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Rambus' 3Q Beats Ests, Lags Y/Y

Zacks Equity Research

Rambus Inc. (RMBS) posted third quarter 2012 adjusted earnings per share (EPS) of 4 cents, compared to the Zacks Consensus Estimate of 23 cents loss per share. Adjusted EPS excludes other patent royalties received, acquisition costs and retention bonus, amortization, costs of restatement and related legal activities, as well as non-cash interest expense on convertible notes but includes stock-based compensation expenses. Shares surged 2.43% in the after hours reflecting positive guidance for the fourth quarter.


Rambus reported total revenue of $57.5 million in the third quarter, down 42.6% from $100.3 million a year ago but up 2.0% sequentially. The quarter’s revenue was within the company’s guided range of $54.0–$60.0 million and above the Zacks Consensus Estimate of $56.0 million. The year-over-year decline was mainly due to a decrease in contract revenue, lower royalties reported by certain licensees and cessation of a patent license agreement. However, the sequential growth was aided by a new licensing agreement with Fujitsu Semiconductor Ltd.

Royalty revenue fell 40.4% year over year to $57.4 million. Revenue from Contracts was $0.2 million, substantially down (95.8%) from the comparable quarter last year.

Operating Results

Total operating expenses in the third quarter were $104.6 million, up 16.9% from $89.5 million in the year-earlier quarter. The surge in operating expenses was due to higher one-time expenses, partially offset by decline in research & development and marketing, general & administrative expenses. The company recorded a non-cash charge for the impairment of goodwill and long-lived assets within its Lighting and Display Technology division of approximately $35.5 million.

Reported operating loss in the quarter was $47.1 million, compared to operating income of $10.7 million in the year-ago quarter. Operating margin was (81.9%) compared to 10.7% in the year-ago quarter.

Reported net loss was $58.1 million or 52 cents per share, compared to net income of $0.5 million or 0 cent 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, and non-cash interest expense on convertible notes, but including stock-based compensation expenses, adjusted EPS came in at 3 cents versus 6 cents in the year-ago quarter.

Balance Sheet

Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $207.1 million, up from $203.2 million in the prior quarter, reflecting positive cash flows from operating activities.


For the fourth quarter of 2012, Rambus expects revenues between $57.0 million and $63.0 million. Pro forma operating expenses are expected in the range of $52.0 million to $57.0 million, including litigation expenses of $5.0 million. Pro forma net income is projected between $2.0 million and $9.0 million.

The Zacks Consensus Estimates for the fourth quarter and 2012 are pegged at 17 cents and 93 cents loss per share, respectively.

Our Take

We are encouraged by Rambus’ third quarter results as both top and bottom lines surpassed the Zacks Consensus Estimates. But the results were disappointing when compared with the year-ago quarter. But fourth quarter guidance reflected decent sequential growth, which according to management will be aided by the restructuring initiatives.

Rambus planned for massive restructuring in August to bring down costs and generate positive cash flows. We look forward to the success of this restructuring, but note the continued loss of legal suits to its top customers such as Garmin Ltd. (GRMN), LSI Corp. (LSI) and STMicroelectronics (STM) and sluggish demand from the semiconductor companies, which keep us concerned.

However, we still believe that there are growth prospects for Rambus given a slight recovery expected in the remainder of 2012 and beyond. We also notice that Rambus is doing well in the Lighting and Display category. In fact, the company mentioned enormous growth prospects in the LED arena. Rambus is also changing its business strategy within this division to focus less on display technology and more on general lightening to capitalize on the imminent opportunity in LED.

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

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