablets. And it's a challenging mix of constraints that must be met for the mobile platform. Memory solutions must have a very low active power, the ability to transition quickly between power states and a small physical footprint and low height to support ultra slim form factors. The industry is grappling with ways to deliver the higher levels of performance needed while working within these constraints and as always there is a desire to use existing technology and manufacturing infrastructure to mitigate risk and support low cost, high volume manufacturing.

Sharon recently spoke at a global semiconductor alliance event where she discussed how the industry could deliver the performance needed by next generation Smartphones and tablets. She described how this could be achieved within the constraints of mobile systems and in a low risk manner using Rambus innovations, as we have demonstrated in our mobile XDR memory architecture. Continuing in this vein of industry thought leadership, last week Rambus Engineering Director, Dr. Chuck Yuan, presented at the Intel Developer Forum in Beijing. Chuck discussed a broad and increasingly complex set of design considerations that must be optimized for designing memory systems operating at above a gigabit per second. Sharon's and Chuck's presentation, as well as the silicon demonstration of our Terabyte Bandwidth Initiative innovations, are all examples of our ongoing drive adoption efforts. It is through these efforts that we show the industry how Rambus innovations can advance performance of the next generation of electronic products and promote the adoption of these innovations by our licensees.

We are moving forward with drive adoption efforts in our Lighting and Display business as well. In February, Rambus' Dr. Kieran Drain spoke at the Department of Energy's Solid State Lighting R&D workshop about innovative approaches to smart lighting systems that integrate electronics and controls for maximum performance and energy savings. Our Lighting and Display business is making good progress on developing solutions that will make a new generation of LED-based lighting and display products possible. We further strengthened the world class team of engineers and scientists in this business with the hiring of renowned inventor Brian Richardson from Imagine Designs. And in May we will be making some specific announcements about our suite of lighting innovations and solutions. Stay tuned for news of that coming up next month. With that I will turn the call over to Tom to discuss the latest legal developments.

Thanks, Harold, and good afternoon, everyone. I will start my comments with a quick update on where we are in our litigation beginning with the DDR2 case in the northern district of California. At a recent hearing for the trial, which was scheduled to begin in early May, Judge White vacated the start of the trial until the Federal Circuits issues its decisions in the cases with Inex and Micron. While we are disappointed that the trial will not begin next month, we understand the decision. Judge White has stated that he will hold a case management conference in the DDR2 matter on the second Friday following the decisions from the Federal Circuit.

We have no further updates with respect to the timing of the Federal Circuit decisions themselves. We are waiting for the court to issue its decisions, but we don't have any insight into when that will occur. Moving now to the price fixing case in San Francisco. Last week we had a conference with the presiding judge, the Honorable Judge McBride who indicated that he is planning for the trial to begin on June 7 of this year. There have been some initial discussions about how long the trial is expected to last, but the exact length is still being worked out. We are back in front of Judge McBride the week of May 9 to finalize the schedule.

As Harold has mentioned, we are a Company of inventors and one of the critical elements of our business is protecting our patented inventions. To that end, I am pleased to announce that we recently hired Wayne Sobon as our new VP and Chief IP Counsel. Wayne has extensive experience in the field of IP, law having recently served as a Director of IP at Accenture for the past 11 years. Wayne also served as an executive of the American Intellectual Property Law Association or AIPOA, as a committee member on the Public Patent Advisory Committee of the USPTO. We are very happy to have Wayne part of our IP team. With that I will turn the call back to Satish.

Thanks, Tom. As I mentioned at the beginning of the call, we will be using pro forma numbers which we believe are indicative of Company performance as they exclude the financial impact of certain non cash and discrete events not indicative of the long-term performance of the Company. Customer licensing income, a non-GAAP measure that includes revenue recognized plus any other royalty payments that we receive under a signed license agreement, was $68.7 million, a decrease of 32% from the previous quarter and a decrease of 73% from the quarter a year ago. Last quarter included one-time catch up payments from Elpida and the year ago quarter included payments from Samsung, some of which also related to past dues.

Pro forma expenses exclude gain from settlement, stock based compensation, cost of restatement, amortization and non cash interest and convertible notes. We also make an adjustment for income taxes based on the pro forma pre tax income. Pro forma operating expenses were $49.9 million, up 2% from the previous quarter driven by high litigation expenses which grew about $3.3 million sequentially, offset by lower compensation and lower facilities expenses. Compared with the quarter a year ago, pro forma operating expenses were up 8% due to investment in our lighting division and also higher litigation. Pro forma interest and other expense is at $2.8 million, up 20% from the previous quarter and up 62% from the quarter a year ago, exclude non cash interest on convertible notes.

For pro forma tax expenses we are using a flat rate of 36% on pro forma pre tax income. Pro forma net income this quarter was $10.2 million or $0.09 cents per diluted share representing a 68% decrease and 92% decrease from the previous quarter and prior year respectively, driven primarily by the catch up payments in customer licensing income that I described earlier. Overall cash, defined as cash, cash equivalents, and marketable securities was at $509 million, a decrease of $3 million from the previous quarter and a decrease of $160 million year over year. The decrease from a year ago was driven by the $169 million we spent on stock buy backs in the last nine months of 2010. We did not buy back any shares in Q1 of this year.

Now I will give you some thoughts regarding the second quarter. This guidance reflects our reasonable estimate and our actual results could differ materially from what I am about to review. For the second quarter we expect customer license income and revenue, which will be the same, to be between $62 million and $66 million. We expect pro forma operating expenses, which excludes stock based comp, cost of restatement and amortization to be between $54 million and $58 million. These numbers include an estimate for litigation expenses of $14 million to $17 million. Pro forma net income is expected to be between $1 million and $5 million. Before we open the call for questions, I would like to address a few inquiries we have received from stockholders via e-mail or through our website.

The first question posed an inquiry from our last conference call regarding market sizing, specifically how much of the memory controller market remains to be signed, and how much of that is represented in the current ITC action? Sharon, could you provide more information in that regard?

Yes, I can, Satish and good afternoon, everyone. Let me start by saying that I am purposely going to keep my response at a high level in light of our on going litigation with certain DRAM and SOC companies. That said, here is our view of the two market segments. On the DRAM side, having just signed Samsung and Elpida we have just over half the market signed and half to go. For the full year 2010, Samsung and Elpida accounted for 54% of the $39 billion DRAM market according to iSuppli. That means the opportunity is to sign the remaining 46% of the market.

On the SOC side the analysis is more complex. The product mix of SOC's incorporating DRAM memory controllers and/or serial links ranges from high-end graphics processors and CPU's, products with prices in the hundreds of dollars range to low end DTV image processors, products that sell for less than $10. By our estimates in 2010 the global market for SOCs with relevant DRAM memory controllers and/or serial links was $78 billion. There is a high degree of overlap in SOC's with both memory controllers and serial links. So approximately $50 billion of that $78 billion represents SOC's with both DRAM controllers and serial links. We have made significant progress in our DRAM controller licensing efforts with 75% of that $67 billion relevant market now licensed, if we include Intel.

So the market opportunity is to find the remaining 25% of DRAM controllers and on top of that, to find the relevant serial links. The ITC action involves companies whose products represent a meaningful portion of that unlicensed market. Keep in mind that we typically apply ASP caps to our SOC licenses. Also keep in mind that this analysis is based on ongoing revenues and royalties. One-time events, like back damages, even though they are potentially substantial, are not included in any of these percentages.

Thanks, Sharon. And can you address the next question too? What impact did the disaster in Japan have on our revenues?

I am happy to provide our view. First of all I would like to say our concerns are still with the victims of the tragedy and our customers, partners and colleagues in the region. As we have all seen in the news reports, the impact is expected in future quarters, as most companies had both raw materials and finished products in their supply chain. We are monitoring the situation and are in regular dialogue with our licensees. At this point we are forecasting modest impact. We will continue to update this view in the coming quarters.

Thanks, Sharon. And the last question pertains to Samsung's news last month on the development of wide I/O. The question that came is was, is Rambus working on wide I/O?

Thanks, Satish. As Harold outlined, there is clearly an industry need for memory solutions with high bandwidth and low active power that all fits into a small footprint. We believe there is great value for wide I/O with Through Silicon Via or TSV down the road. The long-term promise of wide I/O with TSV interconnect technology is high bandwidth at very low power in a compact footprint. The first wide I/O products in the future, wide I/O products with TSV, will address major short comings of the current LPDDR road map, but will introduce other issues. Significant changes to supply chains and business models will be needed for broad adoption, particularly in mixed IC, SOC plus memory implementations.

In the meantime, we believe a solution like Mobile XDR can offer the increased performance the industry needs with very low power and an attractive footprint using the existing supply chain infrastructure. We have been studying wide I/O with TSV technology for a number of years and have developed innovations which we believe will ultimately enable access to the benefits of the technology while minimizing the downside. But we have been saying publicly that solutions like Mobile XDR can meet the power, performance, and footprint needs in the near to intermediate term giving the industry more time to work through the infrastructure and supply chain issues associated with wide I/O TSV solutions.

Thanks, Sharon. On behalf of the management team I would like to thank those who submitted questions to us during the course of the quarter. We plan to continue addressing questions from stockholders on a periodic basis at this forum. One quick announcement before we open the call for questions. We will be holding our annual stockholders meeting next Thursday, April 28m at 9 AM at the Sheraton Hotel in Sunnyvale, California. We look forward to seeing many of you over there. And operator, we are now ready to open the call for questions.

Thank you. (Operator Instructions). Our first question comes from Jeff Schreiner with Capstone Investments.

Yes, thank you very much for taking my questions today. Tom, just starting out with you, I don't want to ask too many questions here on the litigation side. I know there is a lot of uncertainty, but has the Company done any research about time frames and how many decisions have gone maybe as far as nine months or longer because it seems as if, per our own research, there aren't that many cases left around the whole argument time frame for Rambus. I am just kind of wondering what the typical exceptions are in terms of the time frame of this decision.

Hi, Jeff, and thanks for the question. Let me remind everybody there is no news on the Federal Circuit, which is what Jeff is referring to, a set of decisions that we're looking forward to. And I also remind you, Jeff, and everybody else, this was an unusual case in two very important ways. This five-judge panel was assigned. Which is very unusual. Normally it is a three-judge panel. But five judges were assigned to this second time we went through the hearings. And second, it is also two related, very closely related cases together. So you've got two complicating factors that could very well account for why it is taking so long, And have we done research looking at dual cases with five judge panels? There aren't enough for there to be any important data to give you to tell you what a normal expected date would be. This is just a different kind of case and that's the best we can surmise.

Okay. Thank you very much, Tom. Satish, I was just wondering if there was any catch up from Panasonic or Toshiba in the quarter.

Yes, there was a catch up from Toshiba, but none from Panasonic.

Okay. And the next question I really want to talk about was maybe with Sharon, and I'm going to leave some of my lighting questions I guess for maybe the May time frame. We hope to learn a little bit more there. But just trying to understand, given that there isn't maybe -- at least we haven't heard about it yet, kind of the standoffish attitude towards Rambus with some of this LED technology. As we saw, the Company licensed GE kind of right out the gate, but kind of wondering why maybe the licensing has stalled out somewhat since GE, and if you could give us some help on where that licensing opportunity stands right now.

Let me take that question, Jeff. The licensing activity has gone forward a pace, and we have had many very good discussions. The main focus that we have been addressing, and the main need to will allow us to scale has been the creation of the facility in which we can build the masters, which masters would then be used by manufacturing partners to satisfy the demand of licensees. That's been the focus of what we have done. We have also worked a lot on the patent portfolios. As you probably recall when we made the acquisition it came with significant patents and that's been analyzed obviously as we are quite capable of analyzing. So the second -- the third step I would say we have been working on is signing agreements and enabling the manufacturing chain which will become a very important part of the process. I would say the licensing has gone as well as we could have hoped. We will have a lot more to say about it in May where you can actually see some things.

Great. Thank you, Harold.

Please come. I think you will -- we'll be able to talk a lot more specific when you can actually look at things.

Look and hold and feel, exactly. I'm just going to limit myself to maybe one or two more here and get off. Tom just going to finish up with you, I guess. As always the man of the hour here. But what authority does a judge have in the county of San Francisco here where the antitrust case is being heard to remand a jury award lower from the awarded amount?

That's a hypothetical question, Jeff. We haven't got a trial started. We haven't got a liability determination, and we don't have damages, but generally speaking judges in the Superior Court -- remember this is a California Superior Court and not a Federal District Court case -- will have effectively the same powers we have seen used in other cases where he could remand it for a lower amount. And let's hope it is a big enough amount that he thinks that might be something he wants to think about and then reject it. So he could do that theoretically, but I have a few other things in front of that that I'm more concerned about before I get to that issue.

Okay, fair enough. Last ones for me to wrap it up. Where do the ITC proceedings currently stand with some of the other companies that Rambus is currently litigating with?

The ITC case I think you are referring to, Jeff, is the other set of memory control companies that we filed late last year. I think that's what you are referring to. We have an oral hearing scheduled in the ITC in October of this year. And as you can imagine there is lots of activity going on in discovery and moving toward motions and getting ready for that oral hearing as I say which will take place in October. It is on schedule and we expect it will continue to stay on schedule.

Okay. Everyone, thank you very much for taking my questions.

Thanks, Jeff.

Thank you. Our next question comes from Michael Cohen with MDC Financial Research.

Great, thanks for taking my questions. I just have two questions for Tom. The first question is, you have the antitrust trial scheduled for June 7, and when judge Kramer did his track one and track two spoliation ruling, it was at a time when he thought that the trial would likely go forward before the CFC ruled. So my question is what would happen if the CFC ruled in between now and June 7? Do you think that would for sure cause a delay in the trial? How do you think judge Kramer might deal with that?

Thanks, Michael for the question. I think we would have to know what the ruling from the Federal Circuit was before we could even begin to answer the question. Of course, we don't know that. Rather than going into a scenario of multiple possible outcomes in the Fed Circuit, we have to wait and see, one, when the decision comes out, and two, what it is before we could make a determination as to what the likely outcome or consequence would be in the trial starting on June 7 in San Francisco. So I really can't answer that. We obviously have given it a lot of thought and have a lot of thoughts about it. But there is too many possible outcomes for me to walk through them all.

Okay. And my second question is regarding the ruling that we're waiting for from the CFC. We have both the Micron case and the Hynix case. Do you have any thoughts on the likelihood of both those decisions coming on the same day, or do you think there is a good chance they might actually come on different days?

Frankly I have been expecting them on the same day. I suppose it is possible in any number of worlds where it could come out on different days and that's possible, but I don't expect that. I expect them to come out on the same day.

Okay. Well great, thank you very much for taking the questions.

Thank you. Our next question comes from Hamed Khorsand with BWS Financial.

Hi, guys. Just two questions from me as well. The first one just a follow-up from the comments you made earlier. The Samsung relationship is about a year old now. I just want to see if there has been any advancement in your relationship as far as any new product introductions go and any broader implications from the partnership with Samsung?

Hi, Hamed. This is Sharon. I will take that one. Definitely if we had any major new things to announce, we would do so, so you can certainly expect us to do that when there is something to announce. But I can certainly comment that the relationship is very positive. We have regular meetings with several different product groups within Samsung in pursuit of opportunities to work together on new technology and also to move some of our products forward. So I continue to feel very strongly that the relationship is moving forward in a positive direction, and certainly when we have something to announce we'll do so.

Okay. I guess, Sharon, my second question is for you as well. Any reason for the delay in seeing an uptick in your Mobile XDR technology?

Well, I talked a little bit in my comments about some of the competing technologies. Frankly I think the mobile market is evolving very rapidly, and in particular of late, I think the performance demands on the new Smartphones and the introduction of numerous tablet platforms also with very new and demanding applications is driving some real trends in the market that I think is causing people to take a look at multiple alternatives. Certainly we saw this when we first introduced the Mobile XDR technology, but the market is moving very quickly. As I said in my remarks, I think there are some major technology changes long-term that the industry is taking a look at. But in the meantime, there continue to be rising demands from the platforms and Mobile XDR certainly is a great solution I believe over the next few years, and we are also working on a longer term road map. I think, though, there are other alternatives that are being considered. I mentioned before, not in this call, but in previous calls, Rambus is in a pretty strong position. We have up on our website and we have talked previously about our innovations being used in some of the existing industry standards. We are going to continue to push Mobile XDR very hard, but to the extent other solutions are adopted, we fully expect to monetize through our patent licensing efforts. So I think Rambus sits in a very good position either way, but we are still out aggressively talking to prospects about Mobile XDR and hope to get it adopted.

Are you in the reference design stage yet?

I can't comment as to the stage of any particular engagement.

Okay. Thank you.

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Harold Hughes.

Again, as always, thank you for your continued interest and support. As Satish announced we have a shareholder meeting coming up shortly and we would love to see many of you there. With that I will say goodbye until next quarter. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the conference and you may now disconnect. Everyone have a wonderful day.