Rambus (NASDAQ: RMBS) creates technology that speeds data transfers between microchips. Its clients are semiconductor manufacturers who use this technology to make their chips and then pay royalties to Rambus - in fiscal 2007, 86% of the company's revenue came from licensing patents. The chips made using Rambus' technology are key components in consumer electronics, including Sony's Playstation 3 and HD televisions.
The company posted net income losses of $13.8 million and $27.7 million in fiscal years 2006 and 2007, respectively. These losses are the result of modest revenue decline coupled with dramatically increased spending on R&D and marketing, as well as new costs associated with Rambus' ongoing legal troubles.
Rambus is fighting a legal battle with the Federal Trade Commission over patent disputes with members of the Joint Electron Device Engineering Council. Several microchip makers, including Hynix Semiconductor (HXSCL), Micron Technology (MU), Nanya Technology Corporation, and Samsung Electronics, contend that Rambus knowingly withheld patent information, forcing them to accept chip designs for which they would have to pay royalties. In fiscal years 2005, 2006, and 2007, Rambus has spent $38 million, $39 million, and $40 million in litigation expenses to defend this and other lawsuits (24%, 20%, and 22% of total revenues, respectively).
Rambus' revenues come from royalties paid for the licensing of the company's patents and products.
Rambus' income has fallen dramatically since 2005, when the company earned $28.9 million.  In fiscal 2006 net income fell 148% for a loss of $13.8 million, while in fiscal 2007 revenues fell 7.9% to $180 million and income dropped even further (100%) as the company posted a loss of $27.7 million. The sharp decreases in net income since 2005 can be attributed to increased R&D and marketing spending as well as "costs of restatement and related legal activities" relating to an improperly dated stock option investigation. An increase in stock-based compensation (classified under "marketing") from $8.5 million in 2005 to $17.5 million and $22.7 million in 2006 and 2007, respectively, is primarily responsible for the dramatic increase in marketing spending over the last three years.
|Year||Total Revenues||Total Costs and Expenses||Costs of Restatment and Related Legal Activities||Total Costs Less Costs for Restatement and Legal Activities||Net Income||Net Income Removing Costs for Restatement and Legal Activities|
|2005||$157 M||$153 M||$0 M||$153 M||$29 M||$29 M|
|2006||$195 M||$235 M||$31 M||$204 M||-$14 M||$17 M|
|2007||$180 M||$250 M||$19 M||$231 M||-$28 M||-$9 M|
In fiscal 2007, royalty revenues accounted for 85.8% of total revenue, compared with 86.5% in 2006 and 82.9% in 2005. In total, royalties brought in $154 million dollars in fiscal 2007. Rambus' royalty revenue comes from two primary streams:
Making up the remainder of Rambus' revenue stream, contract revenues consist of fixed license fees, fixed engineering fees, and service fees associated with the integration of Rambus' chip interface products into its customer's products.
For fiscal 2007, Rambus spent $82.9 million on research and development (while earning revenues of $108 million). Of total employees, 67% are engineers who devote most or all of their time to R&D, specifically, the development of new chip interfaces and new versions of existing chip interfaces to allow chip data transfer at higher speeds. As previously mentioned, Rambus gets 85.8% of its revenues from royalties paid by the company's licensing partners, virtually all of whom have the right to cancel those licenses at any time, making ongoing research and development of new products for licensing essential to the company's success. The company spent $83 million on R&D in FY2007, over 46% of its revenues.
Rambus' XDR DRAM (extreme data rate dynamic random access memory) is the primary memory hardware in the Sony Playstation 3, as well as DLP's new generation of front projectors and several brands of HDTV.. In Fiscal Year 2008, Sony reported 26.3% sales growth within its game segment as demand for the Playstation 3 continued to increase. The more Playstation 3 units that are sold in 2008, the more revenues Rambus will earn in royalties on the year.
In August of 2000, Hynix Semiconductor (HXSCL) and various subsidiaries filed suit against Rambus claiming violation of antitrust laws and deceptive practices in connection with Rambus' participation in the Joint Electron Device Engineering Council, the trade association that represents the electronics industry in the United States. Rambus denied these claims and filed counterclaims against Hynix for patent infringement. In the most recent phase of the protracted case, the court ordered a coordinated trial of common JEDEC-related claims, extending the lawsuit to include Micron Technology (MU), Nanya, and Samsung. The chip-makers contend that Rambus knowingly withheld patent information, forcing them to accept chip designs for which they would have to pay royalties. This coordinated trial began on January 29th, 2008 and remains open.
Additionally, in 2006 several Rambus shareholders filed actions against Rambus seeking damages in connection with improperly dated stock options. The company spent $31 million and $19 million (16% and 11% of revenues) on legal and audit fees to address these issues in 2006 and 2007, respectively.
Rambus operates in the semiconductor industry, a sector that is intensively competitive and particularly victim to rapid technological change and short product life cycles. Three of Rambus' primary competitors include:
|Company||Revenue (most recent filing)||Total Operating Costs (most recent filing)||Net Income (most recent filing)||Net Profit Margin (most recent filing)|
|Rambus, Inc.||$180 M||$250 M||-$28 M||-15.37%|
|Intel||$38.3 B||$30.2 B||$6.98 B||18.20%|
|Texas Instruments||$13.8 B||$10.3 B||$2.64 B||19.09%|
|Cypress Semiconductor||$592 M||$556 M||$23 M||24.97%|