Rambus Inc. Q2 2010 Earnings Call Transcript

Jul.23.10 | About: Rambus, Inc. (RMBS)

Rambus Inc. (NASDAQ:RMBS)

Q2 2010 Earnings Call

July 22, 2010 5:00 p.m. ET

Executives

Satish Rishi, SVP & CFO

Harold Hughes, President & CEO

Tom Lavelle, SVP & General Counsel

Sharon Holt, SVP, Licensing & Marketing

Analysts

Jeff Schreiner - CapStone Investments

Michael Cohen - MDC Financial Research

Hamed Khorsand - BWS Financial

Mike Crawford - B. Riley & Company

Operator

Good day ladies and gentlemen and welcome to your Q2 2010 Rambus Incorporated Conference Call. At this time all participants will be in a listen-only mode. But later we will conduct a question-and-answer session which instructions will be given at that time. (Operator Instructions). And as a reminder, today's conference call is being recorded.

And now it's my pleasure to announce your host, Satish Rishi.

Satish Rishi

Thank you operator and welcome to the Rambus second quarter 2010 conference call. I'm Satish Rishi, CFO and on the call today are Harold Hughes, our President and CEO; Tom Lavelle, our General Counsel; and Sharon Holt, Senior VP of Licensing and Marketing.

The press release for the results that will be discussed here today has been filed with the SEC on Form 8-K. A replay of this conference call will be available for the next week at 888-203-1112. You can hear the replay by dialing the toll-free number and then entering ID number 86009440 when you hear the prompt. In addition, we are simultaneously webcasting this call and a replay can be accessed on 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 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 filed with the SEC, including our 8-Ks, 10-Qs and 10-Ks.

These forward-looking statements that differ materially from our actual results and we are under no obligation to update these statements. Further as we have in previous calls, we will discuss non-GAAP financial measures on the call today and we have posted reconciliations of these non-GAAP financials to the most directly comparable GAAP measures on our website.

With that I'll turn the call over to Harold. Harold?

Harold Hughes

Thanks, Satish and good afternoon everyone. For the quarter we reported customer licensing income of $49.2 million at the high end of the guidance we provided on our last quarterly call. This result benefiting from a successful license agreement we signed with Samsung at the beginning of the year. We're also seeing strong patent and solutions licensing revenues from our licensees driven by growing worldwide sales of computers and consumer electronics. This includes year-over-year increases in royalties from Samsung -- excuse me from Sony's PS3, that's been a 40% jump in sales since last years launch of the PS3 phone.

We had expected during the quarter to receive decisions regarding both the ITC action and the coordinated cases before the CIFC. As you know that did not happen as both were delayed. Tom will go into more detail about progress in our legal front later in the call.

Meanwhile, we are having very constructive discussions with potential licensees for our Mobile XDR Memory which we introduced in Q1 of this year. The Mobile XDR Memory Architecture offers a high bandwidth, low power memory solution tailored to the power and performance requirement for next-generation mobile products. Mobile XDR Memory delivers data rates of up to 4.3 gigabits per second. That's about 10 times faster than the memory in today's leading Smart Phones. It delivers this performance with an unmatched power efficiency of 2.2 megawatt per gigabits per second.

High performance at low power make it possible advanced applications life HD Video capture and 3D gaming in mobile phone. And Mobile XDR Memory superior power efficiency means that users can have an additional 30 minutes or even more of battery life while running these demanding applications.

During the quarter furthered our drive adoption efforts as industry thought leaders. In May, Rambus Fellow Craig Hampel presented about the memory bandwidth requirement in the age of multicore computing. As multicore becomes pervasive, DRAM memory sub-systems will be severely challenged to deliver the required data throughput. Craig talked about how Rambus innovations increased bandwidth and throughput while adjusting the power problems with multicore systems.

Solving these challenges has relevance across the entire electronics landscape. Next week at (inaudible) Micom we will show how Rambus innovations can advance the performance of DDR3 memory solutions. Also thanks to our innovations, higher performance DDR3 controllers can be implemented in low cost wire born packing new technology. This is a chip packaging of choice for HDTV and other high volume consumer electronics products.

Thanks to our long term commitment to innovation, we mark the milestone of reaching 1,000 issued patents early this month, with tremendous credit going to Rambus scientist and engineers who have developed so many valuable inventions for the benefit of the industry and it customers. It's also a credit to the patent team who provides such outstanding support to our inventions.

We also marked a great start for our diversification efforts with signing of the GE licensing for our lighting and display business. This is like getting a whole note at your first major to get back. GE is a renowned leader in lighting. To partner with GE as our licensee demonstrates the incredible value of technology that Jeff Parker and his team has created. GE and Rambus have signed a broad technology and patent license agreement for LED based lighting.

Under the agreement we will provide patented lighting innovations, advanced product designs and manufacturing technology to GE and it's supply chain to use an LED lighting products. This is an non-exclusive royalty barring agreement where GE will pay Rambus for the use of our patented technology and know-how. The agreements 10 -- it's for a 10 year terms with an option to extend for an additional 5 years. This demonstrates GEs long-term commitment to working with Rambus. Together we believe we can revolutionize the lighting market with products built on our patents inventions.

GE has access to Rambus's suite of advance lighting solutions including LED edge-lit optical designs, microwaves, light distribution features and high volume low cost light guide panel and optical film manufacturing technologies. Rambus will provide GE with design for advance LED lighting products that make use of these patented innovations.

In addition we'll provide consulting services to GE and it's supply chain partners to design and bring up the their manufacturing lines to produce these LED lighting products with Rambus's high volumes low cost manufacturing technology. It will take some time for GE products based on Rambus technology to be developed and in sell in volumes that generate meaningful royalties for Rambus. But the future potential of this agreement is tremendous. LEDs hold great promise for the general lighting market. LED based lights have long operating lives and energy efficiency. LEDs are far superior to (inaudible) lights and have an output in limits per watt that arrival for lights.

LED is manufacturing based technology have a road map for continued improvement while Florence do not. The market opportunity here is great. Analyst estimates that the general lighting market which includes both new fixtures and replacement life is between 100 billion and 120 billion annually. Thanks to our technology and the partnership with GE, we believe we can be a catalyst for accelerating the adoption of LED base lighting as solution of choice in the market. Ultimately it's out goal to help GE grow their leadership position in lighting and benefit greatly as a Rambus licensee in the transmission to a future of efficient and eco-friendly solid state lighting.

Our innovations which hold great promise for general lighting are applicable to the back lighting of LCDs space as well. In the HDTV markets, LED based solutions may reach 30% to 40% market penetration by the end of this year. The picture quality improvement and energy saving of LED back light is compelling. With out technology we can future improve the quality and lower the cost of LED back light systems, LED back light systems for HDTV monitors and laptop PCs.

We've added to our solution set for the display market by acquiring patents from Uni-Pixel to compliment our lighting and display technology portfolio for innovations and expertise. I expect other acquisition in this area.

We launched our lighting and display technology business late last year to take advantage of the technology licensing platform that the company has developed over the past 20 years. During that time Rambus has licensed its patented innovations to industries leading to electronics companies for computers, consumer electronics and gaming systems that have been reached the lives of hundreds of millions of peoples around the world. Using this licensing platform, our licensees have access to break through Rambus innovations and solutions for a broad range of compelling new products.

Building on a strong foundation of our licensing platform we plan to announce in the future a new business like gliding display, which will be a critical part of our future growth strategy.

As we discussed back in March our revenues goal for the longer term is $0.5 billion per year from our semi-conductor licensing business. The revenues we achieved through our diversification efforts into new business is like riding and display is additive to that goal.

So to sum up, a lot of progress is made in second quarter, we are very proud with the Rambus team and their focus on and executions of our strategic plans. And in with that I'll turn the call over to Tom to discuss legal developments.

Tom Lavelle

Thanks Harold and good afternoon everyone. As Harold mentioned, by now we had expected to have in hand the final determination by the ITC regarding our claims against some videos. We recall that the ITC administrative law judge found three Rambus patents were in French by in video and not invalid. And he found that two other Rambus patents were in films but not valid. We will be appealing the finding of not valid and we believe we have good arguments supporting our position.

The next step in the process was a review by the commission on 24, of May the ITC extended its deadline for a decision by two days. And then on May 26, the ITC extended its targets date for a decisions by a further two months. The ITC also requested briefing on patent exhaustion relative to the Samsung agreement we signed in January. This briefing has been submitted and we are now expecting the ITCs final determination in this matter on July 26, next Monday.

Turning to the coordinated appeals of Hynix and Micron cases, all arguments were heard before the courts of appeal for federal circuit on April 5, in Washington DC. The issue being discussed where Hynix's appeal of $397 millions judgment against them and our appeal of the Micron Delver decision.

Chief Judge Michel was a member of the panel that heard our cases. Given his retirement at the end of May we had hope that court will rules in this matter before judge Michel departure. But unfortunately it didn’t work out that way. The court did not issue a decision before Chief Judge Michel retired from court and the federal circuit has since requested to re-hear all arguments. Those hearings are currently scheduled for October 6, 2010 in Washington DC.

We don’t know the make up the new panel which will hear all arguments until just prior to the hearings. They still not withstanding we remain confident in our arguments and look forward to the open decision by the court and those two cases.

Moving now to the price fixing case in San Francisco. We continue to have hearing before judge Karmer with various pre-trial issues of being discussed. Judge Karmer has yet to set a date for trail as issues remain relative to our Samsung settlement. We continue to seek a trail date and are anxious to present our case to a jury.

I'd like to now provide a quick update on the re-exams that have been conducted in the U.S. Patent and Trademark office. To-date 57 re-examination request have been filed against 30 different Rambus patents that have been a assertive in various litigations. While these re-exams are in various stages of the process, the patents office has complete to re-exams proceeding involving two patents by issuing reexamination certificates that confirm a number of our claims. The patent office has also advise to reissue our reexamination certificate in three other proceeding involving three other patents. For reference the issuance of a reexamination certificate officially concludes the re-exam proceedings for those particular pattern claim.

While Rambus has experienced many successes with respect to the re-exam proceedings we continue to pretend the patent ability of claims of our patents against proposed rejections. As we have stated before, once patents are issued by the U.S. PTO they are presumed valid as issued until the U.S. PTO amends or strikes the claim and all appeals are been exhausted. This can be a very wrong process with multiple iterations of briefs and responses. Its important to remember that the reminder of patents in re-exam remain valid and enforceable during the entire process.

That’s it for the legal updates. Next I will turn the call back to Satish.

Satish Rishi

Thanks Tom. For the second quarter 2010 customer licensing income was 49.2 million of which 38.9million was recognizes revenue and 10.3 million was recognized as a gain from settlement. Just as a reminder even though the royalty payment due from Samsung was 25 million accounting rules required us for recognizing only 14.7 million as revenue and remaining 10.3 million was booked as a contract expenses as a gain from settlement. The previous quarter customer licensing income was 257.8 million of which 161.9 million recognized as revenue and 95.9 millions recognized as a gain from settlement.

For the quarter a year ago customers license income and revenue were both at $27 millions. The decrease customer licensing income quarter-over-quarter was due to the Samsung agreement which included a significant non-recurring balance being recognized in first quarter. And the increase in customer licensing income from a year ago was also due to Samsung agreement.

Operating expenses excluding the gains on settlement for the second quarter was 55.8 million at the lower end of our guidance and in line with previous quarter an up 13% from the second quarter last year. These operating expenses include approximately 7.9 million on stock based comp, 1.6 million related to cost of restatement and 4 million for the Samsung settlement bonus accrual. By comparison, last quarter include approximately 7.8 bonus stock based compensation 0.5 million related to cost of restatement and 4.7 million for the Samsung settlement bonus accrual.

Operating expenses a year ago included 7.9 million of stock based compensation and a credit of 400,000 related to the recovery of restatement cost. To have a better comparison period on excluding expenses in credits related to stock based comp, cost of depart of investigations and the Samsung settlement bonus accruals from the discussions going forward.

Excluding these expenses, adjusted operating expenses for this quarter were 42.2 million flat with the previous quarter and also with the quarter a year ago. Non-litigation operating expenses were focused on higher sequentially and 38% high year-over-year driven primarily by higher patent development cost and a higher headcount year-over-year.

Litigation expenses including the number I just mentioned were 5.2 million for the quarter down to 26% from the prior quarter and down 65% from the quarter a year ago. Our adjusted operating income for the quarter was 6.9 million as compared to 215 million in the previous quarter and a loss of 14.9 million a year ago.

Overall cash defined as cash, cash equivalents and marketable securities excluding restricted cash was at 598 million a decrease of 71 million from the previous quarter. During the quarter we bought back 3 million shares of Rambus stocks for approximately $69 million and also spend approximately spend $5 million in a couple of patent acquisitions.

Interest expense which include both cash and non-cash interest expenses for the quarter was 3.7 million as compared to 6 million in previous quarter and 2.8 million a year ago. The decrease in the expense from the previous quarter was associated with the non-cash interest on the 0.2 convertible bond that the matured in the first quarter. The increase in the expense from the quarter year ago was associated with cash and non-cash interest expenses on the new bond that we issued last year which were referred to the 5% coupon convertible bonds.

Provision for income tax for the quarter was 2.4 million. We continue to maintain allowance against the deferred tax assets and our tax provision is based on the anticipated cash taxes that we pay for the quarter which is primarily with holding taxes from our payments royalty payments from overseas. This quarter however we had a credit for ANC paid which reduced our tax provision.

Now I'll give you some thought regarding the third quarter. This guidance reflects our reasonable estimate and actual results to differ material from what I am about to review. For the third quarter, we expect customer license income to be between $41 million and $51 million of which $31 million to $41 million would be recognized as revenue and approximately 10 million as a gain from settlement. The wider range reflects the facts that we currently get patent license renewal negotiations under way with a few licensees which may or may not conclude before for the end of this quarter.

We expect operating expenses to be between $46 million to $51 million. This includes the a credit from the gain settlement of approximately $10 million and estimate from the litigation expense of $6 million to $9 million and stock based compensation of approximate $8million and Samsung settlement bonus accrual approximately $5 million.

For Q3 we expect our interest expense both cash and non-cash to be around $5 million and our tax provision will approximately be $4 million comprising from primarily with holding tax.

Before we open the call for questions, I would like to address a couple of enquires we've received from stockholder via e-mail or through our website. The first question, you talk about 2010 being a year of patent license agreement renewals, what is the status of these renewals?

Sharon Holt

I'll take that one Satish. We have already announced and these decisions to renew their license agreement with Rambus. We now have quite a few active negotiations underway, including Elpida, whose license expired in 2008, as well as some memory controller licensees who licenses have expired or will expire later this year. Most of our agreements are setup to have licensees pay us one quarter in arrears. For example, for those agreements that expired on April 1, we received royalty payments in Q2 for their January through March shipment. If we renewed those agreements before September 30, we'll receive royalties for the April through June shipments in our Q3 and there won't be a payment gap.

There is however, a chance of delay in signing any or all of these license agreements and that is why we provided a larger than usual range in our guidance. As I have mentioned before, we can't commit in a lottery to time frame for concluding a deal. While we do forecast deal signing, I can assure you that we will not rush to an agreement that is not in the best interest of Rambus or it's shareholders. This same philosophy also applies to any negotiations we have going on with potential new licensees.

Satish Rishi

Thanks, Sharon. The next question, is there any progress on signing license agreements for Mobile XDR, particularly following the Samsung agreement?

Sharon Holt

Thanks Satish. We are seeing great interest in the Mobile XDR Memory Architecture and we've been very engaged in constructive discussions with a number of potential licensees. The companies we're talking defiantly see the value of Mobile XDR architecture can bring to their next generation mobile product. As with XDR memory we need to ensure that there are Mobile XDR DRAM suppliers license, there are processor suppliers who are licensed Mobile XDR memory controllers and that there are mobile phone manufactures who will specify Mobile XDR memory for their next generation platform.

All constraining all these moving parts is a challenge, but at time we defiantly know how to tackle it demonstrated by our history with XDR and RDRAM before that. We believe Mobile XDR Memory best meets the performance and power requirements of the next generation smart phone and feature phone markets. And importantly it does so using existing manufacturing technology and supply chain infrastructure. For these reasons we are optimistic about the future of success of Mobile XDR Memory and as soon as we have more news from this front we will do so.

Satish Rishi

Thanks Sharon. And I guess the last question would be for Tom. What is patent exhaustion and what is it relevance to Rambus's business?

Tom Lavelle

Under U.S. law Satish, the adoption of patent exhaustion essentially states that the patent holder has patent right over the patent of invention until such time as the specific embodiment of the invention has been sold pursuant to an authorized sale. I know that's awful, but I'll go on an explain it.

Following the so called first sale of any individual product, individual chip, individual whatever, of that patented product, the patent holders right are considered to have been exhausted with respect to that individual item. Meaning, that the patent holder can not collect additional royalties on that same item. As you can imagine there is a lot of case law addressing the issue and there are many issues that affect whether exhaustion has occurred in any particular case.

Rambus and Envido will ask to provide briefing the ITC on potential exhaustion issues arising from the Rambus, Samsung license agreement signed in January of this year. We feel very strongly that exhaustion does not occur on Envido products nearly because we granted a license to Samsung for its DRAM products.

Satish Rishi

Thanks, Tom. That is the last question for today call and would like to thank those submitted questions to us during the course of the quarter. Our plan is to continue addressing some other questions submitted from stockholders on the periodic basis of this forum. Operator, we're now ready to open the call for questions.

Question-And-Answer Session

Operator

Okay, ladies and gentlemen. (Operator Instructions). Our first question is coming from Jeff Schreiner from CapStone Investments.

Jeff Schreiner - CapStone Investments

Good day everyone, thank you very much for taking my questions. Tom, the first question I wanted to just talk about is, the wording that was written by Envida recently in its 10-Q was pretty strong in their opinion regarding how they stand at the ITC and the laid out why they felt the stability taken EU license and then pointed maybe until one year EU license. I'm just wondering if you could help us reconcile Rambus's position compared to what Envida has put out there and kind of laid out in. Is it typical for Rambus to grant only one year licenses as in Envida efforts?

Tom Lavelle

Well I'm not going to comment on the 10-K or any other document filed by Envida. I did not participate in any way in the creation of their language. So you should ask them about their language. But I will comment on Rambus and our polices and procedures are practices.

As you probably remember, pursuance of a commitment that we made to the EC we were offering a memory controller license. That license has been available to perspective licensees for some time now. Presumably Envida can choose to negotiate such a license with us, but it's not clear with the consequence would be with the respect to the ITC. I think you probably also already know Envida has announced publicly that they would intend to take such a license in the event that events don’t go so well for them in the ITC, that license is in fact available to them and we'll work that through as it happens.

So I'm not going to comment on what they said, I don’t know where they come up with a one year, I can't comment on that. The license we offer is a five year license and the terms of the license are actually public on our website, if you want to look it up. And that's the license we would be offering.

Jeff Schreiner - CapStone Investments

Okay.

Tom Lavelle

And remember it would only be forward0looking in a sense that it doesn’t cover any back damages, any back loyalties what so ever and it's limited to the term of that license steps being offered online. It's on our website.

Harold Hughes

And all case should contain it.

Tom Lavelle

So as Harold just pointed our the federal case in the Northern district of California would continue going forward.

Jeff Schreiner - CapStone Investments

Tom just a follow-up on something that you've said, you talked about they take any fee license and how does that effect the ITC? Have you guys gone over any more clarity about the GDR 5 products and what impact that would or would not have in Envida ability to stop the potential ITC injection?

Tom Lavelle

Well, Jeff you may recall that we didn't name GDR-5 in the ITC action against Envida, and the reason we didn't is that they were not at that point shipping any GDR-5 products and that's we were not under position to accuse those products. And this is volumes of GDR-5 or going to get pretty larger over time. But it's not covered completely under the license that you can look as I said on our website. GDR-5 is not specifically licensed. Certain patent claims could be covered by that license. But only a limited number of patents could be covered other would not be covered by that license ground. So, it's not clear at this point how that would work if they chose to take license and I suspect with a decent chance or a lot more over the next couple of months.

Jeff Schreiner - CapStone Investments

Okay. Turning to recent GE, I mean it was certainly kind of large agreement as the pair of leading kind of your, you first kind of step into the arena. Can you guys provide any dynamics of the agreement? What the licensing, what the potential licensing rate maybe if R&D work from a first three or fours year? Also trying to wonder why a 10 year agreement when most are just to be five or have been historically. I think a lot of people are just looking here for a little bit of understanding in being able to size this some metric. Any help you can provide much appreciated.

Tom Lavelle

Certainly. Obviously when we signed the license the back writing license GE was in our targeted list of customer. The market it self is as I just described is quite large. It's undergoing I think profound technological change and to the extend that we could partner with some one who is well known as GE, we believe the combination of our technology and their supply chain and most importantly their branding would give us the ability with their help obviously, capture significant portion of a market not significantly lower than the electronics market, the component part of the electronics market.

We signed a long term agreement with them simply because the patents have great value for quite some time and as you implied in your question, obviously it will take some time to design the products and bring them to market. I would -- we obviously never announce royalty rates, unless there is unique situation. But we can say that the rates involved there are in line with the rates that we negotiate roughly with our component suppliers.

Our goal is to incorporate designs that indeed we would probably work with on GE for NRE. But the design process is not going to be that prolonged. Keep in mind that backlight technology had already come to market as part of the parent or the predecessor the technology we bought. So we have manufacturing capability, we have the ability to design products and with GE we have partner through whose supply chain and branding channels we think we can grow a pretty good size business.

Our revenues in the short-term obviously will be relative minor. But we are looking for significant royalty rates in next three to four year. Does that help?

Jeff Schreiner - CapStone Investments

Very helpful. Thanks a lot. GE is also trying to wonder here, going back maybe some post-ITC something favorable will happen. How should we expect Rambus to interact with other controller companies if in fact we are successful, will you look to be more aggressive in saying lets negotiate or we can meet the ITC decision. Can you help us there and understand what Envida is really bring to Rambus in that decision is going bring to Rambus if it favorable?

Sharon Holt

Hi Jeff, this is Sharon I'll take that question. As I mentioned a bit ago, we had several negotiation going on right now with potential controller licensees on those renewals of some of our long standing licensees as well as new companies who have never before been licensed. As you can image of course all of these people are waiting and watching what happens at the ITC with great interest as you or I would be if we were sitting in their shoes. So certainly I don’t think so we're in helping for a positive outcome in the ITC it will more certainly be helpful.

With regards to how it does or doesn’t change our number of factors that affect our posture and our negotiating stance with licensees this will be one thing that will certainly help us. But it is certainly not the only factor. And we will continue to consider all possible option to move people through our funnel to a successful concluded license deal.

Jeff Schreiner - CapStone Investments

Okay. Just one quick question for me, I'll step out, I appreciate your time. Tom should we, should investor have any concerns about further delays at the ITC given the range call hopefully on Monday versus today?

Tom Lavelle

On May 24, I probably would have told you, you shouldn't be concerned about it. This is now July 22, and I am not sure I could give you that statement with a straight face given what happened in our two separate cases that are completely unaware.

Jeff Schreiner - CapStone Investments

Alright thank you very much.

Satish Rishi

Thank you Jeff.

Operator

Okay. Thank you. Our next question is come from Michael Cohen from MDC Financial.

Michael Cohen - MDC Financial Research

Thank you for taking my call. And my first question is for Sharon, it seems like we're coming into a period where there can be a lot of upcoming licensing asprication. I was wondering if you could maybe lift the remains of the companies over the next 12 months and perhaps what the potential impact?

Sharon Holt

I am sorry Michael I just -- you broke up a little bit. Did you say a period of a lot of license what?

Michael Cohen - MDC Financial Research

I said we're going to have a period several license expirations, for the period coming in the several quarters? And I was wondering if you could cover which license will expire over the next 12 months and maybe equate it with the size of the potential impact?

Sharon Holt

Yes I am happy to do that. If we take a look at this year 2010 lets start there, we had the Toshiba license which expired at the end of the first calendar quarter of this year. We had the Panasonic license that expires at the end of the third or actually it's actually at the end of October I believe, and so kind of middle of the fourth quarter. We had the license from NEC Electronics which expired at the end of the first quarter. And lastly the one that was just renewed, AMD which we announced last quarter was set to expire at the end of September. But they have already announced the renewal there.

So are the once for this year. We have the license with Fujitsu which will expire early next year. So those are the expiration that either have occurred or are on the horizon.

Michael Cohen - MDC Financial Research

Okay. And so do you still receive royalties from IBM and Sony?

Sharon Holt

Yes we do. So IBM is a technology licensee in a couple of different areas for us. We had previously announced obviously not only the relationship with them that is part of the overall Sony relationship with the play station-3. IBM is also has a license to other Rambus technologies that are not related to their work with Sony and we've announced those previously they continue to pay royalties on all of those technologies to which they have a license. Likewise Sony of course the play station-3 is still in high volume production actually enjoying very good success as we speak. So we hope to continue to receive royalties on that products for quite some time to come.

Michael Cohen - MDC Financial Research

I greatly appreciate the details. And if we look at this quarter let's say if we have the last quarter you took the Samsung portion and equated it what it would be for this quarter we would have seen 39.5 million in revenues. And so we're missing about 600,000. Would that have been the expiration of the NEC license?

Tom Lavelle

No we also have variable licensees who pay based on their volumes. So if their volume in Q1 was lower than was in the previous quarter the royalties we receive are also lower. So the variability that wont call as licensees pay us on a fixed payment basis.

Michael Cohen - MDC Financial Research

In this quarter, it kind of variable license as a whole were they lower or higher than the previous quarter?

Satish Rishi

It is difficult to answer that because some were higher, some where lower because the technology size of PS-3 they were higher on the variable side and at time they were lower. That's a difficult question to answer.

Michael Cohen - MDC Financial Research

Okay. And my next question I guess will be for Tom, when we talked on the last conference call there was some question informal force happen that ran overall into 2011. I was wondering you mentioned that back.

Tom Lavelle

Yeah. I apologies I didn't Michael and I will do that. It's -- we've had a few things going on. But I will comment that I'll get to that information.

Michael Cohen - MDC Financial Research

Okay. So I am basically just wondering which force patent run beyond the 2010 expiration date. My next question is could we get an update Hynix acro account, the amount in there and the kind of follow up to that is has lean been established on Hynix staff yet?

Satish Rishi

We have has been established and we have been receiving payments into it. I am not in liberty to what the amounts are because we are confidential yet where in people in the company don’t know what the amount is and we do it within the company know what the amount is.

Michael Cohen - MDC Financial Research

My last question is could you provide some comments on the joint development with Samsung since ITC agreement took place.

Sharon Holt

Yeah. I would say we've been very please by the progress in our relationship with Samsung as you can imagine, it had been a long time since the company’s real were working together and Samsung new technology or products. Since, the settlement agreement and MOU were signed we have been very heavily engaged with them at all levels and on many different fronts.

As we said we are really pleased with the progress, when we had something concrete to announce we will. Clearly, the four areas outlined in the MOU, mobile, compute, graphics and high-speed NAND continue to be the four areas of focus between the two companies and we are making very good progress and as I said when we have something else to announce we certainly will.

Michael Cohen - MDC Financial Research

I really appreciate the detail and good luck with future lighting business as well. Thank you.

Sharon Holt

Thank you, Michael.

Operator

Okay. Thank you. (Operator Instructions). And we’ll our next question from Hamed Khorsand from BWS Financial.

Hamed Khorsand - BWS Financial

Good afternoon guys. Just I want to know how long does it take to generate revenue from the patents you agreed on? How long does it…

Harold Hughes

After a patent, presently you are asking is issued by the USPTO for example, how long before we are able to monetize that patent I think what you're asking, is that correct?

Hamed Khorsand - BWS Financial

Right.

Harold Hughes

Correct. That’s a really difficult question to answer Hamed and the reason is that we typically grant licenses to a portfolio within a field of use of our licensee and so for example if somebody has a license from us and we have a new patent issued during the life of that five year term for example, we monetize that in a sense of we are already receiving royalties on a portfolio, it adds to our portfolio and we are already collecting royalties for those.

But without a license grant if somebody has a product that infringes with patent that’s granted, until we get a license to sign with them is how long it takes and that’s going to take short or long depending up on the circumstance.

Sharon Holt

The other I would add is it's very dependent on the particular field of technology and whether it's one that is already active and it's a patent that applies to technology that is already moving up the life cycle curve to maturity or whether it really is a nascent field in which case it could be a longer time to monetization and that really is very specific on the technology to which the patent is applicable.

Hamed Khorsand - BWS Financial

I am just gauge a feel the efficiencies within the operating model as well as you announced that 1000th patent granted but we haven’t seen back in Samsung any kind of material revenue growth over the past few years. And that’s what I am trying to see if you can address.

Harold Hughes

I don’t believe that’s due to the absence of good patents due to the Steven with which of course is deliberated on these issues. I think we have brought into play if you will significant revenue growth. We simply have to get these raise as one and get the consequences of those translated into revenue. The 100th would be, they would have literally have been for quite sometime certain number of patents issued over the 20 year history of the company. So, it's that layering and the long-term nature of a patent that gives you what I believe is sustainable revenue over quite some time. So quite some period of time.

Hamed Khorsand - BWS Financial

Okay.

Harold Hughes

Its practically impossible to take prior to a litigation a particular patent and attribute to it what future revenue might be. And that’s the best scene in retrospect to the extent that someone takes a license for a group of patents or in those cases where we've had to litigate a particular patent that’s found to have valid. Then to that you can attribute revenue.

Hamed Khorsand - BWS Financial

Okay, and then my other question. is outside of the resigning of all your patent renewals that your hoping for 0:02:08.3 (inaudible), what is the other assumption that you are using in your revenue guidance?

Sharon Holt

So if your talking about the guidance for our Q3, we don’t comment on a licensee by licensee perspective but I think you've been following us long enough to understand that our licensing cycle can be pretty long and in some cases pretty unpredictable. In particular the things we're trying to do in both DRAM and memory controller licensing because they're so closely tied to what's going on in litigation and the ups and downs at any particular point in time. I think I mentioned in the last call, if you just look at that portion of our portfolio, DRAM and DRAM controller related potential licensing activities and I talked a bit about the relevant markets there, you really are talking about a good portion of the top 25 semi conductor companies that are potential licensees.

Hamed Khorsand - BWS Financial

Let me ask that in a better way. On a net, net basis I'm just to figure out, you're guiding almost a $2 million more sequentially on the top end and that’s what I'm trying to address. Working that assumption that what do you expect to increase that you can see a $2 million net, net increase sequentially?

Harold Hughes

We're getting a wide range that takes some downside, takes some upside in terms our ability to be able to renew somebody this quarter or not. If are able to reduce somebody in the quarter we would be at one end of the guidance. If for any reason we are unable to sign that agreement before the end of the quarter, that would flip into the following quarter and you'll probably get double payment for that in the quarter. Our ensuing quarters budget would be somewhat in the lower end of the guidance. So that’s why we have a wide guidance that we've provided you, given the timing of the renewals.

Hamed Khorsand - BWS Financial

Okay, all right. Thank you.

Harold Hughes

All right, thanks.

Operator

Okay, thank you. Our next question is coming from Mike Crawford from B. Riley & Company.

Mike Crawford - B. Riley & Company

Thanks. Hey, a couple of quick questions. One, you spent $4.6 million acquiring some patents or parts of the portfolio. Could you talk about where that fits into your overall portfolio? Is that something, a new area or an inflow or what?

Harold Hughes

I would say that they're sub divided easily into two categories. One, we did announce actually the Uni-Pixel acquisition which is an LED based technology made up a significant portion of the amount that we spent this quarter and there were a few smaller semi conductor related acquisitions that we made of a size that didn’t require discloser obviously or we would have.

Mike Crawford - B. Riley & Company

Okay, thanks Harold. And then on LEDs, with, I don’t know to the extent you will be able to answer this but how much do you expect to be investing on building out this LED business per year until you start to get some meaningful revenues. I guess something where you're; all in you're spending another 3 or 4 million in operating cost or is it more because you acquired the portfolio quite cheaply.

Harold Hughes

Yeah, its, one of the reasons that we found the portfolio attractive was that it had a profile not dissimilar to our existing profile where with a relatively small number of engineers we have the ability to license very large companies.

We obviously will build or we will acquire some prototyping capability to the show the value of the technology but its our intent to the use of the design capability with the patents we acquired and the attend manufacturing capability that we would work with people like GE to create their manufacturing of products we help design using our patented technology and then have them sell them broadly to their channel.

So its not free. We probably have 30 people in this, the bulk of whom obviously are related to the technology development in the lighting division and 20 to 30 people. That’s not free but like any licensing business it doesn’t have a cost driven model. Its driven by a licensing capability.

Mike Crawford - B. Riley & Company

Okay, thanks. And final question related to that is, what there some additional missing ingredient or helpful ingredient that Rambus was able to bring to the acquired patents that really help bring the whole solution together or is that pretty much, was it ready to go?

Harold Hughes

The SKU was ready to go. We have people who understand quite well control functions and there is the possibility down the road that through that particular capability we will enhance the control functions of the LED backlighting process. Obviously we have relationships with people like Sony and Samsung who sell televisions and into that market we sell other products. So there will be revenue synergies that arise from just the combined sales effort but I think a large part of the technology that was acquired and had been developed since we've made the acquisition is sufficient to create a very interesting business and we're pretty exited about it.

Tom Lavelle

We think, and what we bring over and above the technology we acquired is the licensing platform and the ability to go out to our customer base or potential customer base and bring the technology that the team we acquired is now ready to bring to market. So I think it’s a good marriage from that point of view.

Mike Crawford - B. Riley & Company

Thanks.

Operator

Okay, thank you. And we'll take our next question coming from Jeff Schreiner from Capstone Investments.

Jeff Schreiner - Capstone Investments

Thank you. Just two quick follow-ups really for Satish. I held it a little bit 29 people in the line division. But, pretty large increases in R&D on year-over-year basis. Maybe when we kind of take out stock comps and things of that nature, what's really driving that at the moment. There is something some investments that are driving it?

Satish Rishi

Well two things, one is year-over-year we have higher net count you like how much in the LDD side is one which I say about 80% of those people would end up saying engineering side and maybe 20% in the NG&A side. So that's one. Secondly even in our core engineering we have slightly high mid-term in last year, slightly overall headcount about 30 people higher year-over-year that's one reason.

Jeff Schreiner - CapStone Investments

It is still lower than the price at which you kind of really give large simply company to Samsung. We're going to continue to end at the market at this time and just start valued in your mind.

Satish Rishi

Well Jeff, I can't comment about whether in the market this point in time. But when we do fair well we have close window during which we don’t do any open market transaction. But our board did increases the size of the buy back. Yes do believe as talk is want to valued and we have the permission and the authorization to go buy back more share that is something we would definitely continue to do.

Jeff Schreiner - CapStone Investments

All right, gentlemen thank you very much for your time.

Satish Rishi

Thank you.

Sharon Holt

Thank you.

Operator

And there are no further question in the queue at this time.

Harold Hughes

Well again, thank you for your continued interest and support at Rambus. And we look forward to speaking to you soon. Thank you.

Operator

Ladies and gentlemen this does conclude your conference. You may now disconnect and have a great day.

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