Q2 2024 Rambus Inc Earnings Call
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Operator: Welcome to the Rambus Second 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 touchtone phone at any time. If anyone requires assistance during the conference, please press star zero at any time. As a reminder, this is a conference call and is being recorded. I would now like to turn the conference over to Desmond Lynch, Chief Financial Officer. You may begin your presentation.
Operator: Welcome to the Rambus 2nd quarter fiscal year 2024, Arnie's conference call. At this time, all participants are in a listen-only mode.
Speaker Change: Welcome to the Rambus Second 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.
Operator: As a conclusion of our prepared remarks, we will conduct a question-and-answer session. If you want to ask a question, you may press star 1, or your touch tone phone at any time. If you should require assistance during the conference, please press star 0 at any time. As a reminder, this is a conference call; it is being recorded.
Speaker Change: If you would like to ask a question, you may press star 1 on your touchtone phone at any time. If any shall require assistance during the conference, please press star 0 at any time. As a reminder, this is a conference call and is being recorded.
Operator: I would now like to turn the conference over to Desmond Lynch, Chief Financial Officer. May begin your conference.
Speaker Change: I would now like to turn the conference over to Desmond Lynch, Chief Financial Officer. You may begin your conference.
Desmond Lynch: Thank you, Operator, and welcome to the Rambus 2nd 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 8-K.
Desmond Lynch: Thank you, operator, and welcome to the Rambus second 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: Thank you operator and welcome to the Rambus second 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 .
Speaker Change: The press release for the results that we will be discussing today has been filed with the SEC on Form 8K.
Operator: 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.
Speaker Change: A replay of this call will be available for the next week at 866-813-9403.
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.
Desmond Lynch: A replay of this call can be accessed on a website beginning today at 5 PM Pacific Time. Our discussions today will contain forward-looking statements, including our expectations regarding projected financial results, financial prospects, market growth, demand for our solutions, and other market factors, 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 the SEC, including our 8-Ks, 10-Qs, and 10-Ks. These forward-looking statements may differ materially from our actual results, and we are under no obligation to update these statements.
Speaker Change: A replay of this call can be accessed on our website beginning today at 5 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, amongst other items. These statements are subject to risks and uncertainties that may be discussed during this call and are more fully described in the documents we file with the SEC, including our 8Ks, 10Qs, and 10Ks. These forward-looking statements may differ materially from our actual results, and we are under no obligation to update these statements.
Speaker Change: Our discussions today will contain forward-looking statements, including our expectations regarding projected financial results.
Speaker Change: financial prospects, market growth, demand for our solutions and other market factors and the effects of ASC 606 from reported revenue amongst other items
Speaker Change: 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.
Speaker Change: These forward-looking statements may differ materially from our actual results and we are under no obligation 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 compatible GAAP measures has been included in our press release, in our slide presentation, and on our website at rambus.com on 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.
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 Release. 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: 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.
Speaker Change: 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 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 our investors better insight into our operational performance.
Luc Seraphin: The order of our call today will be as follows. Luke will start with an overview of the business. I will discuss our financial results, and then we will end with Q&A. I will now turn the call over to Luke to provide an overview of the quarter.
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.
Speaker Change: 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.
Speaker Change: I'll now turn the call over to Luc to provide an overview of the quarter. Luc?
Luc Seraphin: Thank you, Des, and good afternoon, everyone. At Rambus, we develop industry-leading products that move data faster and safer to address the advancing needs for the data center and AI. Through our extensive technology expertise in designing state-of-the-art memory subsystems and ongoing strategic investments in new products, we are expanding our market opportunity to drive long-term profitable growth. In Q2, we continued to execute well with product growth fueled by ongoing leadership in DDR5 RCDs, continued progress in the qualification of our high-hand DDR5 server PIMICS, and the introduction of our client-club drivership and suite of PCIe 7 IP solutions.
Luc Seraphin: Thank you, Des, and good afternoon, everyone. At Rambus, we develop industry-leading products that move data faster and safer to address the advancing needs of the data center and AI through our extensive technology expertise in designing state-of-the-art memory subsystems and ongoing strategic investments in new products. We are expanding our market opportunity to drive long-term profitable growth. In Q2, we continued to execute well with product growth fueled by ongoing leadership in DDR5 RCDs, continued progress in the qualification of our high-end DDR5 server PIMX, and the introductions of our client clock driver chip and suite of PCIe 7 IP solutions. Strong growth in our quarterly product revenue drove overall results in line with expectations, and outstanding cash generation from operations of $70 million further strengthens our balance sheet.
Luke: Thank you, Des, and good afternoon, everyone. At Rambus, we develop industry-leading products that move data faster and safer to address the advancing needs for the data center and AI.
Luke: Through our extensive technology expertise in designing state-of-the-art memory subsystems and ongoing strategic investments in new products, we are expanding our market opportunity to drive long-term profitable growth.
Luke: In Q2, we continued to execute well with product growth fueled by ongoing leadership in DDR5 RCDs, continued progress in the qualification of our high-end DDR5 server PMIX, and, finally,
Luke: and the introductions of our client-cloud driver chip and suite of PCIe7 IP solutions.
Luc Seraphin: Strong growth in our quarterly product revenue drove overall results in line with expectations, and outstanding cash generation from operations of $70 million further strengthens our balance sheet. We remain confident in the long-term outlook for data centers, benefiting from both an uplist in traditional servers as well as the ongoing growth in AI. Memory interface chips grew 13% sequentially and delivered product revenue of $57 million at the high end of expectations, driven by strength in DDR5. And in Q3, we anticipate double-digit sequential and year-over-year product revenue growth driven by our core RCD products and early contributions from new products.
Luke: Strong growth in our quarterly product revenue drove overall results in line with expectations, and outstanding cash generation from operations of $70 million further strengthens our balance sheet.
Luc Seraphin: We remain confident in the long-term outlook for data centers, benefiting from both an uplift in traditional servers as well as the ongoing growth in AI. Memory interface chips grew 13% sequentially and delivered product revenue of $57 million at the high end of expectations, driven by strength in DDR5. And in Q3, we anticipate double-digit sequential and year-over-year product revenue growth, driven by our core RCD products and early contributions from new products.
Luke: We remain confident in the long-term outlook for data center, benefiting from both an uplift in traditional servers, as well as the ongoing growth in AI.
Luke: Memory interface chips grew 13% sequentially and delivered product revenue of 57 million dollars at a high end of expectations driven by strength in DDR5.
Luke: And in Q3, we anticipate double-digit sequential and year-over-year product revenue growth driven by our core RCD products and early contributions from new products.
Luc Seraphin: While we continue to see modest shipments of DDR4, the industry has transitioned to DDR5 as the predominant memory solution, supporting the memory performance demands of AI and other advanced workloads. We are well positioned for the ongoing DDR5 product lifecycle. We have multiple generations of DDR5 RCDs progressing through different stages of qualification and production to support the accelerated pace of new server platform rollouts. Our leading product position in DDR5 RCDs has delivered great value to our customers and later foundation for a complete DDR5 dim chipset. As I mentioned in my earlier remarks, we continue to leverage our strong balance sheet to support our strategic investments in new products to drive long-term growth.
Luc Seraphin: While we continue to see modest shipments of DDR4, the industry has transitioned to DDR5 as the predominant memory solution, supporting the memory performance demands of AI and other advanced workloads. We are well positioned for the ongoing DDR5 product life cycle. We have multiple generations of DDR5 RCDs progressing through different stages of qualification and production to support the accelerated pace of new server platform rollout. Our leading product position in DDR5 RCDs has delivered great value to our customers and laid the foundation for a complete DDR5 DIMM chipset. As I mentioned in my earlier remarks, we continue to leverage our strong balance sheet to support our strategic investments in new products to drive long-term growth.
Luke: While we continue to see modest shipments of DDR4, the industry has transitioned to DDR5 as the predominant memory solution, supporting the memory performance demands of AI and other advanced workloads.
Luke: We are well-positioned for the ongoing DDR5 product lifecycle. We have multiple generations of DDR5 RCDs progressing through different stages of qualification and production to support the accelerated pace of new server platform rollouts.
Luke: Our leading product position in DDR5 RCDs has delivered great value to our customers and laid the foundation for a complete DDR5 DIMM chipset.
Luke: As I mentioned in my earlier remarks, we continue to leverage our strong balance sheet to support our strategic investments in new products to drive long-term growth.
Luc Seraphin: Last quarter, we introduced our family of DDR5 server PINICs, including the industry's first extreme current server PINIC. Power management ICs are a critical part of DDR5 memory modules and are required to deliver reliable power at lower device voltages with tighter tolerance ranges. We are pleased with the demonstrated performance and the positive customer reception of the Rambus PINICs at the major DRAM vendors. We are seeing strong traction with qualifications in progress for multiple module types across our customers' high performance, high capacity applications. And we are making qualification shipments later this year with production ramping throughout 2025.
Luc Seraphin: Last quarter, we introduced our family of DDR5 server PMICs, including the industry's first extreme current server PMIC. Power management ICs are a critical part of DDR5 memory modules and are required to deliver reliable power at lower device voltages with tighter tolerance ranges. We are pleased with the demonstrated performance and the positive customer reception of the Rambus Phoenix at the major DRAM vendors. We are seeing strong traction with qualifications in progress for multiple module types across our customers' high-performance, high-capacity applications, and we're making qualification shipments later this year with production ramping throughout 2025. Our server PMIC product family amplifies our market opportunity and establishes a jumping-off point for a growing roadmap of future power management chips.
Luke: Last quarter, we introduced our family of DDR5 server PMICs, including the industry's first extreme current server PMIC.
Luke: Power management ICs are a critical part of DDR5 memory modules and are required to deliver reliable power at lower device voltages with tighter tolerance ranges.
Luke: We are pleased with the demonstrated performance and the positive customer reception of the Rambus Phoenix at the major DRAM vendors.
Luke: We are seeing strong traction with qualifications in progress for multiple module types across our customers high-performance, high-capacity applications.
Luke: And, we are making qualification shipments later this year, with production ramping throughout 2025.
Luc Seraphin: Our server-pimic product family amplifies our market opportunity and establishes a jumping off point for a growing roadmap of future power management ships. Also, as AI expands from training to inference, increasing demands on performance will extend beyond servers to client systems and drive the needs for new PIMIC solutions tailored for emerging use cases and form factors. Beyond PIMICs, as DDR5 speeds continue to rise, many additional technologies used in the data center will waterfall into products for the client space to achieve higher levels of memory performance. Leveraging our broad experience in server memory chips and technology, today we introduced our first product dedicated to the client's market, the DDR5 client clock driver chip or CKD.
Luke: Our server PMIC product family amplifies our market opportunity and establishes a jumping-off point for a growing roadmap of future power management chips.
Luc Seraphin: Also, as AI expands from training to inference, increasing demands on performance will extend beyond servers to client systems and drive the need for new PMIC solutions tailored for emerging use cases and form factors. Beyond PIMX, as DDR5 speeds continue to rise, many additional technologies used in the data center will be incorporated into products for the client space to achieve higher levels of memory performance. Leveraging our broad experience in server memory chips and technology,
Luke: Also, as AI expands from training to inference, increasing demands on performance will extend beyond servers to client systems and drive the need for new PMIC solutions tailored for emerging use cases and form factors.
Luke: Beyond PIMX, as DDR5 speeds continue to rise, many additional technologies used in the data center will waterfall into products for the client space to achieve higher levels of memory performance.
Luc Seraphin: Today, we introduced our first product dedicated to the client market, the DDR5 client clock driver chip, or CKD. This new chip supports DDR5 PC memory modules running at speeds of 6400 and 7200 megatransfers per second. Similar to the RCD, the CKD is required to maintain the signal integrity of the clock at high speed.
Luke: Leveraging our broad experience in server memory chips and technology, today we introduced our first product dedicated to the client market, the DDR5 client clock driver chip, or CKD.
Luc Seraphin: This new chip supports DDR5 PC memory modules running at speeds of 6400 and 7200 MHz per second. Similar to the RCD, the CKD is required to maintain the signal integrity of the clock at high speed. CKDs will be targeted for high-performance memory modules in next-generation notebook and desktop PCs.
Luke: This new chip supports DDR5 PC memory modules running at speeds of 6400 and 7200 megatransfers per second.
Luke: Similar to the RCD, the CKD is required to maintain the signal integrity of the clock at high speed.
Luc Seraphin: CKDs will be targeted for high-performance memory modules in next-generation notebook and desktop PCs. While the CKD will initially address a small portion of the market, it is an exciting milestone for the company as we continue to expand our roadmap of new products and branch out into the client space. Turning to Silicon IP, the demands of the data center fueled by AI continue to propel the accelerated development of complex, purpose-built chips that require advanced interface and security IP solutions.
Luke: CKDs will be targeted for high-performance memory modules in next-generation notebook and desktop PCs.
Luc Seraphin: While the CKD will initially address a small portion of the market, it is an exciting milestone for the company as we continue to expand our roadmap of new products and branch out into the client space.
Speaker Change: While the CKD will initially address a small portion of the market, it is an exciting milestone for the company as we continue to expand our roadmap of new products and branch out into the client space.
Luc Seraphin: Turning to Silicon IP, the demands of the data center fueled by AI continue to propel the accelerated development of complex, purpose-built chips that required advanced interface and security IP solutions. And while quarter-on-quarter revenue may vary from our growth trajectory due to customer for untiming or other short-term impacts, AI continues to drive long-term momentum across our IP business. In Q2, our results were led by increased design winds in HBM and continued strength in our suite of PCIe high-speed interpolate cores at tier-1 AI chip suppliers and hyperscalers. As we see these purpose-built chips proliferate, the continuing trend towards heterogeneous computing architectures places more value on moving and securing data.
Speaker Change: Turning to Silicon IP, the demands of the data center fueled by AI continue to propel the accelerated development of complex purpose-built chips that require advanced interface and security IP solutions.
Luc Seraphin: And while quarter-on-quarter revenue may vary from our growth trajectory due to customer program timing or other short-term impacts, AI continues to drive long-term momentum across our IP business. In Q2, our results were led by increased design wins in HBM and continued strength in our suite of PCIe high-speed interconnect cores at Tier 1 AI chip suppliers and hyperscalers. As we see these purpose-built chips proliferate, the continuing trend towards heterogeneous computing architectures places more value on moving and securing data.
Speaker Change: And while quarter-on-quarter revenue may vary from our growth trajectory due to customer program timing or other short-term impacts, AI continues to drive long-term momentum across our IP business.
Speaker Change: In Q2, our results were led by increased design wins in HBM and continued strength in our suite of PCIe high-speed interconnect cores at Tier 1 AI chip suppliers and hyperscalers.
Speaker Change: As we see these purpose-built chips proliferate, the continuing trend towards heterogeneous computing architectures places more value on moving and securing data.
Luc Seraphin: With the introduction of our family of PCIe 7 IP solutions, we further expanded our IP offering for AI and are working with market leaders on their next generation designs. PCIe 7 is designed to handle the massive parallel computing needs of AI workloads and enable secure data transfers between nearly every advanced chip in AI and HPC systems, including processors, accelerators, and data processing units. When coupled with our ongoing investments in the industry, most advanced security IP portfolio, including quantum safe solutions, we are providing vital building blocks for the next wave of high-performance chip and system designs.
Luc Seraphin: With the introduction of our family of PCIe7 IP solutions, we further expanded our IP offering for AI and are working with market leaders on their next-generation designs. PCIe7 is designed to handle the massive parallel computing needs of AI workloads and enable secure data transfers between nearly every advanced chip in AI and HPC systems, including processors, accelerators, and data processing units. When coupled with our ongoing investments in the industry's most advanced security IP portfolio, including quantum safe solutions, we are providing vital building blocks for the next wave of high-performance chip and system design.
Speaker Change: With the introduction of our family of PCIe7 IP solutions, we further expanded our IP offering for AI and are working with market leaders on their next generation designs.
Speaker Change: PCIe7 is designed to handle the massive parallel computing needs of AI workloads and enable secure data transfers between nearly every advanced chip in AI and HPC systems, including processors, accelerators, and data processing units.
Speaker Change: When coupled with our ongoing investments in the industry most advanced security IP portfolio, including quantum safe solutions, we are providing vital building blocks for the next wave of high performance chip and system designs.
Luc Seraphin: As we look forward, demands on power, performance, and security will continue to accelerate, driven by generative AI and all the data-intensive workloads. We remain strategically focused on the ongoing scaling of system memory bandwidth and capacity through novel memory, interconnect, and power management solutions. This will be critical to improving efficiency and performance in computing systems for the data center to client. We are continuing our leadership in core products, along with new product introductions to unlock higher levels of system performance and security to expand our market opportunity.
Luc Seraphin: As we look forward, demands on power, performance, and security will continue to accelerate, driven by generative AI and other data-intensive workloads. We remain strategically focused on the ongoing scaling of system memory bandwidth and capacity through novel memory interconnect and power management solutions. These will be critical to improving efficiency and performance in computing systems for data center clients. We are continuing our leadership in core products along with new product introductions to unlock higher levels of system performance and security to expand our market opportunities.
Speaker Change: As we look forward, demands on power, performance, and security will continue to accelerate, driven by generative AI and other data-intensive workloads.
Speaker Change: We remain strategically focused on the ongoing scaling of system memory bandwidth and capacity through novel memory interconnect and power management solutions.
Speaker Change: These will be critical to improving efficiency and performance in computing systems for the data center to client.
Speaker Change: We are continuing our leadership in core products along with new product introductions to unlock higher levels of system performance and security to expand our market opportunity.
Luc Seraphin: In closing, Q2 was a solid quarter for the company, driven by the strong performance from our chip business, and we look forward to further double-digit product growth in Q3. We've continued leadership in DDR5 LCDs, growing momentum in PINX, and the introduction of our CKD as part of our ongoing investment in new products. We are well positioned to capitalize on current and emerging market trends. And our strong cash generation enables us to continue investing in innovative products and to pursue strategic initiatives that drive the long-term growth of the company, while consistently delivering value to our stockholders.
Luc Seraphin: In closing, Q2 was a solid quarter for the company, driven by the strong performance from our chip business, and we look forward to further double-digit product growth in Q3. With continued leadership in DDR5 RCDs, growing momentum in PINIX, and the introduction of our CKD as part of our ongoing investment in new products, we are well positioned to capitalize on current and emerging market trends, and our strong cash generation enables us to continue investing As always, I'd like to thank our customers, partners, and employees for their ongoing support. And with that, I turn the call over to Des to discuss the quarterly financial results. Des? Thank you.
Speaker Change: In closing, Q2 was a solid quarter for the company, driven by the strong performance from our chip business, and we look forward to further double-digit product growth in Q3.
Speaker Change: With continued leadership in DDR5 RCDs, growing momentum in PINIX, and the introduction of our CKD as part of our ongoing investment in new products, we are well positioned to capitalize on current and emerging market trends.
Speaker Change: And our strong cash generation enables us to continue investing in innovative products and to pursue strategic initiatives that drive the long-term growth of the company, while consistently delivering value to our stockholders.
Luc Seraphin: As always, I'd like to thank our customers, partners, and employees for their ongoing support.
Speaker Change: As always, I'd like to thank our customers, partners and employees for their ongoing support. And with that, I turn the call over to Des to discuss the quarterly financial results. Des?
Desmond Lynch: And with that, I turn the core over to Dev to discuss the quarterly financial results.
Desmond Lynch: Thank you, Luc. I'd like to begin with a summary of our financial results for the second quarter on slide 5. We are pleased with our solid Q2 financial results, driven by strong sequential product revenue growth in the quarter. Our profitable results and outstanding cash generation in the quarter enabled us to repurchase stock, demonstrating our commitment to stockholder return. In addition, our ability to generate strong cash flows allows us to continue to invest in our strategic initiatives and consistently deliver value to our stockholders.
Desmond Lynch: Thank you, Luke.
Desmond Lynch: I'd like to begin with a summary of our financial results for the second quarter on slide 5. We are pleased with our solid Q2 financial results, driven by strong sequential product revenue growth in the quarter. Our profitable results and outstanding cash generation in the quarter enabled us to repurchase stock, demonstrating our commitment to stockholder returns. In addition, our ability to generate strong cash flows allows us to continue to invest in our strategic initiatives and consistently deliver value to our stockholders.
des: Thank you, Luc. I'd like to begin with a summary of our financial results for the second quarter on slide 5.
des: We are pleased with our solid Q2 financial results, driven by strong sequential product revenue growth in the quarter.
des: Our profitable results and outstanding cash generation in the quarter enabled us to repurchase stock, demonstrating our commitment to stockholder returns.
des: In addition, our ability to generate strong cash flows allows us to continue to invest in our strategic initiatives and consistently deliver value to our stockholders.
Desmond Lynch: Let me now provide you a summary of our non-GAAP income statement on slide 6. Revenue for the second quarter was 132.1 million dollars, which was in line with our expectations. Royalty revenue was 56.4 million dollars when licensing billings were 61.5 million dollars. The difference between licensing billings and royalty revenue mainly relates to timing, as we do not always recognise revenue in the same quarter as we bill our customers. Product revenue was 56.7 million dollars, consisting primarily of memory interface chips. Contract and other revenue was 19 million dollars, consisting predominantly of silicon IP. At a reminder, only a portion of our silicon IP revenue is reflected in contract and other revenue, and a remaining portion is reported in royalty revenue as well as in licensing billings.
Desmond Lynch: Let me now provide you a summary of our non-GAAP income statement on slide 6. Revenue for the second quarter was $132.1 million, which was in line with our expectations. Royalty revenue was $56.4 million, while licensing billings were $61.5 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.
Speaker Change: Let me now provide you a summary of our non-GAAP income statement on slide 6.
des: Revenue for the second quarter was $132.1 million, which was in line with our expectations.
des: Royalty revenue was $56.4 million while licensing billings were $61.5 million.
des: 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: Product revenue was $56.7 million, consisting primarily of memory-interfaced chips. Contracts and other revenue was $19 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 cost of goods sold for the quarter, were $77 million. Operating expenses of $53.4 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 657.
des: Product revenue was $56.7 million, consisting primarily of memory interface chips.
des: Contracts and other revenue was $19 million, consisting predominantly of Silicon IP.
des: 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.
Desmond Lynch: Total operating costs, including costs of goods sold for the quarter, were 77 million dollars. of 53.4 million dollars, where in line with our expectations, as we continue to be disciplined in our expense management, and we ended the quarter with a total head count of 657. gap interest and other income to the second quarter with 4 million dollars, which includes $100,000 of ASC 606 interest income. Using an assumed flat tax rate of 22% for non-GAAP pre-tax income, non-GAAP net income for the quarter was 46.1 million dollars.
des: Total operating costs, including cost of goods sold for the quarter, were $77 million.
des: Operating expenses of $53.4 million were in line with our expectations as we continue to be disciplined in our expense management.
des: And we ended the quarter with a total headcount of 657.
Desmond Lynch: Gap interest and other income for the second quarter was $4 million, which includes $100,000 of ASC 606 interest income. Using an assumed flat tax rate of 22% for non-GAAP pre-tax income, non-GAAP net income for the quarter was $46.1 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 $432.9 million. This is up from Q1, mainly due to strong cash from operations, which was $70.4 million. In the quarter, we repurchased $12.5 million of stock, which retired approximately 221,000 shares.
des: Gap interest and other income to the second quarter was $4 million, which includes $100,000 of ASC 606 interest income.
des: Using an assumed flat tax rate of 22% for non-GAAP pre-tax income, non-GAAP net income for the quarter was $46.1 million.
Desmond Lynch: Now let me turn to the balance sheet details on Slide 7. We ended the quarter with cash, cash equivalents, and marketable securities totaling $432.9 million. This is up from Q1, mainly due to strong cash from operations, which was $70.4 million. In the quarter, we repurchased $12.5 million of stock, which retired approximately 221,000 shares.
des: Now let me turn to the balance sheet details in slide 7.
des: We ended the quarter with cash, cash equivalents, and marketable securities totaling $432.9 million.
des: This is up from Q1, mainly due to strong cash from operations, which was $70.4 million.
des: In the quarter, we repurchased $12.5 million of stock, which retired approximately 221,000 shares.
Desmond Lynch: 2nd quarter capex with $16.3 million will depreciation expense with $6.3 million. We delivered $64.1 million of free cash flow in the quarter.
Desmond Lynch: The second quarter CapEx was $16.3 million, while depreciation expense was $6.3 million. We delivered $54.1 million of free cash flow in the quarter. Let me now review our outlook for the third 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.
des: Second quarter capex was $16.3 million, while depreciation expense was $6.3 million.
des: We delivered $54.1 million of free cash flow in the quarter.
Desmond Lynch: Let me now review our outlook for the third quarter on slide 8. As a reminder, the forward-looking guidance reflects our current best estimates at this time. We continue to actively monitor the macro environment, and our actual results could differ materially from what I am about to review. In addition to the financial outlook under ASC 606, we also provide information on licensing billings, which is an operational metric that reflects amounts invoiced to our licensing customers during the period, adjusted for certain differences. As we have reported historically, licensing billings closely correlate with what we had historically reported as royalty revenue under ASC 605.
Desmond Lynch: 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 third quarter to be between $144 and $150 million. We expect royalty revenue to be between $59 and $65 million, and licensing billings between $60 and $66 million.
des: Let me now review our outlook for the third quarter on slide 8.
Desmond Lynch: In Q3, we will begin to recognize royalty revenue under ASC 606 from the SK Hynix patent licensing extension that we signed last year. As a result, we expect to see minimal difference between royalty revenue and licensing billings for Q3 and on a go-forward basis.
des: As a reminder, the forward-looking guidance reflects our current best estimates at this time. We continue to actively monitor the macro environment and our actual results could differ materially from what I am about to review.
Desmond Lynch: We expect Q3 non-GAAP total operating costs, which include COGS, to be between $82 and $78 million. We expect Q3 CapEx to be approximately $12 million. Under ASC 606, non-GAAP operating results for the third quarter are expected to be between a profit of $62 and $72 million. For non-GAAP interest and other income and expense, we expect $4 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 $15 and $17 million in Q3. We expect Q3's share count to be 109 million diluted shares outstanding. Overall, we anticipate the Q3 non-GAAP earnings per share range between 47 and 54 cents. Let me finish with a summary on slide 9.
des: 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.
des: As we have reported historically, licensing billings closely correlates with what we had historically reported as royalty revenue under ASC 605.
Desmond Lynch: Under ASC 606, we expect revenue in the third quarter to be between $144 and $150 million. We expect royalty revenue to be between $59 and $65 million and licensing billings between $60 and $66 million. In Q3, we will begin to recognise royalty revenue under ASC 606 from the SK Hynix patent licensing extension that we signed last year. As a result, we expect to see minimal difference between royalty revenue and licensing billings for Q3 and on a go-forward basis. We expect Q3 non-gap total operating costs, which include cogs to be between $82 and $78 million. We expect Q3 capex to be approximately 12 million dollars. Under ASC 606, non-GAAP operating results for the third quarter are expected to be between a profit of 62 and 72 million dollars.
des: Under ASC 606, we expect revenue in the third quarter to be between $144 and $150 million.
des: We expect royalty revenue to be between $59 and $65 million, and licensing billings between $60 and $66 million.
des: In Q3, we will begin to recognize royalty revenue under ASC 606 from the SK Hynix patent licensing extension that we signed last year.
des: As a result, we expect to see minimal difference between royalty revenue and licensing billings for Q3 and on a go-forward basis.
des: We expect Q3 non-GAAP total operating costs, which include COGS, to be between $82 and $78 million.
des: We expect Q3 Capex to be approximately $12 million.
des: Under ASC 606, non-GAAP operating results for the third quarter is expected to be between a profit of $62 and $72 million.
Desmond Lynch: For non-GAAP interest and other income and expense, we expect 4 million dollars of interest income. We expect to perform a tax rate to be approximately 22% with non-GAAP taxes expected to be between an expense of 15 and 17 million dollars in Q3. We expect Q3 share count to be 109 million diluted shares outstanding. Overall, we anticipate the Q3 non-GAAP earnings per share range between 47 and 54 cents.
des: For non-GAAP interest and other income and expense, we expect $4 million of interest income.
des: We expect the pro forma tax rate to be approximately 22%, with non-GAAP taxes expected to be between an expense of $15 and $17 million in Q3.
des: We expect Q3 share count to be 109 million diluted shares outstanding.
des: Overall, we anticipate the Q3 non-GAAP earnings per share range between 47 and 54 cents.
Desmond Lynch: Let me finish with a summary on slide 9. In closing, I am pleased with our Q2 financial results. Our team delivered double-digit product revenue growth with strong cash generation in the quarter. We are optimistic about the continued product revenue growth in Q3, and we are excited about the long-term opportunity ahead of us. Our robust balance sheet with strong cash generation enables us to invest in our market expansion opportunities in data center and AI while consistently delivering value to our stockholders.
Desmond Lynch: In closing, I am pleased with our Q2 financial results. Our team delivered double-digit product revenue growth with strong cash generation in the quarter. We are optimistic about the continued product revenue growth in Q3, and we are excited about the long-term opportunity ahead of us. A robust balance sheet with strong cash generation enables us to invest in our market expansion opportunities in data center and AI, while consistently delivering value to our stockholders.
des: Let me finish with a summary on slide 9.
des: In closing, I am pleased with our Q2 financial results.
des: Our team delivered double-digit product revenue growth with strong cash generation in the quarter.
des: We are optimistic about the continued product revenue growth in Q3, and we are excited about the long-term opportunity ahead of us.
des: Our robust balance sheet with strong cash generation enables us to invest in our market expansion opportunities in 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 will turn the call back to our operator to begin Q&A.
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 our employees for their continued teamwork and execution.
Speaker Change: With that, I'll turn the call back to our operator to begin Q&A.
Speaker Change: Could we have our first question?
Operator: Thank you.
Operator: Thank you. Ladies and gentlemen, if you have a question, please press star one on your touchtone phone. Our first question comes from Kevin Cassidy with the company Rosenblatt Securities. Kevin, your line is now open.
Operator: Ladies and gentlemen, if you have a question, please first start one on your touch-tone phone.
Speaker Change: Thank you. Ladies and gentlemen, if you have a question, please press star one on your touch tone phone. Our first question comes from Kevin Cassidy with the company Rosenblatt Securities. Kevin, your line is now open.
Kevin Cassidy: Our first question comes from Kevin Cassidy.
Luc Seraphin: With a company, Robin Blatt Securities, Kevin, your line is not open. Yes, thank you, and congratulations on the good results. Just when you look at your product revenue, how many generations of DDR5 RCBs are you shipping now or do you expect to ship in the next quarter?
Kevin Edward Cassidy: Yeah, thank you. And congratulations on the good results. Just as when you look at your product revenue, how many generations of DDR5 RCDs are you shipping now? Or do you expect to ship in the next quarter?
Kevin Edward Cassidy: Yeah, thank you and congratulations on the good results. Just when you look at your product revenue, how many generations of DDR5 RCDs are you shipping now or do you expect to ship in the next quarter?
Luc Seraphin: Thank you, Kevin. We are currently shipping in production, Gen1. Gen2 is renting into production today, so we have these two generations, Gen1 in production, Gen2 ramping in production, and we have qualification volumes for Gen3 that will also contribute to the second half of the year.
Luc Seraphin: Thank you, Kevin. We are currently shipping Gen 1 in production. Gen 2 is ramping into production today. So we have these two generations, Gen 1 in production, Gen 2 ramping up production, and we have, you know, qualification volumes for, you know, Gen 3, that will also contribute to the second half of the year.
Speaker Change: Thank you, Kevin.
Speaker Change: We're currently shipping in production, Gen 1.
Speaker Change: Gen 2 is ramping into production today, so we have these two generations, Gen 1 in production, Gen 2 ramping in production, and we have, you know, qualification volumes for, you know, Gen 3 that will also contribute to the second half of the year.
Desmond Lynch: Okay, maybe if you could give a little more color too. As Gen1 is in full production, how are the average selling prices? Is there any price pressure? I guess what's happening in that market?
Kevin Edward Cassidy: Okay, maybe if you could maybe give a little more color to it. You know, as Gen 1 is in full production, how are the average selling prices? Is there any price pressure? Or are you, you know, I guess what's happening in that market?
Speaker Change: Okay, maybe if you could maybe give a little more color to it, you know, as Gen 1 is in full production, how are the average selling prices? Is there any price pressure or are you, you know, I guess what's happening in that market?
Desmond Lynch: Hi Kevin, it's Death here. That's a good question. I would say the overall pricing environment is playing out in line with our expectations in normal sort of pricing cycles. In terms of Gen1, I would categorize this as low single-digit price erosion, which is really in line with our sort of expectations from there, so I wouldn't call out anything special on the pricing environment from there.
Desmond Lynch: Hi Kevin, it's Des here. That's a good question.
des: Hi Kevin, it's Des here. That's a good question. I would say the overall pricing environment is playing out in line with our expectations and normal sort of pricing.
Desmond Lynch: I would say the overall pricing environment is playing out in line with our expectations in normal sort of pricing cycles. In terms of Gen 1, I would categorize this as low single-digit price erosion, which is really in line with our sort of expectations from there. So I wouldn't call out anything special about the pricing environment from there.
des: cycles. In terms of Gen 1, I would categorize this as low single-digit price erosion, which is really in line with our sort of expectations from there, so I wouldn't call it anything special on the pricing environment from there.
Kevin Cassidy: Thank you. Okay, great. Thanks.
Kevin Edward Cassidy: Okay, great. Thanks. I'll get back in the queue.
Kevin Cassidy: I'll get back in the queue. Thanks, Kevin.
des: Okay, great. Thanks. I'll get back in the queue. Thanks, Kevin.
Blayne Curtis: Next question comes from Blayne Curtis with the company Jeff Rees.
Operator: Our next question comes from Blaine Curtis with the company Jeffries. Blaine, your line is now open.
Luc Seraphin: Blayne, your line is not open. Hey, thanks for letting me ask a question. I just want to go to the DR5 share question. You know, double-digit growth is great. I think your competitor was kind of growing, maybe double that. And I know, you know, different modules, different volumes, and it's a hard thing to pin down. I'm just kind of curious as if you could just revisit your share position.
Speaker Change: Our next question comes from Blaine Curtis with the company Jeffries. Blaine, your line is now open.
Blaine Curtis: Hey, thanks for letting me ask a question. I just want to go to the DR5 share question.
Blaine Curtis: Hey, thanks for letting me ask a question. I just want to go to the DR5 share question, you know, double-digit growth It's great. I think
Luc Seraphin: Double-digit growth is great, but I think your competitor was kind of growing maybe double that, and I know different modules at different volumes, and it's a hard thing to pin down. So I'm just kind of curious if you could just revisit your share position.
Blaine Curtis: Your competitor was kind of growing maybe double that, and I know, you know, different modules have different volumes, and it's a hard thing to pin down. So I'm just kind of curious if you could just revisit your share position.
Luc Seraphin: Where we're pleased with, you know, our growth on the product side, you know, Q2 was 13% higher than Q1. Expect Q3 to be 15% higher than Q2. So, you know, we see quartered growth mostly coming from the DR5. What's interesting is we do see continued depression of inventories on DDR4, but the demand for DDR4 remains small for us. So, you know, we growing share as we move last year. You know, our share was slightly higher than 30% on the early basis, you know, with 40% on the DDR5 side of things. And because DDR5 is the main product we sell today, we continue to increase; we continue to increase share.
Luc Seraphin: We're pleased with our growth on the product side. Q2 was 13% higher than Q1. We expect Q3 to be 15% higher than Q2.
Speaker Change: We are pleased with our growth on the product side. Q2 was 13% higher than Q1. We expect Q3 to be 15% higher than Q2.
Luc Seraphin: So we see product growth mostly coming from DDR5. What's interesting is we do see continued depletion of inventories on DDR4, but the demand for DDR4 remains small for us. So we're growing our share as we move. Last year, our share was slightly higher than 30% on a yearly basis, with 40% on the DDR5 side of things. And because DDR5 is the main product we sell today, we continue to grow.
Speaker Change: So, you know, we see product growth mostly coming from DDR5.
Speaker Change: What's interesting is we do see continued depletion of inventories on DDR4 but the demand for DDR4 remains.
Speaker Change: That's more for us.
Speaker Change: So, you know, we're growing share as we move. Last year, you know, our share was slightly higher than 30% on a yearly basis, you know, with 40% on the DDR5.
Speaker Change: side of things and because DDR5 is the main product we sell today we continue to increase, we continue to increase share.
Blayne Curtis: Thanks.
Blaine Curtis: Thanks. I just want to ask about the buyback. You did 50 million, I think, in the quarter. I think that's what you said.
Blayne Curtis: I just want to ask on the buyback; you did 50 million, I think, in the quarter. I think that's what you said.
Speaker Change: Thanks. I just want to ask on the buyback, you did $50 million, I think, in the quarter. I think that's what you said. Just kind of curious, you are throwing up a decent amount of cash. What's the plan for the year?
Desmond Lynch: Just kind of curious, you are sort of throwing up decimated cash. What's the plan for the year?
Desmond Lynch: Just kind of curious; you are throwing away a decent amount of cash. What's the plan for the year? Hi Dwayne, it's Des here.
Desmond Lynch: Hi, Blaine, it's Dez here. You know, why would say is in terms of buyback in Q1, we did do the 50 million dollar ASR in Q2 with structure 10-D51 repartures, which was about 12.5 million dollars in the quarter from there. What I would say is that we have a consistent approach to capital allocation and shareholder return, which really targets with turning 40-50% of our free cash flow back to shareholders. And I think if you look over the last three years, we've certainly been abolished that sort of targeted level, and we'll continue making these returns to shareholders going forward.
Desmond Lynch: Hi Blayne, it's Des here. You know, what I would say is in terms of the buyback in Q1, we did do the $50 million ASR. In Q2, we did a structured 10B51 repurchase, which was about $12.5 million in the quarter from there. What I would say is that we have a consistent approach to capital allocation and shareholder return, which really targets returning 40 to 50% of our free cash flow back to shareholders. And I think if you look over the last three years, we've certainly been above that sort of targeted level, and we'll continue to make these returns to shareholders going forward.
Speaker Change: Hi Blayne, it's Des here. You know, what I would say is in terms of buyback, in Q1 we did do the $50 million ASR. In Q2 it was a structured 10B51 repurchase, which was about $12.5 million in the quarter from there. What I would say is that we have had a consistent approach to capital allocation and shareholder return, which really targets returning 40% to 50% of our free cash flow back to shareholders. And I think if you look over the last three years,
Speaker Change: We've certainly been above that sort of targeted level and we'll continue making these returns to shareholders going forward.
Blayne Curtis: Okay, thanks very much.
Blayne: Okay, thanks so much.
Blayne: Thanks, Blaine.
Mehdi Hosseini: Next question comes from Medi Hosenini with a company Sieg.
Operator: Our next question comes from Mehdi Hosseini with the company Sig. Mehdi, your line is now open.
Speaker Change: Our next question comes from Mehdi Hosseini with the company Sig. Mehdi, your line is now open.
Mehdi Hosseini: Medi, your line is that open. Thank you, a couple of follow-ups from me. I'm looking at talking about the double-digit private gravity growth in the second half.
Mehdi Hosseini: Thank you. I have a couple of follow-ups from me. Luke, you're talking about double-digit product revenue growth in the second half. To what extent is that sequential growth impacted by companionship, which we're expecting to be material by year-end? In other words, what is your target for the next year? Sorry, I was going to clarify. I'm just trying to understand the mix of companionship and how that mix should increase into next year. I thank you, Mehdi.
Mehdi Hosseini: Thank you. A couple of follow-ups from me. Luke, you're talking about the double-digit product gravity growth in the second half. To what extent that sequential growth is...
Mehdi Hosseini: To an extent, the sequential growth is impacted by a companionship that we're expecting to be material by year end. What is your target for the mix? Yeah. So I was going to clarify.
Speaker Change: is impacted by companionship that we're expecting to be material by year end.
Speaker Change: In other words, what is your target for the next year?
Mehdi Hosseini: I'm just trying to understand the mix of a companionship and how should that mix increase into next year.
Speaker Change: So I was going to clarify. I'm just trying to understand the mix of companionship and how should that mix increase into next year.
Luc Seraphin: Hey, thank you, Mehdi. We mentioned double-digit growth Q3 over Q2. That's what we mentioned, and by the way, you know, Q3 is also more than 20% higher than Q3 of last year. So we are growing; we are growing on the core business of the RCD, and we're starting to see the contribution of new products to the next. It's a small number at this point in time. It's probably a low single digit in Q3, but we see each one of our products ramping into the qualification savings with our customers. I mentioned on the core as well that we've seen traction with the panic in particular.
Luc Seraphin: Thank you, Mehdi. We mentioned double-digit growth in Q3 over Q2. That's what you mentioned. And by the way, you know, Q3 is also more than 20% higher than Q3 of last year. So we are growing on the core business of the RCD, and we're starting to see the contribution of new products to the mix. It's a small number at this point in time.
Speaker Change: Okay, thank you Mehdi. We mentioned double digit growth, Q3 over Q2.
Speaker Change: And by the way, Q3 is also more than 20% higher than Q3 of last year. So we are growing on the core business.
Speaker Change: of the RCD, and we're starting to see the contribution of new products to the mix.
Luc Seraphin: It's probably a low single digit in Q3, but we are seeing each one of our products ramping into the qualification phases with our customers. I mentioned on the call as well that we've seen traction with the PMIC in particular because we were the first to introduce the Extreme PMIC to the market.
Speaker Change: It's a small number at this point in time, it's probably a low single digit in Q3, but we are seeing each one of our products ramping into the qualification phases with our customers.
Luc Seraphin: We were the first one to introduce the extreme panic to the market. We indicated in the last call that we had good reception from customers. I can say today that we have been qualified, you know, with all three customers. And this is going to go in the high-end systems. So we are pleased, you know, with all the new products that we're introducing to the market. They're going through the qualification savings. And in terms of Q3, that is probably going to represent, you know, low single-digit part of our revenue, of our product revenue.
Speaker Change: I mentioned on the call as well that we've seen traction with the PMIC in particular. We were the first one to introduce the Extreme PMIC to the market.
Luc Seraphin: We indicated in the last call that we had good reception from customers. I can say today that we are being qualified, you know, with all three customers, and this is going to go in the high-end system. So we are pleased with all the new products that we're introducing to the market. They're going through the qualification phases. And in terms of Q3, that is probably going to represent, you know, a low single digit part of our revenue, of our product revenue.
Speaker Change: We indicated in the last call that we had good reception from customers. I can say today that we are being qualified, you know, with all three customers and this is going to go in the high-end systems.
Speaker Change: So we are pleased, you know, with all the new products that we're introducing to the market. They're going through the qualification phases and in terms of Q3, that is probably going to represent, you know, low single-digit part of our revenue, of our product revenue.
Mehdi Hosseini: Okay.
Mehdi Hosseini: I mean, given how your product course margin has remained around 60% in the first half, what is driving the gross margin improvement in the second half? Is that a mix of just shipping more DDR5, RCD, or new product ramping, or a combination of the two?
Mehdi Hosseini: Given how your product cost margin has remained around 60% in the first half, what is driving the gross margin improvement in the second half? Is that a mix of just shipping more DDR5 RCDs or new product ramping, or a combination of the two?
Speaker Change: Okay, I mean...
Speaker Change: Given how your product gross margin has remained around 60% in the first half,
Speaker Change: What is driving the gross margin improvement in the second half? Is that a mix of just shipping more DDR5 RCD or new product ramping or combination of the two?
Desmond Lynch: Hi, Mary. It's Dez. Our Q2 gross margins were around 60%, which was flat to Q1, and really in line with our expectations for the quarter. In the short term, our gross margins have been impacted by higher costs associated with the ramp of new products. But really looking ahead to the second half of the year, we do expect to see an improvement in our gross margins compared to the first half, which will be driven by a combination of favorable product mix as well as some cost savings from there. And certainly for the full year, we do expect our gross margins to be in line with our long term model of 60% to 65% gross margin.
Desmond Lynch: Hi Mehdi, it's Des. Our Q2 gross margins were around 60%, which was flat to Q1, and really in line with our expectations for the quarter. In the short term, our gross margins have been impacted by higher costs associated with the ramp-up of new products. But really looking ahead to the second half of the year, we do expect to see an improvement in our gross margins compared to the first half, which will be driven by a combination of favorable product mix, as well as some cost savings from there.
Speaker Change: Hi Mehdi, it's Des. Our Q2 gross margins were around 60% which was flat to Q1 and really in line with our expectations for the quarter. In the short term our gross margins have been impacted by higher costs associated with the ramp of new products.
Speaker Change: But really, looking ahead to the second half of the year, we do expect to see an improvement in our gross margins compared to the first half, which will be driven by a combination of favourable product mix.
Desmond Lynch: And certainly for this full year, we do expect our gross margins to be in line with our long-term model of 60 to 65% gross margin. And I think, as a company, we have a really strong track record of delivering on gross margin through a disciplined approach to price management, as well as our continued ability to drive manufacturing cost savings.
Speaker Change: as well as some cost savings from there. And certainly for this full year we do expect our gross margins to be in line with our long-term model of 60 to 65 percent gross margin. And I think as a company we have really a strong track record of delivering on gross margins.
Desmond Lynch: And I think as a company, we've really a strong track record of delivering on gross margins, we're disciplined approach to price management, as well as our continued ability to drive manufacturing cost savings.
Speaker Change: through a disciplined approach to price management as well as a continued ability to drive manufacturing cost savings.
Operator: Great, I'll get back in the queue. The next question comes from Tristan Guerra with the company Baird.
Mehdi Hosseini: I get back into Q. Thanks, Mary.
Speaker Change: Great, I'll get back in the queue.
Operator: The next question comes from Tristan Guerra with the company Baird. Tristan, your line is now open. Hi, this is Tyler on Fortress, and thanks for taking...
Tyler Bomba: Gera with the company Bear.
Tyler Bomba: Tristan, your line is not open. Hi, this is Tyler on for Tristan. Thanks for taking the question. You touched on the new DDR5 client clock driver for high-performance PCs. Can you dig a little deeper into the opportunity you see emerging in the client market? What are driving us and when should we expect contribution?
Speaker Change: Next question comes from Tristan Guerra with the company Bayer. Tristan, your line is now open.
Tyler: Hi, this is Tyler on Fortress and thanks for taking the question. You touched on the new DDR5 client clock driver for high performance PCs. Can you dig a little deeper into the opportunity you see emerging in the client market? What is driving this and when should we expect contribution?
Luc Seraphin: There's a great question. We are very pleased with the announcement of the CKD. This is a trend that we've talked about for some time. The performance requirements in the high-end client systems are going to be similar to the ones we see today in the data center. So, as we said in the prepared remarks, we're going to target high-end desktop and notebook solutions with speed at 6400 to 7200. Make a transfer per second. And at those speeds, you do need to clean the clock to the de-runs as we do today in the data center. As a reference, you know, the current platforms that are ramping, the MR Rapid, are at 56.
Luc Seraphin: That's a great question. We're very pleased with the announcement of the CKD. This is a trend that we've talked about for some time. The performance requirements for high-end client systems are going to be similar to the ones we see today in the data center. So, as we said in the prepared remarks, we're going to target, you know, high-end desktop and notebook solutions with, you know, speed at 6,400 or 7,200 megatransfers per second.
Speaker Change: That's a great question. We're very pleased with the announcement of the CKD.
Speaker Change: This is a trend that we've talked about, you know, for some time. The performance requirements in the high-end client systems are going to be similar to the ones we see today in the data center.
Speaker Change: So as we said in the prepared remarks, we're going to target high-end.
Speaker Change: desktop and notebook solutions with, you know, speed at 6400 or 7200.
Luc Seraphin: And at those speeds, you do need to clean the clock to the DRAMs, as we do today in the data center. As a reference, you know, the current platforms that are ramping, the MR Rapid, are at 5,600.
Speaker Change: megatransfers per second and at those speeds you do need to clean the clock to the DRAMs as we do today in the data center.
Speaker Change: As a reference, you know, the current platforms that are ramping, the MR Rapid, are at 5600.
Luc Seraphin: That gives you an idea that, you know, the types of technologies that we develop for the data center will soon make their way into the client, and we're preparing for that. You know, when we say we're making new strategic investments in new products, what we're trying to do is we're trying to leapfrog from the technology. For example, you know, we are the first one to introduce the extreme PMIC. Extreme PMIC goes for the very dense modules.
Luc Seraphin: 100. That gives you an idea that the types of technologies that we developed for data center will soon make their way into the client, and we're preparing for that.
Speaker Change: That gives you an idea that, you know, the types of technologies that we develop for data center will soon make their way into the client, and we're preparing for that.
Luc Seraphin: When we say we're making use of strategic investments in new products, what we're trying to do is we're trying to lead products from the technology standpoint. For example, we are the first one to introduce the extreme panic. Extreme panic goes for the very high-dance modules, and we know that if we are the first in this extreme panic, it's going to waterfall into other solutions. The same applies when we move to the client space. We're not going to the standard BC market. We're going to address the most challenging technology requirements, which is how do you drive those speeds at 6470 to 100 in a PC environment.
Speaker Change: You know, when we say we're making new strategic investments in new products, what we're trying to do is we're trying to leapfrog from the technology standpoint.
Speaker Change: For example, you know, we are the first one to introduce the Extreme PMIC. Extreme PMIC goes for the very high dense modules. And we know that if we are the first in this Extreme PMIC, it's going to waterfall into other solutions.
Luc Seraphin: And we know that if we are the first in this extreme PMIC, it's going to waterfall into other solutions. The same applies when we move to the client space. We're not going to the standard PC market. We're going to address the most challenging technology requirements, which is, how do you achieve those speeds at 6,400 and 7,200 in a PC environment? So we've developed that CKD for that market, and it's going to take time to go through the qualification process as well. This is a market that we expect to grow to about $100 million in a few years from now, and we'll grow our share of that market as we go through the qualification process.
Speaker Change: The same applies when we move to the client space. We're not going to the standard BC market.
Speaker Change: We're going to address the most challenging technology requirements, which is, you know, how do you drive those speeds?
Speaker Change: at 6,400 and 7,200.
Luc Seraphin: We've developed that CKD for that market. It's going to take time to go through the qualification process as well. This is a market that we expect to grow to about a hundred million dollars in three years from now, and we'll grow our share onto that market as we go through the qualifications.
Speaker Change: you know, in a PC environment. So we've developed that CKD for that, you know, for that market.
Speaker Change: So it's going to take time to go through the qualification process as well. You know, this is a market that we expect to grow to about $100 million in a few years from now, and we'll grow our share into that market as we go through the qualifications.
Speaker Change: Great. Thank you very much.
Operator: Our next question comes from Kevin Cassidy with the company Rosenblatt Securities. Kevin, your line is now open.
Kevin Cassidy: Will the company, Rosemblit Securities, Kevin? Your line is not open. Thank you for taking my follow-up.
Speaker Change: Our next question comes from Kevin Cassidy with the company Rosenblatt Securities. Kevin, your line is now open.
Kevin Edward Cassidy: Thank you for taking my follow-up question. Just to expand on the PC market, are these going to be aligned with various x86 PCs, or CPUs, I mean, from Intel and AMD? Also, do you expect any ARM processors to be included in this interface? Yeah, that's a good question. You know, it's going to compete as the first.
Kevin Cassidy: I just need to expand on the PC market. Are these going to be aligned with various x86 PCs or CPUs? I mean, from Intel and AMD, and also do you expect any ARM processors to be included in this interface?
Kevin Edward Cassidy: Thank you for taking my follow-up. Just to expand on the PC market, do you think that
Kevin Edward Cassidy: Are these going to be aligned with various x86 PCs, or CPUs, I mean, from Intel and AMD? Also, do you expect any ARM processors to be included in this interface?
Luc Seraphin: That's a good question.
Luc Seraphin: Yeah, that's a good question. You know, it's going to intercept as the first platform, the equivalent of our lake, you know, platform, you know, from Intel and the following platforms, the equivalent of AMD. And as for, you know, the, the, the ARM question, typically, we, we, we are agnostic to whether it's an ARM or an x86 solution because the memory interface remains the same. So, you know, as we see today, people ramping up, you know, ARM-based solutions in a data center, and that creates demand for us. We're kind of agnostic whether it's an x86 or an ARM process.
Luc Seraphin: It's going to intercept as the first platform, the equivalent of our lake platform from Intel, and the follow-on platforms, the equivalent of the AMD. As for the ARM question, typically we have not stuck to whether it's an ARM or an x86 solution because it was a memory interface that remains the same. As we see today, people are ramping ARM-based solutions in a data center. It was that creates demand for us. We kind of agnostic whether it's an x86 or a non-processor. Okay, great.
Speaker Change: Yeah, that's a good question. You know, it's going to intercept as the first as the first platform, the equivalent of our lake, you know, platform, you know, from Intel and the follow on platforms, the equivalent of AMD. And as for, you know, the, the, the arm question, typically, we, we, we
Speaker Change: We did not stick to whether it's an ARM or an AX86 solution because the memory interface remains the same.
Speaker Change: So, you know, as we see today, you know, people are ramping, you know, ARM-based solutions in the data center. You know, that creates demand for us. You know, we kind of agnostic whether it's an x86 or an ARM processor.
Kevin Cassidy: Thank you. Thanks, Kevin.
Speaker Change: Okay, great. Thank you.
Mehdi Hosseini: Next question comes from Medi Hoseini with the company C, Medi.
Operator: Our next question comes from Mehdi Hosseini on the Company C Committee. Your line is now open.
Kevin Edward Cassidy: Thanks, Gary.
Mehdi Hosseini: Your line is not open. Yes, thank you.
Speaker Change: Our next question comes from Mehdi Hosseini with the Company C Committee. Your line is now open.
Mehdi Hosseini: Yes, thank you. Look, I just want to look at the longer term and want to get an update on the strategy. I hear that the Gen 3 qualification is going on, and I'm under the assumption that with every generation of RCD, you get an ASP increase, but the prior generation products will have a declining ASP. So you have that dynamic in the RCD. You're also ramping companionship, and now you have decline. As you look at all of those vectors pointing towards 2025 and assume that CXL is not going to be a factor, should we assume that they manifest into a higher growth rate?
Mehdi Hosseini: I just wanted to look at the long-term and want to get an update on strategy. I hear that the Gen 3 qualification is going and I'm under assumption that with every generation of RCD, you get an ASP increase, but the prior generation products will have a declining ASP. So you have that dynamic in the RCD, you are also ramping companionship, and now you have the client. As you look at all of those vectors pointing towards 2025 and assuming that C Excel is not going to be a factor, should we assume that they manifest into a higher growth rate?
Mehdi Hosseini: Yes, thank you. Look, I just want to look at the longer term and want to get an update on a strategy.
Mehdi Hosseini: [inaudible]
Mehdi Hosseini: Should we assume that they manifest into a higher growth rate? And I say that because over the past two to four quarters, we have been waiting for the DDR5 adoption, and now that it's happening, I'm not sure if we understand the trajectory. At the same time, again, the CXL may not materialize, and I'm just trying to figure out how the client would come in, and the third generation of RCD and companionship would help you with the top-line growth.
Mehdi Hosseini: And I say that because over the past two to four quarters, we've been waiting for the DDR5 adoption, and now that it's happening, I'm not sure if we understand the trajectory. At the same time, again, the CXL may not materialize, and I'm just trying to figure out how decline would come in and the third generation of RCD and companionship would help you with top-line growth.
Mehdi Hosseini: And I said that because over the past two to four quarters, we will be waiting for the DDR5 adoption, and now that is happening, I'm not sure if we understand the trajectory at the same time.
Mehdi Hosseini: Again, the C Excel may not materialize, and I'm just trying to figure out how the client would come in and the third generation of RCD and companionship would help you with the top line growth.
Luc Seraphin: Yeah, thanks, Mehdi. Yeah, thanks. In terms of our CD, we continue to introduce our different generations of our CD. As we said earlier, we believe we continue to gain share. As the market is moving to DDR5, Gen 1 is in production, Gen 2 starts production, Gen 3 is in qualification. We introduced Gen 4 in December of last year.
Luc Seraphin: Yeah, thanks Mehdi. Hopefully that's clear. Yeah, yeah. Thanks.
Speaker Change: Yeah, thanks Mehdi. Hopefully that's clear. Yeah, yeah, thanks. In terms of RCD, we continue to introduce our different generations of RCD. As we said earlier, you know, we believe we continue to gain share, you know, as the market is moving to DDR5.
Luc Seraphin: You know, in terms of RCD, we continue to introduce our different generations of RCD. As we said earlier, you know, we believe we continue to gain share, you know, as the market is moving to DDR5. Gen 1, Gen 2. Gen 1 is in production. Gen 2 starts production. Gen 3 is in qualification. We introduced Gen 4 in December of last year.
Speaker Change: Gen 1, Gen 2. Gen 1 is in production. Gen 2 starts production. Gen 3 is in qualification. We introduced Gen 4 in December of last year.
Luc Seraphin: The way we look at this is that, you know, with AI, we see an exciting opportunity for AI itself but also for standard servers. You know, AI is putting all of these technologies ahead in terms of performance. And as I said in my remarks, you know, power, performance, and security are going to become relevant in the data center, whether it's AI or not AI, and they're going to become relevant in the client space as well. As we move from AI for training to AI for inference, for example.
Luc Seraphin: The way we look at this is that with AI, we see an exciting opportunity in AI itself, but also in standard servers. AI is putting all of these technologies up in terms of performance. As I said in my remarks, power performance and security are going to become relevant in the data center, whether it's AI or not AI. I'm going to become relevant on the client space as well. As we move from AI for training to AI for inference, for example. So what we're doing is we are building the blocks that are necessary to be successful in the data center and in the client space.
Speaker Change: The way we look at this is that, you know, with AI, we see an exciting opportunity in AI itself, but also in standard servers. You know, AI is putting all of these technologies up in terms of performance.
Speaker Change: And as I said in my remarks, power, performance, and security are going to become relevant.
Speaker Change: in the data center, whether it's AI or not AI, and it's going to become relevant on the client space as well, as we move from AI for training to inference, for example.
Mehdi Hosseini: So what we're doing is we are building the blocks that are necessary to be successful in the data center and in the client. And we're building those blogs based on, you know, what we know well as a company, which is how to manage signal integrity when the speeds increase every year, and how to manage power integrity when you need to deliver different power planes into very complex systems. So all of these are going to contribute to growth.
Speaker Change: So what we're doing is we are building the blocks that are necessary to be successful in the data center and in the client space.
Luc Seraphin: And we're building those blocks based on what we know where as a company, which is how to manage signal integrity when the speed increases every year and how to manage power integrity when you need to deliver different power planes into very complex systems. So all of these are going to contribute to the growth. The growth in standard RCD, as we move from generation to generation, the same expansion as we enter the companionship in data center. And the same expansion as we waterfall those technologies into the client space. So all of this in the long run is going to define our growth trajectory.
Speaker Change: And we're building those blogs based on, you know, what we know well as a company, which is how to manage signal integrity when the speeds increase every year, and how to manage power integrity when you need to deliver different power planes into very complex systems.
Mehdi Hosseini: There's a growth in standard RCDs as we move from generation to generation, SAM expansion as we enter the companionship in data center, and SAM expansion as we waterfall those technologies into the client space. So all of this, in the long run, is going to define our growth trajectory. And that's why we always introduce the high-end products first. It's because we try to anticipate what the needs are going to be.
Speaker Change: So all of these are going to contribute to the growth.
Speaker Change: The growth in standard RCDs as we move from generation to generation, the SAM expansion as we enter the companionship in data center, and a SAM expansion as we waterfall those technologies into the client space.
Speaker Change: So all of this in the long run, you know, is going to define our growth trajectory. And that's why we always introduce, you know, the high-end products first.
Luc Seraphin: And that's why we always introduce the high-end products first. It's because we try to anticipate what the needs are going to be. We need those needs, and then once we recognize us being able to meet those needs, then this will waterfall into less demanding applications. So that's how we see the trajectory. Now this growth trajectory is always defined by the speed of qualifications with the how customers, which is what we've known in the data center is going to be very similar in the client space for what we pull this. Got it.
Mehdi Hosseini: We meet those needs, and then once we're recognized as being able to meet those needs, then this will waterfall into less demanding applications. So that's how we see the trajectory. Now, this growth trajectory is always defined by the speed of qualifications with our customers, which is what we've known in the data center is going to be very similar in the client space for what we produce.
Speaker Change: It's because we try to anticipate what the needs are going to be. We meet those needs, and then once, you know, we are recognized as being able to meet those needs.
Speaker Change: then this will waterfall into less demanding applications. So that's how we see the trajectory. Now this growth trajectory is always defined by the speed of qualifications with our customers, which is, you know, what we've known, you know, in the data center is gonna be very similar in the client space for what we produce.
Mehdi Hosseini: Just a quick follow-up.
Desmond Lynch: And there are story scales. Should we assume that the contract and other silicon IP revenue should finally see a growth because last year that deadline item was kind of flat to down and this year is trending to be down on your basis. So should we assume that the growth is going to resume into 25?
Speaker Change: Got it. Just a quick follow-up. As the AI story scales, should we assume that the contract and other silicon IP revenues should finally see a growth? Because last year that deadline item was kind of a flat to down, and this year is trending to be down on a year-over-year basis. So should we assume that the growth is going to resume into 2025?
Desmond Lynch: Hi, maybe it stays. As it relates to contracting other revenue, this is a portion of our silicon IP revenue that shows up there. And remember, a portion of the silicon IP revenue can also show up under royalty revenue as well.
Speaker Change: Hi Mehdi, it's Des. As it relates to contract and other revenue, this is a portion of our silicon IP revenue that shows up there and remember a portion of the silicon IP revenue can also show up under royalty revenue.
Desmond Lynch: What I would say year over year in a sort of comparison, I would draw out the fact that we had to file a legislature last year in Q3, which will bring down our sort of numbers on silicon IP. But what we've said is that relates to silicon IP is that, you know, on an adjusted basis last year, we were about $110 million for revenue. And we do expect this business to grow at 10 to 15%. And if you were to take our year-to-date performance, we're certainly on that trajectory to meet the growth rate of the business going forward.
Speaker Change: as well.
Speaker Change: What I would say, year over year, any sort of comparison, I would draw out the fact that we had the PHY divestiture last year in Q3, which will bring down our numbers on silicon IP, but what we've said
Speaker Change: as it relates to Silicon IP is that, you know, on an adjusted basis, last year we were about $110 million.
Speaker Change: for revenue and we do expect this business to grow at 10 to 15% and if you were to take our year-to-date performance we're certainly on that trajectory to meet the growth rate of the business going forward from there.
Mehdi Hosseini: Thank you. Thanks for reminding me.
Mehdi Hosseini: Thanks, Mehdi. Thank you.
Speaker Change: Thank you. Thanks for reminding me.
Nadia: Thanks, Nadia.
Operator: At this time, there are no other questions registered in the queue.
Speaker Change: Thank you. At this time, there are no other questions registered in the queue. This will conclude the question and answer session. I would now like to turn the conference back over to Luc Seraphim. You may proceed.
Operator: This will conclude the question and answer session.
Mehdi Hosseini: Got it. Just a quick follow-up.
Luc Seraphin: Oh, now, at the time that conference back over to Luke Seraphin, you may proceed. Thank you, everyone, who have joined us today. For your continued interest and time, we look forward to speaking with you again soon.
Desmond Lynch: As the AI story scales, should we assume that the contract and other silicon IP revenues should finally see growth? Because last year, that deadline item was kind of flat to down, and this year is trending to be down on a year-over-year basis. So should we assume that growth is going to resume in 2025?
Desmond Lynch: Hi Mehdi, it's Des. As it relates to contract and other revenue, this is a portion of our Silicon IP revenue that shows up there. And remember, a portion of the Silicon IP revenue can also show up under royalty revenue as well. What I would say, year over year, in a sort of comparison, I would draw out the fact that we had the FI divestiture last year in Q3, which will bring down our numbers on Silicon IP.
Desmond Lynch: But what we've said, as it relates to Silicon IP, is that, on an adjusted basis, last year, we were about $110 million in revenue. And we do expect this business to grow at 10 to 15%. And if you were to take our year-to-date performance, we're certainly on that trajectory to meet the growth rate of the business going forward from Thank you, thanks for reminding me.
Operator: Thank you. At this time, there are no other questions registered in the queue. This will conclude the question and answer session. I would now like to turn the conference back over to Luc Seraphim. You may proceed.
Luc Seraphin: Thank you everyone who have joined us today for your continued interest and time. And we look forward to speaking with you again soon. Have a great day. Thank you.
Luc Seraphin: Thank you 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.
Luc Seraphin: Have a great day. Thank you.
Operator: That will conclude today's conference call. Thank you for your participation, and enjoy the rest of your day.
Operator: That will conclude today's conference call. Thank you for your participation, and enjoy the rest of your day.
Luc Seraphin: That will conclude today's conference call. Thank you for your participation and enjoy the rest of your day.