Rambus Inc., a leading provider of semiconductor and IP solutions, has reported its financial results for the second quarter of fiscal year 2024, showcasing solid performance driven by the strength of its chip business and strong cash generation.

Rambus is an industry-leading provider of chips, silicon IP, and innovations that address the fundamental challenges of accelerating data and enabling critical performance improvements for data center and other growing markets. The company's strategic objectives include focusing its product portfolio and research around its core strength in semiconductors, optimizing operational efficiency, and leveraging strong cash generation to re-invest for growth.

The company's consolidated revenue is comprised of product revenue, royalties, and contract and other revenue. Product revenue consists primarily of memory interface chips, which are sold directly and through distributors to major DRAM manufacturers, system manufacturers, and cloud providers. Royalty revenue is derived from the company's patent licenses, enabling customers to use a portion of its patent portfolio in their own digital electronics products. Contract and other revenue consists primarily of Silicon IP, which includes the company's high-speed interface and security IP.

Financials

For the fiscal year 2023, Rambus reported annual net income of $333,904,000, annual revenue of $461,117,000, annual operating cash flow of $195,786,000, and annual free cash flow of $172,546,000.

In the second quarter of 2024, the company reported revenue of $132.1 million, which was in line with expectations. Product revenue was $56.7 million, consisting primarily of Memory Interface Chips, while royalty revenue was $56.4 million and contract and other revenue was $19.0 million.

The company's top five customers represented approximately 63% of its consolidated revenue for the six months ended June 30, 2024, and 59% for the same period in 2023. Revenue from customers headquartered outside the United States accounted for approximately 57% and 58% of the company's consolidated revenue for the six months ended June 30, 2024 and 2023, respectively.

Operational Highlights

Rambus continued to execute well in the second quarter, with product growth fueled by ongoing leadership in DDR5 RCDs, progress in the qualification of its high-end DDR5 server PMICs, and the introduction of its Client Clock driver chip and suite of PCIe 7 IP solutions.

Memory Interface Chips grew 13% sequentially and delivered product revenue of $57 million, at the high end of expectations, driven by strength in DDR5. The company anticipates double-digit sequential and year-over-year product revenue growth in the third quarter of 2024, driven by its core RCD products and early contributions from new products.

In the silicon IP business, the company's results were led by increased design wins in HBM and continued strength in its suite of PCIe high-speed interconnect cores at tier one AI chip suppliers and hyperscalers. The introduction of the company's family of PCIe 7 IP solutions further expanded its IP offering for AI, as the company works with market leaders on their next-generation designs.

Liquidity

Rambus ended the second quarter of 2024 with cash, cash equivalents, and marketable securities totaling $432.9 million. The company generated $70.4 million in net cash from operating activities and $54.1 million in free cash flow during the quarter.

The company has a consistent approach to capital allocation and shareholder return, targeting the return of 40% to 50% of its free cash flow to shareholders. During the second quarter, the company repurchased $12.5 million of its stock, retiring approximately 221,000 shares.

Outlook

For the third quarter of 2024, the company expects revenue to be between $144 million and $150 million, with royalty revenue between $59 million and $65 million and licensing billings between $60 million and $66 million. Non-GAAP operating results for the third quarter are expected to be between a profit of $62 million and $72 million, with non-GAAP earnings per share between $0.47 and $0.54.

Risks and Challenges

Rambus operates in highly competitive and cyclical industries, with a high degree of revenue concentration in a few customers. The company's success is dependent on its ability to keep pace with technological innovations, secure new licenses and renew existing ones, and manage its supply chain and manufacturing processes effectively. Additionally, the company is subject to various government restrictions and regulations, including on the sale of products and services that use encryption and other technology, as well as those related to privacy and other consumer protection matters.

Conclusion

Rambus delivered solid financial results in the second quarter of 2024, driven by the strong performance of its chip business and outstanding cash generation. The company's strategic focus on expanding its product portfolio, including the introduction of new memory interface chips, PMICs, and client-focused solutions, positions it well to capitalize on the growing demand for data center and AI technologies. With a robust balance sheet and consistent capital allocation strategy, Rambus is poised to continue investing in innovative products and pursuing strategic initiatives to drive long-term growth and deliver value to its shareholders.