Q3 2023 Rambus Inc Earnings Call
Welcome to the Rambus third quarter fiscal year 2023 earnings Conference call. Currently all participants are in listen mode only.
Conclusion of our prepared remarks, we will conduct a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad.
If anyone should like assistance during the conference. Please press Star zero on your keypad at any time as a reminder, this conference call is being recorded.
I would now like to turn the conference over to Desmond Lynch Chief Financial Officer.
You may begin your conference.
Thank you operator, and welcome to the Rambus third quarter 2000, <unk> results Conference call I Am Desmond Lynch, Chief Financial Officer at Rambus and on the call with me today is Luc <unk> our CEO.
This release for the results that we will be discussing today has been filed with the ACC on form 8-K.
A replay of this call will be available for the next week at 8668139 for <unk>.
In addition, we are simultaneously webcasting this call and along with the audio we are webcasting slides that we will reference during portions of today's call.
If this call can be accessed on our website beginning today at five P M Pacific time.
Our discussions today will contain forward looking statements, including our expectations regarding projected financial results financial prospects market growth demand for our solutions, the company's ability to effectively manage supply chain shortages and other market challenges.
Effects of ASC six six on reported revenue amongst other items.
These statements are subject to risks and uncertainties that may be discussed during this call and there are more fully described in the documents, we file with the SEC, including our eight Ks 10, Qs and 10-Ks.
These forward looking statements may differ materially from our actual results and we are under no obligation to update these statements.
In an effort to provide greater clarity in the financials, we are using both GAAP and non-GAAP financial presentations in both our press release and on this call.
A reconciliation of these non-GAAP financials to the most directly comparable GAAP measures has been included in our press release and a slight place in patients and on our website at Rambus Dot com on the Investor Relations page under financial releases.
Operator: Welcome to the Rambus 3rd quarter of fiscal year 2023 earnings conference call. Currently all participants are enlisted mode only.
Operator: As in conclusion of our prepared remarks, we will conduct the question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. If anyone should like assistance during the conference, please press star zero on your keypad at any time. As a reminder, this conference call is being recorded.
We adopted ASC 606 in 2018, using the modified retrospective method, which did not restate prior periods, but rather run the cumulative effect of the adoption through retained earnings as a beginning balance sheet adjustment.
Operator: I would now like to turn the conference over to Desmond Lynch, Chief Financial Officer, and may we begin your conference. Thank you, operator, and welcome to the Rambus 3rd quarter 2023 results conference call.
Any comparison between our results under ASC 606, and prior results under ASC 605 is not an accurate way to track the company's progress.
We will continue to provide operational metrics such as licensing billings to give our investors better insight into our operational performance.
Desmond Lynch: I am Desmond Lynch, Chief Financial Officer at Rambus, and on the call with me today is Luc Seraphin or CEO. The press release for the results that we will be discussing today has been filed with the SEC on Form 8K. A replay of this call will be available for the next week at 866-813-9403. In addition, we are simultaneously webcasting this call, and along with the audio, we are webcasting slides that we will reference during portions of today's call. A replay of this call can be accessed on our website beginning today at 5pm Pacific time.
The order of our call today will be as follows Luc will start with an overview of the business I will discuss our financial results and then we'll end with Q&A.
I'll now turn the call over to Luke to provide an overview of the quarter Luke.
Thank you, Dave and good afternoon, everyone. We delivered another strong quarter with revenue and earnings above the midpoint of guidance as we continue to execute on our strategy and successfully navigate the complexities of the industry transition to <unk>.
Challenging macro environment.
The company generated $52 million in cash from operations, enabling consistent return of value to our stockholders. Most recently with the completion of a $100 million accelerated share repurchase program.
Desmond Lynch: Our discussions today will contain forward-looking statements, including our expectations regarding projected financial results, financial prospects, market growth, demand for our solutions, the company's ability to effectively manage supply chain shortages and other market challenges, and the effects of ASC 606 and reported revenue amongst other items. These statements are subject to risks and uncertainties that may be discussed during this call, and are more fully described in the documents we file with the SEC, including our 8Ks, 10Qs, and 10Ks. These forward-looking statements may differ materially from our actual results, and we are under no obligation to update these statements.
We also closed the sale of our IP business strengthening our focus on the development of differentiated chips and digital IP that expand our opportunities in the data center market.
Generative AI and other data intensive workloads continue to drive increasing requirements for memory performance and capacity across the computing landscape.
This is a very positive long term trends for rambus.
Currently the training of large language models is boosting the demand for AI servers with the most advanced multi core Cpus <unk>.
Desmond Lynch: In an effort to provide greater clarity in the financials, we are using both GAP and non-GAP financial presentations in both our press release and on this call. A reconciliation of these non-GAP financials to the most directly comparable GAP measures has been included in our press release, in our slide presentation, and on our website at ramvis.com on the investor relations page under financial releases. We adopted ASC 606 in 2018 using the Modified Retrospective Method, which did not restate prior periods, but rather ran the cumulative effect of the adoption through retained earnings as a beginning balance sheet adjustment.
<unk> with DDR five teams to maximize main memory bandwidth alongside server Gpus with dedicated HBM memory.
In addition high performance General purpose server has enabled with Edr five are seeing increasing demand to meet the growing computing infrastructure requirements of the AI data pipeline.
This is creating a tailwind for the transition to DDR five.
The higher memory attach rates and number of deals to support both AI and the high end General computing servers enabled with DDR five increases the opportunity for our expanding family of memory interface chips.
As the industry builds out the infrastructure or the broadening adoption of AI.
Desmond Lynch: Any comparison between our results under ASC 606 and prior results under ASC 605 is not an accurate way to track the company's progress. We will continue to provide operational metrics such as licensing billings to give our investors better insights into our operational performance.
Look forward to continued innovation and growth and service Cpus.
Workload optimized accelerators.
This trend also creates opportunities for our silicon IP business.
The ongoing specialization of computing systems.
Our high performance EXL, Pcie, HBM and <unk>, our IP control of course increasingly critical.
Desmond Lynch: The author of our call today will be as follows. Luc will start with an overview of the business. I will discuss her financial results and then we will end with Q&A.
In addition, the move to application specific silicon driven by AI and other advanced workloads creates increased vulnerabilities to attack data is distributed across systems.
Luc Seraphin: I'll now turn the call over to Luc to provide an overview of the quarter. Luc? Thank you, Des, and good afternoon everyone. We delivered another strong quarter with revenue and earnings above the big point of guidance as we continue to execute on our strategy and successfully navigate the complexities of the industry transition to DDR5 in a challenging micro-environment. The company generated 52 million dollars in cash from operations, enabling consistent return of value to our stockholders, most recently with a completion of a 100 million dollars accelerated share repair chase program.
This trend increases the need for advanced security IP and area, where we lead the industry.
With that AI is a strong catalyst for demand in a very positive long term growth driver for the company.
As I mentioned last quarter, we are investing in initiatives to broaden our portfolio of offerings.
Just last week, we announced our <unk> memory controller IP is now supporting operations at nine six gigawatts ones versus the second which is 50% higher than current top in data rates.
We are also working in close collaboration with the ecosystem and continue to make good progress on expanding our chief offering to support the ongoing evolution of high performance server and client systems for years to come.
Luc Seraphin: We also closed the sale of our FIIP business, strengthening our focus on the development of differentiated chips and digital IP that expand our opportunities in the data center market. Generative AI and other data-intensive workloads continue to drive increasing requirements for memory performance and capacity across the computing landscape. This is a very positive long-term trend for Rambas. Currently, the training of large-language models is boosting the demand for AI servers with the most advanced multicore CPUs provisioned with DDR5 themes to maximize main memory bandwidth alongside server GPUs with dedicated HVM memory.
Turning now to our quarterly results, we continue to lead and invest in our areas of focus.
In Q3 memory interface chips delivered strong results with quarterly product revenue above the midpoint of guidance at $52 million.
We are executing well in a challenging environment with year to date results up 7% over the same period last year.
As we have highlighted in past quarters, the industry transition to <unk> continues to be dynamic.
In Q3, we were very pleased to continue volume shipments of <unk> solutions, which again are the predominance unit shipments this quarter.
Luc Seraphin: In addition, high performance general-purpose servers enabled with DDR5 are seeing increasing demand to meet the growing computing infrastructure requirements of the AI data pipeline. This is creating tailwinds for the transition to DDR5. The higher memory attached rates and number of dins to support both AI and the high-hand general computing servers enabled with DDR5 increases the opportunity for expanding family of memory interface chips. As the industry builds out the infrastructure for the broadening adoption of AI, we look forward to continued innovation and growth in service CPUs as well as workload optimized accelerators.
We continue to work with customers to manage through the ongoing DDR for inventory correction.
As we have said previously we expect DDR four headwinds to continue through the remainder of the year in line with the broader ecosystem, but look forward to inventories normalizing in the early part of 2024.
We remain positive on the outlook for DDR five as we focus on execution and actively work with customers and partners who the transition.
With the accelerated pace of DD archive platform Rollouts, we are poised to offer our customers and partners a range of solutions with multiple generations of our memory interface chips shipping in volume in qualification or sampling.
Luc Seraphin: This trend also creates opportunities for our Silicon IT business. The ongoing specialization of computing systems makes our high-performance CXR, PCIe, HBM, and GDRIP control cores increasingly critical. In addition, the move to application-specific silicon driven by AI and other advanced workloads creates increased vulnerabilities to attack, as data is distributed across systems. This trend increases the need for advanced security IP, an area where we leave the industry. With that, AI is a strong catalyst for demand and a very positive long-term growth drive of the company.
In addition, our close collaboration with the ecosystem continues a novel memory advanced clocking and power management solutions to support the roadmap of future computing platforms, including developments with EXL attached memory.
We look forward to demonstrating publicly later this year.
In closing this was a strong quarter for the company with solid results, while we navigate dynamic market conditions in the near term our focus to execution and strategic investments position us well for long term profitable growth.
Luc Seraphin: As I mentioned last quarter, we are investing in initiatives to broaden our portfolio of offerings. Just last week, we announced our HBM3 memory controller IPs now supporting operations that 9.6 giga transfers per second, which is 60% higher than current top-end data rates. We are also working in close collaboration with the ecosystem and continue to make good progress on expanding our chip offering to support the ongoing evolution of high-performance server and client systems for years to come.
As always I'd like to thank our customers partners and employees for their ongoing support.
And with that I'll turn.
Turn the call over to Dan to discuss the quarterly financial results.
Thank you Luc I'd like to begin with a summary of our financial results for the third quarter on slide five.
Once again, we delivered a strong quarter and we are very pleased with the company's continued execution on our strategic initiatives to drive long term profitable growth.
We delivered strong financial results with both revenue and earnings above our expectations.
Luc Seraphin: Turning now to our quarterly results, we continue to lead and invest in our areas of focus. In Q3, memory interface chips delivered strong results with quarterly product revenue above the midpoint of guidance at $52 million. We are executing well in a challenging environment with the year-to-date results up 7% over the same period last year. As we have highlighted in past quarters, the industry transition to DDR5 continues to be dynamic. In Q3, we were very pleased to continue volume shipments of DDR5 solutions, which again are the predominant unit shipments this quarter.
In Q3, we executed a $100 million accelerated share repurchase program, which retired approximately 185 million shares.
Our continued strong cash generation allows us to consistently return cash to shareholders.
As Luke discussed in Q3, we completed the divestiture of our Phy IP business, which will enable us to redeploy our investments into higher growth areas of products and digital IP.
Let me walk you through our non-GAAP income statement on slide six.
Luc Seraphin: We continue to work with customers to manage through the ongoing DDR4 inventory correction. As we have said previously, we expect DDR4 headwinds to continue through the remainder of the year in line with the broader ecosystem, but look forward to inventory normalizing in the early part of 2024. We remain positive on the outlook for DDR5 as we focus on execution and actively work with customers and partners through the transition. With the accelerated pace of DDR5 platform rollouts, we oppose to offer our customers and partners a range of solutions with multiple generations of our memory interface chips shipping in volume in qualification or sampling.
Revenue for the third quarter with $105 $3 million above our expectations driven by higher product revenue in the quarter.
Third quarter revenue included approximately $5 million in revenue for the Phy IP business that we divested in early September.
Royalty revenue was $28 $9 million, but licensing billings with 57 $9 billion.
The difference between licensing billings and royalty revenue mainly relates to timing as we do not always recognize revenue in the same quarter as we bill our customers.
Product revenue was $52 $2 million, consisting primarily of memory interface chips.
Luc Seraphin: In addition, our close collaboration with the ecosystem continues on novel memory, advanced clocking and power management solutions to support the roadmap of future computing platforms, including developments for CXL attached memory, which we look forward to demonstrating publicly later this year.
Contract and other revenue was $24 $2 million, consisting predominantly of silicon IP.
As a reminder, only a portion of our silicon IP revenue is reflected in contract and other revenue and the remaining portion is reported in royalty revenue as well as in licensing billings.
Luc Seraphin: In closing, this was a strong order for the company with fairly the results. While we navigate dynamic market conditions in the near term, our focused execution and strategic investments position us well for long-term profitable growth.
Total operating costs, including cost of goods sold for the quarter were $72 $9 million.
Luc Seraphin: As always, I would like to thank our customers, partners and employees for their ongoing support.
Operating expenses of $52 $4 million were in line with our expectations and down $3 $5 million fastest Q2, as we continue to be disciplined in that expense management.
Desmond Lynch: With that, I turn the call over to Dez to discuss the quarterly financial results. Dez? Thank you, Luke.
Desmond Lynch: I would like to begin with a summary of our financial results for the third quarter on slide 5. Once again, we delivered a strong quarter and we are very pleased with the company's continued execution on their strategic initiatives to drive long-term profitable growth. We delivered strong financial results with both revenue and earnings above our expectations. In Q3, we executed a $100 million accelerated share repurchase program, which retired approximately 1.85 million shares.
And we ended the quarter with a total headcount of 624 down from Q2, which is a result of the phy IP divestiture.
GAAP interest and other income for the third quarter was $2 $3 million.
This included $400000 of ASC.
So six interest income related to the financing component of fixed fee licensing arrangements for which we have recognized revenue, but not yet received payment.
Desmond Lynch: Our continued strong cash generation allows us to consistently return cash to shareholders. As Luke discussed in Q3, we completed the divestiture of our FIIP business, which will enable us to redeploy our investments into higher growth areas of products and digital IP.
<unk> the financing interest income related to ASC 606, this would have been $1 $9 billion of net interest income.
Using an assumed flat tax rate of 24% for non-GAAP pretax income non-GAAP net income for the quarter was $26 $4 million.
Desmond Lynch: Let me walk you through our non-gap income statement on slide 6. Revenue for the third quarter was 105.3 million dollars above our expectations driven by higher product revenue in the quarter. Third quarter revenue included approximately 5 million dollars in revenue for the FIIP business that we divested in early September. Royalty revenue was 28.9 million dollars for licensing billings with 57.9 million dollars. The difference between licensing billings and royalty revenue mainly relates to timing as we do not always recognize revenue in the same quarter as we bill our customers.
Now, let me turn to the balance sheet details on slide seven.
We ended the quarter with cash cash equivalents and marketable securities totaling 375 $5 million.
This is up from Q2 through a combination of continued strong cash generation from operations of 51 $6 million and the net proceeds from the Phy IP divestiture of $106 $3 million, partly offset by the $100 million accelerated share.
Purchase program, which we completed in the quarter.
At the end of Q3, we had contract assets were $67 $7 million, which reflects the net present value of Unbilled accounts receivable related to licensing agreements for which the company has no future performance obligations.
Desmond Lynch: Product revenue was 52.2 million dollars consisting primarily of memory interface chips. Contract and other revenue was 24.2 million dollars consisting predominantly of Silicon IP. As a reminder, only a portion of our Silicon IP revenue is reflected in contract and other revenue and the remaining portion is reported in royalty revenue as well as in licensing billings. Total operating costs, including costs of goods sold for the quarter, were 72.9 million dollars. Operating expenses of 52.4 million dollars were in line with our expectations and down 3.5 million dollars versus Q2 as we continue to be disciplined in our expense management.
We expect this number to continue to trend down as we bill and collect for these contracts.
It is important to note that this metric does not represent the entire value of our existing licensing agreements as it.
<unk> opportunity, we want to restructure a patent agreements in a manner that allows us to recognize revenue each quarter during the life of each agreement.
Third quarter, Capex was $11 $4 million depreciation expense was $7 million.
We delivered $42 billion of free cash flow in the quarter.
Now, let me turn to guidance for the fourth quarter on slide eight.
Desmond Lynch: And we ended the quarter with a total head count of 624 down from Q2 which is a result of the FIIP divestiture. GAP interest and other income for the third quarter was 2.3 million dollars. This included $400,000 of ASC 606 interest income related to the financing component of FIIP licensing arrangements for which we have recognized revenue but not yet received payment. Excluding the financing interest income related to ASC 606, this would have been 1.9 million dollars of net interest income. Using an assumed flat tax rate of 24% for non-GAP pre-tax income, non-GAP net income for the quarter was 26.4 million dollars.
As a reminder, the forward looking guidance reflects our current best estimates at this time.
We continue to actively monitor the macro environment and our actual results could differ materially from what I'm about to review.
In addition to the financial outlook under ASC 606, we also provide information on licensing billings, which is an operational metrics that are flakes amounts invoiced to our licensing customers during the period adjusted for certain differences.
As we have reported historically licensing billings closely correlates with what we had historically reported as royalty revenue under ASC 605.
As a reminder, in Q3, we divested a phy IP business, which on a full quarter basis. The business has been breakeven at approximately $6 million in revenue offset was $6 million and cost.
Desmond Lynch: Now let me turn to the balance sheet details on slide 7. We ended the quarter with cash, cash equivalence and marketable securities totaling $375.5 million dollars. This is up from Q2 to a combination of continued strong cash generation from operations of 51.6 million dollars and the net proceeds from the FIIP divestiture of 106.3 million dollars. Partly offset by the $100 million accelerated share repurchase program which we completed in the quarter. At the end of Q3, we had contract assets worth $67.7 million dollars which reflects the net present value of unbuilt accounts receivable related to licensing agreements for which the company has no future performance obligations.
Under ASC 606, we expect revenue for the fourth quarter to be between 117 and $123 million, we expect royalty revenues to be between 42% and $48 million and licensing billings between 56 and 60.
$2 million.
The quarterly increase in royalty revenue reflects the Samsung patent licensing extension that was signed last year, which will be recognized as a variable contract under ASC 606 on a go forward basis.
We are pleased with our continued execution and progression on our memory interface chip business and we are well positioned in the market to deliver long term profitable growth.
Desmond Lynch: We expect this number to continue to trend down as we build and collect for these contracts. It is important to note that this metric does not represent the entire value of our existing licensing agreements. As an each renewal opportunity, we work to restructure our patent agreements in a manner that allows us to recognise revenue each quarter during the life of each agreement. Third quarter capex was 11.4 million dollars while depreciation expense was 7 million dollars. We delivered 40.2 million dollars of free cash flow in the quarter.
As Luc mentioned earlier the transition to DDR five continues to be dynamic.
We are pleased with the execution of DDR five shipments we continue to be impacted by the DVR for inventory digestion, which will continue through the remainder of the year.
We expect Q4, non-GAAP total operating costs, which includes cogs to be between 73 and $69 million.
We expect Q4 capex to be approximately $8 million.
Under ASC 606, non-GAAP operating results for the fourth quarter is expected to be between a profit of 44 and $54 million.
Desmond Lynch: Now let me turn to our guidance for the fourth quarter on slide 8. As a reminder, the forward looking guidance reflects our current best estimates at this time. We continue to actively monitor the macro environment and our actual results could differ materially from what I am about to review. In addition to the financial outlook under ASC-606, we also provide information on licensing billings, which is an operational metric that reflects amounts in voice to licensing customers during the period adjusted for certain differences.
For non-GAAP interest and other income and expense, which excludes interest income related to ASC 606, we expect $2 million of interest income.
We expect the pro forma tax rate to remain at approximately 24% to 24% is higher than the statutory tax rate of 21%, primarily due to higher tax rates in our foreign jurisdictions.
As a reminder, we pay approximately $20 million of cash taxes, each year, driven primarily by licensing agreements with our partners in Korea.
Desmond Lynch: As we have reported historically, licensing billings closely correlates with what we had historically reported as royalty revenue under ASC-605. As a reminder, in Q3, we divested a five IP business, which on a full quarter basis, the business has been break even at approximately six million dollars in revenue offset with six million dollars in cost. Under ASC-606, we expect revenue for the fourth quarter to be between 117 and 123 million dollars. We expect royalty revenue to be between 42 and 48 million dollars and licensing billings between 56 and 62 million dollars.
We expect non-GAAP taxes to be between an extensive 11 and $13 million in Q4.
We expect Q4 share count to be 110 million diluted shares outstanding.
Overall, we anticipate our non-GAAP earnings per share range between 32, and 39 cents for the quarter.
Let me finish with a summary on slide nine.
I am pleased with our strong results and the team's ongoing execution in this challenging and unpredictable macroeconomic environment as we continue to make progress against our strategic initiatives.
Desmond Lynch: The quarterly increase in royalty revenue reflects the Samsung patent licensing extension that was signed last year, which will be recognised as a variable contract under ASC-606 on a go-forward basis. We are pleased with our continued execution and progression on our memory interface chip business, and we are well positioned in the market to deliver long-term profitable growth. As Luke mentioned earlier, the transition to DDR5 continues to be dynamic. While we are pleased with our execution on DDR5 shipments, we continue to be impacted by the DDR4 inventory digestion, which will continue through the remainder of the year.
Our portfolio is well positioned to address growing opportunities in the data center fueled by AI, we continue to grow the business profitably with strong cash generation and a robust balance sheet, which has enabled consistent capital return to shareholders.
Before I open the call up to Q&A I would like to thank <unk> employees for their continued teamwork and execution.
With that I'll turn the call back to the operator to begin Q&A.
Could we have our first question.
Thank you.
Our first question comes from Gary Mobley with Wells Fargo.
If you'd like to ask a question star one on your telephone keypad.
Desmond Lynch: We expect Q4, non-gap total operating costs, which includes cogs, to be between 73 and 69 million dollars. We expect Q4 capex to be approximately 8 million dollars. Under ASC-606, non-gap operating results for the fourth quarter is expected to be between a profit of 44 and 54 million dollars. For non-Gap interest and other income and expense, which excludes interest income related to ASC, 606, we expect $2 million of interest income. We expect to perform a tax rate to remain at approximately 24%, the 24% is higher than the statutory tax rate of 21%, primarily due to higher tax rates in our foreign jurisdictions.
Gary Your line is open to taking my questions sure.
Sure. Thank you.
I wanted to start out by.
Getting the depreciation of the undercurrent in the product revenue between DDR for DDR five.
Can you verify your DDR five.
Chipset sales grew sequentially in the third quarter.
And how low DDR four related revenue may have trended for the quarter.
And contrast that against what you think would be a normalized quarterly shipment number for DDR four that may eventually layer on top of the growth in DDR five.
Yeah.
Hey, Gary I'll take the answer I think.
There is hope Saudi was.
Desmond Lynch: As a reminder, we pay approximately $20 million of cash taxes each year, driven primarily by licensing agreements with our partners in Korea. We expect non-Gap taxes to be between an expense of $11 and $13 million in Q4. We anticipate a non-Gap earnings per share range between $32 and $39 cents for the quarter.
Yes.
Hey, guys. Thanks for the question, we've been very pleased with our execution in 2023 and as Luke mentioned in his prepared remarks product revenue is up 7% on a year to date basis.
The Q3 in a market, which was down double digit.
Definitely navigated a dynamic environment by posting solid results, which will result in year over year share gains versus our competitors.
Our product mix in Q3.
Shipments were predominantly DDR five and for the second quarter in a row with minimal DDR four products in the quarter really competing Q3 versus Q2, <unk> shipments were down which was offset by modest growth in the DDR five shipments from there.
Desmond Lynch: Let me finish with a summary on slide 9. I am pleased with our strong results in the teams ongoing execution in this challenging and unpredictable macroeconomic environment as we continue to make progress against their strategic initiatives. Our portfolio is well positioned to address growing opportunities in the data center, fueled by AI. We continue to grow the business profitably with strong cash generation and a robust balance sheet, which has enabled consistent capital return to shareholders. Before I open the call up to Q&A, I would like to thank our employees for their continued teamwork and execution.
Going into Q4, we do expect to see a similar product mix with continued growth in DDR, five and minimal DVR for shipments in the quarter as customers continue to take a conservative posture towards inventory management at year end. So overall, we've been very pleased with the execution in this town.
And then vitamin and we're really pleased to see the continuation of growth in DDR five shipments, which is positive for that.
Operator: With that, I'll turn the call back to our operator to begin Q&A.
Okay as a follow up to the <unk>.
Operator: Could we have our first question? Thank you.
Sales mix I noticed that the product gross margin was.
Well off.
Gary Mobley: Our first question comes from Gary Mogli with Wells Fargo. If you'd like to ask a question, it is Star 1 on your telephone keypad. Gary, your line is open.
Yes.
<unk> performance you had in the second quarter, despite the higher mix of DDR five.
Maybe you could just speak to.
Why that negative variance relative to that long term view.
Luc Seraphin: I want to start out by getting an appreciation of the undercurrents in the product revenue between DDR4 and DDR5. Can you verify if your DDR5 dim chipset sales grew sequentially in the third quarter and how low DDR4 related revenue may have trended for a quarter and contrast that against what you think would be a normalized quarterly shipment number for DDR4 that may eventually layer on top of the growth in DDR5?
What 60% to 65% or relative to the prior quarter and maybe you could just give us a sense of.
The different moving pieces there between DDR four and five.
Yes got it great question, we have.
Very pleased to have we continue to monitor product gross margins as a company and if you look at our year to date product gross margins again for Q3, our gross margins on the product sort of around 63%, which is in line with the midpoint of the communicated long term.
Gross margins of 60%, 65%. If you look at specifically in Q3 product gross margins were 63%, which were down from the high of 66% in Q2, mainly driven by ESPN erosion. If the DDR five products are now shipping in volume production.
Luc Seraphin: Hey Gary, I'll take the answer. I think there's hope that it was your back.
Luc Seraphin: Hey, Gary, thanks for the question. We've been very pleased with our execution in 2023 and as Luke mentioned in his prepared remarks, product revenue is up to 7% on a year-to-date basis through Q3 in a market which is down double digit. So we've successfully navigated a dynamic environment by posting solid results, which will result in year-over-year share gains versus our competitors. Looking at our product mix in Q3, the shipments were predominantly DDR5 and for the second quarter in a row we shipped out minimal DDR4 products in the quarter.
The ESP erosion more than anticipated and in line with our expectations and as a company. We will continue to be disciplined in our ESP management and will continue to drive product cost savings to offset any ASP erosion from there again with the similar product mix going into Q4 as I mentioned.
Earlier, we would expect product gross margins to be relatively flat.
The 3% in Q4, and we're very pleased that we've been able to execute on the gross margin performance, which will be roughly in line with the midpoint of our long term gross margin range of 60% to 65%.
Luc Seraphin: Really comparing Q3 versus Q2, DDR4 shipments were down which was offset by modest growth in the DDR5 shipments from there. Going into Q4, we do expect to see a similar product mix with continued growth in DDR5 and minimal DDR4 shipments in the quarter as customers continue to take a conservative posture towards inventory management at year end. So overall we've been very pleased with our execution in this sort of challenging environment and we're really pleased to see the continuation of growth in DDR5 shipment which is positive for us.
Thanks, guys.
Thanks Kelly.
Our next question is from many hosseini with <unk> your.
Your line is now open.
Yes, thanks for taking my question.
Bruce Please provide us an update where we are with.
Companionship I believe last time, we were.
We're expecting.
Quantification.
High volume manufacturing by mid 'twenty four.
Luc Seraphin: Okay, there's a follow up to the product sales mix. I noticed that the product rose margin was, you know, well off of the strong performance you had in the second quarter, despite the higher mix of DDR5. Maybe you just speak to, you know, why the negative variance relative to that long-term view of what, 60, 65% or relative to the prior quarter, and maybe you just get the sense of the different moving pieces between DDR4 and 5.
Uh huh.
That's correct.
Can you give us an update and I have a follow up.
Thanks, maybe yeah, we were pleased with the investments, we're making in our <unk>.
Zip rollout.
We are actually currently shipping in small volumes, our SPD hub and temperature sensor to the market and as you say, we believe to have more contribution from these products towards the second half of 2024.
We have also sampled our customers with our initial power management chips and the initial feedback from our customers is really really good and you should expect somebody announced next quarter around these these products and again I think that will contribute to.
Luc Seraphin: Yeah, Gary, great question. We are very pleased at how we continue to manage our product growth margins as a company. And if you look at our year-to-date product growth margins again, so 2, 3, our growth margins in the product for around 63%, which is in line with the midpoint of the communicated long-term product growth margins of 60 to 65%. If you look at specifically in Q3, a product growth margins were 63%, which were down from the high of 66% in Q2, mainly driven by ASP erosion.
Revenue.
Starting in the second half of 2024 and in to 2025.
And finally, although these are not companion chips for the data center. We are also working with our customers on a set of client products in the crop space or the power management space.
Which will contribute to revenue in 2025 and beyond so we have a rollout of products. We are pleased with the progress we started too.
Luc Seraphin: It's the DDR5 product for now shipping and volume production. The ASP erosion was anticipated and in line with our expectations. And as a company, we'll continue to be disciplined in our ASP management, and we'll continue to drive product cost savings to offset any ASP erosion from there. Again, with the similar product mix going into Q4, as I mentioned earlier, we would expect product growth margins to be relatively flat at the 63% in Q4. And we're very pleased at how that we've been able to execute on the growth margin performance, which will be roughly in line with the midpoint of our long-term growth margin range of 60 to 65%.
<unk> have been temperature sensor, we sample the clinic.
And we're working on the cloud rollout of products.
And all of these to start contributing substantially more substantially in the second half of 2024.
Great. Thanks for detail and one follow up with that.
Our Q4 guide implies.
Opex so the million.
The mid point.
And.
I wanted to better understand is.
Hum.
How should we think about the scaling of Opex once the revenue starts to grow once the deal.
Our seat or buffer chips shipping.
Luc Seraphin: Thanks, guys. Thanks, Gally.
Can you manage the business with the.
50% to $51 million of Opex.
Scale revenue or Opex would need to increase.
Mehdi Hosseini: Our next question is from Medihoseini with FIG. Your line is now open. Yes, thanks for taking my question. I can please provide us an update where we are with companionship. I believe last time we were expecting qualification with a high volume manufacturing by mid-24. And if that's correct, it can give us an update. And I have a follow-up. Thanks, Midi.
Yeah.
Hi.
Thanks for your question I think as a company we've done a fairly nice job in managing our expenses given the softer macroeconomic Luke.
Q3, operating expenses were $52 million, which were down from $58 million in Q1, which shows the discipline and focus on managing our expenses in Q4, you are right.
Stengel condense roughly to $50 million to $51 million for the quarter.
Well I would say as it was highlighted when we divested the phy IP businesses that we talked about reinvesting some of the R&D back into product program, which will drive revenue into 2025 and beyond.
Luc Seraphin: Yeah, we pleased with the investments we're making in our companionship roll out. You know, we are actually currently shipping in small volumes, our SPD hub and temperature sensor to the market. And as you say, we believe to have more contributions from these products to also the second half of 2024. We have also sampled our customers with our initial power management chips. And the initial feedback from our customers is really, really good.
Some of the client opportunities earlier looking at 'twenty 'twenty, four and why I would say from an R&D perspective spend historically has been around 23% to 25% of revenue.
To be within that range going forward.
Luc Seraphin: And you should expect some announcement in the next quarter around these products. And again, I think they will contribute to our revenue starting in the second half of 2024 and 2025. And finally, although these are not companionships for the data center, we are also working with our customers on the set of client products in the clock space or the power management space, which will contribute to revenue in 2025 and beyond. So we have a roll-out of products we pleased with the progress. We started to ship the SPD hub and temperature sensor. We sampled the pinnacle. And we're working on the client roll-out of products. And all of these should start contributing substantially, most Thanks for the detail.
S DNA and we will continue to be disciplined with inflationary type of increases here and what you will see is some fairly nice leverage as we continue to grow the top line I think overall with manage the opex very well, which is really struck the right balance of being prudent to a short term expenses and.
Also balancing the need to invest in the long term opportunities from there. So that's how we see the oil tanks playing out maybe.
Thank you.
Thanks.
Our next question is from Kevin Cassidy with Rosenblatt Securities. Your line is now open.
Yes, Thanks for taking my question and congratulations on the strong quarter.
Just as we've talked about the DDR five mm and.
Desmond Lynch: And one follow-up with that, your Q4 guide implies op-hacks of 50 million taking a midpoint. And what I want to understand is, how should we think about the scaling of op-hacks once the revenue starts to grow once to the R5 RC or buffer chip start shipping? Can you manage the business with the 50-51 million op-hacks as you scale revenue or would the op-hacks would need to increase?
Yes, I think you had mentioned.
Sampling or qualifying the next generation is there an opportunity you had mentioned about ASP erosion with the next generation does the is there a reset on ASP.
As you go to Gen. Two gen three and so forth.
Hi, Kevin and thanks for your question, what we see is that when we look ahead to the next generations of DDR five that we will see that ESP reset with each generation.
Desmond Lynch: Hi, Mehdi. Thanks for your question. I think as a company we've done a very nice job in managing our expenses given the software macroeconomic outlook. In Q3, our operating expenses were around $52 million, which were down from 58 million in Q1, which showed a discipline in focusing managing our expenses. In Q4, you are right that our op-hacks will come down roughly to 58-51 million dollars for the quarter. What I would say is that we've highlighted when we divested the five IP businesses that we talked about reinvesting some of the R&D back into product programs, which will drive revenue into 2025 and beyond and look talked about some of the client opportunities earlier.
Any reasons of DDR five are coming around quicker they seem to be on a 12 month cadence just maybe compare to the 24 months cadence under DDR four so that will offer the opportunity of an ESP.
From there.
Well I would say is that we've been very disciplined in our approach to pricing and we have a really good track record of producing healthy product gross margins and as I mentioned earlier. This year, we're going to execute on our product gross margins to be around 62% to 63%, which is in line with the mid point.
Of our long term product gross margin range of 60% to 65%.
Okay great.
Hum.
Just on the <unk>.
HBM three device or that IP are you.
Desmond Lynch: Looking at 2024, and what I would say from an R&D perspective that our spend historically has been around 23 to 25% of revenue, and I would expect to be within that sort of range going forward. In S&A, we'll continue to be disciplined with inflationary types of increases here, and what you will see is some very nice leverage as we continue to grow this sort of top line. I think overall we've managed our op-hacks very well, which has really struck the right balance of being prudent to our short-term expenses, and also balancing the need to invest in the long-term opportunities from there. That's how we see the op-hacks playing out, Mehdi.
Recognizing revenue for that or did you recognize revenue in the September quarter or is it part of your December quarter guidance.
As you mean three announcements we've made is an IP that we've just announced.
Desmond Lynch: Thank you.
The top end of speeds in the nine six Gigawatts one second so this is a product to come.
That will contribute to revenue in the future.
What would that have generated revenue this quarter or next quarter.
Okay.
Okay actually I wasn't sure. If it was if you had a beta customer that already had developed.
Okay, great understood. Thank you.
Thanks, Kevin.
Our next question is from Nam Kim with already research. Your line is now open.
Kevin Cassidy: Our next question is from Kevin Cassie with Rosenblatt Securities, your lines now open. Yes, thanks for taking my question, and congratulations on the strong quarter. Just as we talk about the DDR5, and I think you had mentioned sampling or qualifying the next generation, is there an opportunity you mentioned about ASP erosion with the next generation? Is there a reset on ASP as you go to Gen 2, Gen 3, and so forth?
Okay. Thank you.
Two questions. One I think our markets are shipped to DDR five things happening much faster than expected can you share your latest view on DDR five crossover timing.
And then second question also demand for DDR five Gen. Two is it picking up recently.
You mentioned the PMI C qualification on DVR Biogen two can you give us some color on how you can compete but you're seeing big P mix supplier. So I'll tell Ya Ti Samsung Mpls, what's your selling point really here versus the other thank you.
Luc Seraphin: Hi, Kevin. Thanks for your question. What we see is that when we look ahead to the next sort of ESP reset with each generation, the generations of DDR5 are coming around quicker. They seem to be on a 12-month cadence just now compared to the 24-month cadence under DDR4. So that will offer the opportunity of an ESP reset from there. What I would say is that we've been very disciplined in our approach to pricing, and we have a really good track record of producing healthy product-gross margins. And as I mentioned earlier, this year we're going to execute our product-gross margins to be around 62-66%, which is in line with the midpoint of our long-term product-gross margin range of 60-65%.
Luc Seraphin: Okay, great.
Thank you for your questions.
Questions. So we still see the crossover in the market what happened in the first half of 2020 for servers, we do see.
A slower burn of DDR floor inventory of our customers side, but it's still a slow burn.
Obviously as far as we're concerned our shipments of DDR five compared to <unk> into the market.
Has passed that crossover point as you noticed in our Q2 and Q3.
Results the crossover point in the market is going to happen in the first half of 'twenty.
2024.
That's still argue.
DDR five gen two.
Is gaining some momentum.
We are shipping some volumes to our customers as they deal their system.
We would go through the same process and cadence as we the other generations and if people are going to pre build systems settle those previous systems to the market.
Kevin Cassidy: And just on the HBM-3 device, that IP, are you recognizing revenue for that or did you recognize revenue in the September quarter, or is it part of your December quarter guidance? HBM-3 announcement we've made is an IP that we've just announced at the top end of the speeds in the 9.6GHz for seconds. So this is a product to come, you know, that will contribute to revenue in the future. It's not, you know, a product that has generated revenue, you know, this quarter or next quarter. Okay, actually, I wasn't sure if it was, if you had a beta customer that already had developed it. Okay, great. I understood. Thank you. Thanks, Kevin.
We're going to go through a.
Qualification process.
And we still believe.
<unk> will start in earnest in the second half of 2024.
That's that's for Gen. Two with respect to your question regarding clinic.
<unk> has been a challenge for the ecosystem in general in that first generation.
This is explained some of the hiccups of the ramp of DDR five.
We have.
Built a team for panic or some months ago.
And I have worked on a solution we have sampled the solutions to our customers and the feedback from our customers is very positive at this point in time.
Thank you.
The initial feedback is about.
Nam Kim: Our next question is from Nam Kim with already research. No, I'm not open.
Alrighty and robustness of the solution now of course, we have to go through the standard.
Nam Kim: Okay, thank you.
Process of validating that solution into the market and as I said earlier in the prepared remarks.
Nam Kim: I have a two question. One, I think a mark has a shift to DDR5 seems happening much faster than expected. Can you share your latest view on DDR5 crossover timing? And then a second question also a demand for DDR5 Gen 2. It's a picking up recently. And also you mentioned that PMIC qualification on DDR5 Gen 2, can you give us some color on how you can compete with existing big PMIC suppliers such as TI, you know, Samsung, NPS? What your selling point really here versus others.
We expect to hit the market towards the second half of 2024 with a product, but we're actively working with customers as we speak.
Okay. Thank you.
Our next question is from Sidney Ho with Deutsche Bank.
Line is now open.
Great. Thank you.
Sounds like the timing of the DDR for inventory inventory digestion, hasnt really changed much from a quarter ago. What gives you that confidence that timing is not moving out any tangible data points you can share with us.
Luc Seraphin: Thank you. Thank you for your questions. So we still see the crossover in the market to happen in the third class of 2024 for servers. We do see, you know, a slow burn of DDR4 inventory at our customer side, but it's still slow burn. Obviously, as far as we concern our shipments of DDR5 compared to DDR4 into the market, you know, has passed that crossover point as you, you know, noticed in our, you know, Q2 and Q3, the crossover point in the market is going to happen in the third class of 2024.
And a follow up to that if you look at 2024, not looking for guidance here, but what should we think about the split between <unk> 5 million in product revenue for the entire year.
Hi, Sidney Thanks for your question.
Regards to DDR for inventory at our customers that did Kim dialing in the September quarter, which is the second quarter in a row and we are encouraged to see the old customers. One inventory declined in the September quarter versus the June quarter.
Luc Seraphin: That's still our view. DDR5 Gen 2 is gaining some momentum. You know, we are shipping some volumes to our customers as they build their system. We will go through the same process and cadence as with the other generations. The people are going to pre-build systems, set up those pre-build systems to the market. We're going to go through the standard qualification process. And, you know, we still believe, you know, a Gen 2 will start in earnest in the second half of 2024.
From there and really from our discussions with customers. We do expect the inventory digestion to be substantially complete by year end. It really is a sort of a fluid situation and just name we're really working with the customers on the timing of the DDR for the ordering pattern, which we expect to take place across Q1.
In Q2 next year, but our visibility is limited with regards to this too, but we do expect the DDR four will continue the long tail of demand from there.
The second part of your question was with regards to.
Luc Seraphin: That's for Gen 2. With respect to your question, we got in TINIC. TINIC has been a challenge for the ecosystem in general in that first generation. This is, you know, this has explained some of the, you know, hiccups of the ramp of DDR5. We have built a team for TINIC some months ago. Hand have worked on the solution. We have sampled the solutions to our customers and the feedback from our customers is very positive at this point in time.
Product revenue growth and the timing of DDR for DDR five for next year as a company. We only guide one quarter at a time, which is prudent, especially given the macro uncertainty just know we've been very pleased with the execution in 2023 and really assuming the midpoint.
If our guidance for Q4 of 2023 product revenue will be relatively flat at $226 million, which really provides a solid foundation for us to grow next year and it is important to put this performance in context.
Luc Seraphin: I think, you know, the initial feedback is about the, you know, the quality and robustness of the solution. Now, of course, we have to go through the standard process of validating that solution into the market. And, as I said earlier, when the prepare remarks, you know, we expect to hit the market to all see second half of 2024 with that product, but we actively working with customers as we speak.
Nam Kim: Okay, thank you.
Because the market has declined double digits this year.
We do expect to grow market share in 2023 versus the competitors.
As it relates to 2024, and we do anticipate growth, which is in line with the industry research.
No and we are excited about.
<unk> product offerings, which will be the continuation in growth of DDR five platforms. We do anticipate the growth of the company of DDR four and as Luc mentioned, we expect to see the contribution from the companion chips in the second half of next year. So overall our product for <unk>.
Sydney Ho: Our next question is from Sydney Ho with Deutsche Bank. Your line is now open. Great, thank you. It sounds like the timing of the DDR4 inventory digestion hasn't really changed much from a quarter go. So, what gives you that confidence that timing is not moving out any tangible data points you can share with us? And follow up to that is if you look at 2024, not looking for guidance here, but what should we think about the split between DDR4 and DDR5 in product revenue for the entire year?
Well positioned in the market, we do expect to grow faster than market next year and to see continued share gains in 2024.
Okay.
Helpful. And then we've got follow up question.
You guys touched upon this in the prepared remarks. It sounds like you guys are very well positioned to benefit from AI can you help us summarize the different ways that you could benefit from that that ramp up both from a product and licensing standpoint, I understand the memory licensing because it's kind of think so just wanted make sure that I understand the opportunity.
Luc Seraphin: Hi Sydney, thanks for your question. You know with regards to DDR4 inventory or customers that did come down in the September quarter, which is the second quarter in a row. We are encouraged to see that all customers on inventory decline in the September quarter versus the June quarter from there. And really from our discussions with customers, we do expect the inventory digestion to be substantially complete by year end. It really is a sort of forward situation.
Hi, Sidney Yes, if you look at the three pillars of our business.
Of course, our patent licensing business is not affected by by AI.
On the product side, let's start with.
Luc Seraphin: Just now we're really working with the customers on the timing of the DDR4 reordering patterns which we expect to take place across Q1 and Q2 to make sure. But our visibility is limited with regards to this to now, but we do expect that DDR4 will continue to have a long tail of demand from there. I think the second part of your sort of question was with regards to product revenue sort of growth and the timing of DDR4, DDR5 for next year.
The buffer chips.
AI servers do actually use.
General purpose servers in the AI boxes.
And typically those.
General purpose.
Servers.
Have the high memory content and typically DDR five so are you saying.
The impact of AI, especially this year.
Although the market was a bit depressed in total.
Positive impact of AI has been to accelerate the demand for <unk> modules and this I think explains partially the profile of our <unk> mix.
Luc Seraphin: As a company, we only guide sort of one quarter at a time, which is prudent, especially given the macro uncertainty just now. We've been very pleased with the execution in 2023 and really assuming the midpoint of our guidance for Q4, a 2023 product revenue will be relatively flat at $226 million, which really provides a solid foundation for us to grow next year. And it is important to put this performance in context because the market has declined double digits this year.
Between Q1, Q2, and Q3 of this year with respect to.
Our IP.
Business, what we see with the <unk>.
AI is that we see the emergence of specialized compute nodes.
Disaggregated architectures. So all of these chips have to communicate between themselves.
No.
CSL and Pcie IP become very very important for our silicon customers as they build these heterogeneous chips that go into the new architectures.
Luc Seraphin: And we do expect a grow market share in 2023 versus the competitors. As it relates to 2024, we do anticipate growth, which is in line with some of the industry research that's out there just now. And we're excited about our competitive product offerings, which will be the continuation in growth of DDR5 platforms. We do anticipate the growth of recovery of DDR4. And as Luke mentioned, we expect to see the greater contribution from the companionships in the second half of next year. So overall, our products have very well positioned in the market. We do expect to grow faster than market next year and continue to share games in 2024. Okay, that's helpful.
<unk> of course, that's why we announced our next generation HBM.
Very very high speed, we wanted to stay ahead of the curve there.
And finally, as we mentioned in the prepared remarks with all of these specialized chips now in the data center the vulnerability.
With respect to attacks on data at rest or actually data in motion between CIT is becoming more important.
And therefore, our security IP portfolio is becoming more relevant to the market.
As we sold our <unk> business to cadence, we said, we would continue to invest in our IP portfolio, because we do see.
Luc Seraphin: Luke, that's all a question. You guys touched upon this in the prepared remarks, but it sounds like you guys are very well positioned to benefit from AI. Can you help us summarize the different ways that you get benefit from that rampable from a product and licensing standpoint? I understand the memory licensing business is kind of thick. So just want to make sure that I understand the object. Thank you. If you look at the three pillars of our business and of course our patent licensing business is not affected by AI.
The opportunity brought by AI.
All of the semiconductor companies that actually build chips for that market.
Great. Thank you very much.
Our next question is from Mehdi Hosseini with <unk>. Your line is now open.
Yes, just a quick.
Nick Clegg, Jason Luke.
Wanted to go back to your prior statement.
And this comes up every earnings.
Conference call.
Would it be fair to say that.
Luc Seraphin: On the product side, let's start with the buffer chips. AI servers do actually use the general purpose servers in the AI boxes. And typically those general purpose servers have a high memory content and typically DDR5. They say the impact of AI, especially this year, although the market was a bit depressed in total, the positive impact of AI has been to accelerate the demand for DDR5 modules. And this I think explains partially the profile of our DDR4 DDR5 mix between Q1, Q2 and Q3 of this year.
Product revenue was mostly driven by the number of them are CPU and not necessarily.
Good.
DDR five.
Number a bit.
In other words your business unit.
Unit.
Driven not.
There'll be the outside without would that be a fair statement.
Yeah.
That's correct.
Several factors.
Drilling into the capacity equation.
I wish.
One being the density of the memory cells.
But the unit of Commerce as you rightfully say for our.
Buffett shape is really the number gets.
Yes, and then there are a number of new server Cpus coming out.
Luc Seraphin: With respect to IP business, what we see with AI is that we see the emergence of specialized compute nodes, these aggregated architectures. So all of these chips have to communicate between themselves. So CXL and PCIe IP become very, very important for our silicon customers as they build these heterogeneous chips that go into the new architectures. GDDR and HBM of course, that's why we announce our next generation HBM at very, very high speed.
With a different number of channel pursued a number of them per.
Her channel and in that context.
We will take a little bit of time for the end customer to come up with the sort of.
Was it the configuration, what really could meet their demand and this is what has been good through this transition that inflection point.
There is going to come down to when he was going to be available and how and customer going to configure the system based on a CPU a number of dams courtesy to you.
Yeah.
Yeah.
Luc Seraphin: We want to stay ahead of the curve there. And finally, as we mentioned in the prepared remarks, with all of these specialized chips now in the data center, the vulnerability with respect to attacks on data at rest or actually data in motion between chips is becoming more important. And therefore our security IP portfolio is becoming more relevant to the market. And so, you know, as we saw our five business to cadence, we said we would continue to invest in our IP portfolio because we do see the opportunity brought by AI with all the semiconductor companies that actually build chips for that market.
That's correct.
Luc Seraphin: Great. Thank you very much.
Volume of buffer chip depends on the.
The number of dealers.
Therefore, it depends on the number of channels in a number of games per channel.
And all of those deployments depend on.
And customers, but this being said the trend is really for capacity expansion.
There's there's this trend in the market that people are trying to populate.
As many channels as they can.
And I put as many deems for China as they can because we still have too.
Feel that gap between the compute power from the servers and the memory capacity in memory bandwidth supporting that so the trend is definitely towards higher volume the way. It is being deployed in terms of when the number of channels are populated in how many demos per channel are being used.
Mehdi Hosseini: Our next question is from Maddie Hossini with SIG. Your line is now open. Yeah, so just a quick clarification. Look, just want to go back to your fire statement. And this comes up every early in conference call. Would it be fair to say that your product revenue is mostly driven by the number of them per CPU and not necessarily with the DDR5 number of things. In other words, your business is units of them driven, not bits of DDR5. Would that be a fair statement?
It depends on the specific customers.
Great. Thank you.
Yeah.
There are no further questions that concludes the question and answer session.
I would now like to turn the conference over to the company.
Thank you I would like to thank you all for your time and your interest and we'll talk to you later bye bye.
That concludes the conference call. Thank you for your participation you may now disconnect your line.
Luc Seraphin: That's correct. You know, there are several factors, you know, going into the capacity equation, if you wish. You know, one being the density of the memory itself, but the unit of commerce as you're rightfully state for our buffer shape is really the number of things. Yes, and then there are a number of new service CPUs coming out each with a different number of channel per CPU and number of them per channel.
Luc Seraphin: And in that context, it will take a little bit of time for the end customer to come up with a configuration of what really could need their demand. And this is why, as we go through this transition, that inflection point is going to come down to when the CPU is going to be available and how and customer are going to configure the system based on the CPU and number of them per CPU.
Luc Seraphin: That's correct. You know, the volume of buffer chip depends on, you know, the number of deans. Therefore, it depends on the number of channels and the number of deans per channel. And, you know, all of those deployments depend on, you know, on the end customers. But these being said, the trend is really for capacity expansion. So there's this trend in the market that people are trying to populate, you know, as many channels as they can, you know, and put as many deans per channel as they can, because we still have to feel that gap between the compute power, you know, from the servers and, you know, the memory capacity and memory bandwidth supporting that.
Luc Seraphin: So the trend is definitely towards, you know, higher volume. The way it's being deployed in terms of when the number of channels are populated and how many deans per channel are being used, it depends on the specific customers.
Mehdi Hosseini: Great. Thank you.
Operator: There are no further questions. That concludes the question and answer session.
Desmond Lynch: Now I turn the conference over to the company. Thank you. I would like to thank you all for your time and your interest, and we'll talk to you later. Bye-bye.
Operator: That concludes the conference call. Thank you for your participation. You may not have to make your own.