RAMBUS INC Q2 FY2025 earnings call

Luc Seraphin noted Rambus had a very strong second quarter, exceeding revenue and earnings expectations. The memory interface chip business grew 43% year-over-year with record product revenue for the fifth consecutive quarter, driven by DDR5. For Q3, expected double-digit sequential product revenue growth due to LCD market share and new product contributions. Silicon IP had solid results with strong demand for high-speed memory, interconnect, and security IP from AI and data center applications. Desmond Lynch discussed financial results: Q2 revenue was $172.2 million, above expectations; product revenue was $81.3 million, a record; cash from operations was $94 million. Q3 guidance included revenue between $172 million and $178 million, royalty revenue between $57 million and $63 million, and licensing billings between $58 million and $64 million.

Rambus had a strong second quarter. The chip business achieved record product revenue, with a 43% year-over-year growth. Product revenue was $81.3 million, representing a 7% sequential increase and driven by continued strength in DDR5 products. Royalty revenue was $68.6 million, licensing billings were $66.4 million. Contract and other revenue, predominantly from silicon IP, was $22.3 million. The chip business was a key growth engine with five consecutive quarters of product revenue growth.

Rambus expects Q3 revenue to be between $172 million and $178 million. Royalty revenue is projected to be between $57 million and $63 million. Licensing billings are expected to be between $58 million and $64 million. Non-GAAP total operating costs for Q3 are between $94 million and $98 million. Capital expenditures in Q3 are approximately $12 million. Non-GAAP earnings per share for Q3 are anticipated to range between $0.58 and $0.66.

Forward-looking statements are subject to risks and uncertainties, including geopolitical and macroeconomic environment effects, and impacts of ASC 606 on reported revenue. The economic environment remains dynamic and is actively monitored.

Q: First on the product revenue line, strong growth, up 43.5% year-over-year. I'm curious, Luc, how do we think about the contribution from the RCDs, your positioning of -- I think your target's been 40% market share in D5 and where we're at as far as seeing the ramp of the PMIC opportunity? And then as the follow-up real quickly, can you just remind us again, as we think about Granite Rapids from Intel, from a CPU perspective, and we look at the road map going forward, is the expectation that we see continual memory channel expansion with next-generation platforms, i.e., moving from 12 to 16 and so on going forward?

A: Thank you, Aaron. To your first question, yes, we're very pleased with the growth of our product business with this 43% year-over-year growth in the second quarter. RCD remains very strong for us. And our belief is that we continue to gain share with the expansion of DDR5 in the market. We were slightly above 40% share at the end of 2024, and we expect to continue to gain share this year. And we do start to see the contribution for new chips, power management chips, but all the chips that we're introducing to the market. It's still modest. It represents low single-digit contribution to the product revenue in Q3, but it's going to grow to mid- to upper single-digit contribution in Q3 -- sorry, it's low single digit in Q2. And we do see momentum there. So it's modest, but we do see momentum across the board. And as we said, we have different stages of qualification and adoption of these different products in the market, and we feel very comfortable with the momentum there. With respect to the different platforms, our partners continue to roll out platforms. We do sell chip ahead of the platform deployment. So to the platform you mentioned, we're starting to see volume shipments of products on the RCD side. We do believe that in addition to the Intel platform, AMD and the ARM-based platforms are also going to roll out products that will create demand for our DDR5 RCD chips. And the fact that these platforms are transitioning from 12 channels to 16 channels is also going to create further demand for DDR5 in the quarters and years to come. So that's the good news for us.

Q: I had some questions about the PC market. I know it's not what everybody is focused on. But if I'm not mistaken, your newly introduced PMIC products are geared towards Panther Lake. And with that launch imminent, can you share with us whether or not you've got any visibility into the PMIC sales into the PC market ramping this year or next? And are you generating yet any Client Clock Driver revenue from the PC market?

A: Thank you. Gary. Yes, as we said in earlier calls, we do see the requirements that we initially or historically saw in the data center flowing into high-end PCs and the need for the equivalent of the LCD or the equivalent of the power management chip flowing into the high-end PC market. So we introduced the clock driver last year, and we are starting to see modest traction. Modest traction not because the product is not successful. It's just the market is limited at this point in time. It really targets the very high-end speed layer of the market. And over time, it's going to slow down all the segments of the market. We were encouraged with the reception of our PMIC products into the data center. And that's why we announced PMIC products for the client market, a Gen 2 PMIC for deals in the client market as well as an LPCAMM solutions for the PC market. So we're planting the seeds in a market that we think is going to be very fertile going forward. But that's going to address the high-end PC markets for us and then slow down. So we do expect the contributions from this client market to start to be visible in 2026. When this year, we're going to just see the initial shipments of qualification and preproduction orders.

Q: Congratulations on the great results. The AI ASIC market is exploding in the -- and it's called the XPUs. Can you say how that ASIC market might be changing the demand for your silicon IP?

A: Yes, sure. What we see with the AI market exploding and the emergence of these XPU solutions, ASIC solutions, is that the need for very high-speed connectivity and the need for very high-speed memory interfaces increases and accelerates. And that translates for us into an acceleration of our development for solutions such as HBM4, HBM4E as well as PCIe 7.0. So we are engaged with customers. This market tended to be quieter. It's a bit like the RCD market. Everything is accelerating. But we do have several engagements on these leading-edge technologies on the HBM4 and PCIe 7.0 in particular, as well as for the security solutions. The need to actually secure data when it sits into those chips or secure data when it moves around between those chips is becoming critically important. So that's also giving traction to the sales of our silicon IP in the security area.

Q: There have been announcements for DDR4 end of life. Does that change anything for Rambus? Or I guess a couple of years ago, we had an inventory issue. So I guess that's out of the way now. But what does it mean going forward?

A: It doesn't change much for us. DDR5 sales remain very limited. And this has been our message for several quarters now, and we don't see that picture changing. We do see slowly inventories going down in the market. We hear about the last time buy orders. We expect DDR4 demand to remain low, even decreasing. And maybe it's going to be on a case-by-case basis when people work through this last time buy orders.

Q: I want to better understand the mix of the product revenue, especially given the increased contribution from the companionship. How should I think about the DDR5 RCD chip or RCD popular chip versus a companion chip? How is that mix evolving?

A: The way to look at it is we introduced a lot of products and there are different stages of introduction and qualification with our customers. But in Q2, these new products represented low single-digit contribution in percentage terms of our product revenue. And when we look at Q3, that contribution in terms of percentage is probably going to be mid- to upper single-digit percentage of our product revenue. So as I said earlier, we planted the seeds. We see traction, and we're very happy with the traction with our customers. The contribution today is modest, but we do see very strong momentum in terms of adoption of these products.

Q: Would that increase contribution continue into year-end?

A: Yes, it will continue to year-end. We -- again, we're still in the phase of introduction, preproduction of these products. So when we look at the view of our product revenue for Q4, we're comfortable with where the Street sees us, and we see a slightly higher contribution from our new products. But the real thing is going to be 2026 when the platforms are in full swing into the market.

Q: I want to better understand the same kind of a diversification in your silicon IP. There was a significant improvement on a Q-over-Q basis of almost $6 million. Is that driven by HBM4? If not, what is driving that sequential increase in silicon IP? And if HBM4 was not a factor, when should we expect customers to come back and buy more IP for that specific application, HBM4?

A: Mehdi, it's Des here. We are really pleased with the performance of our silicon IP business, which delivered strong results in the first half of the year. And we're really on track to meet our sort of annual growth expectations for the full year from here. What I would say is, when you look at the different revenue categories of contract and other and licensing billings, these can move around on each sort of quarter, which is really dependent upon the IP that we are selling to customers. So what you did see in Q2 is an increase in our contract and other sort of line, which represents more customizable IP being sold. And we saw the corresponding sort of decline on the licensing billings line, which is off-the-shelf IP. But what we really see here is a really strong momentum in the business, which has really been led by the memory controller solutions of HBM4, PCIe 7.0 and also nice traction on the leading-edge security IP solutions. But overall, for the full year, we do expect the business to grow in line with our overall sort of expectations from here.

Q: My first one is about the MRDIMM opportunity. Look, I was wondering if you can help us with an update on how you guys see that market and maybe sort of the ultimate proportion of the CPU market that might be using that technology.

A: Yes, so. MRDIMM is staged to enter the market towards the end of 2026, depending on the availability of platforms. This is not the next-generation platform, but the one after. But it's important to engage with customers very early on. So at this point in time, we're very pleased with the progress we're making with our customers in terms of design winning and engagements on the qualification side. But that will contribute to the revenue towards the second half of 2026 and beyond. You remember, the MRDIMM content is much larger than the content of the standard RDIMM for DDR5 because the RCD is more complex, the power management chip is more complex, but you also have 10 DB chips that were not present on the standard DIMM. So we're very excited with the progress, but that's going to have an impact in 2026 second half and beyond. The market is difficult to assess at this point in time, but we expect in full swing, it could represent about $600 million market for MRDIMM that you can compare to the market for RDIMM today, which is about $800 million. So that's a significant growth potential in terms of SAM. But that's something that's going to happen in '26 second half and beyond.

Q: And then my second question is around ARM CPUs. If you could help us understand if there's a little bit of a trade-off from a standpoint of units of the CPUs and the channel count, if you guys view the ARM CPU market different from x86?

A: We're kind of agnostic as to the CPU that is being used. Certainly, different, I would say, platform providers offer a different number of channels. We kind of take that into account when we estimate the market size. But for us, the very fact that people are developing chips based on ARM that are in competition with the x86 platforms is a good thing. It creates tension in the market. Competition in the market that is good for the rollout of higher speed RCDs and companion chip solutions. So we're kind of agnostic, but we see this in a positive way.

Q: Is fair to assume that the customized IP that you sold in the quarter that is more related to custom ASIC? And also, when you talk about the contribution going from low single digit to mid- to upper single digit this quarter from new products, I'm assuming companion chip is really the vast majority of that increase. And is that more on the Granite Rapid platform?

A: To your second question, it's a combination. We introduced 8 new products last year, mostly companion chips, the chips that we introduced this year, our companion chips for the client space, mostly in the power management area. And different customers at different stages. When we mentioned this low single-digit going to mid- to upper single digit, these are all these new chips that we introduced, mostly companion chips. Your first question was -- can you repeat your first question, please?

Q: Customized IP. Yes, yes. It was regarding the customized IP and whether this was related to custom ASIC.

A: Yes, mostly it's custom ASICs. It's people developing their own chips to address the demands of the AI market. There's a lot of interest now for AI inference, in particular, which drives the need for AI chips for high-speed interfaces. So yes, it's mostly for ASICs, ranging from start-up companies that want to enter that market, all the way up to more established companies that already have a footprint into that market.

Q: Okay. And then just as a quick follow-up. What is typically the type -- the time line between when you collect this customized IP versus the timing when the custom ASIC is ramping? And the reason I'm asking is because there is a number of hyperscalers that are at different stages of ramping customer ASICs over the next couple of years. And I think you've mentioned that, that increase in customized IP was happening in the quarter, but not necessarily sustainable or lumpy, but shouldn't we see an increase of medium term from customized IP revenue over the next -- in the medium term into next year?

A: Yes, that's a good question. Typically, our IT business is a licensing business. So our customers pay us when we deliver the IP for a license for one use or several uses depending on the contracts. So we typically see the revenue, it depends 12 to 24 months before the products ramp into the market. So our current sales address chips that are going to be in the market in a couple of years from now. And that's why we do see demand for these leading-edge technologies. People are using -- looking at HBM4, HBM4E, or PCIe 7.0 for the next generation of products, and we're going to be on that, I would say, a leading edge as we move forward. Then it depends on how successful these customers are. There are customers that have been developing chips for many years and will continue on that path with us. And start-up companies, there are more and more start-up companies paying licenses to us as they move forward. Whether the chips are going to be successful or not is a different question. But again, it's important for us to have the revenue recognized at the time we sell the license when they decide to use these leading-edge technologies in their products.

Q: I want to look into next year 2026 and 2027. I want to better understand how you're thinking about the opportunities associated with the client market, PC market versus CXL. It seems like CXL 3.0 is more like a late '26 if it doesn't push out again. Would the incremental opportunity from PC market be enough, be large enough to offset if there is more push out in CXL adoption?

A: Thank you, Mehdi. The way we look at it is that you're correct, CXL may push out even further, but we do see MRDIMM really being the solution that is going to be adopted in -- for use case that has to do with memory expansion in particular. So on the data center side, we have high expectations for the deployment of MRDIMM. As I said, with revenue in the second half of '26 and '27, but I think that would address a lot of the use cases that CXL was supposed to address in terms of chip business. Now clients is different. Clients -- there's not really a CXL market for clients at this point in time or small -- for chips per se. But the client business for us, we really see this as an extension of our companion chip market for the data center. As we said earlier, the technical requirements that we're going to find in high-end client systems are very similar to the ones that we currently find in data centers. So this going to be a driver for SAM expansion for Clock Driver chips and power management chips into the client business. So that's a different area of growth for us, different than the MRDIMM in the data center space.