Q4 2023 Rambus Inc Earnings Call
Operator: Welcome to the Rambus fourth quarter and fiscal year 2023 earnings conference call. At this time, all participants are in a listen only mode.
Welcome to the rhombus fourth quarter and fiscal year 2023 earnings conference call. At this time all participants are in a listen only mode. At the conclusion of our prepared remarks, we will conduct a question and answer session. If you'd like to ask a question you May press star one on your touch.
Operator: At the conclusion of our prepared remarks, we will conduct a question and answer session. If you'd like to ask a question, you may press star one on your touchtone phone at any time. If anyone should require assistance during the conference, please press star zero at any time.
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Operator: 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 presentation.
As a reminder, this conference call is being recorded.
I would now like to turn the conference over to Desman Lynch Chief Financial Officer, You May begin your conference.
Desmond Lynch: Thank you, operator, and welcome to the Rambus fourth quarter and full year 2023 results conference call. I am Desmond Lynch, Chief Financial Officer at Rambus, and on the call with me today is Luc Seraphin, our 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 5 p.m. Pacific Time.
Thank you operator, and welcome to the Rambus fourth quarter and full year 2023 results conference call.
I am Desmond Lynch, Chief Financial Officer at Rambus and on the call with me today is looks Edison our CEO.
The press release for the results that we will be discussing today has been side, which is the ACC on form 8-K.
A replay of this call will be available for the next week at 8668139403.
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 five P. M Pacific time.
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 on reported revenue, among other things. 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.
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 on 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 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.
Asian to update these statements.
Desmond Lynch: 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, in our slide presentation, and on our website at rambus.com under 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. Therefore, 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. The order of our call today will be as follows.
In an effort to provide greater clarity in our financials, we're 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 our slide presentation and on our website at Rambus adult 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 run the cumulative effect of the adoption through retained earnings at the beginning balance sheet adjustment.
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 investors better insight into our operational performance.
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.
Desmond Lynch: Luc will start with an overview of the business, I will discuss our financial results, and then we will end with Q&A. I'll now turn the call over to Luc to provide an overview of the quarter.
Thank you, Dave and good afternoon, everyone.
Luc Seraphin: Thank you, Dez, and good afternoon, everyone. We finished the year strong with Q4 revenue and earnings at the high end of guidance and a robust $55 million in cash from operations. Through outstanding execution on our strategy, we delivered full-year results that outpaced the overall semiconductor market in a very dynamic environment. Let me first take a moment to review our 2023 accomplishments. 2023 was the year of artificial intelligence, with generative AI bursting onto the scene and emerging as a strong catalyst for long-term secular growth. The increasing need for memory performance and capacity across the computing landscape, driven by the accelerating demand for data-intensive workloads, is a very positive trend for Rambus, and one we expect to continue for many years to come.
We finished the year strong with Q4 revenue and earnings at the high end of guidance and a robust $55 million in cash from operations.
Through outstanding execution on our strategy, we delivered full year results that outpaced the overall semiconductor market.
In a very dynamic environment.
Let me first take a moment to review our 2023 accomplishments.
2023 was the year of artificial intelligence with generic dji bursting onto the scene and emerging as a strong catalyst for long term secular growth.
The increasing need for memory performance and capacity across the computing landscape driven by the accelerating demand for data intensive workloads is a very positive trend for Rambus and one we expect to continue for many years to come.
Over the course of the year, we realized a number of important milestones and achievements.
Luc Seraphin: Over the course of the year, we realized a number of important milestones and achievements. The company further bolstered its long-term licensing foundation with the extension of the agreement with SK Hynix. We strengthened our balance sheet and returned value to our stockholders through share repurchase and debt retirement. We enhanced our focus on differentiated chips and digital IP for the data center with a strategic sale of the FI business. And finally, as a testament to our success.
The company further bolstered its long term licensing foundation with the extension of the agreement with SK Hynix.
We strengthened our balance sheet and return value to our stockholders through share repurchases and debt retirement.
We enhanced our focus on differentiated chips and digital IP for the data center with the strategic sale of the <unk> business.
And finally as a testament to our success Rambus.
Luc Seraphin: Rambus was honored with GSA's Most Respected Emerging Semiconductor Company Award in our revenue category. Turning now to our businesses, Silicon IP continues to operate at scale, offering comprehensive security and interface IP solutions for multiple market segments. With our strength and focus on differentiated digital solutions, we brought to market leading-edge HBM, GDDR, PCIe, and CXL controller IP, as well as state-of-the-art embedded security solutions, including post-quantum security, all of which are essential building blocks for future AI-centric data center architectures. In memory interface chips, we continue to execute well and gain share in a challenging environment. As the ecosystem redirected CAPEX to AI servers, the market for traditional servers declined by low double digits last year.
<unk> was honored with GSA is most respected emerging semiconductor company award in our revenue category.
Turning now to our businesses Silicon IP continued to operate at scale offering comprehensive security and interface IP solutions, but multiple market segments.
With our strengthened focus on differentiated digital solutions, we brought to market, leading edge HBM, DDR Pcie and <unk> controller IP.
As well as state of the art embedded security solutions, including consequence in security.
All of which are essential building blocks for future AI centric data center architectures.
In memory interface chips, we continued to execute well and gained share in a challenging environment.
As the ecosystem redirected capex to AI servers, the markets with traditional servers declined low double digits last year.
Luc Seraphin: And while DDR4 inventory digestion remained a headwind, we saw an acceleration of DDR5 adoption, which allowed us to maintain our revenue trajectory and to continue to gain share. In Q4, we delivered solid results with quarterly product revenue of $54 million. We were very pleased with our execution on DDR5, which was our predominant unit shipment for Q4 and for the year. We remain strategically focused on delivering DDR5 leadership products and announced the industry's first Gen4 DDR5 RCD in December to enable server-dim operations at 7,200 megatransfers per second.
And while DDR for inventory digestion remained a headwind we saw an acceleration of DDR five adoption, which allowed us to maintain our revenue trajectory and to continue to gain share.
In Q4, we delivered solid results with quarterly product revenue of $54 million. We were very pleased with our execution on DDR, five which was our predominant unit shipments for Q4 and for the year.
We remain strategically focused on delivering DDR five leadership products and announced the industry's first gen. Four <unk> RCD in December to enable server deem operations at 7200 Mega transfers per second.
Luc Seraphin: Again, I am very pleased with the progress the team continues to make in 2023 while successfully navigating the market dynamics. As we turn to 2024, while we expect the softness in the traditional server markets to persist into the first half of this year, and DDR4 inventories to continue to recover slower than anticipated, we remain very positive on the longer-term outlook. We continue to work closely with our customers to re-establish DDR4 order and shipment patterns, and DDR5 continues to show solid momentum. We have multiple generations of our DDR5 solutions simultaneously progressing through different stages of the qualification and production life cycles to support the accelerated pace of computing platform rollout. As I mentioned previously, we were the first to introduce a Gen 4 RCD chip to the market, which is a great demonstration of our ongoing commitment to product leadership.
Again, I am very pleased with the progress the team continues to make in 2023, while successfully navigating the market dynamics.
As we turn to 2024, while we expect the softness in the traditional server market to persist into the first half of this year and DDR for inventories to continue to recover slower than anticipated.
We remain very positive on the longer term outlook, we continue to work closely with our customers to reestablish DDR for order and shipment patterns and DDR five continues to show solid momentum.
We have multiple generations of our <unk> solutions.
Then you see progressing through different stages of qualification and production lifecycle.
To support the accelerated pace of computing platform Rollouts.
As I mentioned previously we were the first to introduce the Gen. Four RCD chip to the market, which is a great demonstration of our ongoing commitment to product leadership.
Luc Seraphin: We remain very well positioned and focused on execution as we actively work with customers and partners on the ongoing growth of DDR5. Additionally, we are very pleased with our progress on the development of our power management solutions, with our first PMIC sampling to customers and receiving positive feedback. We look forward to expanding our DDR5 chip portfolio later this year and to providing a complete memory interface companion chipset for the coming server module generation. As we look to 2024 and beyond, the importance of AI and other compute-intensive workloads will further accelerate the demands on computing and memory infrastructure.
We remain very well positioned and focused on execution as we actively work with customers and partners on the ongoing growth of DDR five.
Additionally, we are very pleased with our progress on the development of our power management solutions with our first Phoenix sampling to customers and receiving positive feedback.
We look forward to expanding our <unk> portfolio later this year and two providing a complete memory interface companion chipset for the coming so every module generations.
As we look to 2024 and beyond the importance of AI and all of the compute intensive workloads will further accelerate the demands on computing and memory infrastructure.
Luc Seraphin: Continued advancement in DRAM capacity and bandwidth, as well as novel memory architectures, such as serial attached memory and multi-ranked solutions, will be critical enablers to improve compute efficiency and performance across cloud, enterprise, and client systems. Through discipline, investment, and close collaboration with the ecosystem, we have built a strong product roadmap that unlocks new levels of system performance and expands our industry leadership and market opportunity. In closing, Q4 was a strong quarter for the company that capped off a year of great execution and agility. While we navigate dynamic market conditions in the near term, our strategic focus on high-performance products for the data center and AI positions us well to drive the long-term profitable growth of the company and the consistent return of value to our stockholders. This is a very exciting time for the industry and for Rambus. And, as always, I'd like to thank our customers, partners, and employees for their ongoing support. And with that, I'll turn the call over to Dev to discuss the quarterly financial results. Okay, Dev?
Continued advancements in DRAM capacity and bandwidth as well as novel memory architectures, such as serial attached memory and multi ranked solutions will be critical enablers to improve compute efficiency and performance across cloud enterprise and client systems.
Through disciplined investment in growth collaborations with the ecosystem, we have built a strong product roadmap that unlocks new levels of system performance and expand our industry leadership and market opportunity.
In closing Q4 was a strong quarter for the company that capped off a year of great execution and agility.
While we navigate dynamic market conditions in the near term our strategic focus on the high performance products for the data center and AI.
Positions us well to drive long term profitable growth of the company and the consistent return of value to our stockholders.
This is a very exciting time for the industry and for Rambus and as always I'd like to thank our customers partners and employees for their ongoing support.
And with that ill.
Turn the call over to Dan to discuss the quarterly financial results there.
Thank you Luc I'd like to begin with the summary of our financial results for the fourth quarter and for the full year 2023 on slide five once again, we delivered a strong quarter with both revenue and earnings above our expectations we.
Desmond Lynch: Thank you, Luc. I'd like to begin with a summary of our financial results for the fourth quarter and for the full year 2023 on slide 5. Once again, we delivered a strong quarter with both revenue and earnings above our expectations. We had strong financial results in 2023, driven by our continued execution in a challenging macroeconomic environment, as we continue to execute on our long-term strategy. Our robust balance sheet, coupled with our continued ability to generate strong cash flows, puts us in a strong position to continue to drive shareholder value. Let me walk you through our non-GAAP income statement on slide 6. Revenue for the fourth quarter was $122.2 million, above our expectations, driven by higher royalty revenue in the quarter. Royalty revenue was $52.4 million, while licensing billings were $66.2 million. 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.
We had strong financial results in 2023, driven by our continued execution in a challenging macroeconomic environment as we continue to execute on our long term strategy.
Our robust balance sheet, coupled with our continued ability to generate strong cash flows puts us in a strong position to continue to drive shareholder value.
Let me walk you through our non-GAAP income statement on slide six.
Revenue for the fourth quarter was $122 $2 million above expectations, driven by higher royalty revenue in the quarter.
Royalty revenue was $52 $4 million, the licensing billings was $66 $2 million.
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.
Desmond Lynch: We are pleased to see the narrowing of the gap between royalty revenue and licensing billings as the Samsung Patent Licensing Renewal, which was signed in 2022, was recognized as a variable contract under ASC 606 in the quarter and will be for the duration of the 10-year agreement. Product revenue was $53.7 million, consisting primarily of memory interface chips. Contract and other revenue was $16.1 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 billing. Total operating costs, including costs of goods sold for the quarter, were $71.9 million.
GAAP between royalty revenue and licensing billings as the Samsung patent licensing renew which was signed in 2022 was recognized as a favorable contract under ASC 606 in the quarter and will be for the duration of the 10 year agreements.
Product revenue was $53 $7 million, consisting primarily of memory interface chips.
Contract and other revenue was $16 $1 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.
Total operating costs, including cost of goods sold for the quarter were $71 $9 million.
Desmond Lynch: Operating expenses of $51 million were in line with our expectations as we continue to be disciplined in our expense management, and we ended the quarter with a total headcount of 623. Gap interest and other income for the fourth quarter was $27.8 million.
Operating expenses of $51 million were in line with expectations as we continue to be disciplined in that expense management.
We ended the quarter with a total headcount of 623.
GAAP interest and other income for the fourth quarter was $27 $8 million. This included both at $23 9 million dollar gain from the sale of a non marketable equity securities and $200000 of ASC six <unk>.
Desmond Lynch: This included both a $23.9 million gain from the sale of a non-marketable equity security and $200,000 of ASC 606 interest income related to the financing component of fixed-fee licensing agreements for which we have recognized revenue but not yet received payments. Excluding both the gain from the non-marketable equity security and the financing interest income related to ASC 606, this would have been $3.6 million of net interest income. Using an assumed flat tax rate of 24% for non-GAAP pre-tax income, non-GAAP net income for the quarter was $41.2 million. Now, let me turn to the balance sheet details on slide 7. We ended the quarter with cash, cash equivalents, and marketable securities totaling $425.8 million. This is up from Q3, primarily due to continued strong cash from operations of $54.8 million.
<unk> interest income related to the financing component of fixed fee licensing agreements for which we have recognized revenue, but not yet received payment.
Excluding both the gains from the non marketable equity securities and to financing interest income related to ASC 606. This would have been three $6 million 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 $41 $2 million.
Now, let me turn to the balance sheet details on slide seven.
We ended the quarter with cash cash equivalents and marketable securities totaling $425 $8 million.
This is up from Q3, primarily through continued strong cash from operations of $54 $8 million.
Desmond Lynch: At the end of Q4, we had contract assets worth $55.3 million, which reflects the net present value of unbilled accounts receivable related to licensing agreements for which the company has no future performance obligations. We expect this number to continue to trend down as we bill and collect for these contracts. Fourth quarter CAPEX was $5.7 million, though depreciation expense was $6.1 million. We delivered $49.2 million of free cash flow in the quarter.
At the end of Q4, we had contract assets worth $55 $3 million, which reflects the net present value of Unbilled accounts receivable related to licensing agreements for which the company has no future performance obligations.
We expect this number to continue to trend down as we bill and collect for these contracts.
Fourth quarter, Capex was $5 $7 million <unk> depreciation expense was $6 $1 million.
We delivered $49 $2 million of free cash flow in the quarter.
Now, let me turn to our guidance for the first quarter on slide eight.
Desmond Lynch: Now let me turn to our guidance for the first 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'm 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 invoiced to our licensing customers during the period, adjusted for certain differences. As we have reported historically, licensing billings closely correlate with what we have historically reported as royalty revenue under ASC 605.
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 metric that reflects 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.
Under ASC 606, we expect revenue in the first quarter to be between 113 and $119 million.
Desmond Lynch: Under ASC 606, we expect revenue in the first quarter to be between $113 and $119 million. We expect royalty revenue to be between $43 and $49 million, and licensing billings between $59 and $65 million. We are pleased with our continued execution and progression in our memory interface chip business. As Luc mentioned earlier, the short-term market transition to DDR5 continues to be dynamic. We remain excited about our long-term outlook as we have made the right investment. We expect Q1 non-GAAP total operating costs, which includes COGS, to be between $75 and $71 million.
We expect royalty revenues to be between 43, and $49 million and licensing billings between 59 and $65 million.
We are pleased with our continued execution and progression on our memory interface chip business.
As Luc mentioned earlier, the short term market transition to DDR five continues to be dynamic we remain excited about our long term outlook as we have made the right investments.
We expect Q1, non-GAAP total operating costs, which includes Cogs to be between 75 and $71 million, we expect Q1 capex to be approximately $8 million.
Desmond Lynch: We expect Q1 CAPEX to be approximately $8 million. Under ASC 606, non-GAAP operating results for the first quarter are expected to be between a profit of $38 and $48 million. For non-GAAP interest and other income and expense, which excludes interest income related to ASC 606, we expect $3 million of interest income. We expect the pro-forma tax rate to be approximately 22%, which is down from 24% in 2023 due to increased profitability of our product business versus fixed patents. The 22% is higher than the statutory tax rate of 21%, primarily due to higher tax rates in our foreign jurisdictions.
Under ASC 606, non-GAAP operating results for the fourth quarter is expected to be between a profit of 38 and $48 million.
For non-GAAP interest and other income and expense, which excludes interest income related to ASC 606, we expect $3 million of interest income.
We expect pro forma tax rate to be approximately 22%, which is down from 24% in 2023 due to increased profitability of our product business fastest fixed patents the.
The 22% is higher than the statutory tax rate of 21%, primarily due to higher tax rates in our foreign jurisdictions.
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-GAAP taxes to be between an expense of $9 and $11 million in Q1. We expect Q1's share count to be 110 million diluted shares outstanding. Overall, we anticipate a non-gap earnings per share range between $0.29 and $0.36 for the quarter. Let me finish with a summary on slide 9. I am pleased with our strong 2023 results and the team's ongoing execution in this challenging and unpredictable macroeconomic environment. We have a diversified portfolio, and we are pleased with our progress in all of our businesses as we continue to execute against the strategic initiative. Our patent licensing business continues to provide consistent and predictable results. In 2023, we are pleased to have extended the SK Hynix licensing agreement for a 10-year extension, which follows on from the Samsung extension in 2022 for a similar period.
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-GAAP taxes to be between an expense of nine and $11 million in Q1.
We expect Q1 share count to be 110 million diluted shares outstanding.
Overall, we anticipate our non-GAAP earnings per share range between 2009, and softly six cents for the quarter.
Let me finish with a summary on slide nine I am pleased with our strong 2000, <unk> results and the team's ongoing execution in this challenging and unpredictable macroeconomic environment.
We have a diversified portfolio and we are pleased with our progress in all of our businesses as we continue to execute against our strategic initiatives.
Our patent licensing business continues to provide consistent and predictable results and 2023, we're pleased to have extended SK Hynix licensing agreement for a 10 year extension, which follows on from the Samsung extension in 2022 for a similar period.
Desmond Lynch: These extensions demonstrate the continued strength and relevance of our patent portfolio and innovation engine. In our Silicon IP business, we have sustained momentum as the business continues to operate at scale with revenue of approximately $110 million after adjusting for the FII divestiture. Our portfolio is well positioned to capitalize on the growing opportunities in the data center market fueled by AI. Our memory interface chip business continues to gain market share as we delivered revenues in 2023 that were relatively flat with 2022 in a market that declined across the year. We continue to focus on execution and leadership, and we are well positioned for long-term growth in this business. Overall, we are pleased with our success as we continue to drive profitable growth, strong cash generation, and a robust balance sheet, which will continue to drive shareholder value. Before I open up the call for Q&A, I would like to thank our employees for their continued teamwork and execution. With that, I'll turn the call back to our operator to begin Q&A. Could we have our first question? Thank you. Ladies and gentlemen, if you have a question, please press star one on your touchtone phone.
These extensions demonstrate the continued strength and relevance of our patent portfolio and innovation engine.
And our silicon IP business, we have sustained momentum as the business continues to operate at scale with revenue of approximately $110 million after adjusting for the <unk> divestiture.
Our portfolio is well positioned to capitalize on the growing opportunities in the data center market fueled by AI.
Our memory interface chip business continues to gain market share as we delivered revenues in 2023 that were relatively flat with 2022 and a market that declined across the year.
We continue to focus on execution and leadership and we are well positioned for long term growth in this business.
Overall, we are pleased with our success as we continue to drive profitable growth.
Strong cash generation and a robust balance sheet, which will continue to drive shareholder value.
Before I open up the call to Q&A I would like to thank our employees for their continued teamwork and execution.
With that I'll turn the call back to the operator to begin Q&A.
Because we have our first question.
Thank you ladies and gentlemen, if you have a question. Please press star one on your Touchtone phone.
Operator: The first question is from the line of Gary Mobley with Wells Fargo. You may proceed. Good afternoon, guys.
The first question is from the line of Gary Mobley with Wells Fargo. You May proceed.
Good afternoon, guys. Thanks for taking my question.
Gary Mobley: Thanks for taking my question. I want to start with a multi-part question that I think is on the minds of minds and most investors, and that relates to product revenue. It appears as though you're guiding DDR5 revenue to be down sequentially in the first quarter. And it seems a bit counterintuitive given a lot of the data points we've seen with respect to the uptake of GDR5.
Wanted to start with a multipart question I think is on.
On the minds of most investors.
And that relates to the product revenue.
It appears as though you're guiding DDR five revenue to be down sequentially.
In the first quarter and it seems a bit counterintuitive given lot of the data points, we've seen with respect to the.
The uptake of DDR five.
Gary Mobley: So maybe you can help us appreciate the headwinds that may be muting DDR5 revenue or DDR4. And do you still anticipate roughly 40% to 50% market share in registered clock drivers specific to DDR5? Hey, Gary, thanks. Luc here.
And so maybe if you can help us appreciate the headwinds that maybe.
The <unk> revenue or DDR four.
And do you still anticipate roughly 40% to 50% market share in the register clock drivers specific.
To DDR five excuse me.
Hey, Gary Thanks, Luke here.
Luc Seraphin: You know, as we indicated in our prepared remarks, as the ecosystem redirected CAPEX to AI servers in 2023, the market for traditional servers declined low double digits last year. But with flat revenue, as Dev said, year over year, we continue to gain share, and we estimate, you know, our share today to be above 30% on a blended basis. But although we do see continued softness in traditional servers to continue in the first half, like others in the industry, we expect the market to pick up in the second half with the server refresh icon coming online.
As we indicated in our prepared remarks.
The ecosystem redirected capex.
AI servers in 2023.
Markets with traditional servers declined low double digits last year.
With flat revenue as that said year over year, we continued to gain share and we estimate our share today to be above 30%.
Blended basis.
But although we do see continued softness in traditional servers to continue in the first half like others in the industry.
We expect the market to pick up in the second half with the server refresh cycles coming online and we expect markets overall to grow mid single digit in 2024, and we expect to continue to gain share.
Luc Seraphin: And we expect markets overall to grow at a mid single-digit rate in 2024, and we expect to continue to gain share. I think in the second half of the market pickup, we will also have the benefits of introducing our companionships on a broader basis. Now, let me shed some light on the DDR4, DDR5 transition that you mentioned in this environment. We are in the middle of a major market transition with multiple product generations ramping at the same time, and as our customers position themselves on each one of those generations, they expect their suppliers to hold more strategic inventory. They expect it to ship at the last time.
In the second half market pick up we would also have the benefit of introducing our companion chips on a broader basis.
Now, let me shed some light on the <unk> transition that you mentioned in this environment.
We are in the middle of a major market transition with multiple.
Product generations ramping at the same time.
And as our customers position themselves so each one of those generations.
They expect their suppliers to hold more strategic inventory they expected to ship at the last time, so we see a lot of lumpiness.
Luc Seraphin: So we see a lot of lumpiness, although we have confidence that our share in DDR5 continues to grow. We see, you know, at the same time, a prolonged DDR4 inventory digestion. But overall, this transition is beneficial to us. You know, our blended share in 2023 is estimated at 30% plus, but we estimate our GDR5 share to be above 35%, actually approaching 40%.
Although we have confidence that our share in <unk> continues to grow.
We see.
At the same time, we prolonged EDF for inventory digestion.
But overall the transition is beneficial to us.
Our blending blended share in 2023.
Is estimated at 30% plus but we estimate our DDR five shaft to be above 35% actually approaching 40%.
Luc Seraphin: It's just lumpy because, you know, every customer is launching three generations at the same time, and sometimes from quarter to quarter, we see some fluctuations. But the momentum for us is clear, you know; our DDR5 blended share is approaching 40%. You know, our overall blended share last year was about 30%.
It's just lumpy because every customer is launching three generations at the same time and sometimes from quarter to quarter, we see some fluctuations, but the momentum for us is clear.
Blended share is approaching 40%.
Overall blended share last year was about 30%. So we feel very confident with the continued momentum on DDR five we just see every customer position themselves. Each one of those generations that three years looks fluctuations from quarter to quarter.
Gary Mobley: So we feel very confident with the continued momentum on DDR5. We just see every customer position themselves in each one of those generations, and that creates those fluctuations from quarter to quarter. I appreciate the color there, Luke, follow-up question to that we have a couple of intentions for Process Regeneration with Emma Rapids and Bergamo from Mayandee, which I believe ushers in the Gen 2 of DDR5. And if I'm wrong, that's the intercept point for you to begin to ship your companionship products. So maybe you can just sort of speak to the timing of when you start to see more material companionship revenue and the benefit from that. Thanks, Gary.
I appreciate the color there Luke.
Follow up question to that.
A couple.
And pending.
Process regeneration with them of Rapids in Bergamo from.
Which I believe ushers in the.
Jen to DDR five.
And correct me, if I'm wrong that theater set point for you to begin to ship here.
Chip products, maybe if you can just sort of speak to the timing of when we start to see more material companionship revenue and the benefit from that thank you.
Thanks, Gary.
Yeah.
Luc Seraphin: So first of all, we are pleased with the momentum that DDR5 is taking in the market. I think it's public knowledge that Sapphire Rapid has shipped millions of units so far. You know, AMD GenO is also in the market in high volumes, so that creates demand for the Gen1 products. We are well-positioned with our Gen 2 product, going into the next generation of our partners, you know, MR Rapid and Bergamo, as you said. And we are also in qualification for Gen 3, which will hit the next generation of products with, you know, our customers. And each one of them, you know; we believe we maintain our share.
First of all we are pleased with the momentum that <unk> is taking in the market I think.
It's public that Sapphire rapid shift in millions of unit so far.
<unk> is also in the market in high volume so as that demand for the Gen. One product.
We are well positioned with our Gen two product.
Okay.
Going into the next generation of.
Partners.
Rapid and broad Gamble as you said and we also are in qualification for Gen. Three.
Which will hit the next generation of products with.
With our with our customers.
Each one of them, we believe we maintained our share and again as a blended basis on a blended basis. We believe our share in <unk> is higher than what it used to be in DDL floor again approaching 40%. We just have these different generations ramping at different times with different customers as they position the own products with their own.
Luc Seraphin: And again, as a blended basis, on a blended basis, we believe our share in DDR5 is higher than what it used to be in DDR4, again, approaching 40%. We just have these different generations ramping at different times with different customers as they position their own products with their own customers. But we see interaction with all of them. On the companionship side, we have sampled our PMIC to all of our customers and have received very positive feedback on the PMIC. So that rounds up our offering of companionship.
Tumors, but we've seen traction with all of them on the <unk> on the companionship side.
We have sampled our clinic to all of our customers and have received very positive feedback on the Phoenix, So that rounds up our offering them for companionship and we believe that youre going to see the benefit of all of this in the second half of this year.
Luc Seraphin: And we believe that we're going to see the benefit of all of this in the second half of this year. Thank you. The next question is from the line of Mehdi Hosseini with SIG.
Thank you.
Thanks, Kevin.
Thank you.
The next question is from the line of Mehdi Hosseini with S. ICD.
Operator: You may proceed. Yes, thanks for taking my question. There are a couple of follow-ups here.
May proceed.
Yes. Thanks for taking my question a couple of follow ups here first on the inventory.
Mehdi Hosseini: First, on inventory, it's creeping up by a few million a quarter. And I'm just wondering how I should think about the DVR5 RCD inventory that is already in your Q4 inventory and how much more you have to build as you think about the second half and the ramp up of next-gen products. Hi Mehdi, it's Des here.
It's creeping up a few million dollars a quarter.
And I'm, just wondering how should I think about.
The DVR RCD inventory that's already in your Q4 inventory and how much more you have to build as you think about the second half.
Ramp up of <unk>.
Nextgen products.
Hi.
Dave here.
Desmond Lynch: You know, we have seen that our inventory levels have increased, and this is something we're very comfortable doing. If you went back to sort of last year, we were probably running too lean on the inventory side, and as Luc mentioned, we had multiple generations of DDR5 ramping at the same time. So as a company, we are very happy to hold this strategic inventory on our balance sheet, which enables us to be responsive to customers' needs and requirements, especially given the three generations of DDR5. But we're certainly very well positioned in DDR5, as Luc mentioned. We continue to grow our share, and what we're doing is staging some of that inventory on our balance sheet so we can be responsive to customers' needs going forward. Great, thank you. And if I may add, Mehdi, you know what's happening with our inventories; the mix of our inventories is changing.
We have seen the inventory levels have increased and this is something we're very comfortable of doing.
If you went back to sort of last year, we were probably running too lean on the inventory side and as Luc mentioned that we have multiple generations of DDR five ramping at the same time.
As a company we are very happy to hold the strategic inventory on our balance sheet, which enables us to be responsive to.
To the customers' needs and requirements, especially given this lead generation sales.
DDR five, but we're certainly very well positioned in DDR fines as Luc mentioned, we continue to get awards here and what we're doing is taking some of that inventory on our balance sheet. So we can be responsive to customers' needs going forward.
Great. Thank you and yes, I think there is any follow up if I may add maybe whats happening with the with our inventory as the mix of our inventory is changing and we see a slow burn of RDF for inventory, because we see a slowdown of DD upward in general.
Luc Seraphin: We see a slow burn of our DDR4 inventory, you know, because we see a slow burn of DDR4 in general. And, you know, our inventory is increasing more in strategic inventories for three generations of DDR5 that have to go to market. And it's really, really important when our customers are ramping these three generations of products; then when they ask for products from us, we're ready to ship them, you know, immediately. So we do see a decline in our DDR4 inventory, but we see a strategic increase in the DDR5 inventory across the three generations to make sure that we capture the share that we need to capture as the market ramps up DDR4. Great, thanks for the additional cover. And then look at, actually, my second question is, maybe you can help me here.
And our inventory more increasing in strategic inventories for three generations of DDR five that has that have to go to market and it's really really important when our customers are ramping between generations of products.
They ask products from US we are ready to ship them immediately.
You see a decline of our <unk> inventory, but we see a strategic increase on the DDR five inventory on the three generations to make sure that we capture the share that we need to capture as the market.
Great. Thanks for additional color and then looked at actually my second question is maybe you can help me here as Theyre looking to the CPU roadmap, which is more relevant to your buffer chip not so much work with EDF.
Mehdi Hosseini: As I look into the CPU roadmap, which is more relevant to your buffer chip, not so much of a DDR5 bit, I see a standardization around a 12 memory channel per CPU. So the market is no longer going to be bifurcated between an eight and a 12. It seems to me that everyone is, most of the CPUs coming out late this year, early next year, are going to have 12 channels per CPU and then two DEM per channel. So, effectively, you would have 24 DEM per CPU. And again, this will remove the bifurcation of the past few years. Is that the right way of thinking about how your business model is going to scale, especially with your core RCD buffer chip? Yeah, you're correct.
I see standardization around.
Memory channel GPU, so the market is no longer going to be bifurcated.
And it seems to me that everyone is most of the Cpus coming out late this year early next year, we're going to have 12 channel per CPU and then to them per channel. So effectively you would have 24 them per CPU.
And again this will remove the bifurcation of the past few years is that the right way of thinking about how your business model is going to scale, especially with your core.
RCD.
Buffer chip.
Yes.
Correct.
Luc Seraphin: I think the first thing I would say is that our customers and their customers are asking for more bandwidth and more capacity, and there are different ways of doing this, just increasing the DRAM capacity itself, increasing the DIMM capacity, or increasing the number of DIMMs per channel, or increasing the number of channels. All of these ways of increasing bandwidth and capacity. You are correct to say that our customers are converging on 12 channels per processor with the capability of having two DIMMs per channel. And that's how we model our potential growth in the long run. I think there are physical limitations to going beyond 12 channels on each of the processors. There are also physical constraints with adding more than two DIMMs per channel.
I think the first thing I would say is that our customers and our customers' customers are asking for more bandwidth in both capacity and there are different ways of doing this just increasing the.
DRAM capacity itself, increasing the <unk> capacity, while increasing the number of dealers per channel or increasing the number of channels. They are all of these ways of increasing.
Bandwidth and capacity Youre, correct to see that or to say that our customers are converging on 12 channels for processor.
With the capability of having two deals per channel.
And that's how we model.
Our potential growth.
In the long run.
I think they are physical limitations to go beyond 12.
Channels on each one of the processors. There's also they also physical.
Constrains.
Adding more than two these channels. So I think the the industry under current architecture is going to convert to these 12 channels into the channel.
Luc Seraphin: So I think the industry and the current architecture is going to converge to these 12 channels and two DIMMs per channel. Thank you. Thanks, Mehdi.
Thank you.
Thanks Neely.
Thank you.
Operator: Thank you. The next question is from the line of Kevin Cassidy with Rosenblatt Securities. You may proceed.
The next question is from the line of Kevin Cassidy with Rosenblatt Securities You May proceed.
Yes. Thanks for taking my question, maybe just to expand on what you just talked about.
Kevin Edward Cassidy: Yes, thanks for taking my question. Maybe just to expand on what you just talked about, the DDR5 devices, the DRAM themselves are increasing in density, so the modules will have higher density.
The DDR five devices, the DRAM themselves are increasing and density.
The modules will have higher density do you see that as a headwind at all or will they still populated as much as they possibly can.
Kevin Edward Cassidy: Do you see that as a headwind at all, or will they still populate as much? You know, higher density on DRAM is a good thing for the industry in general. Of course, you know, if you have a higher density DRAM and higher density DIMMs, you know, for a fixed amount of memory, you would use fewer DIMMs.
Higher density on DRAM is a good thing for the industry in general.
Of course, you know each other.
Higher than CTD Robyn <unk>.
For a fixed amount of memory, you would use fewer of them.
Luc Seraphin: But as I said, the demand for capacity is trumping all of this, so we're using all the vectors to add to that request for more capacity. So, you know, although at first glance, it could look like a headwind, we actually see this as a good thing.
As I said.
The demand for capacity is trumping all of this so we are using all vectors to add too.
To that request for more capacity so although at a first look at could look as a as a headwind.
Actually see this as a good thing.
Luc Seraphin: It's, you know, everyone trying to add capacity to the systems because this is what's limiting the system capabilities today is the lack of capacity. Great, thanks. And just as a follow-up, do you see new markets opening up for your RCDs, you know, say high-end gaming or even what's been a popular discussion is the AI-enabled. So when it comes to AI servers, as we indicated in earlier calls, all AI servers also contain traditional servers for basic functions like storage, caching, data grooming. So all of these are going to drive demand for standard servers within an AI box. And typically, those standard servers are high-capacity, high-bandwidth servers.
Everyone's trying to add capacity to the system. Because this is what's limiting the the system capabilities today's the lack of capacity.
Great. Thanks, and just as a follow up do you see new markets opening up for your RCD.
I will say high end gaming or even whats been popular discussion is the AI enabled PC.
So when it comes to AI servers.
As we indicated in earlier calls.
All AI servers also contained traditional servers.
For you debate basic functions like storage caching data grooming.
So all of these are going to drive demand for standard servers within NII box and typically those standard servers are high capacity high bandwidth servers. So this is typically the servers that would use the latest memory the highest density memory and the highest number of beams.
Luc Seraphin: So these are typically those servers that will use the latest memory, the highest density memory, and the highest number of DIMMs per box. So that's going to be a driver for LCD chips going forward. Okay, I guess I was asking if they're in the PC just because they're going to, Both, you know, CPU manufacturers talked about having AI-enabled PCs, will they need our So what we see is, on the client space, when the speed on the bus exceeds about 6,000 megatransfers per second, we will need functions similar to the RCD chips on the client side. That could be the case for high-end PCs But we do see, from a technology standpoint, that when you exceed 6.4 megatransfers per second, then you need those clock regeneration chips, which are very similar to the RCD. So that's something we are investing in. Because after this wave of AI training applications that we see, there will be a wave of AI inference as well.
Bob So thats going to be a driver for.
For the for the LCD chips going going forward.
Okay.
I was asking is there in the PC just theyre going to.
Both.
CPU manufacturers talked about having AI enabled Pcs, where they need them.
So what we see is on the client space.
<unk>.
The speed on the bus.
Exceeds about 6000 Mega transfers per second we will need function similar to the RCD chips on the client side.
That could be the case.
High end PC gaming PC.
Or in Pcs useful inference, but we do see from a technology standpoint.
When you exceed six four and Mega transfers per second then you need those.
Clark regeneration chips, which is very similar to the <unk>. So thats something we are investing in.
Because after this wave of AI.
Training.
Applications that we see there will be a wave of AI inference, as well and we're going to see requirements for higher performance on the client side as well. So that's an area we are investing in.
Luc Seraphin: And we're going to see requirements for higher performance on the client side as well. So that's an area we're investing in. Great, thanks. Thank you. Thank you. The next question is from the line of Nam Kim with Arite Research.
Great. Thank you.
Okay. Thank you.
Sure.
The next question is from the line of Nam Kim with Arete Research you May proceed.
Operator: You may proceed. Thank you for taking my question. Sorry, I missed the early part of the Q&A; not sure if this was addressed. Can you share a qualification update on your companion chips? I was expecting your companion chip sales would start gaining some momentum in DDR5 Gen 2. So, what's your expectation on companion chip sales this year? Any color would be great.
Thank you for taking my question, sorry, I missed the early part of the Q&A I'm not sure. If this was addressed.
Can you share qualification on update on your companion chips I was expecting your companion chips theirs.
You'll start gaining some momentum into <unk>. So what's your expectation on companion chip sales this year or any color would be great. Thank you.
Thanks.
Nam Kim: Thank you. Thanks, we have started to ship, you know, in low volumes, companionship in Q4 of last year, the last part of last year, you know, and we believe that we're going to increase our shipments into the second generation of products towards the second half of the year. We spent a lot of time recently building a power management team and building power management products that we have sampled our customers with and for which we have very strong feedback. But we also expect, you know, those qualifications for the power management ship, which came a bit later, to happen in the first half of the year, with revenue starting towards the second part of the year.
We have started to ship.
In low volumes companionship in Q4 of last year. The last part of last year, we believe that we're going to increase our shipments into the.
Second generation of products towards the second half of the year.
We spend a lot of time recently in building a power management team and building power management products that.
We have sampled our customers with and for which we have very strong feedback, but we also expect those qualifications for the power management chip, which came a bit later to happen in the first half of the year, but the revenue to start with the second half of the year.
Luc Seraphin: Okay, great, thank you. Thank you. As a reminder, if you would like to ask a question at this time, please dial star 1. At this time, there are no further questions. This concludes the question and answer session. I would now like to turn the conference back over to the company. Thank you to everyone who has joined us today and for your continued interest and time. We look forward to speaking with you again soon. Have a great day. Thank you. This concludes today's conference. Thank you for your participation. You may now disconnect.
Okay, great. Thank you.
Thank you Dan.
Thank you.
A reminder, if you would like to ask a question at this time, please dial star one.
At this time there are no further questions. This concludes the question and answer session I would now like to turn the conference back over to the company.
Thank you to everyone, who has joined us today.
For your continued interest and time, we look forward to speaking with you again soon have a great day. Thank you.
This concludes today's conference. Thank you for your participation you may now disconnect.
Yeah.