Rambus Inc.(RMBS) posted a third quarter 2010 loss per share of 27 cents, missing the Zacks Consensus Estimate of 17 cents. The adjusted loss per share excludes restatement and related legal charges and gain from a legal settlement. Shares dipped 1.66% after the market closed.
Revenue
Rambus reported total revenue of $31.7 million in the third quarter, up 13.9% from $27.9 million in the year-ago period, but down 18.4% from $38.9 million in the prior quarter. The quarter’s revenue also missed the Zacks Consensus Estimate of $37.0 million.
However, the increase from the year-ago period could be attributed to a 15.9% year-over-year increase in licensing revenues, fueled by royalty payments from Samsung. This was partially offset by weaker revenue from Contracts, which tumbled 42.2% from the comparable quarter last year, due to lower number of contracts.
During the quarter, Rambus signed a patent licensing agreement with Nvidia Corp. (NVDA) for certain memory controller patents, for which the latter will be paying a 1% royalty rate on SDR memory controllers and a 2% royalty rate for other memory controllers.
Operating Results
Total operating expenses in the third quarter were $43.2 million, down from $48.5 million in the year-earlier quarter. The improvement could be attributable to a gain of $10.3 million related to the Samsung settlement, and lower marketing, general and administrative expenses, partially offset by higher research and development expenses.
The operating loss in the quarter was $11.5 million, an improvement of 44.4% from an operating loss of $20.7 million reported in the year-ago quarter. The operating margin was a negative 36.2% in the third quarter compared with a negative 74.1% in the year-ago quarter. The improvement in operating results was driven by higher revenue and lower operating expenses.
Reported net loss was $20.6 million or 18 cents per share, compared with a net loss of $27.5 million or 26 cents in the comparable quarter last year. Excluding the effect of restatement and related legal activities charges and gain from settlement, the adjusted loss per share comes to 27 cents.
Balance Sheet
Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $484.9 million, compared with $597.6 million in the prior quarter. The decrease in cash balance was due to aggressive share repurchase and acquisition of intellectual property.
During the reported quarter, Rambus repurchased 500,000 shares for a total consideration of $9.8 million. Rambus also entered into an Accelerated Share Repurchase agreement (ASR) to repurchase $90 million of its common stock.
Guidance
For the fourth quarter, Rambus expects revenues to range between $40.0 million and $50.0 million. Operating expenses are expected to be in the range of $46.0 million to $51.0 million, accounting for a $10.0 million credit from the Samsung settlement, litigation expenses of $6.0 million to $9.0 million, stock based compensation of approximately $8.0 million and the Samsung settlement bonus accrual of approximately $5.0 million.
Our Take
Rambus reported an uninteresting third quarter and missed the Zacks Estimates on both the top and bottom lines. Though Rambus guided to a sequential increase in revenue, we believe that it will be in loss territory for the next quarter since operating expenses will surpass the revenue growth rate.
However, we remain slightly positive on Rambus’s endeavor to diversify into the lighting and display technology space in an effort to grab the tremendous opportunity of solid state lighting. We believe Rambus is well positioned as a key player to meet the escalating demand for LED lighting technology with the help of its tie-up with GE Lighting, a unit of General Electric Company’s (GE) Appliances & Lighting business.
Though Rambus has won a favorable ruling from the U.S. International Trade Commission (ITC) for lawsuits filed against various parties, including chip maker Nvidia Corp. and PC makers Hewlett-Packard Co. (HPQ) and Asus Computer International Inc., pending lawsuits against Hynix and Micron Technology Inc. (MU), as well as competitive pressure from Samsung Electronics are a concern.
We currently have a short-term Hold recommendation (Zacks #3 Rank) on Rambus shares.
RAMBUS INC (RMBS): Free Stock Analysis Report
Zacks Investment Research
