Rambus (RMBS)

[Threejack]

2Q CC Transcript

After the intro by Satish Rishi...

Now, I will turn the call over to Ron.
Ron Black - President and Chief Executive Officer

Thank you, Satish and good afternoon everyone. We had a great second quarter with revenue of $76.5 million which came in at the high end of our upwardly revised guidance and was up 32% year-over-year. Our pro forma net income was $18.9 million also above our guidance and we were again GAAP profitable sticking to our goal of maintaining that profitability quarter after quarter.

As a result, we are happy with our first half financial performance, especially in light of the fact that there were some significant downsides such as the revenue expected from Sony PS3, that were offset by securing new customer. Satish will provide more detail on this in his section but in summary while we are ahead of our plan today, we are not raising our full year guidance. As I have mentioned on previous calls, our approach to setting guidance is that multiple ways to achieve the range and always avoid creating a situation where a customer will demand price reduction in order for us to achieve the quarterly forecast.

Sometimes this results in us exceeding our guidance range or lumpy revenue but I can assure you that this is the result of what we believe to be an appropriately forecasting methodology. So while there are scenarios where we can exceed at the annual guidance of $295 million to $305 million, at this point we simply can't commit to them.

One of the big highlights of the quarter was the launch of CryptoManager, our secure feature management platform with Qualcomm as lead customer. This platform provides chip and device companies with a hardware root of trust as well as an infrastructure that enables end-to-end security through the SoC design and manufacturing process. We are working closely with Qualcomm to integrate this solution into their application processes to provide advanced hardware based security provisioning throughout the manufacturing process.

Feedback from the market on CryptoManager has been excellent. We are engaged with several new customers as we come out of stealth mode. We have a wealth of information about CryptoManager on our Web site and have created a video that shows the benefit of CryptoManager solution in a fund easy to digest manner. Please check it out. Touching on the strategic and tactical relevance of CryptoManager, I think that you all agree that security is an important topic as the news is often highlighting enormous security breaches. We believe that CryptoManager platform can be a game changer in helping our customers and their customers improve security.

If you recall, we have speaking a lot about the importance of collaborating with the industry and finding ways to more broadly engage to deliver our solutions. This was the basis for our decision last quarter to join the JEDEC JC-40 committee and it provides us a platform from which we can work with the industry to help define and drive important requirements to improve power and performance in cloud and server based memory environments.

One of the things that I am happy to consistently report on is the fact that the memory industry is once again healthy and consequently becoming more influential in driving system architecture. We believe that some of our architectural innovations can dramatically improve power and performance and we hinted at some strategic programs at our Analyst Day in June although we were necessarily vague because the program is still in stealth mode. What we did indicate, however, is that the opportunity was on the order of $450 million today growing to over $600 million by 2018.

I am happy to report today that we have signed a memorandum of understanding with a large, strategic customer and have initiated development on the program which will run through 2015 and is expected to generate significant revenues for us in 2016. At Satish will outline in more detail later, we are increasing our expenses in the second half given the enormous growth potential for this program.

Looking back over the last two years, we are proud of our accomplishment. We started with profitability through a modest restructuring, augmentation of the strategy to collaborate with the industry and profitably resolve litigation, refinement of our portfolio by curtailing investment in some areas to afford more in other areas, and most recently with the launch of truly innovative solutions like CryptoManager. With this positive momentum in completion of the turnaround, we are increasingly looking forward to determine how we best collaborate with the industry and influence future architectures in the cloud, in mobile and in the Internet of Things.

To this end, we have created chief scientist positions and promoted Paul Kocher, who we previously was the General Manager of our cryptography division, and Craig Hampel, who is a Rambus fellow focused on memory and system architecture, to be Rambus chief scientists. You will be hearing more from both Paul and Craig in the near future. Martin Scott, formerly our CTO, will be taking over from Paul running our cryptography division. Martin has extensive experience as a General Manager having scaled several businesses in HP and PMC-Sierra. Laura Stark will expand her role and strategy and also run Martin's previous group which included Rambus labs, our lighting division and our new initiatives. Laura's group is called emerging solutions division.

In closing, I believe we are well situated to capitalize on the right opportunities and are properly structured to grow the business. We are building the right teams and investing in the right areas to build for the future growth and I am confident that revenue will follow suit. We believe we have several avenues in line that could more than double the size of the company in the coming years. With that, I will turn the call back over to Satish to give a read out on the quarterly results. Satish?

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