Rambus Beats EPS, Uncertainty Looms - Analyst Blog


Rambus Inc. ( RMBS ) posted fourth quarter 2011 adjusted earnings per share of 5 cents, well ahead of the Zacks Consensus Estimate of loss per share of 3 cents. Adjusted earnings per share in the reported quarter exclude other patent royalties received, acquisition costs and retention bonus, amortization, costs of restatement and related legal activities, non-cash interest expense on convertible notes but include stock-based compensation expenses. Despite the handsome beat, reported earnings came in much below the year-ago level.


Rambus reported total revenue of $83.4 million in the fourth quarter, down 8.3% from $90.9 million in the year-ago period. However, quarterly revenue inched past the company's revised guidance of $83.0 million. The year-over-year variance in revenue was mainly due to pre-receipt of some one-time revenue royalties in the prior quarter scheduled during the reported quarter. Moreover, another one-tome royalty was received from Elpida Semiconductor during the prior quarter that further tempered the comps.

Royalty revenue decreased 8.5% year over year to $96.2 million, mainly due to the recognition of royalties from new licensing agreements in advance (during the third quarter). Revenue from Contracts managed a double-digit growth (14.3%) from the comparable quarter last year.

Operating Results

Total operating expenses in the fourth quarter were $94.0 million, up 103.9% from $46.1 million in the year-earlier quarter. The steep rise was due to higher stock-based compensation and acquisition expenses as well as retention bonuses. The year-ago quarter included a gain of $10.3 million related to the Samsung settlement.

Reported operating loss in the quarter was $18.1 million, compared to an income of $42.9 million in year-ago quarter. The operating margin was (21.8%) compared to 47.2% in the year-ago quarter.

Reported net loss was $28.7 million or 26 cents per share, compared to an income of $33.1 million or 29 cents in the comparable quarter last year. Excluding the impact of other patent royalties received, acquisition costs and retention bonus, amortization, costs of restatement and related legal activities, non-cash interest expense on convertible notes, but including stock-based compensation expenses, adjusted income per share came in at 5 cents versus 24 cents in the year-ago quarter.

Balance Sheet

Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $289.4 million, compared to $292.8 million in the prior quarter. During the quarter, the company paid $10.9 million in damages pertaining to a legal settlement.


For the first quarter 2012, Rambus expects revenues between $59.0 million and $64.0 million. Pro forma operating expenses are expected in the range of $57.0 million to $61.0 million, including litigation expenses of $7.0 million to $10.0 million. Pro forma net income is projected between ($2.0) million and $4.0 million.

Our Take

Rambus reported a decent fourth quarter, surpassing the Zacks Estimates by a considerable margin. But revenues were weak due to tough comps and some scheduled license revenues recorded in the third quarter. The company provided a positive guidance, which seems to be seasonally weak.

During the quarter, Rambus received an untoward ruling by a California jury on the long-drawn antitrust battle with Micron Technology Inc. ( MU ) and Hynix Semiconductor Inc. Moreover, three of its patents have been declared invalid by the U.S. government. This has dampened the possibility of winning some pending lawsuits encircling the infringement of these three patents.

But, Rambus' endeavor to diversify into the lighting and display technology space in an effort to tap the tremendous opportunity in solid state lighting is encouraging. During the conference call, management highlighted that they are on the track to bring diversification within its Lighting and Display Technology group.

Apart from this, Rambus signed a patent licensing agreement with Broadcom Corp. ( BRCM ) for an undisclosed sum. Broadcom is a fabless semiconductor company and its operations encompass the broadband, mobile and wireless, as well as infrastructure and networking verticals. According to a report published by the U.S. research firm Gartner in April 2011, Broadcom is now one of the top 10 semiconductor companies in the world.

We believe that the association with Broadcom will  aid Rambus' fundamentals in the upcoming quarters. And success at Broadcom could fetch similar deals from the semiconductor industry.

Currently, Rambus has a Zacks #2 Rank, indicating a short-term Buy rating.

BROADCOM CORP-A ( BRCM ): Free Stock Analysis Report
MICRON TECH ( MU ): Free Stock Analysis Report

RAMBUS INC ( RMBS ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BRCM , MU , RMBS



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