Rambus (RMBS) in Loss Territory

Rambus Inc. (RMBS) reported second-quarter 2010 loss per share of 19 cents (excluding one-time items, but including stock-based compensation expense) that missed the Zacks Consensus Estimate of 7 cents.


Rambus reported total revenue of $38.9 million in the second quarter, up 44% from $27.0 million in the year-ago period, but down 76% from $161.9 million in the prior quarter. The sequential comparison was tough due to the huge amount ($95.9 million) received in the first quarter of 2010 as compensation for the settlement of a dispute with Samsung Electronics.

However, the year-over-year strength could be attributed to an increase in licensing revenues, fueled by strong sales of computers, consumer electronics and game consoles, including higher royalties from Sony Corp (SNE), which saw continued strong sales of its PS3. This drove revenues from Royalties, which increased 54% year over year to $38.2 million.

However, revenue from Contracts tumbled 69.9% from the comparable quarter last year, due to lower number of new contracts.

Operating Results

Total operating expenses in the second quarter were $45.5 million, down from $49.3 million in the year-earlier quarter. The improvement could be attributable to a gain of $10.3 million related to the Samsung settlement, and lower marketing, general and administrative expenses, partially offset by higher research and development expenses.

The operating loss in the quarter was $6.7 million, which was a significant improvement from operating loss of $22.3 million reported in the year-ago quarter. The operating margin was a negative 17% in the second quarter compared with 82.6% in the year-ago quarter. The improvement in operating results was driven by higher revenue and improvement in operating expenses (largely due to the Samsung settlement-related gain).

Reported net loss was $12.5 million or 11 cents per share, compared with a net loss of $24.0 million or 23 cents per share in the comparable quarter last year.

Balance Sheet, Cash Flow & Share Repurchase

Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $597.6 million, compared with $668.7 million in the prior quarter. During the reported quarter, Rambus repurchased 3.0 million shares for a total consideration of $68.8 million.


For the third quarter, Rambus expects revenues to range between $31 million to $41 million. Operating expenses are expected to be in the range of $46 million to $51 million, including the $10 million credit from the Samsung settlement, litigation expenses of $6 million to $9 million, stock based compensation of approximately $8 million and the Samsung settlement bonus accrual of approximately $5 million. Interest expense (both cash and non-cash) is expected to be approximately $5 million and tax provision to be roughly $4 million.


We believe Rambus is well positioned as a key player to meet the escalating demand for LED lighting technology with the help of its tie up with GE Lighting, a unit of General Electric Company’s (GE) Appliances & Lighting business.

We remain encouraged by Rambus’ contract wins, strong cash position with absence of any debt. However, we are a bit concerned about customer concentration risks, pending lawsuits against Hynix, Micron Technology Inc. (MU) and NVIDIA Corp. (NVDA), as well as competitive pressure from Samsung Electronics.

We have a short-term Hold recommendation (Zacks #3 Rank) on Rambus shares.

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