Rambus' CEO Presents at SK Hynix Settlement Agreement Conference (Transcript)

Jun.12.13 | About: Rambus, Inc. (RMBS)

Rambus, Inc. (NASDAQ:RMBS)

SK Hynix Settlement Agreement Conference Call

June 11, 2013 5:00 pm ET

Executives

Satish Rishi – Senior Vice President and Chief Financial Officer

Ronald D. Black – President and Chief Executive Officer

Jae Kim – Senior Vice President and General Counsel

Analysts

Mike D. Cohen – MDC Financial Research LLC

Hamed Khorsand – BWS Financial, Inc.

Mike Crawford – B. Riley & Co.

Operator

Good day, ladies and gentlemen, and welcome to the SK Hynix Settlement Agreement Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Satish Rishi. Please go ahead.

Satish Rishi

Thank you, operator, and welcome to the special conference call regarding the settlement with SK Hynix. Thank you also for joining us at such a short notice. I’m Satish Rishi, CFO, and with me today are Ron Black, our CEO; and Jae Kim, General Counsel.

A replay of this conference call will be available for the next week at 855-859-2056. You can hear the replay by dialing the toll-free number and then entering ID number 94783491 when you hear the prompt. In addition, we are simultaneously webcasting this call and a replay can be accessed in our website beginning today at 5:00 p.m. Pacific Time.

I need to advise you that the discussion today will contain forward-looking statements regarding our financial prospects, pending and current litigation, and demand for our technologies among other things. These statements are subject to risks and uncertainties, which are more fully described in the documents we file with the SEC, including our 8-Ks, 10-Qs and 10-Ks. These forward-looking statements may differ materially from our actual results, and we are under no obligation to update these statements. You can find more information on our website at www.rambus.com on the Investor Relations page.

Now I’ll turn the call over to Ron.

Ronald D. Black

Thanks, Satish, and good afternoon, everyone. As I’m sure you have seen by now, today we announced an important license agreement with SK Hynix. As many of you know, Hynix sued Rambus originally in 2000. So we have been involved in litigation with them for over 12 years. I was not here when the dispute started, but I’m happy to be here when we have settled our differences.

Returning to what great engineering companies do, collaborate in the industry to make outstanding products for our customers. As you would expect our agreement with investing SK Hynix settles all outstanding disputes to provide them a five year license to Rambus memory and interface patents and a fully paid up license going forward for some selected year-end products.

In exchange, Rambus will receive quarterly payments of $12 million over five years with a total payment of $240 million. This agreement is fair and reasonable and the market rate that it establishes is consistent with our overall model. Moreover, this is the second largest deal Rambus have signed ever. So financially, it is big for us and something that is very good for Rambus shareholders.

The payments will start in the third quarter of this year so they will not affect the revenue for the current quarter. With this settlement, we only have ongoing litigation with one major DRAM company that we believe infringe Rambus patents that being Micron, and with STMicroelectronics, the only remaining SoC company stemming from the action filed in 2010.

Now let me frame the situation overall a bit more. A little less than a year ago, we outlined a strategy to go back to our roots and focus on delivering outstanding technology to our customers in the industry at large. We said clearly that our preference was not to litigate, but to settle under fair and reasonable terms for both sides, and when settlement is in the best interest of our shareholders.

To capture this approach in words, we updated our tag line which used to read Rambus, a company of inventors to Rambus, bringing invention to market. I think we have proven that we are delivering on our strategy and remaining true to the cause over the last quarters.

Just to remind you, we have announced the following over the last several quarters. Re-signing an agreement with Fujitsu, re-signing an agreement with Alpeda, signing a new agreement with LSI, design collaboration on memory and I/O interfaces with global foundries on their advanced 40-nanometer FinFET process, use of CRIs, CryptoFirewall, cryptographic core and DPA technology by Marvell, DPA countermeasures deployed by Broadcom across their entire set-top box product line, CryptoFirewall licensed with Ecostar to combat piracy for conditional access applications, transferring a set of display patent assets to Acacia Research. and last, but certainly not least, the channel partnership with the Elite Group, who is selling our novel LED based light bulbs.

And by the way, we announced a new really cool color change bulb portfolio on Monday that I suggest you all look for. The agreement we have reached with SK Hynix is a further proof point that our strategy is working. Moreover, we look forward to engaging more with the industry at large and possibly even participating in standard setting organizations consistent with rules and in a fair manner.

Having made it clear that our intentions are to collaborate with the industry, I would remiss, however, if I did not also make the balance point that Rambus will when appropriate aggressively defend our IP. By now I hope the customers and shareholders clearly understand that any decision we make in such matters will be based on sound business judgment in the best interest of our shareholders.

Now, we’d like to open the lines for questions. Operator, please open the lines.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Mike Cohen with MDC Financial Research. Your line is open.

Mike D. Cohen – MDC Financial Research LLC

Great, congratulations on settling something that’s almost 13 years outstanding. And I do believe just to comment, I think you mentioned that was the second largest licensing deal, I think it’s the third largest, I think Samsung was first, Intel back in 2001 for $500 million I think was the second. And I think this is the third largest. My question though however is, so the only outstanding litigation that you have with regard to DRAM is that the antitrust litigation with Micron, the appeal of that or is there others?

Jae Kim

Yes, and Michael, this is Jae Kim, I’ll answer that question. So if you recall, we have the DDR2 case, which was stayed back in February of 2009, which has still stayed and we’re still analyzing the impact of this settlement on that case and we’ll have to determine best course of our action going forward. The other case is with respect to DRAM, there was a companion case filed in the northern district against Micron, which was also stayed back in 2009 and we’re sort of in the same status on that. Obviously, we still have the Fed Circuit appeal from Judge Robinson’s decision back earlier this – in 2012 and then the appeal in the San Francisco price fixing case.

Mike D. Cohen – MDC Financial Research LLC

Okay. And the companion case that you just referred to with regard to Micron, isn't that the same as the DDR2 case?

Jae Kim

Yeah. Those were coordinated. So but they were filed separately.

Mike D. Cohen – MDC Financial Research LLC

Okay. And so the remaining defendants there would be Micron and Nanya, correct?

Jae Kim

That’s correct.

Mike D. Cohen – MDC Financial Research LLC

Okay. And then I believe you also have a Court of Appeals Federal Circuit, the various appeals of – things out of the USPTO, I think those are still outstanding?

Jae Kim

that’s correct. Yeah, those are, in most cases, related directly to the litigation.

Mike D. Cohen – MDC Financial Research LLC

Correct, okay. Thank you very much, I appreciate it.

Operator

(Operator Instructions) Our next question comes from Hamed Khorsand with BWS Financial. Your line is open.

Hamed Khorsand – BWS Financial, Inc.

Hey, congrats guys, apologies for background noise. Could you just clarify as far as what your operating expenses will look like from a legal standpoint, how much of a reduction could we see going forward?

Satish Rishi

Yeah, Hamed, it’s too early to tell as there definitely will be some reduction, but as judges pointed out, we do have a couple of other cases still pending. So there might be a small impact and as we give our guidance for Q3, we’ll update the numbers for you.

Hamed Khorsand – BWS Financial

Okay. And one other question was on the scope of the settlement. You said that it’s just $12 million a quarter. Is there any chance for any royalties beyond that for any new technologies?

Jae Kim

So, this is Jae Kim. So the agreement provides for fixed payments.

Hamed Khorsand – BWS Financial

Okay.

Jae Kim

If you are talking about any other technology license, this is agreement and this settlement relate only to the patent license. So hopefully that addresses your question.

Ronald D. Black

Yes, Hamed, we have some collaboration with them and we have some new technologies that they use, we could have additional revenue coming from technology licensing revenue, which is not included in these numbers.

Hamed Khorsand – BWS Financial

Okay, great. Thank you.

Ronald D. Black

Thanks.

Operator

(Operator Instructions) We have a question from Mike Crawford from B. Riley. Your line is open.

Mike Crawford – B. Riley & Co.

Thank you. With the company now profitable on a recurring basis, I think investors are going to look to some of your growth drivers. Is there a way you could frame your thoughts on what technologies are going to drive your growth in 2014 and beyond? Could you maybe weight what you are expecting from say, cryptography versus binary pixel versus LED?

Ronald D. Black

We don’t really have a model developed on that, Mike, at least not one that we’ve published externally. So I won’t do that. But I will say like we’ve did it at your conference that we see starting really in the second half of this year the acquired businesses on LED and Cryptography to start growing substantially. This is clearly an upside for us. We are very prudent with respect to the memory and interface business. We look forward to signing additional agreements with Micron and STMicroelectronics, which would also be upsides. So I’m not in a position to say it, but right now I am feeling rather good about all of our businesses and think that they are positioned to grow.

Mike Crawford – B. Riley & Co.

Okay, thank you.

Operator

This ends our Q&A session. I’ll turn it back to Ron Black for closing remarks.

Ronald D. Black

Thank you very much and thank you for taking the time in such a short notice. We look forward to speaking with you in the future. Good day.

Operator

Ladies and gentlemen, thanks for participating in today’s program. This concludes the program. You may all disconnect.

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