Q4 2024 Rambus Inc Earnings Call
[inaudible]
Speaker Change: Welcome to the Rambus Fourth Quarter and Fiscal Year 2024 Earnings Conference Call.
Speaker Change: 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.
Speaker Change: If you would like to ask a question, you may press star 1 on your touch-tone phone at any time.
Speaker Change: If anyone should require assistance during the conference, please press star zero at any time. As a reminder, this conference call is being recorded.
Speaker Change: I would now like to turn the conference over to Desmond Lynch, Chief Financial Officer. You may begin the conference.
Speaker Change: Thank you, Operator, and welcome to the Rambis fourth quarter and full year 2024 Results Conference call.
Speaker Change: I'm Desmond Lynch, Chief Financial Officer at Rambis, and on the call with me today is Luke Seraphin, our CEO.
Speaker Change: The press release for the results that we will be discussing today has been filed with the SAC on Form 8K.
Speaker Change: We are webcasting this call along with the 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 5 p.m. Pacific Time.
Speaker Change: Financial Prospects, 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 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.
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 rambis.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.
Speaker Change: The order of our call today will be as follows. Luke will start with an overview of the business, I will discuss the financial results and then we will end with Q&A.
Speaker Change: I'll now turn the call over to Luke to provide an overview of the quarter. Luke?
Thank you, Des, and good afternoon, everyone.
2024 was a great year for the company.
Speaker Change: Thanks to our continued strategic execution, we gained market share in our core business and introduced a record number of new cheap products to lay the foundation for even greater success in 2025 and beyond.
Speaker Change: We finished the year very strongly, with Q4 revenue beating the high end of guidance.
Speaker Change: We delivered record quarterly results for memory interface chips, propelling us to an annual record for product revenue of $247 million.
Speaker Change: We completed the strategic extension of our patent licensing agreement with Microns through 2029, fortifying our long-term licensing foundation.
Speaker Change: And, we achieved a new annual high for cash from operations, generating $231 million in 2024.
Speaker Change: Our excellent cash generation enables us to sustain our strong investment in new product development and technology leadership while consistently returning value to our stockholders.
Speaker Change: Before I go into more detail on our business results, let me first take a moment to talk about the important market and technology trends that our strategy addresses and some of our key accomplishments in 2024.
Speaker Change: AI and the ongoing evolution of the data center continue to be strong catalysts for long-term secular growth due to the increasing technical needs of data-intensive applications which demand unprecedented levels of hardware performance.
Speaker Change: To enable the robust, high-performance, and high-capacity memory subsystems critical to meeting these needs, a growing number of specialized chips are required for signal and power integrity at increasingly extreme data rates.
Rambus representative: Rambus has been a pioneer in this space for 35 years, recognized these trends very early on and addressed them through our unique combination of expertise and focused investment in our industry-leading roadmap.
Rambus representative: To capitalize on this market trend and amplify our market opportunity, we are strategically expanding our product portfolio and, in 2024, we introduced a record number of new products for the company.
Rambus representative: We furthered our Vanguard position with continued market share gains across multiple generations of our DDR5-RCD and were the first to market with our Gen5 RCD for DDR5-8000 which we announced in October.
Rambus representative: We diversified our product portfolio into power management, a critical component in high-performance systems,
Rambus representative: with state-of-the-art DDR5 server PMIX that supports the highest bandwidth and capacity use cases.
Rambus representative: We introduced the industry's first complete chipset for industry-standard DDR5 MR-DIMMs running at 12,800 MHz to enable the next wave of DDR5 systems which have sampled to customers. And we are receiving very positive feedback.
Rambus representative: Beyond the data center, the cutting-edge technologies first leveraged in servers are cascading into the client market as performance demands continue to soar.
Rambus representative: With that, we leveraged our technology and expertise to enable state-of-the-art performance in notebooks and desktops with the introduction of our Client Clock Driver chip and expect this space to continue to expand.
and finally
in addition to these chip milestones.
Rambus representative: We introduce the industry's first GDDR7 and HBM4 memory controllers, a family of PCIe7 digital IP and new security IP solutions with protections for post-quantum computing.
Rambus representative: These accomplishments continue to drive our ongoing industry leadership and will double our addressable market in the years to come.
Rambus representative: Turning now to the businesses. In Q4, memory interface chips delivered record revenue of 73 million dollars, up 11% quarter over quarter and up 37% year over year and we expect further growth in Q1.
Rambus representative: These great quarterly results contributed to the robust second half we projected, which was up 30% over the first half and provided a solid foundation of strength going into 2025.
Rambus representative: We are pleased to see increased sales of our core DDR5 RCD products, driven by data center demand growth and continued share gains, as well as early contributions from new products.
The End.
Rambus representative: As I mentioned in my opening remarks, we introduced a record number of products with eight new chips in 2024 that are in varying stages of rollout and qualification with our customers.
Rambus representative: We are very excited by the positive customer feedback on these new products with early shipments on the way for both server and client applications.
Rambus representative: Turning to Silicon IP, AI continues to drive long-term momentum and fueled excellent results in Q4, and we remain on track with our long-term growth expectations.
Rambus representative: The push for tail solutions in AI is creating tailwinds for a high-performance IP at Tier 1 custom silicon providers and startups alike.
Rambus representative: With that, we are seeing strong demand for industry-leading solutions like our HBM4 and GDDR7 memory controllers, along with our security IP, which are vital building blocks for cutting-edge AI accelerators, graphics, and HPC applications.
Thank you.
across all of our businesses.
Rambus representative: Rambus is strategically focused on advanced system memory bandwidth and capacity through groundbreaking memory connectivity and power management solutions.
Rambus representative: As a fundamental pillar of our growth strategy, we will continue leveraging our strong balance sheet to support our strategic investments in new products, further expanding our market opportunity and driving the long-term growth of the company.
Rambus representative: As we look ahead to 2025 and beyond, firmly stepping into the era of AI everywhere, AI models will continue to evolve and proliferate.
Rambus representative: pushing the boundaries of hardware design and with that the requirements for power, performance and security will both intensify and broaden to new markets and use cases.
Rambus representative: In anticipation of these needs, we have established a strong market position, accelerated our product roadmap, and put the foundation in place for an exciting future by significantly increasing our addressable market.
Rambus representative: In summary, we close out 2024 in great fashion, gaining momentum throughout the year, and beating guidance for revenue in Q4.
Rambus representative: Through our steadfast execution and investment, we delivered record annual product revenue and expanded our product portfolio and addressable markets.
Rambus representative: Our unwavering focus and leadership on signal and power integrity solutions have laid the foundation for growth and we are well positioned for 2025 and beyond.
Rambus representative: As always, I'd like to thank our customers, partners and employees for their ongoing support. And with that, I'll turn the call over to Dev to discuss the quarterly financial results. Dev?
Dev: Thank you Luke. I'd like to begin with a summary of our financial results for the fourth quarter and for the full year 2024 on slide 5.
Dev: We delivered strong financial results in both the fourth quarter and full year 2024 as we continue to make progress on our long-term growth strategy.
Dev: For the year, our cash from operations was $231 million, up from $196 million in 2023.
Dev: Our ability to consistently generate strong cash flows coupled with our robust balance sheet has enabled us to invest in our strategic growth initiatives and consistently return capital to our stockholders.
Dev: In 2024, we repurchased $113 million of stocks, retiring approximately 2.2 million shares, continuing our strong track record of returning capital to stockholders.
Dev: Let me now provide you a summary of our non-GAAP income statement on slide 6.
Dev: Revenue for the fourth quarter was $161.1 million, which was above the high end of our expectations.
Dev: Royalty revenue was $58.2 million dollars while licensing billings were $63.6 million dollars
Dev: 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.
Dev: Product revenue was $73.4 million, up 11% sequentially, and up 37% year-over-year, driven by continued strength in DDR5 products.
Dev: Contract and other revenue was $29.5 million, consisting predominantly of silicon IP.
Dev: 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.
Dev: Total operating costs, including cost of goods sold, for the quarter were $89.2 million.
Dev: Operating expenses of 60.1 million dollars increased from the prior quarter as we continue to invest in R&D to support our new product developments.
Dev: And we ended the quarter with a total headcount of 712.
Dev: Non-GAAP interest and other income for the fourth quarter was $4.4 million.
Dev: Using an assumed flat tax rate of 22% for non-GAAP pre-tax income, non-GAAP net income for the quarter was $59.6 million.
Dev: Now let me turn to the balance sheet details on slide 7.
Dev: We ended the quarter with cash, cash equivalents, and marketable securities totaling $481.8 million, up from Q3, primarily driven by strong cash from operations of $59 million.
Dev: Fourth quarter, capital expenditures were $10.1 million, while depreciation expense was $6.9 million.
Dev: Let me now review our non-GAAP outlook for the first quarter on slide 8.
Dev: As a reminder, the forward-looking guidance reflects our current best estimates at this time, and our actual results could differ materially from what I am about to review.
Dev: In addition to the non-GAAP financial outlook under ASC 606, we also provide information on licensing billings, which is an operational metric that reflects amount invoiced to our licensing customers during the period, adjusted for certain differences.
Dev: We expect royalty revenue to be between $56 and $62 million and licensing billings between $59 and $65 million.
Dev: We expect Q1 non-GAAP total operating costs, which includes COGS, to be between $91 and $87 million.
We expect Q1 capital expenditures to be approximately $11 million.
Dev: For non-GAAP interest and other income and expense, we expect $4 million of interest income.
Dev: We expect the pro forma tax rate to be 20%, which is down from 22% in 2024 due to increased profitability of our product business versus fixed patents.
Dev: We expect non-GAAP tax expenses to be between $13.8 million and $15.8 million in Q1.
Dev: We expect Q1 share count to be 108 million diluted shares outstanding. Overall, we anticipate the Q1 non-GAAP earnings per share range between 51 and 59 cents.
Dev: Let me finish with a summary on slide 9. In closing, I am pleased with our strong financial results for 2024 and continued execution.
Dev: Across all of our businesses, we continue to execute against their strategic initiatives.
Patent licensing continues to provide consistent and predictable results.
Dev: In December 2024, we signed another long-term license agreement with Micron, which demonstrates the continued strength and relevance of our patent portfolio and innovation engine.
Dev: Silicon IP revenue continues to grow in line with our long-term expectations. Our industry-leading Silicon IP portfolio is well positioned within the market fueled by the continued growth in AI solutions.
Dev: In Memory Interface Chip, we continue to gain market share as we delivered record annual product revenue.
Dev: Our focused investment in new products continues to expand our market opportunities.
Dev: Overall, we are entering 2025 in a strong market position and are excited about our long-term growth drivers.
Dev: We continue to execute on our long-term strategic plans as we deliver value to our stockholders.
Dev: Before I open up the call to Q&A, I would like to thank our employees for their continued teamwork and execution.
Dev: With that, I'll turn the call back to our operator to begin Q&A. Could we have our first question?
Speaker Change: Ladies and gentlemen, if you have a question, please press star one on your touchtone phone. We ask that you limit yourself to one question, one follow-up, and return to the queue for any additional questions. The first question is from the line of Aaron Rakers with WellFargo. Your line is now open.
Aaron Rakers: Yeah, thanks. Thanks for taking the question. I have one question and a follow up. So I guess my first question is just.
You know, maybe Luke and Des, you could...
Aaron Rakers: characterize what you're seeing from a demand perspective in the end markets particularly for server DRAM, DIMM solutions, any thoughts on current inventory levels for DDR5 solutions in just any kind of context of what you're seeing and demand-wise.
Thanks, Aaron.
Aaron Rakers: We do see the market recovering somewhat in the second half of 2024.
Aaron Rakers: As we expected, you know, the pent-up demand for traditional servers did happen. That explains the growth rates that we saw, you know, on our buffer chip business. This was the third consecutive quarter of growth in that business.
Aaron Rakers: We do see server demand continue to grow. The growth was probably mid-single digit in 2024. We see that growth to continue in 2025, mid to upper single digit there.
Aaron Rakers: but the need for more capacity and more bandwidth will continue to be a driver for demand.
Aaron Rakers: We continue to see DDR4 with very low demand, although the inventory levels continue to go down.
Aaron Rakers: This has been, you know, from our standpoint, the seventh consecutive quarter where we see the inventories going down on DDR5. The DDR5 demand...
is going to continue to be small.
Aaron Rakers: But the demand for DDR5 is strong and we expect to see, as we said in our opening remarks, further growth in Q1. So that's how we see the market.
Aaron Rakers: look at the midpoint of the current quarter guidance, I think you guided 72 to 78, you know, that looks like we're pushing into the high 40-50% growth rate range.
Aaron Rakers: When you think about PMIC and the opportunity for companionship expansion, is it fair to assume that
Aaron Rakers: That level of growth could be sustained, you know, through 2025. I'm just curious on how we think about
Aaron Rakers: as we get into the tougher comps into the back half of the year with the caveat of expanding into some of these other companionship opportunities.
Thank you.
Aaron Rakers: Yes, thank you Aaron. You're correct when you look at when we look at the midpoint for Q1, you know, we see a very nice growth quarter of a quarter compared to Q1 of the past year.
Aaron Rakers: You know, we do see the contribution from companionship, you know, starting to kick in in our results, but the bulk is still, you know, DDR5 RCDs that is built in our growth.
Aaron Rakers: We will continue to see some contribution of companionships or new chips, you know, in the first quarter, the second quarter, but we will see an inflection point in the second half when, you know, the next platform from Intel is going to kick in in the market.
so we're going to see a profile that is
Similar to the profile that you saw in 2024.
Aaron Rakers: some contributions from new chips that we saw in Q4, we'll continue to see in Q1, Q2. And then, you know, an inflection point when we intersect the introduction of the next platform from...
Aaron Rakers: from Intel. But we're very pleased with this double-digit growth, three quarters in a row. We're also very pleased with the view of Q1 compared to the same quarter last year.
Speaker Change: Thank you for your question. Next question is from the line of Blaine Curtis with Jeffries. Your line is now open.
Blaine Curtis: Hey, thanks for taking my question. I'm just curious, just following up on the companionships, if you can just kind of, I said it would ramp more in the second half, any perspective?
as to what that level is today.
Blaine Curtis: The companion ships, you know, as we said in the initial remarks, we have introduced eight new ships this year, so they are different stages of qualification and pre-production with our customers. We do see some nice, you know, sampling orders, pre-production orders from these companion ships.
we get some traction through...
Blaine Curtis: you know, ECOs and intragenerational adoption for these chips because, you know, as you remember, we came with a chip later to market compared to our competitors. So that builds, you know, our revenue for companion chips for Q4, Q1, Q2.
Speaker Change: Hi Blayne, just to add on to what Luke said, you know we've been pleased with the traction that we see on our new products, we did see sequential growth.
Speaker Change: in the fourth quarter versus the third quarter, but this does sort of remain a sort of more single-digit contribution to our total product revenue. And as Luke mentioned, we're excited that we will see the new products continuing to ramp into the model if we move throughout 2025, but this will be more towards the second half of the year from there.
Speaker Change: Perfect. And then, Jez, just a question on modeling for this year. In terms of the Delta with AOC606, I'm just kind of curious if that, that was supposed to go to zero. I'm just kind of curious as we look this year, is that still the case?
Speaker Change: really narrowing. If you take the second half of the year, we see about a $7 million difference.
Speaker Change: This is around about a $3 million difference per quarter. All of the major contracts have been realigned. We do have some smaller sort of legacy sort of contracts.
Desmond Lynch: Desmond Lynch, the founder and CEO of Seraphin, Desmond Lynch, the founder and CEO of Seraphin,
[inaudible]
Speaker Change: Thank you for your question. Next question is from the line of Gary Mobley with Loop Capital. Your line is now open.
Gary Mobley: Hey guys, thanks for taking my question and congratulations on a strong finish to the year. I guess there was one of your competitors out there and...
speaking about
one of their competitors, maybe you.
having some issues with their power management IC.
Gary Mobley: Whether that be the one you're developing, or sampling, or qualifying, or perhaps with your partner, power management partner.
Speaker Change: So I was hoping to get your response, you know, are you
Speaker Change: seeing that any I guess any qualification problems with your with your PMIC and then related I presume that inflection or that acceleration and companionship sales expected in the second half of the year is that largely contingent on the PMIC shipping?
Speaker Change: Thanks, Gary. So we are aware of this information about an issue with power management in the market.
Speaker Change: The first thing I would say is that it's not about our power management ships, to make it clear, so we don't have issues with respect to the launch of our own power management ships.
Speaker Change: The second thing I would say is that this is not unusual. You know, one of the reasons...
Speaker Change: There's been a, I would say, chaotic ramp of DDR5 in the market over the last year or so.
Speaker Change: is because of the difficulty of, you know, making all these chips work together. So I would say that every quarter we had.
Speaker Change: But we say some sort of, you know, one ship or another, not...
functioning the way it should function.
No surprise there.
It has very little impact on.
Speaker Change: you know, our expectations for revenue, you know, maybe, you know, we could have guided a million or two more, you know, in the next quarter. But remember, there's a lot of combinations of power management chip and RCDs in the market on very, on a very large number of modules. So the impact is small.
Speaker Change: And I'm sure, you know, that power management company is doing their best to fix the issue. But what it tells me is that, you know, having the power management capability in-house is critically important.
Speaker Change: You have speeds that are higher and higher densities, that are higher and higher environments, that are harsher and harsher. And making those chips work together is becoming very complex.
Speaker Change: And that's why we introduced our own Power Material Validation because these types of challenges, technical challenges, are going to continue to be there. And having the whole view and the whole command on the full system is really, really important.
Speaker Change: So again, we are aware of the issue, there's very little impact on us, but that conforms us in our view that we need to control that technology going forward.
Speaker Change: Thanks for that, Luke. I do have a follow-up that is somewhat related. I wanted to double-click on your claim of market share gains in 2024 for your memory interface chip business.
Speaker Change: growth appears to be about 10% for your revenue in 2024 versus what single digit percent growth in in server units.
Speaker Change: I would presume some of that is an easy year of your comparison for you as you are under shipping market when inventories are getting digested and various other factors.
Speaker Change: You know, I guess maybe a more simplistic way of looking at it is how do you think you perform relative to your competitors and how do you think your market share is going to shake out in 2025?
Speaker Change: Yes, so we saw the markets for, you know, one of the proxies we used is the, you know, the server market. We saw a market that was growing, you know, mid single digit, you know, on the server side. We knew we would have that profile where the second half would be stronger than the first half.
which would indicate that we've gained share.
Desmond Lynch: As Des explained, the contribution of companionship remains modest in that, so that's mainly coming from our DDR5 RCD chips.
Desmond Lynch: So, you know, we believe that, you know, when we look at the whole of 2024, we're probably in the early 40% share, you know, in DDR5, you know, in the market today. And we do see traction in DDR5 going into 2025.
Bye-bye.
Speaker Change: Thank you for your question. Next question is from the line of Mehdi Hosseini with SIG. Your line is now open.
and the other one.
Mehdi Hosseini: Yes, sir. Thanks for taking my question. A couple of follow-ups. I just want to revisit the R&D. Obviously, the limiting Q over Q and year-over-year increase, how should we think about revenue contribution? Is that mostly going to be 2026 and beyond, or is there any opportunity for incremental revenue given the recent uptick in R&D? And I have a follow-up.
Desmond Lynch: The optic of R&D, and I'll let Des comment, as we said in the earlier remarks
It's important for us to accelerate our roadmap.
Desmond Lynch: You know, AI is bringing all of these opportunities for chips in power management and signal integrity. So, you know, we increased, you know, our investments to make sure that, you know, we stay, you know, on track with the market demand. Pez?
Speaker Change: Hi Luke, yeah let me just add that. I think we've done a very nice job in managing our expenses where we've really struck the right balance between being disciplined
Speaker Change: and investing at the right level to support our future growth opportunities.
Speaker Change: I was delighted with our R&D execution and new product rollout in 2024. As Luke mentioned, this was a record eight new products that we released.
Speaker Change: It is important to note that this was really achieved under the same sort of OPEX sort of envelope.
Speaker Change: It's what we're able to do is really reinvest the spend associated with the divested FI business back into product programs
Mehdi Hosseini: And I think, you know, Mehdi, the right way to think about R&D sort of going forward would be around 23 to 25 percent of revenue, which is a similar range to what we've been operating at in the last three years here.
Is this going to be more like a 26?
Mehdi Hosseini: Thank you Mehdi. The GDVR7 or HVM4 offering are, you know, offering in our Silicon IT business. So the business model we use, people buy licenses from us so we do see the revenue as soon as the customers engage with us. We don't have to wait for their chips to go into production.
Mehdi Hosseini: So we're very pleased with, you know, staying ahead of the curve with those IT.
Mehdi Hosseini: You know, we had very strong revenue contribution from HBM3 last year, and we started to see revenue contribution from HBM4 in Q4 as we took the lead with this type of IP.
Mehdi Hosseini: We had an exceptional good quarter in Q4 in our Silicon IP business.
Mehdi Hosseini: and that's partially due to, you know, the adoption of our HDM4 IP in the market.
Mehdi Hosseini: This business can be lumpy. It was lumpy in the right direction in Q4. There was a lot of demand for, you know, HBM4, which explained, you know, the results for that quarter. But again, revenue happens when customers adopt the technology, not necessarily when the products run to market.
Great. Thanks for the details.
Thank you.
Speaker Change: Thank you for your question. Next question is from the line of Kevin Cassidy with Rosenblatt Securities. Your line is now open.
Kevin Cassidy: Yes, thanks for taking my question. A couple thoughts here on the licensing of HBM and I see you're moving on to HBM4. Can you talk about the breadth of the number of customers that you're licensing to? You know, has there been a change in that as you move to next generations?
The End
Uh, no, we, we...
Kevin Cassidy: typically don't disclose the number of customers, the name of customers, but I would say that, you know, when we introduce, we have a portfolio of IP, but when we introduce IP such as HBM4 or GDDR7, we typically talk to, you know, customers who are also on the leading edge of those technologies.
Kevin Cassidy: it's, you know, on average a smaller number of more advanced customers than it would be for, you know, earlier generation of products, that's the way to look at it. The engagements are very deep with those customers, they're, you know, very technical, so we have multiple customers.
Kevin Cassidy: But I wouldn't say that we have as many customers as we would have with an earlier technology, if that answers your question.
Speaker Change: I see yeah that's helpful and maybe on the CPU side
Speaker Change: You know clearly you're on a good track with the next generation platforms of CPUs for x86, but there's also been quite a few ASICs and other CPUs coming out that are ARM based. Can you talk about that market for your modules?
Speaker Change: Yes, we're kind of agnostic to, you know, the core of these CPUs.
Speaker Change: You know, we do see traction with, you know, x86-based cores, but we also do see traction on, you know, on CPUs based on ARM.
You know, the buffetship business is...
Speaker Change: really dependent on the memory interface, you know, and whether you have an ARM-based processor or a x86-based processor, you typically use standard DIMMs that have a standard interface. So we're kind of agnostic to this. We're agnostic to
Speaker Change: the relative share between AMD and Intel, but we also agnostic with the, you know, the share between x86 and ARM processor-based solutions.
Speaker Change: Thank you for your question. Next question is from the line of Tristan Guerra with Baird. Your line is now open.
Speaker Change: But then I think consensus is embedding an acceleration in product to revenue quarter to quarter in the second half. So I just wanted to get some level of comfort about what drives that acceleration, because clearly
Speaker Change: The DDR5 comms are going to slow down Or positive comms are going to slow down. So is it is the driver in the second half with the
Speaker Change: about the higher channel count per CPU on the Intel platform. Is that a key driver, or is it more the ongoing ramp of companionships, if you could perhaps give us...
Speaker Change: some additional color about the key drivers, you know, for product revenue in the second half. I know you're not guiding for the whole year, but, you know, ultimately, you know, what type of growth does that give us, perhaps, versus prior years in product revenue?
Speaker Change: We're really entering 2025 with strong momentum following the record quarterly revenue in Q4.
Speaker Change: As Luke sort of mentioned, we do expect the server market to continue to grow, Luke talked about upper sort of single digit sort of growth, so we'll continue to see that favorability going into 2025.
Speaker Change: And really looking at the second half of the year, we will see the next generation platforms.
Speaker Change: In addition to our new product revenue contributions from the Companionships that we expect to ramp in the second half of the year, so we're really excited about the future opportunities ahead of us going into 2025.
Speaker Change: The other thing Tristan, thanks for the question, the other thing Tristan is that the other thing Tristan is when the
Speaker Change: When the new platform gets to market, to your point, there's going to be a higher number of channels. By definition, it's going to be a driver for more sales.
Speaker Change: But also I would say that when this platform gets into the market in the second half, our footprint for companionship is much higher than in the current platform.
Speaker Change: So that's the inflection point that I was mentioning earlier. So there's a combination of more channels, you know, being available in the new platform, but also the footprint for, you know, the new chips that we're introducing being better, you know, in this new generation of product that runs in the second half than in the current generation that drives, you know, our current sales of companion chips.
Speaker Change: Okay, that's great, Carter. Very useful. And then as my second question...
gray space architectures from NVIDIA.
Speaker Change: And I know it's a small subset of total data center units. How do we balance that versus the increase in the module count in AI systems? Is that a cool offset or is AI primarily going to be on the licensing side?
Speaker Change: it's kind of separated I would say that you know we are we are monitoring what's happening with you
Grace Hopper, Grace Blackwell
Speaker Change: They, you know, they actually build with LPDDR a sort of module that they call a superchip.
And as you said, it has...
you know, a small market niche target for that.
and it actually addresses different types of...
Speaker Change: use cases than a standard, you know, AI box would address. So we are monitoring that. But we don't think that it's impacting, you know, the demand for standard module, you know, at this point in time.
Speaker Change: We continue to see in the AI boxes these two layers of computing, the GPU, HVM.
Speaker Change: fast parallel computing layer and then the standard servers that are there to prepare the data, groom the data, store the data for these number crunching HBM GPU layers.
Speaker Change: So we're monitoring that. It's a small market, it has different use cases, but we don't think it's impacting the demand.
Great. Thanks again.
Speaker Change: Thanks for the follow-up, guys. I'll stick to two here again.
So...
Speaker Change: As we start to think about the companionship ramp, let's say we go from low-single-digit contribution.
Speaker Change: to 10% or 15%, whatever that might be. How do we think about that in the context of the product gross margin as we think about the back half of the year? It looks like this quarter was plus or minus around 61, 61.5%.
Speaker Change: How does that play out as companionships ramp to a bigger contribution?
Desmond Lynch: Hi Arne, it's Des here. Thanks for your question. You know, what I would say is that we've issued a sort of long-term target on the gross margin side, which is £60,000.
Desmond Lynch: to 65%. We won't break out the individual gross margin targets of the individual products but what I would say is that with the inclusion of the revenue contribution from the companionships and new products we do expect to maintain our sort of gross margin target at 60 to 65%.
Speaker Change: Perfect, perfect, that's what I thought. Okay, and then as a quick follow-up, there was no question asked, so I have to ask you this.
Speaker Change: No, we're still very excited with the opportunity with MR-LYM, so there's no change there.
Speaker Change: what you see especially you know with you know with AI servers is that even though you do add channels and even though you know you can think about more dense modules, there's still need for more memory and more speed on each one of them.
Speaker Change: So the demand for MRD, the excitement for MRD is still here.
Speaker Change: but it will intercept the follow-on generation of product, you know, from Intel.
Perfect, thank you.
Speaker Change: Thank you for your question. There are currently no further questions registered, so as a reminder it is star one on your telephone keypad.
Speaker Change: At this time, there are no further questions. This concludes the question and answer section. I'll now like to turn the conference back over to the company for any closing remarks.
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Speaker Change: Thank you to everyone who has joined us today for your continued interest and time. We look forward to speaking with you again soon. Have a very good day.