RAMBUS INC Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Business Overview: Strong Q3 with product revenue growth outpacing the market, fueled by DDR5 leadership and new product contributions. Excellent cash from operations highlighted a robust business model.
• Chip Business Details: Q3 product revenue record at $93M, sixth consecutive quarter of growth. DDR5 RCD leadership continues to drive growth, with new product shipments in motion.
• Silicon IP Dynamics: AI drives design win momentum for high-speed memory and security IP. Server growth and AI workloads boost demand for memory solutions, aligning with Rambus' strategic focus.
• Financials: Q3 revenue was $178.5M, with product revenue at $93.3M. Operating costs totaled $99.3M, operating expenses $64.6M, and non-GAAP net income was $68.2M. Cash from operations was $88M, and free cash flow was $80M.

Segment Performance

• Chip Business: In Q3, product revenue reached $93 million, a record, marking the sixth consecutive quarter of growth. DDR5 RCD leadership and ramping new products contributed. Full-year product revenue growth of over 40% is expected. Revenue contribution from chip business is significant, driven by DDR5 strength and new product adoption.
• Silicon IP: Driven by AI demand for high-speed memory interconnect and security IP. Leadership in HBM4, GDDR7, and PCIe 7.0 solutions, with double-digit growth anticipated.

Guidance

• Q4 Expectations: Revenue projected between $184 million and $190 million. Royalty revenue expected to be $59 million to $65 million, and licensing billings $60 million to $66 million.
• Operating Results: Non-GAAP operating results expected to be a profit between $81 million and $91 million. EPS for Q4 anticipated to range between $0.64 and $0.71. Capital expenditures expected at approximately $10 million.

Risks

• Supply Chain: Monitoring supply situation, with some pockets of tightness; working with manufacturing partners to improve lead times.
• Market Dynamics: Uncertainties in market share caps for RCD and potential impacts from geopolitical and macroeconomic factors on financial results.

Question and Answer

• Q: Tristan Gerra with Baird: You recently quantified the MRDIMM TAM opportunity. Is it fair to assume you can replicate the market share with MRDIMM that you have currently in DDR5? And when do you think you can fully realize the TAM that you quantified for MRDIMM?

A: Luc Seraphin: We believe we can replicate DDR5 market share with time, ramping in late 2026 and likely 2027. The timing depends on platform rollout from Intel and AMD, and MRDIMM is a more complex system requiring tight chip coupling.

• Q: Aaron Rakers with Wells Fargo: On the SOCAMM2 and PMIC. Can you help us maybe think about Rambus' opportunity set in SOCAMM2 modules and when maybe you would expect to see that? And on the PMIC side, how much does that represent of your product chipset business today?

A: Luc Seraphin: SOCAMM2 through JEDEC is positive, as it aligns with our signal and power integrity focus. PMIC has strong momentum with various products in development across different stages with customers, contributing mid- to high-single digits to product revenue.

• Q: Gary Mobley with Loop Capital: Do you see any extension of the order lead times that your customers are seeing as they place an order with you given any sort of constraints that TSMC may have? And on RCD market share?

A: Desmond Lynch: Monitoring supply, grew inventory in Q3 to support Q4. Luc Seraphin: RCD market share can continue to grow, with room to gain share as DDR5 cycle continues.

• Q: Mehdi Hosseini with Susquehanna: Should I assume that MRDIMM margin is comparable to product? Or would it be more like an IP type of the margin?

A: Desmond Lynch: MRDIMM is a chip product, expected to have margins within the product business's long-term goal of 68%-65%.

• Q: Kevin Cassidy with Rosenblatt Securities: What's the bell curve like of your shipments for DDR5 and what is that doing to ASPs as you go forward?

A: Desmond Lynch: Q3 shipments were predominately second generation DDR5 with growing third generation volumes. ASPs benefit from generation transitions, with gross margin improvement seen in Q3.

• Q: Nam Kim with Arete Research: Outlook for CXL and Rambus' strategy in this space?

A: Luc Seraphin: CXL focus is on silicon IP, as chip development for CXL is fragmented; MRDIMM uses current server infrastructure to address memory constraints.

• Q: Kevin Garrigan with Jefferies: On the MRDIMM opportunity and silicon IP traction with PCIe 7.0 and Secured IP?

A: Luc Seraphin: MRDIMM's complete chipset helps with interoperability testing, and silicon IP has security (50%) and PCIe/HBM (50%) focus, with higher ASP and longer development for bleeding-edge solutions.

• Q: Aaron Rakers with Wells Fargo: How does the RCD channel discussion work with MRDIMM?

A: Luc Seraphin: AI workloads drive more channels, and MRDIMM intercepts next-generation platforms on AMD and Intel, which announced 16-channel solutions.