Rambus Inc. (RMBS) Earnings Call Transcript & Summary

Got it. And then on to everyone's favorite topic tariffs. So you said patent licensing is not affected. But on the Silicon IP and product side, it's tougher to gauge the indirect impact. How should we think about the overall impact today, just given, obviously, every day, we're hearing so much more. But compared to, say, at the end of April when you reported, I think a lot of the nuances have more stabilized. So how should we think about it today?

So if you look at our business, our patent licensing business, as you correctly say, is completely immune. These are legal agreements that are long-term agreements with our customers, and there's no exchange of technology there. So that business is about $210 million, 100% margin. So that gives us a very solid base in terms of protection against tariffs. But the silicon IP business is also not affected by tariffs. We actually provide IP to our companies. Actually our exposure to China, even with our IP business is very small as a company. It's a low single-digit percentage of our business. So even if there were questions about tariffs with silicon IP, and they're not, then that would be having minimal impact on us. Then the question is about our product business. Our product business last year was about $250 million. We review our situation with respect to tariff almost on a weekly basis. And at this point in time, we are not affected. One of the reasons is that our front-end supply chain is in Taiwan. Our back-end supply chain is in Taiwan and Korea and not in China. And we're selling our products to the memory vendors who typically buy them in Asia. So at this point in time -- and these products are exempt at this point in time. Things can change, but we are under these exemptions. So at this point in time, there is no impact. There might be indirect impacts that we're watching. One is, if other companies shift their supply chains away from China to other areas in Asia, will this create a supply crunch that indirectly affect us with our suppliers? And the second thing is the overall uncertainty in the market that we -- are these tariffs going to destroy I would say, demand. But these are indirect effects for us that we're watching. In terms of direct effects, there's no direct effects at this point in time.

Understood. Just going back to the China exposure. Obviously, we're hearing EDA companies being left out of that market. Would you say that's also a similar risk for you on the IP business?

There's always this risk, but we -- that's not something that is new to us. As much as we review tariffs on a regular basis, we also review restrictions with respect to IP on a regular basis. We've been doing this for years, well before tariffs were in place. And at this point in time, we've had very, very little impact. And as I indicated earlier, our exposure to the China market is very small. It's low single digit. So even if we had a 100% impact, that would have a low single-digit impact on our business. But today, there is no impact.

Understood. Moving on to the companion chip opportunities. You launched 8 new chips last year. I believe you said you expect about low single-digit contribution in the first half. How should we think about it as we go into the second half? And obviously, next year, we should see some more of a ramp. If you can either quantify or either qualify or have some description for us.

Yes. The -- as we indicated earlier, when the market moved from the DDR4 generation of memory modules to the DDR5 generation of memory modules, the industry through JEDEC, by the way, everyone has to agree, the industry decided that some functions that were sitting on the motherboard in the DDR4 generation of products had to be implemented on the memory module instead in the DDR5 generation of products. So when you move from DDR4 to DDR5, on the module instead of having 1 RCD chip in the DDR4 generation, on the DDR5 generation, you have 1 RCD chip, 1 power management chip, 2 temperature sensors and 1 controller chip, which we call SPD Hub. When that transition happened in the market, our strategy was to make sure that we secure the RCD chip market share first because that's the most complex chip to make. And that explains why we could move from 25% share on DDR4 to more than 40% in DDR5 because we wanted to focus on that. That transition was extremely strategically important for us because that's the most complex chip. And then we started to develop our companion chips. The next most complex chip on that module is the power management chip. And in the first generation of DDR5, we were not playing. There were a lot of players. Actually, a few have survived, a lot of have not survived. And one of the reasons is that doing a power management chip is one thing, doing a power management chip in a module environment where it's very noisy, it's very tight in terms of real estate, it's thermally challenged is a different thing. So we invested in our power management chip team and in-house development about more than 2 years ago. We've introduced our power management chips last year in April. And we have also introduced the other companion chips. Now like everything in that market, you have to intercept the platform from Intel and AMD. That's how the market works. So these platforms that use our generations of power management chip and companion chips are going to start ramping if they're not late, in the second half of this year. So the way to look at it is you were right today, it's a low single-digit portion of our revenue as we ship preproduction qualification quantities. When this platform ramps towards the second half of this year, we're going to see our share growing, and we're going to see the bulk of that growth in 2026. We've been public about saying that for these companion chips, our objective is to reach about 20% share at this point in time because the competition landscape is a bit different. But obviously, you will try to do more than that.

On your MRDIMM chipset, Obviously, qualifications are ongoing. It probably depends a lot more on the customer side when they ramp their products. But what would you say is a realistic ramp timing for Rambus? When would this be more material for you?

Yes. So for people who don't know, the MRDIMM chipset, it's a very interesting concept. It's the idea that on a memory module you actually double the amount of memory and you multiplex the access of the memory onto the memory bus. So what it allows you to do or the industry to do is with exactly the same infrastructure, the same CPU architecture, you can picture the idea of removing a standard DDR5 module and plugging in an MRDIMM instead, and you, all of a sudden, double the capacity and double the bandwidth. So it has a lot of traction because as I said earlier, people are always looking for more bandwidth and more capacity. And it had to be -- again, the industry had to converge on the exact definition of this MRDIMM. That's why when we announced it, we say, is the first JEDEC compliant because that can give you security that the industry is going to use it. So as we explained for the companion chip, this MRDIMM is linked to a platform launch. And this is a platform launch that will happen in 2026. So we have developed the products, we have sampled the products to our customers. They're going through all of their lengthy qualification process. But the product will ramp with the ramp of the follow-on generation of CPUs, which, at this point in time, is scheduled for the second half of 2026. So we're going to see the initial ramp of those products in the second half of 2026.

Got it. And then last one on products. If we talk about the client opportunity, and you've alluded to this earlier as well, but the clock drivers, how should we think about the opportunity there? And it's ramp timing?

Yes. So why do we go there first? Some of the challenges in the data center have to do with the environment. You have to transmit signals faster and faster between the processor and memory in a very noisy environment. And it's very tough to do, especially when you have to double the speed at such a fast pace. So that's why we developed RCD chips on the CPU side. And the RCD chip is all about what we call signal integrity. It's about transmitting very smooth signals in a very noisy environment without losing data. Those requirements did not exist or don't exist today on the client space. But as client systems become more and more performant in terms of speed, what we see is that on the high end side of next-generation platforms on the client side, we're going to face similar challenges in terms of signal integrity. And we're going to have to have chips that actually reconstruct those signals as we do on the CPU side for data centers. And that's what the client -- clock driver is. So it's going to address a very small portion of very high-end PCs, if you wish. So the market is going to be modest. We expect the market to be about $200 million for that. And the ramp is starting now and it's going to grow quarter-over-quarter through 2026. But strategically, what's going to happen is, as time passes, there are more and more client systems that are going to require that signal integrity function. And the client systems are also going to require some elaborate power management functions. And what we see is that we're going to see the technologies we developed for the data center waterfall into the high-end client systems. And with time, more and more of these client systems are going to use these technologies. So CKD is the first one of that building blocks that we are building for the future.

Got it. Moving on to silicon IP. Obviously, the HBM market is the one that's driving. How should we think about your content when the HBM3 stack moves from 8 high to 12 high? And then on to HBM4, is there an uplift there?

So our silicon IP business for people who are not too familiar with this, this is a very different business model. So we actually develop memory controller in the case of HBM, memory controllers, and we sell a license of these memory controllers to typically semiconductor companies and these semiconductor companies integrate this into their chips, whatever chips, these maybe an ASIC, it may be a CPU, DPU GPU, custom ASIC. So what this means is that we have to develop those controllers probably between 18 months and a couple of years, we have to engage with those customers 18 months to 2 years before those chips are actually in the market. So in terms of HBM3 and HBM4, we were -- we've been engaged with customers for a couple of years now in HBM3. We announced HBM4 last year, and we were engaged with customers on HBM4 last year already. We actually, I think, indicated when we commented on our Q4 results that one of the reasons we had good silicon IP results in Q4 was actually driven by the demand for HBM4 controllers. And our strategy on HBM has always been on these controllers to be a little higher in speed and performance than what the market requires. So we have very early engagements into -- with our lead customers, ahead of what the market needs because we have to be like 2 years ahead. The size of the stack does not really drive our development, but the speed really drives the development. We always have -- we always try to have -- to be at a slightly higher speed than what the market requires. But the demand for AI training, in particular, where you have GPUs using HBM memory, drives the demand for HBM silicon IP controllers. And what we have to understand is that in a GPU HBM environment, there's no equivalent of a buffer chip. There's not a chip that sits between the GPU and the HBM memory. As you said, there's a stack of memory, but inside the GPU, there's an HBM controller that we sell silicon IP that drives the connection to these HBM memory. So it's been a good driver of our growth of the silicon IP business. As you know, our silicon IP business is about $120 million a year. We say it's growing 10% to 15% per year. Part of this 10% to 15% has been actually driven by the demand for HBM over the last couple of years.

Got it. I know we're running out of time, but an important question for Des, as we think about the margin trajectory, Q1 was a little bit weaker on the product side. You have a lot of different factors going on. I mean you have the price negotiations, the cost downs, price erosions. So how should we think about the second half outlook and into 2026, you also have the companion chips ramping?

Yes, it's a good question. I would say on the product gross margin side, we have a long-term target of 60% to 65%. If you look over the last sort of 3 years' annual performance, we've been operating at 61% to sort of 63% from there. So certainly within our sort of targeted range. So we're very pleased with how we've been able to operate and this is a healthy margin for the chip business. What we said is we've done a really nice job as a company. We've been disciplined on the price side as well as been able to continue to make manufacturing cost savings to maintain that sort of margin level. As it relates to the new product contribution, that will be contained within the overall 60% to 65% sort of gross margin target. Obviously, any given quarter depending upon mix and where the products are within that cycle, the margin can move around a little bit. But I think in the long term, we have a good track record of delivering on the product gross margin side, and that's something we'll continue here sort of going forward from here.

Awesome. I think we run out of time. So thank you so much for coming. Thank you for the audience as well.

Thank you.

Thank you.