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Rambus to Restructure Operations

Zacks Equity Research

Massive restructuring plans are in store for technology licensing company Rambus Inc. (RMBS), as it strives to bring down costs and generate positive cash flows.

After a detailed study, Rambus found that cutting down on its general and administrative expenses would not be too difficult. This would save approximately $30.0 to $35.0 million of cash annually. The cost curtailment initiative will reduce headcount by 15%, which will be completed by the fourth quarter of 2012 ending December.

Rambus expects to take a severance charge (to compensate the laid-off employees) of roughly $6.0 million over the coming two quarters.

Rambus will also be reorganizing its entire business. From now on, the company will report under three operating units, namely Memory and Interfaces, Cryptography Research, and Lighting and Display Technologies. The newly created divisions will be headed by Dr. Black, Paul Kocher and Jeffery Parker, respectively.

Management appears optimistic that these changes will bring expense control and the new approach will help Rambus grow in the coming years.

We look forward to the success of this restructuring, but note that the continued loss of legal suits to its top customers keeps us concerned. Last month, Rambus suffered a major setback after three consecutive loses to semiconductor companies Garmin International Inc. (a subsidiary of Garmin Ltd. (GRMN)), LSI Corp. (LSI) and STMicroelectronics (STM).

Moreover, the macro-economic uncertainty is affecting the PC market, which in turn is taking a toll on semiconductor companies. The sluggish demand for semiconductors is jeopardizing Rambus’ fundamentals.

However, we still believe that there are growth prospects for Rambus given a slight recovery expected in the back half of 2012. We also notice that Rambus is doing well in the Lighting and Display category. In fact, in its second quarter earnings call (in July), the company mentioned enormous growth prospects in the LED arena and stated that it is well-positioned to capitalize on the imminent opportunity.

Currently, Rambus has a Zacks #3 Rank, indicating a short-term “Hold” rating.

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