Q1 2025 Rambus Inc Earnings Call
Operator: Welcome to the Rambus First Quarter Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question and answer session. If you would like to ask a question, you may press star one on your touchtone phone at any time. If anyone should require assistance during the conference, please press star zero at any time. As a reminder, this conference call is being recorded.
Welcome to the around this first quarter fiscal year 2025 earnings conference call. At this time, all participants are in a listen only mode.
At the conclusion of our prepared remarks, we will conduct a question and answer session.
If you'd like to ask a question you May press star one on your Touchtone phone at any time.
If anyone should require assistance during the conference. Please press star zero at any time as a reminder, this conference call is being recorded.
Operator: I would now like to turn the conference over to Desmond Lynch, Chief Financial Officer. You may begin your conference.
I'd now like to turn the conference over to Desman Lynch Chief Financial Officer, You May begin your conference.
Desmond Lynch: Thank you, operator, and welcome to the Rambus first quarter 2025 results conference call. I'm 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 SAC on Form 8K. We are webcasting this call along with the 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. Our discussion today will contain forward-looking statements, including our expectations regarding projected financial results.
Speaker Change: Thank you all today to welcome to the Rambus first quarter 2025 results conference call.
I am desperate Lynch, Chief Financial Officer, Ron This and on the call with me today is Luc <unk> our CEO.
Speaker Change: The press release for the results that we will be discussing today has been filed with the FCC on form 8-K.
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 five P. M Pacific time.
Speaker Change: Our discussion today will contain forward looking statements, including our expectations regarding projected financial results.
Desmond Lynch: Financial Prospects, Market Growth, Demand for our Solutions, Other Market Factors including Reflections of the Geopolitical and Macroeconomic Environment 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 SAC, 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: <unk> prospects.
Speaker Change: Market growth.
A mindset our solutions other market factors, including reflections of the geopolitical and macroeconomic environment.
Speaker Change: 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 there are more fully described in the documents, we file with the FCC, including our eight Ks 10, Qs and 10-Ks.
Speaker Change: These forward looking statements may differ materially from our actual results and we are under no obligation to update these statements.
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 on the Investor Relations page under Financial Relief. 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 and our slide presentation I Dunno web site at Rambus Dot com on the Investor Relations page under financial releases.
Speaker Change: In addition, we will continue to provide operational metrics such as licensing billings together investors better insight into our operational performance.
Desmond Lynch: The order of our call today will be as follows. Luc will start with an overview of the business, I will discuss our financial results, and then we will end with Q&A.
Speaker Change: The author of our call today will be as follows Luc will start with an overview of the business I will discuss our financial results and then we'll end with Q&A.
Luc Seraphin: I'll now turn the call over to Luc to provide an overview of the quarter. Thank you, Des, and good afternoon, everyone. Rambus had an excellent start to the year. In Q1, we achieved great financial results and maintained our market leadership position in core DDR5 chips, delivering another quarter of record product revenue. As a cornerstone of our growth strategy, we continue to aggressively drive our product development roadmap of signal and power integrity solutions for next-generation memory architectures that address the ever-increasing needs of advanced workloads in the data center. As we navigate the dynamic environment in the near term, the Rambus business model is naturally resilient to turbulence.
Now turning the call over to <unk> to provide an overview of the quarter Luke.
Thank you, Dave and good afternoon, everyone.
Luke: Rambus had an excellent start to the year in Q1, we achieved great financial results and maintained our market leadership position in core DDR five chips delivering another quarter of record product revenue.
Luke: As the cornerstone of our growth strategy, we continue to aggressively drive our product development roadmap with signal and power integrity solutions for next generation memory architectures that address the ever increasing needs of advanced workloads in the data center.
Luke: As we navigate the dynamic environment in the near term the Rambus business model is naturally resilience to turbulence.
Luc Seraphin: This resilience comes from the diversity of our business with revenue streams from chips, IP and Our patent licensing business is highly predictable due to the long-term nature of our agreements, which provides financial stability. A robust balance sheet and consistent track record of generating strong cash flow operations. strengthens our ability to navigate microeconomic uncertainty and the potential impact of tariffs. As of today, there is no direct impact on our operations from Paris. This is a rapidly evolving situation that we are actively monitoring and we are in continuous discussions with our customers and suppliers to understand the potential indirect impacts of tariffs.
Luke: This resilience.
Luke: From the diversity of our business with revenue streams from chips IP and patents.
Luke: Our patent licensing business is highly predictable due to the long term nature of our agreements which provides financial stability.
Our robust balance sheet and consistent track record of generating strong cash from operations strengthens our ability to navigate microeconomic uncertainty and the potential impact of tariffs.
Luke: As of today, there is no direct impact on our operations from Paris.
Luke: This is a rapidly evolving situation that we are actively monitoring and we are in continuous discussions with our customers and suppliers to understand the potential indirect impacts of tariffs.
Luc Seraphin: Given the current dynamics, we have limited visibility of the potential impacts beyond the current quote. We remain very conscientious and focused on strategic execution. Our robust business model and stable foundation allow us to sustain our strong investment in technology leadership and new product development, positioning us well for long-term growth while consistently delivering value to our stockholders.
Luke: Given the current dynamics, we have limited visibility of the potential impacts beyond the current quarter.
Luke: We remain very conscientious and focused on strategic execution.
Luke: Our robust business model and stable foundation allow us to sustain our strong investments in technology leadership and new product development.
Luke: <unk> us well for long term growth, while consistently delivering value to our stockholders.
Luc Seraphin: Turning now to our Q1 results, we delivered revenue and earnings above our expectations and generated outstanding cash from operations of $77 million. Memory Interface Chiefs drove the top-line growth, delivering another quarter of record revenue at $76 million, up 52% year-over-year, driven by our continued strong leadership position in core DDR5-LCD products. We are delighted to see another quarter of increased sales for memory interface chips and expect further growth in Q2, putting us on track for a very strong first half of the year. As I mentioned in my opening remarks, we are also making steady strides in advancing our product roadmap.
Luke: Turning now to our Q1 results, we delivered revenue and earnings above our expectations and generated outstanding cash from operations of $77 million.
Luke: Memory interface chips drove the top line growth delivering another quarter of record revenue of $76 million up.
Luke: 52% year over year.
Luke: Even by our continued strong leadership position in core <unk> LCD products.
Luke: We are delighted to see another quarter of increased sales from memory interface chips and expect further growth in Q2, putting us on track.
Luke: Strong first half of the year.
Luke: As I mentioned in my opening remarks, we are also making steady strides in advancing our product roadmap.
Luc Seraphin: The record number of products introduced last year are each moving through the varying stages of the product adoption cycle. Progress continues on the rollout of our expanding portfolio of new products, including our industry-leading server PNICs and MRDN-12800. We have growth-based momentum and qualifications ongoing at the module and system level. The industry standard MR-DIMM12800 chipset will enable a new wave of high-performance DDR5 systems. as the need for capacity and bandwidth continues to grow. designed to intercept future generations of a platform. We are providing qualification samples to customers and expect to see our chips ramp in line with compatible processes.
Luke: The record number of products introduced last year are each moving through the varying stages of the product adoption cycle.
Luke: Progress continues on the rollout of our expanding portfolio of new products, including our industry, leading service clinics and their margin profile 800 chipset.
We have broad based momentum and qualifications ongoing at the module and system level.
Luke: The industry standard and margin of 12800 chipset will enable a new wave of high performance <unk> systems as the need for capacity and bandwidth continues to grow.
Luke: Designed to intercepts future generation of server platforms, we are providing qualification samples to customers and expect to see our chips ramp in line with compatible processes.
Luc Seraphin: as a critical component to managing power in high-performance memory subsystems. Our family of teammates is also being very well received by customers. Our industry-leading Extreme Currents PMIC will support high-capacity systems with RDIMs running at 6400 and 7200 megatransfers per second. and our second generation server PNIC rounds out our offering for both industry standard DDR5 RDM8000 and MRDM12800. We are very excited by the positive progress at customers for our broad set of new products with early shipments on the way for both server and client applications.
Luke: As a critical component to managing power in high performance memory subsystems.
Luke: Our family of Phoenix is also be very well received by customers.
Luke: Our industry, leading extreme current panic.
Luke: Support high capacity systems with RDM is running at 6400 7200 Mega transfers per second and.
Luke: And our second generation <unk> rounds out our offering for both industry standard DDR five <unk> 8000, and <unk> thousand 800.
Luke: We are very excited by the positive progress that customers.
Luke: A broad set of new products with early shipments underway for both server and client applications.
Luc Seraphin: Turning to Silicon IP, AI continues to drive design with momentum. And while quarter on quarter revenue may vary due to customer program timing, we are pleased with our ongoing traction. As key building blocks for accelerating computing ICs, we continue to see strong demand for our industry-leading memory and interconnect IP, including HBM4 and PCIe7 controllers, as well as our security IP. In March, we introduced our next generation crypto manager security IP solutions that address an expanded set of customers and offer new levels of security, including quantum-safe functionality. As we look ahead, AI and the ongoing evolution of the data center will continue to drive demand across our chips and IP with advanced applications requiring unprecedented levels of performance and security.
Luke: Turning to Silicon IP AI continues to drive design win momentum and while quarter on quarter revenue may vary due to customer program timing, we are pleased with our ongoing interaction.
Luke: As key building blocks for accelerating computing Ics, we continued to see strong demand for our industry, leading memory and interconnect IP, including HP, Infor and TCA seven controllers as well as our security IP Edmar.
Luke: In March we introduced our next generation Crypto manager of security IP solutions that address an expanded set of customers and offer new levels of security, including condensate functionality.
Luke: As we look ahead AI and the ongoing evolution of the data center will continue to drive demand across our chips and IP with advanced applications, requiring unprecedented levels of performance and security.
Luc Seraphin: To enable the robust high-performance and high-capacity memory subsystems critical to meeting the needs of data-intensive workloads, a growing number of specialized silicon solutions are required. With 35 years of memory subsystem expertise, Rambus has strategically expanded our product portfolio to offer complete chipsets for all industry standard DDR5 server memory modules. Over the past year, we continued our track record of industry leadership in core DDR5 products, introduced new server power management solutions, and were first to market with a complete chipset for industry standard DDR5 MRD. We are also excited at the future prospect of our signal and power integrity technology waterpooling into solutions for the client market.
Luke: To enable the robust high performance and high capacity memory subsystems critical to meeting the needs of data intensive workloads.
Luke: Growing number of specialized silicon solutions are required.
Luke: With 35 years of memory subsystem expertise Rambus has strategically expanded our product portfolio to offer complete chipsets for all industry standard DDR five server memory modules.
Luke: Over the past year, we continued our track record of industry leadership in core DDR five products introduced new server power management solutions and were first to market with a complete chipset to industry standard DDR five M modems.
Luke: We are also excited.
Luke: The future prospect of our signal and power integrity technology once reporting into solutions for our clients market.
Luc Seraphin: The strength of our business model enables us to continue this investment in new products for growth. And we look forward to sharing more as we make further progress on our roadmap and expand our addressable market.
Luke: The strength of our business model enables us to continue these investments in new products for growth and we look forward to sharing more as we make further progress on our roadmap and expand our addressable market.
Luc Seraphin: In closing, we had a very strong start to the year, exceeding guidance for revenue and earnings, and continued product leadership driving record product results. Our dedicated product execution, continued conviction in our roadmap investment and resilient business model position us well for future growth and success.
Luke: In closing we had a very strong start to the year exceeding guidance for revenue and earnings and continued product leadership driving record product results.
Our dedicated product execution continued conviction in our roadmap investment and resilient business model position us well for future growth and success.
Luc Seraphin: As always, I'd like to thank our customers, partners and employees for their ongoing support.
Luke: As always I'd like to thank our customers partners and employees for their ongoing support.
Desmond Lynch: And with that, I'll turn the call over to Des to discuss the quarterly financial results. Thank you, Luc. I'd like to begin with a summary of our financial results for the first quarter on slide 3. We deliver strong financial results in the quarter as we continue to make progress on our long-term growth strategy. Our first quarter results exceeded our expectations for both revenue and earnings. In addition to these solid results, a resilient business model with diversified revenue streams and a stable foundation of our patent licensing business consistently generates strong cash from operations. This enables us to invest in our long-term growth as we navigate the current dynamic environment.
Luke: And with that I'll turn the call over to Deb to discuss the quarterly financial results there.
Deb: Thank you Luc I'd like to begin with a summary of our financial results for the first quarter on slide three.
Deb: We delivered strong financial results in the quarter as we continued to make progress on our long term growth strategy.
Deb: Our first quarter results exceeded our expectations for both revenue and earnings.
Deb: In addition to the solid yourselves, a resilient business model with diversified revenue streams and the stable foundation of our patent licensing business consistently generate strong cash from operations.
Deb: This enables us to invest in our long term growth as we navigate the current dynamic environment.
Desmond Lynch: Let me now provide you a summary of our non-GAAP income statement on slide 5. Revenue for the first quarter was $166.7 million, which was above the high end of our expectations. Royalty revenue was $74 million, while licensing billings were $73.3 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. Product revenue was $76.3 million, up 4% sequentially, and up 52% year over year, as we delivered another quarter of record product revenue, driven by continued strength in DDR5 products.
Deb: Let me now provide you a summary of our non-GAAP income statement on slide five.
Deb: Revenues for the first quarter was $166.7 million, which was above the high end of our expectations.
Deb: Royalty revenue was $74 million the licensing billings were $73.3 million.
Deb: The difference between licensing billings and royalty revenue mainly relates to timing as we do not always recognize revenue in the same quarter as we bill our customers.
Deb: Product revenue was $76 $3 million up 4% sequentially and up 52% year over year as we delivered another quarter of record product revenue driven by continued strength in DDR five products.
Desmond Lynch: contract another revenue with $16.4 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 updating costs, including costs of goods sold for the quarter, were $90.4 million. Operating expenses of $59.4 million were in line with our expectations and relatively flat sequentially as we continue to be disciplined in our expense management. Non-GAAP interest and other income for the first quarter was $4.5 million. Using an assumed flat tax rate of 20% for non-GAAP pre-tax income, non-GAAP net income for the quarter was $64.6 million.
Deb: Contract and other revenue was $16 $4 million, consisting predominantly of silicon IP.
Deb: As a reminder, only a portion of our silicon IP revenue is reflected in contract and other revenue and the remaining portion is reported in royalty revenue as well as in licensing billings.
Deb: Total operating costs, including cost of goods sold for the quarter were $94 million.
Deb: Operating expenses of $59 $4 million were in line with our expectations and relatively flat sequentially as we continue to be disciplined in that expense management.
Deb: non-GAAP interest and other income for the first quarter was $4 $5 million.
Deb: Using an assumed flat tax rate of 20% for non-GAAP pretax income non-GAAP net income for the quarter was $64 $6 million.
Desmond Lynch: Now let me turn to the balance sheet details on slide six. We ended the quarter with cash, cash equivalents and marketable securities totaling $514.4 million up from Q4, primarily driven by strong cash from operations of $77.4 million. First quarter, capital expenditures were $11.7 million, while depreciation expense was $7.1 million. We delivered $65.7 million of free cash flow in the quarter.
Deb: Now, let me turn to the balance sheet details on slide six.
Deb: We ended the quarter with cash cash equivalents and marketable securities totaling $514 $4 million.
Deb: Q4, primarily driven by strong cash from operations of $77 four.
Deb: $4 million.
Deb: First quarter capital expenditures were $11 $7 million <unk> depreciation expense was $7 $1 million.
We delivered $65 $7 million of free cash flow in the quarter.
Desmond Lynch: Let me now review our non-GAAP outlook for the second quarter on slide 7. 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'm about to review. While the geopolitical and economic environment is uncertain, we remain in constant communication with our customers and suppliers to navigate the evolving landscape. 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 amounts invoiced to our licensing customers during the period, adjusted for certain differences.
Deb: Let me now review, our non-GAAP outlook for the second quarter on slide seven.
Deb: 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'm about to review.
Deb: Well, the geopolitical and economic environment is uncertain, we remain in constant communication with our customers and suppliers to navigate the evolving landscape.
Deb: In addition to the non-GAAP financial I look under ASC 606, we also provide information on licensing billings, which is an alternate external metric that reflects amounts invoiced to our licensing customers during the period adjusted for certain differences.
Desmond Lynch: We expect revenue in the second quarter to be between $167 and $173 million. We expect royalty revenue to be between $67 and $73 million and licensing billings between $64 and $70 million. We expect Q2 non-GAAP total operating costs, which includes COGS, to be between $94 and $90 million. We expect Q2 capital expenditures to be approximately $13 million. Non-GAAP operating results for the second quarter is expected to be between a profit of $73 and $83 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 20%, with non-GAAP tax expenses to be between $15.4 and $17.4 million in Q2.
Deb: We expect revenue in the second quarter to be between 167 and $173 million week.
Deb: We expect royalty revenues to be between 67, and $73 million and licensing billings between 64 and $17 million.
Deb: We expect Q2.
Deb: non-GAAP total operating costs, which includes cogs to be between 94 and $90 million.
Deb: We expect Q2 capital expenditures to be approximately $13 million.
Deb: non-GAAP operating results for the second quarter is expected to be between a profit of 73 and $83 million.
Deb: For non-GAAP interest and other income and expense, we expect $4 million of interest income.
Deb: We expect pro forma tax rate to be 20% with non-GAAP tax expenses to be between 15.4 and $17 $4 million in Q2.
Desmond Lynch: We expect Q2's share count to be 109 million diluted shares outstanding. Overall, we anticipate the Q2 non-GAAP earnings per share range between 57 and 64 cents.
Deb: We expect Q2 share count to be 109 million diluted shares outstanding.
Deb: Overall, we anticipate the Q2 non-GAAP earnings per share range between 57 and 64 cents.
Desmond Lynch: Let me finish with the summary and slide eight. In closing, I am pleased with our strong financial results and continued execution. Our diversified portfolio and disciplined business model continues to drive profitable growth with strong cash generation. Our robust balance sheet enables us to invest in market expansion, opportunities in data center and AI, while consistently delivering value to our stockholders.
Deb: Let me finish with a summary on slide eight.
Deb: In closing I am pleased with our strong financial results and continued execution.
Deb: Our diversified portfolio and disciplined business model continues to drive profitable growth with strong cash generation.
Deb: Robust balance sheet enables us to invest in market expansion opportunities in data center and AI.
Insistently 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.
Deb: Before I open up the call to Q&A I would like to thank our employees for their continued teamwork and execution.
Operator: With that, I'll turn the call back to our operator to begin Q&A. Could we have our first question? Thank you. Ladies and gentlemen, if you have a question, please press star one on your touchtone.
Deb: With that I'll turn the call back to operator to begin Q&A.
Speaker Change: Could we have the first question.
Speaker Change: Thank you ladies and gentlemen, if you have a question. Please press star one on your Touchtone phone.
Gary Mobley: The first question is from the line of Gary Mobley, Sloop Capital. Your line is now open. Good afternoon, everybody. Thanks for taking my question. As we sit here today and think about the CERT available market for your product revenue, your memory interface chip revenue. baseline to consider the market for general servers. But as far as socket configurations go, core count. and the number of memory channels supported by these different server processors.
Speaker Change: The first question is from the line of Gary Mobley Loop capital. Your line is now open.
Gary Mobley: Good afternoon, everybody. Thanks for taking my question.
Gary Mobley: As we sit here today and think about the served available market for your product revenue your memory interface chip revenue.
Gary Mobley: Is the baseline to consider is the market for general servers, but as far as socket configurations go core count.
Gary Mobley: And the number of memory channel supported by these different server processors. What are you guys seeing in terms of trends out there.
Luc Seraphin: What do you guys see in terms of trends out there that's driving memory density in each specific server above and beyond just sort of that baseline general server market growth rate? Thank you, Gary, for your question. There are actually a lot of factors coming into, you know, the view of the total available market for our products. It's certainly, as you say, the number of sockets, the number of channels per processor, but also the mix between AI servers and standard servers. You know, if we take all of these into account, we believe that the market is going to grow needs to high single digit, you know, for our product this year, taking into account all of these factors, including the memory density on each one of the DIMMs. It's a complex equation.
Gary Mobley: Driving memory density in each specific server above and beyond just sort of the baseline general server market growth rate.
Gary Mobley: Yeah.
Speaker Change: Thank you Gary for your question they are actually a lot of factors coming into.
Speaker Change: The view of the total available market for our products, but certainly as you say the number of sockets the number of channels or a processor.
Speaker Change: So the mix between AI servers and.
Standard servers, if we take all of this into account we believe that the market is going to grow leads to high single digits for our products. This year.
Taking into account all the factors, including the memory density on each one of the demons, it's a complex equation.
Gary Mobley: But with everything taken into account, we expect the market to continue to grow need to high single digit this year for our product. Okay, thank you.
Speaker Change: But with everything taken into account, we expect the market to continue to grow mid to high single digit this year for our products.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you just a quick follow up in the past you've always had your ASC 606 compliant GAAP revenue lower than your adjusted revenue.
Desmond Lynch: Just a quick follow up. In the past, you've always had your ASC 606 compliant gap revenue lower than your adjusted revenue. And now I would presume that most of your major patent licenses with your memory IDMs are on, you know, have some embedded performance obligation. And so, you know, I would expect them to converge, but now your ASC 606 revenue is above your adjusted revenue. Maybe if you can just give us a sense of, you know, what's driving that seemingly, you know, $5 million a quarter of revenue path that's in the numbers now. Hi, Gary, it's Des.
Speaker Change: And now I would presume that most of your major licenses with your memory Idms are on.
Speaker Change: Some of the better performance obligation.
Speaker Change: I would expect them to converge, but now your ASC 606 revenues above your adjusted revenue maybe.
Speaker Change: Maybe if you can just give us a sense of what's driving that seemingly $5 million a quarter of revenue pad that's in the.
Speaker Change: Number is now.
Speaker Change: Hi, Gary.
Desmond Lynch: You know, in the quarter, we did see a small patent agreement that was renewed, which resulted in upfront revenue recognition from a 606 perspective. The billings from this contract will follow in later quarters and will show up under licensing billings. And as you mentioned, I am really pleased to see that all major patent license contracts have been renewed to long-term agreements under a variable structure, which results in the strong alignment between both gap and non-gap results. We will continue to work on transitioning some of these smaller legacy contracts to a revenue recognition-friendly structure under 606, but overall, we're really pleased to see the convergence of our financial.
Speaker Change: As you know.
Speaker Change: In the quarter, we did see a small partner it could even it was renewed which resulted in upfront revenue recognition from a fixed perspective.
Speaker Change: The billings from this contract will follow in later quarters in both show up under licensing billings.
Speaker Change: And as you mentioned I am really pleased to see that all major patent license contracts have been renewed to long tailed line could even under a favorable structure, which results in a strong alignment between both GAAP and non-GAAP results.
Speaker Change: We'll continue to work on transitioning some of these smaller legacy contracts to our revenue recognition is friendly structure under.
Speaker Change: But overall, we're really pleased to see the convergence of our financials.
Gary Mobley: Thank you. Thanks, Gary. Thank you.
Speaker Change: Thanks.
Speaker Change: Luke.
Speaker Change: Thanks, Gary.
Speaker Change: Thank you.
Aaron Rakers: The next question is from the line of Aaron Rakers with Wells Fargo. Your line is now open. Yeah, thanks for taking the question, guys. A couple if I can as well. So first of all, I just want to go back and I can appreciate the commentary that you offered on the tariff situation and the uncertainty involved in what is obviously very fluid dynamics. But, you know, Luke, I'm curious, as you're as you're engaging with your customers, you know, what are the scenarios that they're thinking about? As it relates to tariffs? Have you seen any indications or signs of kind of inventory builds or, you know, buying ahead, you know, based on this fluidity of tariffs, any kind of context around what your dialogue span would be would be very helpful.
Speaker Change: The next question is from the line of Aaron Rakers with Wells Fargo. Your line is now open.
Speaker Change: Yes, thanks for taking the question guys.
Speaker Change: A couple if I can as well.
Speaker Change: So first of all I just wanted to go back and I can appreciate the commentary that you offered on the tariff situation and the uncertainty.
Speaker Change: Involved in what is obviously very fluid dynamics, but yes look.
Speaker Change: Look I'm curious as you're as you're engaging with your customers.
Speaker Change: What are the scenarios that they are thinking about.
As it relates to tariffs have you seen any.
Speaker Change: Indications are signs of kind of inventory builds or.
Speaker Change: Buying ahead.
Speaker Change: Based on this fluidity of tariff or any kind of context around what your dialogue that would be would be very helpful.
Luc Seraphin: Thanks for your question, Aaron. But the first thing I would say is that, you know, our business model, as I said in the opening remarks, it's quite resilient. You know, our patent licensing is not going to be affected by the tariffs, just because of the nature of these, of these agreements. We see a lack or less visibility in terms of our SIP revenue, because we don't know what the indirect impact of the tariffs are going to be on the design starts of our customers, but we expect to grow our revenue on Silicon IP. And with respect to our product business, you know, we build our products in Asia.
Erinn: Hey, Thanks for your question Erinn.
Speaker Change: Firstly I would say is that.
Speaker Change: Our business model as I said in the opening remarks is quite resilient.
Speaker Change: Patent licensing is not going to be affected.
Speaker Change: By the tariffs just because of the nature of these agreements.
Speaker Change: We see a lack or less visibility in terms of our <unk> revenue because we don't know what the indirect impact of the tariffs are going to be on the design starts with our customers, but we do expect to grow our revenue and silicon IP and with respect to our.
Speaker Change: Product business.
Luc Seraphin: The front end is in Taiwan, the back end is in Taiwan and Korea, and we ship to our customers in Asia. So from that standpoint, there's no direct impact of tariffs. What we're looking at with our customers and suppliers are the indirect impact on the product space, you know, as depending on the situation, you know, some other customers, some other companies may shift their production lines to areas with no tariffs, and that could create some tension there, you know, on the supply chain. Finally, you know, when we look at our backlog at the inventory level on our side, inventory level at our customer side, we don't see any pull-ins at this point in time, but we're monitoring the situation.
Speaker Change: We build our products in Asia. The form 10 is in Taiwan. The backend is in Taiwan, and Korea, and we shipped to our customers in Asia. So from that standpoint, there is no direct impact with tariffs.
Speaker Change: What we're looking at with our customers and suppliers are the indirect impacts from the product space.
Speaker Change: As.
Speaker Change: Depending on the situation you know some other customers. Some other companies may shift their production lines to areas with no tariffs and that could create some tension there on the supply chain.
Finally, when we look at our backlog at the inventory level on outside inventory level of our customer side, we don't see any pull ins at this point in time.
Luc Seraphin: But as far as we're concerned today, we do not see any pull-ins from our customers.
Speaker Change: But we are monitoring the situation, but as far as we're concerned today, we do not see any pull ins from our customers.
Aaron Rakers: Yeah, that's very helpful. And then kind of more on on the product, you know, product shifts that growth, you know, 50-52% growth is pretty notable. I'm curious, as we think about, you know, the diversity within that business, you know, where we stand today with regard to, you know, RCDs and kind of really, what I'm trying to get at is the diversity towards these PMICs and companionships really starting to ramp in the second half of the year. How do we think about the mix of that business and the progression of that mix? And then I'll slot in the final part of that is that MR-DIMS just remind us real quickly of the timing of when that might be something that we should really start to consider in that product line.
Speaker Change: Yeah.
Speaker Change: Helpful and then kind of more on the product.
Speaker Change: Chipset growth 50, 52% growth is pretty notable I'm curious as we think about the diversity within that business, where do we stand today with regard to RCD in kind of really what im trying to get out of the diversity towards these P mix and companion shifts really start.
Speaker Change: The ramp in the second half of the year, how do we think about the mix of that business and the progression of that mix and then a slot in the final part of that is that MLR games, just remind us real quickly of the timing.
Speaker Change: When when that might be something that we should really start to consider in that product line.
Luc Seraphin: Thank you. Sure, you know, at this point in time, the vast majority of our business is still on the RCD chip. And the vast majority of that is on the DDR5 RCD chips. And I think this is the result of, you know, the strategy we have put in place, which is to make sure that we have the right footprint in every generation of DDR5 that translates into the growth that we are seeing today. With respect to new products, we introduced eight new products last year, four of them in April, one in July, and the rest in October.
Speaker Change: Yes.
Speaker Change: Thank you sure at this point in time.
Speaker Change: As majority of our business is still on the CV chip and the vast majority of that is.
Speaker Change: The DVR five LCD chips and I think this is the result of this.
Speaker Change: The strategy, we have put in place which is to make sure that we have the right footprint in every generation of DDR five that translate into the growth that we've seen today with respect to new products, we introduced eight new products last year.
Speaker Change: For four of them.
Speaker Change: In April one and one in July and the rest in October what we are starting to see is some.
Luc Seraphin: What we're starting to see is, you know, some of the qualifications are, you know, percolating through the whole system. We're starting to see modules, you know, qualified with our PMICs. We do see the momentum, you know, the later products take more time.
Speaker Change: Some of the qualifications are percolating through the system, we're starting to see modules qualified with our Phoenix.
Speaker Change: Phoenix.
Speaker Change: They are on the high end of these modules, which is not a surprise because that's how we position our product line to gain share.
Speaker Change: So it is taking its time, but it's moving I think the contribution I'll, let Derrick comment the contribution of these companion chips in the <unk>.
Speaker Change: As part of this year is probably single digit low single digit.
Speaker Change: By quarter, but we expect this to continue to grow towards the end of the year, we do see the momentum.
The later products take more time with respect to our mountain.
Luc Seraphin: With respect to MRDIMM, we just sampled customers, you know, recently, and that MRDIMM market is going to ramp with the following generation of computing platforms. There's going to be revenue in the second half of 2026 to start with.
Speaker Change: We just sampled customers.
<unk>.
Speaker Change: The market is going to ramp with a follow on generation goes.
Computing platforms theres going to be revenue in the second half of 2026, just called with.
Speaker Change: Thank you.
Blayne Curtis: The next question is from the line of Blayne Curtis with Jeffreys. Your line is now open. Hey, good afternoon. Thanks for your question. I just want to follow up on the tariff question. You know, maybe you can just walk us through kind of how the linearity of the quarter in the first few weeks here of April. I mean, I guess, you know, your product business is growing. I'm just kind of curious how, you know, kind of that older momentum has been and it sounds like it hasn't changed much, but just you could just kind of add a little color there.
Blayne Curtis: The next question is from the line of Blayne Curtis with Jefferies. Your line is now open.
Blayne Curtis: Hey, good afternoon. Thanks for the question I just want to follow up on the tariff question.
Maybe you can just walk us through kind of how the linearity of the quarter and the first few weeks here of April I guess.
Blayne Curtis: Your product businesses growing I'm, just kind of curious how kind of that order momentum has been and it sounds like it hasnt changed much but if you could just kind of add a little color there that'd be great.
Desmond Lynch: Hi Blayne, thanks for your question. We're really pleased with the numbers we were able to print for Q1 and also the guidance for Q2. If we look at our order sort of backlog, you know, we have high coverage going into the quarter. We're probably at least over 90% covered on the midpoint of the backlog from there. And what we will see is the normal sort of shipping patterns through month one, month two and month three within the quarter. So very pleased with how everything's sort of playing out. You know, as Luc mentioned earlier, we've not really seen a pull forward of demand from our customers, but that's something we continue to watch here going forward.
Duane: Hi, Duane thanks.
Blayne Curtis: To your question.
Duane: Really pleased with what we're doing.
Duane: Numbers will be able to plan for Q1, and obviously the cadence for Q2.
Duane: If we look at our order sort of backlog, we have high coverage going into the quarter, we're probably at least over 90% covered on the mid point of the backlog from there and what we will see the normal shipping pattern month, one month, two months three and within the quarter. So very.
Duane: Pleased with everything sort of playing out.
Duane: I mentioned earlier, we've not really seen a pull forward of demand from our customers, but that's something we continue to watch here going forward.
Blayne Curtis: Perfect.
Desmond Lynch: And then I'm just kind of curious if you had a perspective. I know it's a really tough thing for me to ask you about the full year or the second half, but I'm just kind of curious, you know, if you could maybe talk about your visibility into, you know, some of the new products from, you know, server platforms and in terms of your visibility and continued growth for the product. Yes, sure. You know, as we indicated earlier, you know, the different products, the eight different products that we introduced at different stages of rollout with our customers, we do see the first full modules using some of our products, you know, rolling out in the second half of this year.
Duane: Perfect and then I'm just kind of curious if you had a perspective I know, it's a really tough thing for me to ask you about the full year or the second half.
Duane: I'm just kind of curious.
Duane: If you could maybe talk about your visibility into some of the new products.
Duane: From server platforms in terms of your visibility and continued growth for product revenue.
Duane: Yes sure.
Duane: As we indicated earlier.
Speaker Change: The different products the different products that are introduced at different stages.
Duane: Our rollouts with our with our customers we do see the first.
Duane: Full modules using some of our products.
Duane: We're rolling out rolling out in the second half of this year.
Desmond Lynch: So, you know, our view is that quarter over quarter, we will continue to see increased revenue from our companionship, you know, with a caveat that, you know, we'll see how the tariff situation evolves over time. And secondly, as for all of our products, we're always dependent on the rollout of the platforms that use those products. So, but that's the normal, you know, state of the business for us. But assuming that, you know, the role of our platforms go the way we expect them to go, we will see, you know, increased growth quarter over quarter on our companionships and also in 2022.
Duane:
Duane: So our view is that quarter over quarter, we will continue to see increased revenue from our.
Duane: Companion chips.
Duane: With the caveat that you know, we'll see how the tariff situation evolves over time and secondly, as for all of our products, we always dependent on the rollout of the platforms that use those products.
Duane: But that's the normal state of the business for us, but assuming that the rollover platforms go the way we expect them to go we will see continue.
Duane: Continuous growth quarter over quarter on our companion chips end to end and also in 2026.
Desmond Lynch: Thanks, I just want to clarify, I mean you're saying the companionships but in terms of like RCD growth as well, is there some distinction you're making or you just have better visibility into companion off a low number? Our CD chips, you know, we are in a very good position on the DDR5 generation of products. We continue to monitor the mix between Gen 1, Gen 2, Gen 3, you know, all the products are rolling out. You know, our view at this point in time is that if any platforms, you know, shift out, you know, from the processor vendors, then that demand is probably going to be covered by the prior generation.
Speaker Change: Thanks, I, just want to clarify I mean, youre, saying, the companionship, but and in terms of like RCV growth as well as there is some distinction you're making or do you just have better visibility into companion off a low number.
Speaker Change: Obviously the chips, we are in very good position on the <unk> generation of products, we continue to.
Speaker Change: Monitor the mix between Gen. One Gen two gen three.
Speaker Change: All the products are rolling out our view at this point in time is that if any platforms.
Speaker Change: Out.
Speaker Change: The processor vendors.
Speaker Change: That demand is probably going to be covered by the prior generation.
Luc Seraphin: So, you know, the view we have on the RCD chip is that we will continue to maintain our market share. Last year, you know, we were a little short of, you know, 40% share, a little higher than 40% share. You know, the prior year, we were a little short of 40% share, and we continue to have the goal of 40 to 50% share. And that does not depend on the rollout of the different platforms at this point in time. The good news for Rambus is that DDR5 is in the market in earnest, and that's where our footprint, you know, whatever the generations, is much stronger than DDR4.
Speaker Change: So the view.
Speaker Change: We have on the LCD chip is that we will continue to maintain our market share last year.
Speaker Change: We were a little short of.
Speaker Change: 40% share a little higher than 40% share.
Speaker Change: Prior year, we were a little short of 40% share and we continue to have the goal of 40% to 50% share and that does not depend on the rollout of the <unk>.
Speaker Change: The different platforms at this point in time.
The good news for <unk> is that <unk>.
Speaker Change: Five years in the market in earnest and that's where our footprint whatever the generations is much stronger than DDR floor.
Luc Seraphin: Thanks for that. Thank you.
Speaker Change: Yeah.
Speaker Change: Thanks for that.
Speaker Change: Thank you.
Mehdi Hosseini: The next question is from the line of Mehdi Hosseini with Susquehanna. Your line is now open. Thanks for taking my question. I want to start off with a product revenue. Was there a mixed issue that led to a sequential decline in the gross margin? And if I just use the Q1 as a baseline, how should I think about progression of product revenue throughout the year?
Speaker Change: Thank you. The next question is from the line of Mehdi Hosseini with Susquehanna. Your line is now open.
Speaker Change: Yes.
Mehdi Hosseini: Thanks for taking my question.
Speaker Change: With the project.
Speaker Change: Revenue.
Speaker Change: Was there a mix issue that led to a sequential decline in the gross margin and <unk>.
Speaker Change: And if I just use the Q1 as a baseline how should they think about progression of product revenue.
Desmond Lynch: I don't have a thought. Hi Mehdi, it's Des here. So on the product gross margins, they continue to operate in line with our long term gross margin target. In Q1, our gross margins on the chip side were around 60%. This was down slightly compared to Q4, which was driven by the price negotiations with our customers, which are effective at the start of the year. These price reductions were in line with our expectation and we saw mid single digit erosion on production parts from there. If we look at the back half of the year, what I would expect to see is stronger gross margin performance compared to the first half.
Speaker Change: About a year and I have a follow up.
Hi Navy.
Speaker Change: Is here so on the product gross margins. They continue to operate in line with our long term gross margin target in Q1 gross margins on the chip side with around 60%. This is down slightly compared to Q4, which was driven by the price negotiations with our customers.
Speaker Change: The effective at the start of the year.
Speaker Change: These price reductions with in language.
Speaker Change: Patients and we saw mid single digit erosion on production parts from there if we look at the back half of the year.
Speaker Change: To see a stronger gross margin performance compared to the first half of this.
Desmond Lynch: This would be driven by a combination of product mix improvements, as well as manufacturing cost savings that will continue to ramp throughout the year. And we did see this dynamic and similar profile in 2024. I think overall, when we look at an annual basis, we have a strong track record of delivering product gross margins in line with our long term target. So a disciplined approach to pricing and the continued drive on the manufacturing cost saving side from there.
Speaker Change: This will be driven by a combination of product mix improvements as well as manufacturing cost savings that will continue to ramp through the year and we did see this dynamic in similar profile in 2024, I think overall when we look at an annual basis, we have a strong track record of delivering.
Speaker Change: Product gross margins in line with our long term target to a disciplined approach to pricing and the continued drive on the manufacturing cost savings side from there.
Mehdi Hosseini: Okay, thanks for detail.
Speaker Change: Okay.
Mehdi Hosseini: And then one follow up on Silicon IP. Given the recent headlines of the past month or so, it seems like HBM4 samples will be available later this year, and maybe high volume manufacturing next year. And I'm not asking you for a specific guide, but given my assumption that you have higher content with HBM4 compared to prior generation, should we expect material a step up in incremental revenue? Or how else could we think about the contribution, especially as it relates to Silicon IP? Thank you, Mehdi. The nature of the Silicon IP business is that we typically sell our IP 12 to 18 months before our customers roll out their chips into the market.
Speaker Change: Detailed a little one follow up on the Silicon IP.
Speaker Change: Given the recent headlines over the past month or so it seems like H B M. Four samples will be available later this year.
Maybe high volume manufacturing next year.
Speaker Change: I'm not asking for specific guidance, but given my assumption that you have higher content HBO for comfort two prior generation.
Speaker Change: Should we expect material step up in incremental revenue or how else could we think about the <unk>.
Speaker Change: Contribution, especially as it relates to silicon IP.
Mehdi Hosseini: Hey, Thank you Mehdi.
Mehdi Hosseini: The nature of the Silicon IP business is that we typically sell our IP 12 to 18 months before our customers rollout the chips into the market too.
Luc Seraphin: So our activity on HBM4 started last year. It continues throughout this year. That explains some of the good performance we had last year with the total revenue of $120 million on the SIP side. But that business is lumpy in nature because we get the revenue when actually people license our IP. So we're dependent on the design starts, new tape outs, and these kind of things. But the HBM4 wave started months ago for us in preparation for chips that are going to roll out in the market. And as we do with the rest of our SIP product, we continue to work on the follow-on generation, which will generate revenue.
Mehdi Hosseini: Our activity on <unk> started last year.
Mehdi Hosseini: It continues throughout this year.
Mehdi Hosseini: That explains some of the good performance, we had last year with total revenue of $120 million on the ESI side, but that business is is lumpy in nature, because we get the revenue went actually people license are.
Mehdi Hosseini: Our our IP.
Mehdi Hosseini: So we are dependent on the design starts new tape outs and these kind of things, but the HBM full wave started months ago for us in preparation for chips that are going to rollout in <unk>.
Mehdi Hosseini: In the market.
Mehdi Hosseini: And as we do with the rest of our product we continue to.
Mehdi Hosseini: Work on the follow on generation, which will generate revenue, but but again, we were pleased with our revenue last year of $120 million.
Luc Seraphin: But again, we were pleased with the revenue last year of $120 million. But that was partially due to the HBM4 rollout last year.
Mehdi Hosseini: But that was partially due to the AGM for a rollout last year.
Mehdi Hosseini: If I may ask a quick follow up here. Yeah, I see QHUD is a big step up in Silicon IP. So with HBM and these licensing agreements, it's nothing to do with customer diversification, you have already licensed. And now the next step is for like an HBM4E. Is that the licensing revenue? Yes, I understand it happens earlier, but is that product migration driven or is that customer diversification or both? The dynamic between Q4 and Q1 on the Silicon IP business, you know, has mostly to do with customer timing of, you know, of these different tape outs and different products more than, you know, a generation of change, because when you introduce a new technology like HBM4 and HBM4E, it can be adopted at different times by our customers.
Speaker Change: If I may ask a quick follow up here.
Speaker Change: <unk> is the big step up in Silicon IP, so with HBM and license agreement.
Speaker Change: It has nothing to do with customer diversification get royalty licenses and now the next step is HBM for E is that.
The licensing revenue, yes, I understand that it happens earlier, but is there a product migration driven or was it customer diversification or both.
Speaker Change: But the dynamic between Q4 and Q1 on the Silicon IP business.
Speaker Change: Has mostly to do with customer timing.
Speaker Change: Of course.
Speaker Change: These different tape outs in different products more than a generational change.
Speaker Change: Because when you introduce a new technology like <unk>. It can be adopted at different times by our customers and every time one of our customers adopt it.
Mehdi Hosseini: And every time, you know, one of our customers adopts it, you know, we see a spike in our revenue, but that can be a bit lumpy. So that, you know, Q4 to Q1, which has happened from a timing standpoint to have, you know, customers rushing for their designs in Q4, being a little slower in Q1, that has more to do with timing than it has to do with a rollout of new technology. Okay, thank you.
Speaker Change: We see a spike in our revenue, but that can be a bit lumpy.
Speaker Change: But that Q4 to Q1, we just happen from a timing standpoint to have customers worsening their designs in Q4 being a little slower in Q1 that has more to do with timing than it has to do with a rollout of new technologies.
Natalia Winkler: Thanks for the Thank you. The next question is from Natalia Winkler with Evercore. Your line is now open. Hi, thanks for taking my question.
Speaker Change: Okay. Thank you thanks for details.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question is from the Italian Winkler with Evercore. Your line is now open.
Speaker Change: Hi, Thanks for taking my question I was wondering if you could pick up a lot a little bit about what you're seeing from the standpoint of IMTT.
Luc Seraphin: I was wondering if, Luc, you could speak a little bit about what you're seeing from the standpoint of x86 versus ARM CPU servers, and specifically how you think that sort of market share shift may be playing into your product portfolio. Would you please kind of describe what you think the expectations from the performance standpoint for the ARM servers are, and if there are sort of additional benefits from the standpoint of the companion chips for you guys, or if it's actually a risk? Thank you, Natalia. The way the way we look at it is that you we are agnostic to, you know, the type of processor or core that is being used.
Speaker Change: Arm CPU.
Speaker Change: Service and specifically, how you think that.
Speaker Change: Sort of market share shift may be playing into your product portfolio.
Speaker Change: Would you please kind of gift.
Speaker Change: Where do you think the expectation from the performance standpoint for the arm servers are and if there are additional benefits from the standpoint of the companionship for you guys.
Speaker Change: It's actually a risk.
Speaker Change: Thank you Natalia.
Speaker Change: The way the way we look at it is that.
Speaker Change: We are agnostic to the type of processor core card is being used.
Luc Seraphin: You know, whether it's an x86 core based product, you know, AMD or Intel, or whether it's an ARM core based product, you know, the interface to the module remains the same. So we are agnostic to the changes of or the shifts of share between Intel and AMD on the x86 side and between x86 and ARM processors at this point in time. But that doesn't change the content on the module as well. So what we have to do at Rambus is make sure that we are engaged with all of these customers. But the interface is exactly the same.
Speaker Change: Whether it's an eight X 86 core.
Speaker Change: Yeah.
Speaker Change: Based product AMD or Intel or whether it's an alcohol based product.
Speaker Change: The interface to the module remains the same.
Speaker Change: So we are agnostic to the changes or the shifts of.
Oh sure between Intel and AMD on the <unk> side and between <unk> six and arm processors at this point in time.
Speaker Change: It doesn't change the content on the module as well.
Speaker Change: What we have to do at Rambus is make sure that we are engaged with all of these customers, but the interface is exactly the same product line doesn't change for us. So we kind of immune for me from a revenue revenue ramp or design win standpoint.
Natalia Winkler: The product line doesn't change for us. So we kind of immune from a from a revenue ramp or design win stance. Um, thank you. That's very helpful.
Speaker Change: Thank you that's very helpful and from the standpoint of the client project.
Luc Seraphin: And from the standpoint of the client product, Luke, do you mind reminding us, like, what's the sort of timeline for RAMP of those client products? Is it any different than server products? Sure. So the idea on the client side is that some of the technologies that were necessary in the data center for performance reasons are going to be required on the high-end client side. So the time is limited at this point in time because this is limited to the very high end of the market. And the first product that we're introducing or that we introduced last year is the client clock driver.
Speaker Change: Luke do you mind, reminding us like what's the timeline for ramp off with those client product isn't any different than server product.
Speaker Change: Sure. So the idea on the client side is that some of the technologies that were necessary.
Speaker Change: In the data center for performance reasons are going to be required on the high end client side.
Speaker Change: So the Tam is limited at this point in time, because this is limited to the very high end of the market.
Speaker Change: First quarter that we are introducing or do we introduced last year is the client truck driver, we introduced that product in July of last year.
Luc Seraphin: We introduced that product in July of last year, and it's going to, it's being sampled to customers and it's going to hit the market, you know, starting, you know, end of this year, beginning of next year, but in reasonably low volumes, to be honest. But that's very important for us because if you look at this more strategically in the long run, power integrity or signal integrity, which is what the CKD or are going to be critical to the performance of client systems in the future. So waterfalling the data center technologies into clients is important for us.
Speaker Change: And it's going to it's being sampled to customers or is going to hit the market. Starting end of this year beginning of next year, but in reasonably low volumes to be to be honest and that's very important for us because if you look at this more strategically in the long run power integrity or signal integrity, which is the.
Speaker Change: What the CK D or the client could drive it down.
Speaker Change: Are going to be critical to the performance of client systems in the future. So water falling the data center technologies into clients as important for us.
Luc Seraphin: CKD is the first product and it's sampling to customers with good reactions so far. Thank you.
It is the first product in Ghana.
Speaker Change: Sampling to customers with good good reaction so far.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: <unk>.
Speaker Change: Thank you.
Kevin Cassidy: The next question is from the line of Kevin Cassidy with Rosenblatt Securities. Your line is now open. Yes, thanks for taking my question. Congratulations on the great results. And, you know, going back to the silicon IP, you know, I see if you did have a lumpiness or on the upside in the first quarter, but it looks like your guidance for the second quarter is up also. Do you expect that to continue through the second half?
Speaker Change: The 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 and congratulations on the great results.
Speaker Change: And going back to the Silicon IP.
Speaker Change: You did have lumpiness or on the upside.
Speaker Change: The first quarter, but it looks like your guidance for the second quarters also.
Speaker Change: Do you expect that to continue through the second half.
Speaker Change: Yeah.
Desmond Lynch: Hi Kevin, it's Des here. We were pleased with our overall sort of results in Silicon IP in the first quarter, which was in line with our sort of expectations. What we did see is that we did sell more off-the-shelf IP, which explains the strength in licensing, billings and royalty revenue in the quarter, which was offset by lower customizable sort of IP, which shows up under the contract and other sort of lines from there. What I do expect going into the second quarter, the Silicon IP revenue to be relatively flat to Q1 would be a good expectation from there.
Kevin Cassidy: Hi, Kevin.
Speaker Change: Here, we were pleased with the overall results and silicon IP in the first quarter, which was inline with our expectations.
Kevin Cassidy: Patients.
Kevin Cassidy: What we did see is that we did sell more off the shelf IP, which explains the strength in licensing billings and royalty revenue in the quarter, which was offset by a more customizable sort of IP, which shows up under the contract and other sort of line from there.
Kevin Cassidy: Why do we expect going into the second quarter, the silicon IP revenues to be relatively flat.
Kevin Cassidy: Q1 was a good day expectation from there and as Luc mentioned, we did have a really strong fourth quarter of last year, which was really driven by the HBM four.
Desmond Lynch: And as Luc mentioned, we did have a really strong fourth quarter last year, which was really driven by the HBM4 results. But overall, I think the business is performing in line with the expectation and we would expect to see the second quarter revenue being flat to Q1 from there.
Kevin Cassidy: But overall I think the business is performing in line with today expectation and we would expect to see the second quarter revenue being flat to Q1 from there.
Kevin Cassidy: Okay, great.
Kevin Cassidy: Okay great.
Kevin Cassidy: And, and going to the MR-DIMM, when you're talking to your customers now about the MR-DIMM, what kind of adoption rate are you expecting? Is it Say if a CPU has 12 memory channels, will all 12 of them use the MR-DIMM, or will it be just a certain percentage, or is it just a certain percentage of the CPU? It's early to say, Kevin, to be honest. But what's driving the adoption of MRD is the need for more capacity and more bandwidth. What the market sees is that it's a nice bridge between the DDR5 generations of modules and the DDR6 generation of modules.
Kevin Cassidy: Going into the MLR them.
Kevin Cassidy: When youre talking to your customers know about <unk> kind of adoption rate are you expecting is it.
Kevin Cassidy: So if a CPU has 12 memory channels will all 12 of them that use the MLR them or will it be just a certain percentage or is it just a certain percentage of Cpus.
Kevin Cassidy: Yeah.
Kevin Cassidy: It's early to say Kevin.
Speaker Change: But what's driving the adoption of MLD is the need for more capacity and speed.
Kevin Cassidy: Sorry, more capacity and more bandwidth.
Kevin Cassidy: What the market sees that as a nice bridge between the DDR five generations of modules in the DDR sixth generation of modules it kinds of bridges.
Luc Seraphin: It kind of bridges those two generations of products in terms of capacity and bandwidth. It's going to be used in very high-end systems where those needs are required. So in support of the AI deployment, for example, are going to be the first adopters of these types of MRDs. Okay, thanks. We'll wait and see.
Two generation of products in terms of capacity.
Kevin Cassidy: And bandwidth is going to be used in very high end system.
Kevin Cassidy: Those needs are required.
Kevin Cassidy: In support of the AI deployments for example are going to be the first adopters of these types of types of end markets.
Kevin Cassidy: Okay. Thanks.
Kevin Cassidy: We'll wait and see.
Kevin Cassidy: Yeah.
Luc Seraphin: Thank you.
Tristan Gerra: The next question is from Tristan Gerra with Baird. Your line is now open. Hi, a quick question you talked earlier about the gross margin catalyst for the rest of this year directionally. How should we look at operating margin? Is it going to be similar and really tied to what you described in gross margin?
Kevin Cassidy: Thank you the.
Speaker Change: The next question is from Tristan <unk> with Baird. Your line is now open.
Speaker Change: Hi, a quick question you talked earlier about gross margin in Canada.
Speaker Change: For the rest of this year Directionally, how should we look at operating margin is it going to be similar in really tied to what you described in gross margin or is there anything else that could act as a driver of operating margin and increasing on the licensing side.
Desmond Lynch: Or is there anything else that could act as a driver of operating margin and including Hi Tristan, it's Des here. You know, as I talked about earlier, I do expect that the second half gross margin profile on the chip side will improve as a result of a stronger product mix in the second half, as well as manufacturing and cost savings kicking in from there. We've been really pleased with our overall model, you know, which is operating at the sort of mid 40% op income level and continues to generate really strong cash from operations, $77 million last quarter.
Tristan Baird: Hi, Tristan.
Speaker Change: It's here.
Speaker Change: I talked about earlier I do expect that the second half gross margin profile on the chip side and will improve as it has all of a stronger product mix in the second half as well as manufacturing cost savings.
Speaker Change: Kicking in from there we've been really pleased with the overall model, which is operating at the sort of mid 40% op income.
Speaker Change: <unk> continues to generate really strong cash from operations of $77 million last quarter. I think if you look at the progression of the business over the last year you can see that the business continues to improve both on the top and bottom line.
Desmond Lynch: I think, you know, if you look at the progression of the business over the sort of last year, you know, you can see that the business continues to improve both on the top and bottom line. And that's what we expect to continue to see going forward. We have a really robust business model, as Luc mentioned in his prepared remarks, and we continue to generate strong cash from operations as well. So we can see that continuing here going forward.
Speaker Change: And Thats, what we expect to continue to see going forward with a really robust.
Speaker Change: This model has mentioned in his prepared remarks, and we continued to generate strong cash from operations as well. So we can see that continuing going forward.
Tristan Gerra: Okay, and then as far as the price renegotiation that you talked about in Q1 and the mid single digit price adjustment Is there any, is that typical of what you see every year or was there any specific factors this year that... normal pricing renegotiation or I know that you're not Impacted by supply-demand dynamics.
Okay, and then as far as the price renegotiation that you talked about in Q1 in the mid single digit price adjustment.
Speaker Change: Is there any is that typical of what you see every.
Speaker Change: Every year or was there any specific factors this year that didnt happen in prior years, if you could maybe elaborate on what we should expect in terms of patterns from this end.
Speaker Change: Just normal pricing renegotiation or I know that you are not really.
Speaker Change: Packed it by supply demand dynamics.
Speaker Change: I don't know how that compares with what we're seeing.
Speaker Change: In prior years.
Desmond Lynch: Hi Tristan, it's Des again. What I would say is that the sort of mid single digit price erosion is really in line with normal cycles from there. This is the sort of normal cadence at the start of the year that we will see the price down on the products and really that is in line with our expectations from there. So nothing untoward on the sort of price side. As you correctly sort of point out, we're not really tied into the DRAM pricing sort of cycles in terms of the price from there. So a mid single digit erosion is the right way to sort of think about the ASP erosion of the business.
Speaker Change: Hi, Chris It's Dave again, why would say is that the sort of mid single digit pace, which is really in line with our normal cycles.
Speaker Change: This is the sort of normal cadence at the start of the year that we will see the price down on the products and really that is in line with our expectations and from there. So nothing untoward on the sort of place site.
Speaker Change: Kent can you point out we're not really tied into the DRAM pricing sort of cycles.
Speaker Change: <unk> is the place from data so the mid single digit erosion is the right way to sort of think about the ASP erosion of the business.
Tristan Gerra: Great, thank you very much. Thanks, Tristan. Thank you.
Speaker Change: Great. Thank you very much.
Speaker Change: Thanks, Jason.
Speaker Change: Thank you.
Operator: At this time there are no further questions. This concludes our question and answer session.
Speaker Change: Thank you at this time there are no further questions. This concludes our question and answer session I would now like to turn the conference back over to Luke therapy to conclude.
Luc Seraphin: I'd now like to turn the conference back over to Luc Seraphin to conclude. Thank you to everyone who has joined us today for your continued interest and time. We look forward to speaking with you again soon.
Luke therapy: 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 good day. Thank you.
Luc Seraphin: Have a good day. Thank you.
Luke therapy: Thank you. This now concludes today's conference.
Operator: This now concludes today's conference.