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Rambus Dips Despite Q4 Earnings Beat, Provides Tepid View - Analyst Blog

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Shares of Rambus Inc. ( RMBS ) dropped 2.9% in after-hours trading yesterday on unfavorable year-over-year comparison of revenues in the fourth quarter of 2014. Also, a tepid revenue outlook for the first quarter and fiscal 2015 impacted share price.

The company reported adjusted earnings per share (including stock-based compensation but excluding all one-time items) of 12 cents and beat the Zacks Consensus Estimate of 6 cents. However, adjusted earnings were approximately flat on a year-over-year basis.

Rambus Inc. - Earnings Surprise | FindTheBest

Quarter Details

Revenues came in at $72 million, which not only decreased 1.9% on a year-over-year basis but also lagged the Zacks Consensus Estimate of $73 million. Reported revenues were toward the lower end of management's guided range of $70 million to $75 million. The year-over-year drop was primarily due to lower-than-expected royalty revenues from Samsung and NVIDIA ( NVDA ), partially offset by licensing agreements with Micron Technology ( MU ) and QUALCOMM ( QCOM ).

The company reported revenues from Memory and Interfaces Division (MID), Cryptography Research (CRI) and Lighting and display technology (LDT) divisions of $54 million (down 4.9% year over year), $12.4 million (down 2.4% year over year) and $5.6 million (up 43.6 % year over year), respectively.

Adjusted operating expenses (including stock-based compensation but excluding all one-time items) in the fourth quarter were $48.1 million, up 2.6% from the year-ago quarter, primarily due to higher cost of sales. Operating expenses, as a percentage of revenues, also expanded from 63.9% to 66.8% on a year-over-year basis.

This in turn impacted operating results. Adjusted operating income came in at $23.9 million compared with $26.5 million in the year-ago quarter. Operating margin was 33.2% compared with 36.1% reported in the year-ago quarter.

Rambus' adjusted net income during the quarter came in at 16.1 million. Adjusted net income excludes amortization, restructuring charges, acquisition costs and other one-time items but includes stock-based compensation expenses calculated on a proportionate tax basis.

On a GAAP basis, net income was $14.7 million, which improved from a loss of $3.6 million reported in the year-ago quarter.

Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $300 million, up from $271.1 million in the prior quarter. During the quarter, the company generated cash from operations of $77 million.

Guidance

The company expects first-quarter revenues to range between $70 million and $75 million, lower than the Zacks Consensus Estimate of $78 million. Moreover, the company expects pro-forma operating expenses to be between $46 million and $49 million. Pro-forma net income is expected in the range of $13 million to $18 million.

The company provided fiscal 2015 outlook. For 2015, the company expects revenues to be between $300 million and $315 million. The Zacks Consensus Estimate is pegged at $316 million. Moreover, the company expects pro-forma operating expenses between $185 million and $190 million while pro-forma net income is expected in the range of $67 million to $79 million.

Our Take

Rambus reported mixed fourth-quarter results with the bottom line surpassing the Zacks Consensus Estimate but the top line missing the same. Also, year-over-year revenue comparisons were unfavorable primarily due to lower royalty revenues from Samsung and NVIDIA. Further, the company provided a tepid revenue guidance due to lower deal signings.

Nonetheless, with the rising popularity of energy-efficient lighting, LED products in the latest architectural, retail, commercial and residential lighting fixtures, we find Rambus in a favorable position to capitalize on this opportunity.

Rambus is going through a restructuring phase and we expect it to yield favorable results in the coming quarters. Additionally, the licensing agreements - the result of successful monetization of Rambus' patents - remain a recurring revenue source.

The company's investments in the CryptoManager platform and certain memory and interface technologies can impact margins in the near term. Other companies in the same space include Semiconductor Manufacturing International Corp. and Advanced Micro Devices.

Currently, Rambus holds a Zacks Rank #2 (Buy).

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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 Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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