Q1 2024 Rambus Inc Earnings Call
Operator: Welcome to the Rambus First Quarter Fiscal Year 2024 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 would like to ask a question, you may press star 1 on your touch-tone phone at any time. If anyone should require assistance during the conference, please press star 0 at any time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Desmond Lynch, the financial officer.
Welcome to the Rambus first quarter fiscal year 2024 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 would 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.
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.
Desmond Lynch: Thank you, Operator, and welcome to the Rambus first quarter 2024 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.
Desmond Lynch: You May proceed.
Desmond Lynch: Thank you all today and welcome to Rambus first quarter 'twenty 'twenty four results conference call I Am dancing Lynch, Chief Financial Officer at Rambus and on the call with me today is Luc <unk> our CEO.
Speaker Change: The press release for the results that we will be discussing today has been filed with the ACC on form 8-K.
Speaker Change: Replay of this call will be available for the next week at 8668139403.
Speaker Change: 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.
Speaker Change: 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 and other market factors, 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.
Speaker Change: Our discussions today will contain forward looking statements, including our expectations regarding projected financial results.
Speaker Change: Actual cross banks market growth demand for our solutions and other market factors and the effects of ASC 606 on reported revenue amongst other items.
Speaker Change: 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 ACC, including our eight Ks 10, Qs and 10-Ks.
Speaker Change: These forward looking statements may differ materially from our actual results and we are under no obligation to update these statements.
Speaker Change: In an effort to provide greater clarity in the financials, we're using both GAAP and non-GAAP financial presentations in both our press release and on this call.
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. In addition, we will continue to provide operational metrics, such as licensing billings, to give our investors better insight into our operational performance.
Speaker Change: 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 Dot com on the Investor Relations page under financial releases.
Speaker Change: In addition, we will continue to provide operational metrics such as licensing billings to give a investors better insight into our operational performance.
Desmond Lynch: 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 will end with Q&A. I'll now turn the call over to Luc to provide an overview of the quarter. Thank you, Dev, and good afternoon, everyone.
Speaker Change: The order of our call today will be as follows Luc will start with an overview of the business.
Luc: I will discuss our financial results and then we'll end with Q&A.
I'll now turn the call over to Luc to provide an overview of the quarter Luke.
Luc: Thank you, Dave and good afternoon, everyone.
Luc Seraphin: In Q1, we continued our disciplined execution as we remain strategically focused on addressing the needs of traditional and AI servers. In the quarter, we expanded our market opportunity with the introduction of new leadership products and performed well across all of our businesses. With that, we delivered solid Q1 results and, demonstrating our ongoing commitment to stockholder return, we completed a $50 million accelerated share repurchase, which brings the total return of cash to our stockholders over the past three years to $350 million.
Luc: In Q1, we continued our disciplined execution as we remain strategically focused on addressing the needs of traditional and AI servers.
Luc: In the quarter, we expanded our market opportunity with the introduction of new leadership products and performed well across all of our businesses.
Speaker Change: With that we delivered solid Q1 results and demonstrating our ongoing commitment to stockholder return, we completed a $50 million accelerated share repurchase which brings the total return of cash to our stockholders over the past three years to $350 million.
Speaker Change: With strong execution, we delivered first quarter product revenue of $50 million and also continued our investments in new products to drive future growth.
Luc Seraphin: With strong execution, we delivered first quarter product revenue of $50 million and also continued our investments in new products to drive future growth. As the accelerated pace of new compute platform rollouts continues, we have multiple generations of DDR5 RCDs progressing through different stages of qualification and production, and the latest generation sampling to customers. We are therefore well positioned for the DDR5 product cycle and expect this to drive approximately 10% product revenue growth in the second quarter. Additionally, we are confident in the longer-term outlook for the data center beyond the current softness in the traditional server market.
Speaker Change: As the accelerated pace of new compute platform. Rollouts continues we have multiple generations of DDI side rcv's progressing through different stages of qualification and production and the latest generation sampling to customers.
We are therefore, well positioned for the DDR five product cycle and expect this to drive approximately 10% product revenue growth in the second quarter.
Additionally, we have confidence in the longer term outlook for the data center beyond the current softness in the traditional server market.
Luc Seraphin: While we continue to see modest consumption of DDR4 customer inventory, the industry is moving in earnest to DDR5, and the transition is amplified by increasing demand for performance from generative AI and other advanced workloads. The rapid evolution of traditional and AI servers requires the constant advancement of new products and architectures to address the growing memory performance requirements. As such, expanding our leadership product portfolio to meet these requirements is a key element of our long-term growth strategy.
Speaker Change: Why do we continue to see modest consumptions of DDR for customer inventory. The industry is moving in earnest to DDR five and the transition is amplified by increasing demand for performance from generic <unk> AI and other advanced workloads.
Speaker Change: The rapid evolution of traditional and AI servers requires the constant advancement of new products and architectures to address the growing memory performance requirements.
Speaker Change: As such expanding our leadership product portfolio to meet these requirements is a key element of our long term growth strategy.
Luc Seraphin: In line with that strategy, we just announced the expansion of our chip offering with the availability of our new family of DDR5 server PMIX, completing our memory interface companion chipset for DDR5 RDIM. This new product line includes the industry's first extreme current server, PMIC, that will enable high-bandwidth, high-capacity DDR5 modules for leading-edge servers in the data center. We are currently in qualification with major memory vendors and are receiving positive feedback. Power management solutions are a critical and challenging component of today's server memory subsystem.
In line with that strategy, we just announced the expansion of our cheap offering with the availability of our new family of DDR five server Phoenix.
Speaker Change: Fleeting our memory interface companion chipset for DDR five our beams.
This new product line includes the industry's first extreme current server panic that will enable high bandwidth high capacity DDR five modules for leading edge servers in the data center.
Speaker Change: We are currently in qualification with a major memory vendors and are receiving positive feedback.
Speaker Change: Borrow management solutions, a critical and challenging component of today's server memory subsystems.
Luc Seraphin: In order to achieve the increased bandwidth and capacity of DDR5, the industry made a major change to the power management architecture by moving the PMIC from the motherboard to the individual memory module. The resulting DDR5 server PMICs are required to deliver reliable power at the lower voltages and tighter tolerances of the latest DRAM chips while operating in a very challenging environment.
Speaker Change: In order to achieve the increased bandwidth and capacity of DDR five the industry made a major change to the power management architecture by moving the <unk> from the motherboard to the individual memory modules.
Speaker Change: The resulting DDR client server Phoenix are required to deliver reliable power at the <unk>.
Speaker Change: Lower voltages and tighter tolerances of the latest DRAM chips, while operating in a very challenging environment.
Luc Seraphin: We have built upon our memory subsystem expertise and proven track record of delivering robust module-based solutions to deliver a PMIC family optimized for efficient power delivery under demanding noise, thermal, and space conditions. Given our heritage and mission to advance memory performance, we identified power management as a critical technology to unlocking higher memory bandwidth and capacity. We made the strategic decision to invest, build a world-class team, and are now entering the market with leadership products to address the need. This new server PNIC product family amplifys our market opportunity and lays the foundation for our roadmap of future power management chips. As AI expands from training to insurance,
Speaker Change: We have built upon our memory subsystem expertise and proven track record of delivering robust module based solutions to deliver a <unk> family optimize for efficiency power delivery on the demanding noise ceremony and space conditions.
Speaker Change: Given our heritage in mission to advance memory performance, we identified power management as a critical technology to unlocking higher memory bandwidth and capacity.
Speaker Change: We made the strategic decision to invest build a world class team and are now intercepting the market with leadership products to address the need.
Speaker Change: This new <unk> product family amplifies, our market opportunity and lays the foundation for a roadmap of future power management chips.
Speaker Change: As AI expense from training to insurance.
Luc Seraphin: Continued advances in the data center and AI are also driving momentum in our Silicon IP business, with strong design wins led by HBM, CXL, PCIe Express, and Security IP. With the industry's most advanced interface and security IP portfolio for AI, we are making great progress and are on track for our annual growth target. As part of our continued leadership, we introduced the industry's first GDDR7 memory controller, which delivers the performance needed by the next wave of inference chips for edge AI.
Speaker Change: Continued advances in the data center and AI are also driving momentum in our silicon IP business.
Speaker Change: With strong design wins led by Hvem's, EXL, Pcie Express and security IP.
Speaker Change: With the industry's most advanced interface and security IP portfolio for AI, we are making great progress and are on track for our annual growth targets.
Speaker Change: As part of our continued leadership, we introduced the industry's first GDR seven memory controller, which delivers the performance needed by next wave of inference chips for edge AI.
Speaker Change: The ever increasing volume of data is pushing chip interface speeds in memory bandwidth requirements higher and higher at the same time the value of the data itself is also going up and with that so that the risk and impact of a breach.
Luc Seraphin: The ever-increasing volume of data is pushing chip interface speeds and memory bandwidth requirements higher and higher. At the same time, the value of the data itself is also going up, and with that, so is the risk and impact of a breach.
Luc Seraphin: Our differentiated silicon IP solutions offer cheap designers, top-of-the-line performance, and advanced protection against attacks, making them essential to enabling faster and more secure SoCs for the data center and adjacent market. As we look forward, generative AI and other data-intensive workloads will further accelerate the demands on performance and security across the computing landscape. We continue to focus on the ongoing scaling of memory capacity and bandwidth through novel memory form factors and architectures, such as multi-rank solutions and serial attached memory, that would be critical to improving efficiency and performance in computing systems from the data center to the client.
Speaker Change: Our differentiated silicon IP solutions offer chip designers top of the line performance and advanced protection against attacks, making them essential to enabling faster and more secure associates for the data center and adjacent markets.
Speaker Change: As we look forward.
Speaker Change: <unk> AI and other data intensive workloads will further accelerate the demands in performance and security across the computing landscape.
Speaker Change: We continue to focus on the ongoing scaling of memory capacity and bandwidth through novel memory form factors and architectures, such as multi rang solutions in CRE or attached memory that will be critical to improving efficiency and performance in computing systems from the data center to client.
Luc Seraphin: In addition, ongoing advancements in security, including quantum safe solutions, will be essential to protecting valuable hardware and data. As demonstrated this quarter, through our newly introduced offerings, we continue to execute on our product roadmap for both chips and IP, unlocking new levels of system performance and expanding our market opportunities. Recent announcements by leaders in the AI industry serve as proof points of the importance of memory for system performance improvement, with the latest systems featuring more than double the memory bandwidth and capacity.
Speaker Change: In addition, ongoing advancements in security, including quantum state solutions will be essential to protecting valuable hardware and data.
Speaker Change: As demonstrated in this quarter through our newly introduced offerings, we continue to execute on our product roadmap for both chips and IP unlocking new levels of system performance and expanding our market opportunity.
Speaker Change: Recent announcements by leaders in the AI industry serve as proof points of the importance of memory for system performance improvement.
Speaker Change: With the latest systems, featuring more than doubled the memory bandwidth and capacity.
Luc Seraphin: As we look forward, those requirements will only grow, and our strategy and roadmap are well-aligned to address the market needs. In closing, Q1 was a solid quarter for the company that was achieved through the disciplined execution of a clear strategy. We delivered on our commitments across the board and continued our innovation in the market. Our 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 our strong balance sheet enables us to deliver consistent returns of value to our stockholders. 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 Des to discuss the quarterly financial results. Des? Thank you.
Speaker Change: As we look forward those requirements will only grow and our strategy and roadmap of winter line to address the market needs.
Speaker Change: Okay.
Speaker Change: In closing Q1 was a solid quarter for the company that was achieved through disciplined execution of our clear strategy.
Speaker Change: We delivered on our commitments across the board and continued innovation in the market.
Speaker Change: Our focus on high performance products for the data center and AI.
Speaker Change: Positions us well to drive long term profitable growth of the company and our strong balance sheet enables us to deliver consistent return of value to our stockholders.
Speaker Change: 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 Deb to discuss the quarterly financial results.
Speaker Change: Yeah.
Deb: Thank you Luc I'd like to begin with so many of our financial results for the first quarter on slide five we.
Desmond Lynch: Thank you, Luc. I'd like to begin with a summary of our financial results for the first quarter on slide 5. We delivered solid results in the quarter as a result of the company's ongoing disciplined execution and focus on our strategic initiatives. We are pleased to have launched our new power management products, which demonstrate the translation of new product investments to expanded market opportunities.
Deb: We delivered solid results in the quarter as a result of the company's ongoing disciplined execution and focus on our strategic initiatives.
Deb: We are pleased to have launched our new power management products, which demonstrate the translation of new product investments to expanded market opportunity.
Desmond Lynch: Continuing our strong track record of returning cash back to stockholders, in Q1, we executed a $50 million accelerated share repurchase program that retired approximately 800,000 shares. Through a robust balance sheet driven by our strong cash generation, we have returned a total of $350 million in cash to our stockholders over the last three years, which shows our consistent commitment to capital return. Let me walk you through our non-GAAP income statement on slide 6.
Deb: Continuing our strong track record of returning cash to stockholders in Q1, we executed a $50 million accelerated share repurchase program.
Deb: Tired approximately 800000 shares.
Through our robust balance sheet, driven by our strong cash generation. We have returned a total of $350 million in cash to our stockholders over the last three years, which shows a consistent commitment to capital for Tun.
Deb: Let me walk you through our non-GAAP income statement on slide six.
Desmond Lynch: Revenue for the first quarter was $117.9 million, which was above our expectations. Royalty revenue was $47.5 million, while Licensing Billings was $63.2 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.
Deb: Revenue for the first quarter was $117 $9 million, which was above our expectations.
Deb: <unk> revenue was 47 $5 million for licensing billings was $63.2 million.
The difference between licensing billings and royalty revenue mainly relates to timing as we do know always recognize revenue in the same quarter as we bill our customers.
Desmond Lynch: Product revenue was $50.4 million, consisting primarily of memory interface chips; contract and other revenue was $20 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 $74.2 million. Operating expenses of $53.7 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 622. Gap interest and other income for the first quarter was $4.2 million, which included $200,000 of ASC 606 interest income.
Deb: Product revenue was $54 million, consisting primarily of memory interface chips.
Deb: Contract and other revenue was $20 million, consisting predominantly of silicon IP.
Deb: 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.
Deb: Total operating costs, including cost of goods sold for the quarter were $74 $2 million.
Deb: Operating expenses of $53 $7 million were in line with expectations as we continue to be disciplined in that expense management.
Deb: And we ended the quarter with a total headcount of 622.
Deb: GAAP interest and other income for the first quarter was $4 $2 million, which includes $200000 of ASC 606 interest income.
Deb: Using an assumed flat tax rate of 22% for non-GAAP pretax income non-GAAP net income for the quarter was 37 $4 million.
Desmond Lynch: Using an assumed flat tax rate of 22% for non-GAAP pre-tax income, non-GAAP net income for the quarter was $37.4 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 $391.1 million. This is down from Q4 mainly due to the $50 million accelerated share repurchase program that we completed during the quarter. Cash from operations for the quarter was $39.1 million.
Speaker Change: Now, let me turn to the balance sheet details on slide seven.
We ended the quarter with cash cash equivalents and marketable securities totaling $391 $1 million.
Speaker Change: This is down from Q4, mainly due to the $50 million accelerated share repurchase program that we completed in the quarter.
Speaker Change: Cash from operations for the quarter was $39 $1 million.
Desmond Lynch: First quarter CAPEX was $7 million, while depreciation expense was $6.1 million. We delivered $32.1 million of free cash flow in the quarter. Now, let me turn to our guidance for the second 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.
Speaker Change: First quarter Capex was $7 million, both depreciation expense was $6 $1 million.
Speaker Change: We delivered $32 $1 million of free cash flow in the quarter.
Speaker Change: Now, let me turn to guidance for the second quarter on slide eight.
Speaker Change: As a reminder, the forward looking guidance reflects our current best estimates at this time.
Speaker Change: We continue to actively monitor the macro environment.
Actual results could differ materially from what I'm about to review.
Speaker Change: 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.
Speaker Change: As we have reported historically licensing billings closely correlates with what we had historically reported as royalty revenue under ASC 605.
Speaker Change: Under ASC 606, we expect revenue in the second quarter to be between 130 and $136 million we.
Desmond Lynch: Under ASC 606, we expect revenue in the second quarter to be between $130 and $136 million. We expect royalty revenue to be between $55 and $61 million, and licensing billings between $61 and $67 million. We expect Q2 non-GAAP total operating costs, which includes COGS, to be between $80 million and $76 million. We expect Q2 CAPEX to be approximately $13 million. Under ASC 606, non-GAAP operating results for the second quarter are expected to be between a profit of $50 million and $60 million.
Speaker Change: We expect royalty revenues to be between 55 and $61 million in licensing billings between 61 and $67 million.
Speaker Change: We expect Q2, non-GAAP total operating costs, which includes cogs to be between 80 and $76 million.
Speaker Change: We expect Q2 capex to be approximately $13 million.
Speaker Change: Under ASC 606, non-GAAP operating results for the second quarter.
Speaker Change: <unk> to be between a profit of 50 and $60 million.
Desmond Lynch: For non-GAAP interest and other income and expense, we expect $3 million of interest income. We expect the pro forma tax rate to be approximately 22%, with non-GAAP taxes expected to be between an expense of $12 and $14 million in Q2. We expect Q2's share count to be 109 million diluted shares outstanding. Overall, we anticipate the Q2 non-GAAP earnings per share range between $0.38 and $0.45.
For non-GAAP interest and other income and expense, we expect $3 million of interest income.
Speaker Change: We expect pro forma tax rate to be approximately 22% with non-GAAP taxes are expected to be between <unk> expense of 12 and $14 million in Q2.
We expect Q2 share count to be 109 million diluted shares outstanding.
Speaker Change: Overall, we anticipate the Q2 non-GAAP earnings per share range between 38 and 45 cents.
Desmond Lynch: Let me finish with a summary of slide 9. I am pleased with the team's continued execution as we navigate dynamic market conditions in the short term. We are pleased to see continued momentum across all of our businesses, fuelled by our leading-edge products in both chips and silicon IP. Our innovation, diversified portfolio, and disciplined model continues to drive profitable growth and strong cash generation. Our solid balance sheet enables investments in market expansion opportunities in data center and AI while consistently delivering value to our stockholders.
Speaker Change: Let me finish with a summary on slide nine.
Speaker Change: I am pleased with the team's continued execution as we navigate dynamic market conditions in the short term.
Speaker Change: We are pleased to see continued momentum across all of our businesses fueled by our leading edge products and both chips and silicon IP.
Speaker Change: Our innovation diversified portfolio and disciplined model continues to drive profitable growth and strong cash generation.
Speaker Change: Our solid balance sheet enables investments into market expansion opportunities in the data center and AI, while consistently delivering value to our stockholders.
Desmond Lynch: 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 our operator to begin Q&A. Can we have our first question?
Speaker Change: Before I open up the call to Q&A I would like to thank <unk> employees for their continued teamwork and execution.
Speaker Change: With that I will turn the call back to the operator to begin Q&A.
Speaker Change: Could we have our first question.
Speaker Change: Thank you ladies and gentlemen, if you have a question. Please press star one on your Touchtone phone.
Operator: Thank you. Ladies and gentlemen, if you have a question, please press star one on your touchtone phone. And the first question is from the line of Gary Mobley with Wells Fargo.
Speaker Change: And the first question is from the line of Gary Mobley with Wells Fargo.
You May proceed hi, guys. Thanks for the sure. Thank you. Thanks for taking my question guys.
Gary Wade Mobley: You may proceed. Hi guys.
Gary Wade Mobley: Thanks. Sure. Thank you. With the product revenue expected to increase about 9% sequentially, is that an indication of the market turning more positive? specific to registered clock driver sales, and then maybe you can parse out some distinction between DDR4 and DDR5, and then related to the companionship sales, maybe you can share with us your latest view on the timing of RAMP for those companionships. Thank you.
Gary Wade Mobley: With the product revenue expected to increase about 9% sequentially is that an indication of.
Gary Wade Mobley: The market turning more positive.
Gary Wade Mobley: Specific to register clock driver sales and then maybe if you could parse out.
Speaker Change: Some distinction between DDR for DDR.
Speaker Change: DDR five and then related to the companion chip sales, maybe that you can share with share with us your latest view on the timing of ramp for those companion chips. Thank you.
Speaker Change: Hey, Thanks, Gary for your question. So yes, we are pleased with the execution for the first half of this year we had.
Luc Seraphin: Thanks, Gary, for your question. So, yeah, we are pleased with the execution for the first half of this year. We had solid results in Q1 and we expect, as you said, growth into Q2. We still see, for the fourth quarter in a row, a slight decline in DDR4 inventories, which is a good sign. Our predominant sales continue to be DDR5 into the first half of the year, but what we see going into the second half of the year is that we expect a modest recovery in DDR4 following inventory digestion.
Speaker Change: Results in Q1, and we expect as you said growth.
Speaker Change: Into Q2.
Speaker Change: We still see for the fourth quarter in a row, a slight decline of <unk> inventories, which is which is a good sign.
Speaker Change: Our predominant sales continued to be DDR five.
Speaker Change: Into the first half, but what we see going into the second half of the year is that we expect a modest recovery in DDR four following the inventory digestion.
Luc Seraphin: We also expect a recovery in standard server demand with a refresh cycle coming on board. And we will start to see more contributions from our companionships. You know, the two companionships that we already had sampled to customers in prior quarters, but also now with, you know, our newly introduced PIMIC. So we do expect growth in the second half based on these 390.
Speaker Change: We also expect a recovery in the standard server demand with a refresh cycle coming on board and we will start to see more contribution from our companion chips.
Speaker Change: The two companion chip that we already had sampled to customers in prior quarters, but also now with our <unk>.
Speaker Change: Hearings would use the PMA. So we do see growth in the second half based on these three main factors.
Speaker Change: Okay.
Desmond Lynch: A follow-up about your Silicon IP business. You mentioned in your prepared remarks that you're on track for your fiscal year 24 targets, to refresh my memory. Is that $120 million in annual sales for that business? And maybe if you can give us a sense of, you know, how that business seems to have performed better than expectations? Is it driven by memory and high-speed SerDes controller IP, or is it driven more by the security side of the business?
Speaker Change: A follow up about your silicon IP business.
Speaker Change: You mentioned in your prepared remarks that you're on track for your fiscal year 'twenty four targets refresh my memory is that a $120 million.
Annual sales in that business and maybe if you can give us a sense of.
Speaker Change: How that business seems to be performed better than expectations is it driven by the.
Speaker Change: Memory and high speed <unk> controller, IP or is it driven by most of the security side of the business.
Speaker Change: Hi, Johnny it stays here with any pleased with their performance and Silicon IP. If you take your adjusted number for last year, which excludes the Fi divestiture. This was about $110 million and what we've talked about is growing the business.
Desmond Lynch: Hi Gary, it's Des here. We're very pleased with our performance in Silicon IP. If you take our adjusted number for last year, which excludes the FI divestiture, this was about $110 million. And what we've talked about is growing the business at 10 to 15% in line with our long-term targeted growth rate. What we've seen in the first half of the year, if you take our Q1 actuals plus the midpoint of our guidance, we will be up double digits in Silicon IP revenue, which is really driven across all components of our portfolio.
Speaker Change: 215% in line with our long term targeted growth rate.
Speaker Change: We have seen in the first half of the year. If you take our Q1 actuals plus the midpoint of our guidance that we will be up double digits.
Speaker Change: Silicon IP revenue, which has really driven really across all components of our portfolio. We've seen strong performance by our security.
Desmond Lynch: We're seeing strong performance in our security revenue, really led by Root of Trust and MACSEC solutions. And also, on the interface side, we're also seeing really nice growth across HBM, CXL, and PCIE.
Speaker Change: It really played by virtue of trust and Mike I think solutions and also on the interface side. We've also seen really nice growth across HBM CH sale on pcie.
Luc Seraphin: Yes, what I would add to this, Ades, is that we've really worked on our Silicon IP offering focus. If you look at the type of IP we provide, it is really well targeted to AI-type applications.
Yes, what I would add to this.
Speaker Change: There is.
Speaker Change: We've really worked on our silicon IP offering focus since you.
Speaker Change: Look at the type of IP, we provide they are really well targeted to AI type of applications.
Luc Seraphin: We have several generations of HBM in the market, HBM2, HBM2e, HBM3, and HBM3, which we announced in Q4 of last year. We have PCIE, from PCIE3 to PCIE6. We announced last quarter CXL 3.1, and on the security IP, as Dev mentioned, with all of this data moving around into these fragmented architectures, the importance of security becomes more and more important. So, last year, we refocused our IP portfolio, we're doubling down on that portfolio, and that explains the growth that we're starting to see with that very focused portfolio, for AI in particular.
We had several generations of <unk> in the market <unk>.
Speaker Change: M three <unk>, which we announced in Q4 of last year.
Speaker Change: We have pcie from Pcie to Pcie six.
Speaker Change: We announced last quarter, except one.
Speaker Change: And on the security IP as Dave mentioned.
Speaker Change: All of these data and moving around into these segments of the architectures and the importance of security becomes more and more important so last year, we refocused our IP portfolio with doubling down on that portfolio and that explains the growth that we're starting to see.
Speaker Change: That very focused portfolio.
Speaker Change: <unk> in particular.
Speaker Change: Thanks Scott.
Scott: Thank you Darren.
Operator: Thank you, Gary. The next question is from the line of Mehdi Hosseini with SIG. You may proceed.
Scott: Yeah.
Gary Wade Mobley: Gary. The next question is from the line of Matthew <unk> with <unk> you May proceed.
Matthew: Yes. Thanks for taking my question two follow up from my end.
Mehdi Hosseini: Yes, thanks for taking my question. Two follow-ups from my end. Just double-clicking on silicon IP.
Matthew: Just.
Matthew: Clicking on Silicon IP.
Mehdi Hosseini: It's been kind of slavish into Q2. Should we expect additional incremental revenues so that you would have growth on a Q over Q basis into the second half? Another follow-up.
Matthew: It's been kind of flattish into the Q2 should we expect.
Matthew: Additionally, incremental revenues so that you would have a growth on a Q over Q.
Speaker Change: The second half and I have a follow up.
Yeah.
Speaker Change: Hi, Matt.
Desmond Lynch: Hi Mehdi, it's Des. That's a good question.
Speaker Change: Yes.
Speaker Change: That's a good question as I mentioned, just a minute ago. We are performing we saw 10% growth. If you take the first half of <unk>.
Desmond Lynch: As I mentioned just to Gary a minute ago, you know, we are performing. We saw a sort of 10% growth if you take the first half of 2024 and compare that against 2023. We're performing very well. I think Luc gave some really nice color on some of the drivers we're seeing for growth, and we do expect that that will continue to grow into the back half of the year. Given our expanded sort of offering that Luc talked about, we're seeing really nice traction on the controller side as well as the security side. So we do expect to see sequential growth in our Silicon IP business as we move throughout the year.
Speaker Change: 'twenty 'twenty, four and compare that against 2023.
Performing very well I think Luc gave some really nice color on some of the drivers we're seeing on the growth.
Speaker Change: We expect that that will continue to grow into the back half of the year given that expanded offering.
We're seeing really nice traction on the controller side as well as the security side. So we do expect to see sequential growth on our silicon IP business as we move throughout the year.
Speaker Change: Okay. So the first half to second half common theory.
Mehdi Hosseini: Okay, so the first half to the second half commentary, it was more of an overall revenue, it wasn't just product revenue, right?
Speaker Change: It was more of the overall revenue not it wasn't just.
Speaker Change: Right.
Desmond Lynch: The comment was relating to Silicon IP revenue, Mehdi, and from there, the 10% growth. I think Luc also mentioned in his prepared remarks that if you take the Q2 guidance midpoint on the product side, we are seeing almost double-digit growth on the product revenue side as well. So we're performing very well in Q2.
Speaker Change: The comment was relating to silicon IP revenue and EBIT from the 10% growth I think we call. So mentioned in his prepared remarks, if you take the Q2 guidance at midpoint on the product side, we are seeing almost double digit growth on the product revenue.
Speaker Change: It is rail so we're performing very well in Q2 from there.
Speaker Change: Sure.
Desmond Lynch: And with the higher mix of DDR5, should I also expect those margins to finally show meaningful improvement in the second half of the year? And, of course, my beautiful pilot, Ravi. Yeah, that's the way I would think of it.
Speaker Change: Higher mix.
Did you apply because as I also expect gross margins finally too.
Show meaningful improvement in the second half of the year.
Gross margin for product revenues.
Yes, that's the way.
Desmond Lynch: Yeah, that's the way I would think of it, Mehdi. You know, in Q1, our gross margins were approximately 61%. That was anticipated by us. As we move throughout the year, what we will see is a higher concentration mix of DDR5 on some of the new products that are coming out. And we'll continue to be disciplined in our ASP management, and, as always, we will continue to drive product cost reductions to maintain our healthy product gross margins. But overall, for the year, I would expect our product gross margins to be in line with a long-term gross margin target of 60 to 65% on the product.
Speaker Change: We think of it maybe.
Speaker Change: Q1 gross margins were approximately 61% that was anticipated by us as we move through.
Speaker Change: Year, four wheel well see is a higher concentration mix of DDR five on some of the new products coming out and we will continue to be disciplined in our ESP management and as always we will continue to drive product cost.
Speaker Change: <unk> to maintain a healthy product gross margins, but overall for the year I would expect our product gross margins to be in line with our long term gross margin target of 60% to 65% on the products.
Speaker Change: Got you. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you Matthew.
Operator: The next question is from the line of Kevin Cassidy with Rosenblatt. You may proceed.
Speaker Change: The next question is from the line of Kevin Cassidy with Rosenblatt you May proceed.
Kevin Edward Cassidy: Yeah, thanks for taking my question and congratulations on the solid result. Just on, you know, as we're coming into the second half of the year, as you mentioned, there is product refresh. And can you give us an idea of the mix that you're expecting to ship of DDR5 RCDs that are Gen 1, 2, and 3?
Kevin Edward Cassidy: Yes, Thanks for taking my question and congratulations on the solid results.
Kevin Edward Cassidy: Just.
Kevin Edward Cassidy: As we're coming into the second half of the year as you've mentioned.
Kevin Edward Cassidy: Product refresh.
Kevin Edward Cassidy: Can you give us an idea of the mix that you are expecting to ship of DDR five our Cds that are gen. One two and three.
Kevin Edward Cassidy: Yeah.
Luc Seraphin: Thanks, Kevin. That's a difficult question. We actually have three generations of DDR5 laying up. There are different stages of qualification and production with different customers. So that makes our life a little more challenging in terms of, you know, managing the backlog and the inventory.
Speaker Change: Thanks, Kevin.
Speaker Change: It's a difficult question, we have actually three.
Speaker Change: Three generations of DDR, five layering up or there are different stages of qualification and production with different customers.
It makes our.
Speaker Change: Life, a little more challenging in terms of managing the backlog and the inventory, but we do see.
Luc Seraphin: But we do see, you know, DDR5 growing in earnest. Gen 1 is well in production. Gen 2 is ramping, and we're shipping parts for the preparation of Gen 3. And we are, depending on the modules and depending on the customers, in different stages of qualification and production.
DDR five growing in earnest Gen. One is we're in production.
Speaker Change: Gen two.
Speaker Change: <unk> is ramping and we shipping parts with the preparation of Gen. III and we are depending on the module and depending on the customers we have different stages of.
Speaker Change: Qualification and production what we can say is we said earlier DDR.
Luc Seraphin: What we can say is, as we said earlier, DDR5 remains small for the first quarter, and DDR4 remains small for the first quarter. We expect, you know, some slight recovery on DDR4 starting in the second half, but we expect this to be, you know, having a long tail. The majority of our business will continue to be DDR5 across those generations of time.
Speaker Change: <unk> small for the first quarter.
Speaker Change: <unk> remains small for the first quarter.
Speaker Change: We expect.
Some slight recovery on DDR four starting in the second half.
Speaker Change: But we expect.
Speaker Change: These to be having a long tail.
Speaker Change: The majority of our business will continue to be DDR five across those both generations of deal size.
Speaker Change: Okay, Great and Kevin maybe just to add to on tier.
Desmond Lynch: Okay, great. And Kevin, maybe to add on to what Luc said, you know, regardless of what generation ships on DDR5, we have a strong qualification footprint across all generations, and we're really pleased with our market position on DDR5. Yeah, thanks.
Speaker Change: <unk> four <unk>.
Speaker Change: <unk> said.
Kevin Edward Cassidy: Regardless of fourth generation chips on DDR five we have a strong qualification discipline across all generations and were really pleased with our market position on DDR five.
Kevin Edward Cassidy: Yes. Thanks goes right to my next question I was wondering what the competitive competitive landscape.
Luc Seraphin: That goes right to my next question. I was wondering what the competitive competitive landscape is and, you know, if there are any lead time issues. So, on the lead time
Speaker Change: If there is any lead time issues.
Speaker Change: Yeah.
Speaker Change: So on the lead time issues. There are no lead time issues I think from a surprise standpoint. We are we are we are in good shape.
Luc Seraphin: So on the, you know, lead time issues, there are no lead time issues. I think, from a supply standpoint, we are in good shape. And as Des mentioned, in terms of qualification, as we move from generation to generation, our footprint continues to improve. So depending on the mix of these three generations throughout this year, you know, whatever that mix is, we feel confident with that DDR5 ramp in the market. Our footprint across the generations of DDR5 is larger than what we had in DDR4, so that market transition is positive.
Speaker Change: And as Dave mentioned in terms of qualification as we move from generation to generation.
Speaker Change: Print continues to improve.
Speaker Change: So depending on the mix of the regeneration throughout this year.
Whatever that mix is we feel confident with that DDR five ramped in the market.
Speaker Change: Our footprint across the.
Speaker Change: The generations of DDR five is is.
Speaker Change: Larger than what we had in <unk>, so that market transition.
Speaker Change: Positive for us.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thanks, Kevin.
Speaker Change: Thank you Kevin.
Operator: The next question is from the line of Nam Kim with Aret Research. You may proceed.
Speaker Change: The next question is from the line of Nam Kim with our read research you May proceed.
Nam Hyung Kim: Thank you for taking my question. One question for the PMIC and the other one for the follow-up. Can you provide us some reasons why you believe your PMIC is better than existing PMICs like incumbent companies? And what's your top market share goal for PMIC?
Speaker Change: Okay.
John.
Nam Hyung Kim: One question for PMI.
Nam Hyung Kim: Hello.
Nam Hyung Kim: Can you provide us.
Nam Hyung Kim: Online.
Speaker Change: Makes sense.
Speaker Change: Encumber company.
Sure.
Nam Hyung Kim: If I understood your question well, your question was why are we introducing PMIC against the incumbents and how we expect to grow share? Competitiveness of your PMIC, and what aspect of your PMIC is better than the incumbent PMIC? Thank you.
Speaker Change: Yes.
Speaker Change: Thank you and I mean, if I understood. Your question well your question was.
Speaker Change: Why are we introducing panic against the incumbents and we expect to grow share.
Speaker Change: The non U.
Speaker Change: Yes, yes, yes.
Speaker Change: Competitively and you saw in Europe.
Speaker Change: What is that European makers are better than incumbent okay.
Speaker Change: Gotcha.
Speaker Change: Thank you. Thank you and then so yes, let me give you a little bit of color.
Luc Seraphin: So yeah, let me give you a little bit of color regarding the announcement we just made regarding T-MIC. As the workloads for traditional servers and AI servers continue to increase, we believe that power management has become a critical component of the system performance of the DIMM. As you know, the power management ship distributes power in a reliable manner to different power domains that sit on the RDIMM. And our DIMM is very, very dense.
Speaker Change: Regarding your announcement, we just made.
Speaker Change: Authentic.
Speaker Change: As the workloads for traditional servers and AI service continue to increase.
Speaker Change: We believe that power management has become a critical component.
Speaker Change: No.
Speaker Change: The system performance of the day.
Speaker Change: The.
Speaker Change: As you know the power management chip distributes borrowing a reliable manner to different power domains that.
Speaker Change: That sits on the argument now is very very dense it's one of the most dense electronic systems that you can find and you'll have to you'll have to deliver that power and.
Luc Seraphin: It's one of the most dense electronic systems that you can find, and you have to deliver that power. And this power management system must demonstrate efficiency, how much power you use for the power you deliver, accuracy, and stability because of the tolerances of the devices on these DIMMs, but also good behavior when you ramp up or ramp down power. So it's a very complex chip, and we think that at Rambus, this is going to become a core competency in the long run. We've invested in power management for a couple of years now, and we're still growing the team and the investments in that area.
Speaker Change: These power management chip must demonstrate efficiency how much power you used for the power you deliver.
Speaker Change: Accuracy and stability because of the tolerances of the devices on these on these names.
Speaker Change: But also a good behavior, when you ramp up or ramp down power. So it's a very complex chip.
Speaker Change: And we thought that.
Speaker Change: <unk> this is going to become a core competency in the long run.
Speaker Change: We have invested in power management or couple of years now we're still growing the team and the investments in that area.
Luc Seraphin: We are capitalizing on our deep understanding of the DIMM at the system level, which I think is really, really important. And as you saw in the announcement, we talk about the extreme PMIC, which is the name specified by GEDEC. But the extreme PMIC is actually a PMIC that goes into the most challenging DIMMs in terms of speed and density. And we targeted that because this is where we could show that we could have products that were better than our competitors by targeting the most difficult ones to do. We have sampled customers in large quantities now. We are in the qualification process.
Speaker Change: We are capitalizing on our deep understanding of the deal at the system level, which I think is really really important.
And as you saw in the announcement, we talked about the extreme.
Speaker Change: <unk>, which is the name specified by <unk>.
Speaker Change: <unk> is actually opinion that goes into.
Speaker Change: The most challenging.
Speaker Change: In terms of speed and density and we targeted that because this is where we could show that we could have products that were better than our competitors by targeting the most difficult ones to do we have some customers in some large quantities now we are in qualification process and the feedback we have from customers on that.
Luc Seraphin: And the feedback we have from customers on that most difficult PMIC to make is very, very positive. And in the long run, what this tells us is that, you know, these extreme PMIC performances and our ability to make them are going to trickle down, you know, to other applications, you know, for, you know, the high current PMIC or the low current PMIC, but also for PMICs that will be used in other systems down the road. So the first PMIC is the extreme PMIC. That's a very difficult one to make.
Phoenix to make is very very positive and in the long run what it tells US is that you.
Speaker Change: These extreme panic performance.
Speaker Change: Our ability to make them is going to trickle down all of their applications.
Speaker Change: For.
Speaker Change: The high current <unk> rewards low current <unk>, but also for <unk> because that will be used in other systems are down the road. So the first panic is the extreme can make us a very difficult one to make its targeting high density high bandwidth bins, and we've got really good results with customers and this is what gives us confidence.
Luc Seraphin: It targets high-density, high-bandwidth DIMMs, and we've got really good results with customers. And this is what gives us confidence in this. I would end by saying that if you look at a DIMM, at Rambus, we always say that it's about signal integrity. And signal integrity is about the RCD. And it's about power integrity. And power integrity is about the PMIC. So we're very excited. You know, we've worked on this for a couple of years, and we're introducing one product at this point in time. Just one product.
Speaker Change: In this.
Speaker Change: I would end by saying if you.
A look at them at.
Speaker Change: At <unk>, we always say that it's about signal integrity and signal integrity is about the RCD, it's about power integrity and power integrity is about the clinic. So we're very excited.
Speaker Change: Work on this for a couple of years.
Speaker Change: What are you seeing one product at this point in time, one product family, but over time is going to trickle down the different applications in memory subsystems.
Speaker Change: Sounds good.
Speaker Change: Over to you.
Speaker Change: Higher very high bandwidth.
Luc Seraphin: So it sounds like the path to the AI server.
Speaker Change: High capacity.
Speaker Change: Is that right.
Speaker Change: Our target market share.
Speaker Change: Hum.
Speaker Change: So it is true that if you take a.
Luc Seraphin: So it is true that if you take a CPU and an AI server, they typically maximize the number of games per channel, but they also try to maximize the density. So definitely, you know, the extreme PNIC is a good target for the extreme PNIC, or the AI servers are a good target for the extreme PNIC. So you're absolutely right about that. In terms of market share, we've always said that, you know, we target in the long run to get to 20% share when we are in full production, fully qualified in our clinic family.
Speaker Change: CPU and an AI server.
Speaker Change: Typically a maximized the number of demos per channel.
Speaker Change: We also try to maximize the density so.
Speaker Change: Definitely.
Speaker Change: <unk> is a good one.
Speaker Change: The AI servers all right.
Speaker Change: Target for the extreme clinic, so youre, absolutely right with that.
Speaker Change: In terms of market share, we've always said that.
Speaker Change: We target in the long run to get to 20% share. When we are in food production fully qualified on optimum externally.
Luc Seraphin: But we're going to ramp our way through that, you know; we're going to ship initial volumes in the second half of this year; we're going to see some production volume next year, and our target is to eventually get to 20% share.
Speaker Change: We're going to ramp our way through that we are going to ship initial volumes in the second half of this year, we're going to see some production volume next year.
Speaker Change: They will target is to eventually get to 20% share.
Speaker Change: Okay. Thank you one more question if I can now it would be back in queue.
Nam Hyung Kim: Iran prices have been increasing quite dramatically since the December quarter last year. I'm just curious about RCD pricing going forward. Is the RCD chip price usually just stable relative to the Ardian price, or do you think there's some room to raise the price when the Ardian price is up quite significantly? Thank you. Now, typically, the Ardyn prices...
Speaker Change: Yes.
Speaker Change: Prices have been increasing quite dramatically since December quarter last year I'm, just curious on our CD pricing going forward is your RFID chip price, usually just a stable relative to RDM price or do you think there is some room to raise the price or the price up quite significantly.
Speaker Change: Yeah.
Speaker Change: Thank you know typically the odd in prices and the RCD prices are not correlated.
Luc Seraphin: Thank you. Typically, the RDIM prices and the RCD prices are not correlated. You know, the RDIM prices go with, you know, the DRAM supply and demand situation. The RCD prices are typically defined by the competitive environment on, you know, the RCD supply. So there's no correlation between, you know, the RDIM prices and the RCD prices. The only thing I would add, though, is that when we move from generation to generation from, you know, DDR5 Gen 1 to DDR5 Gen 2 to DDR5 Gen 3, there's an uptick in pricing on the RCD that has to do with the introduction of new technology. But as these technologies ramp into production, we see the standard price, you know, erosion on each one of those generations.
Speaker Change: The Rd and prices go with the DRAM supply and demand situation.
Speaker Change: LCD prices.
Speaker Change: Typically.
Speaker Change: Defined by the competitive environment on the.
Speaker Change: RCD supply. So there is no correlation between the army in prices in the.
Speaker Change: The LCD price is the only thing I would add though is that when we move from generation to generation from DDR five Gen. One to the origin to DDR five Gen three.
Speaker Change: There is an uptick in pricing on the RCD that has to do with the introduction of new technology, but as these technologies ramped into production when we see the standard price.
Speaker Change: And on each one of those generation.
Operator: Thank you, Nam. As a quick reminder, if you would like to ask a question, please press star one. And our next question is from the line of Mehdi Hosseini with SIG. You may proceed.
Speaker Change: Thank you. Thank you very much.
Speaker Change: Okay.
Speaker Change: Thank you ma'am.
As a quick reminder.
Speaker Change: If you would like to ask a question. Please press star one.
Speaker Change: And our next question is from the line of Mehdi Hosseini with <unk> you May proceed.
Mehdi Hosseini: Yes, thank you. Just a couple of follow-ups. For the team, when do you expect incremental payment revenue to start impacting the top line? Would PMIC also be included in product revenue?
Mehdi Hosseini: Yes. Thank you just a couple of follow ups.
Mehdi Hosseini: Yes.
Mehdi Hosseini: Actually put the team when do you expect incremental revenue to start.
Mehdi Hosseini: Impacting the top line and.
Mehdi Hosseini: <unk> also be in the product revenue.
Desmond Lynch: Hi Mehdi, it's Des. You know, as Luc mentioned, we're very pleased to announce our PMIC solutions today. We do expect to have a revenue contribution in the second half of the year, and that will continue to grow into 2025, as Luc mentioned about the production volumes then. You are correct that this will show up under product revenue; that's the right categorization for the PMIC revenue.
Speaker Change: Hi, maybe days.
Speaker Change: Luke mentioned, we're very pleased to announce <unk> solutions today.
Speaker Change: Expect to have.
Speaker Change: Revenue contribution in the second half of the year and that will continue to grow into 2025, It's Luke mentioned into the production volumes then.
Speaker Change: You are correct. This will show up on the product revenue that sort of any categorization for the <unk> revenue.
Speaker Change: Okay.
Mehdi Hosseini: Okay, and then just a clarification on the product cost margin of 60% Q1. I think I heard you saying that most of the products were for DDR5.
Speaker Change: Just a clarification on the product gross margin, 60% in Q1.
Speaker Change: I heard you say that most of this most of the products were for DDR fly is there like a its startup.
Desmond Lynch: Is there like a startup cost associated with your founding partner? Or what is it that is adversely impacting your Q1 product cost margin? And I'm under the assumption that DDR5 has a higher cost margin than DDR4.
Speaker Change: Start up costs.
Speaker Change: Associated with your foundry partner or what is it that.
Speaker Change: Adversely impacting your Q1 product gross margin.
Speaker Change: I'm under assumption that did your funds has a higher gross margin.
Desmond Lynch: Hey Mehdi, it's a good question. As it relates to our product gross margins, we continue to manage these for the long term. And we do have a healthy gross margin profile. If you take last year, 2023, for the full year, it was 63% on the gross margin side. In Q1, our gross margins on the product side were 60, approximately 61%, which was down from 63% in Q4. The sequential decline in gross margin was driven by anticipated ASP erosion, which was in the low single digits.
Speaker Change: And it's a good question as it relates to product gross margins. We continue to manage these for the long term and we do have a healthy gross margin profile. If you take last year 2023 for the full year. It was 63% on the gross margin side in Q1, okay.
Speaker Change: Gross margins on the product side was 60, approximately 61%, which was down from 63% in Q4, maybe.
The sequential decline in gross margin was driven by anticipated ASP erosion, which was in the low single digits and we also did have some one time manufacturing costs that were incurred.
Desmond Lynch: And we also did have some one-time manufacturing costs that were incurred in Q1. As a company, we have been and will continue to be disciplined in our ASP management, and we will continue to drive product cost reductions to maintain our healthy product gross margins. But overall, for the year, I would expect that our product gross margins will be in line with our long-term target of 60 to 65%.
Speaker Change: In Q1.
Speaker Change: As a company we have been and will continue to be disciplined in our ESP management, and we will continue to drive product cost reductions to maintain a healthy product cost margins, but overall for the year.
Speaker Change: Product gross margins will be in line with our long term target of 60% to 65%.
Speaker Change: Sure.
Mehdi Hosseini: Sure. And if I may just squeeze in one more follow-up, and this is also for the team, what happens if demand for DDR4 actually were to be there, especially for some of the low-end server applications or even maybe for inferencing? Are you anticipating just focusing on DDR5? Or would there be a scenario where DDR4 actually has no end of life, and there's, there will be a kind of steady demand for it? We expect to have
Speaker Change: And if I may just to squeeze in one more follow up.
Speaker Change: And this is also for the team what happens.
Speaker Change: Demand for DVR or actually with two.
Speaker Change: Hum.
Speaker Change: To be the especially for the low end server application or even maybe four infancy.
Speaker Change: Are you anticipating them.
Speaker Change: Just.
Speaker Change: Focusing on giving you a five.
Speaker Change: Or would there be a scenario where video for actually.
Speaker Change: There is no end of life and there is there will be.
Speaker Change: The steady demand for it.
Speaker Change: We expect to have you.
Luc Seraphin: We expect to have, you know, some long-term demands for DDR5. We see Gen 1 in production today. Gen 2 has been launched, and we have customer orders for Gen 2. We have customer orders for Gen 3 as well. Gen 4 was introduced, and we were the first one to introduce Gen 4, you know, in December of last year. And the industry is expected to continue to develop DDR5-based, you know, solutions for the data center.
Speaker Change: Some long term demand for DDR five.
Speaker Change: We see Gen. One in production today Gen. Two has been launched we have customer orders and Gen. Two.
Speaker Change: We have customer orders on Gen three as well.
Speaker Change: Gen. Four was introduced and we were the first one to introduce Gen. Four in December of last year.
Speaker Change: The industry is anticipating to continue to develop.
Speaker Change: DDR five based solutions for the.
For the data center.
Luc Seraphin: So, you know, we expect that to continue. With respect to DDR4, as we said earlier, we see a long tail of DDR4 demand. Not necessarily high, but the vast majority of sales, you know, going forward are going to be for the data center are going to be DDR5.
We expect.
Speaker Change: Is that to continue.
Speaker Change: With respect to <unk> as we said earlier.
Speaker Change: We see a long tail of DDR for demand.
Speaker Change: Not necessarily high the vast majority of.
Speaker Change: Sales going forward is going to be called the data center is going to be.
Speaker Change: Hi.
Okay. Thank you.
Speaker Change: Thank you Eddie.
Eddie: Thank you Randy.
Operator: 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 Luc Seraphin.
Eddie: 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 Luke therapy.
Luc Seraphin: Thank you, everyone, who joined the call with us today. Thank you for your continued interest and time. And we look forward to speaking with you again soon. Have a great day. Thank you.
Luke: Thank you everyone, who have joined the call with US today. Thank you for your continued interest and time and we look forward to speaking with you again soon have a great day. Thank you.
Operator: Thank you. This now concludes today's conference.
Speaker Change: Thank you. This now concludes today's conference.