Rambus Management Presents at Morgan Stanley Technology, Media & Telecom Conference (Transcript)

| About: Rambus, Inc. (RMBS)

Rambus (NASDAQ:RMBS)

Morgan Stanley Technology, Media & Telecom Conference

February 29, 2012 05:45 PM ET

Executives

Sharon Holt – Head, Semiconductor Business Group

Satish Rishi – CFO

Analysts

Joe Moore – Morgan Stanley

Joe Moore – Morgan Stanley

Okay. We’re going to go ahead and get started in a couple of minutes. Great. Thank you. I'm Joe Moore. I think most of you know me by now. I just joined Morgan Stanley eight weeks ago as an analyst. More importantly Satish Rishi has been CFO of Rambus since 2006. Sharon Holt runs the Semiconductor Business Group at Rambus and has been in that role since 1994. So than you both for coming. I appreciate that. I think people have histories with Rambus from sort of a lot of different directions. So maybe it’s helpful if you give us a couple of minutes upfront sort of describing where you are right now, what things you guys are focused on as a management team right now and then we’ll go into detail.

Sharon Holt

Sure. I’ll give a brief overview. Just one correction. I joined in 2004. It was like 1994, wow, been here really a long time. So just to give everybody a bit of a common grounding because some of you may not know us this well, we’ve been around since 1990. We were formed during the PC age if you will and really on the premise, our two co-founders, Mark Horowitz and Mike Farmwald were very interested in the bottleneck that existed between the microprocessor and the memory which was holding back moving the PC platform forward and that was really the problem and the solution upon which the company was founded.

Most of the 90s were spent developing innovative memory architectures and working with our customers in the compute and gaming industries. Around the 2000 timeframe when networking became very important the company started taking some of the skills and technologies that had been learned and developed, working on memory problems and applying those to other high speed interface issues because the network industry was booming at that point.

Where we find ourselves today in early 2012 is we’re very focused on a l lot of the platforms obviously that are relevant now and that we believe are going to be relevant for several years to come, most notably, mobile platforms, what’s going on in servers and data centers connected to the overall mobility trend and a variety of consumer devices and of course solid state lighting. The company has changed a lot in the last few years as we’ve diversified from our roots and memory to include other kinds of semi-conductor technologies to lighting and display technology and last year we announced an acquisition of Cryptography Research here in San Francisco, getting us into the cryptography and security technology business.

We also have other research efforts going on internally and if you’ve seen any of our commercials we’d like to say we are a company of inventors and we really are. We’re a little over 450 employees, a vast majority of whom are engineers and scientists working in all of these different fields. Our business model is licensing. So we try to aim to have technology that’s relevant solving problems for big and growing markets because obviously with a licensing business model you get a small slice of the overall market and so that’s really been a premise driving our diversification strategy.

The more technologies we have that are relevant to these big and important markets, we believe that’s a great strategy to fuel our future growth as a company. Underpinning all our technologies of course is we believe it’s fundamentally important to have a solid IP position so that you have multiple ways to monetize your technology depending on how the market evolves. We ended last year with 1,400 issued patents and about another 1,100 in process.

So we’re continuing through our development efforts obviously to build a solid foundation for the future across all of our fields of focus. So that’s a quick summary.

Joe Moore – Morgan Stanley

Maybe if we could start with DRAM and then other semis and we’ll move to some of the new businesses if that works. So I think your 93% semiconductor revenue, give or take now. Can you talk about how much of that comes from DRAM and how much of that is sort of solutions oriented, licensing versus patent licensing?

Sharon Holt

Yes, so we don’t break down the semiconductor revenue and report it in that way. As you can imagine we have some very large DRAM licensees. Samsung and Elpida of course that I think, folks are generally aware of. Our solutions licenses, we talked about, at company level we gave some numbers last year Satish?

Satish Rishi

Yes, we said non-patents were about 14%.

Sharon Holt

Okay. Yes. And so one of our goals, I talked in my opening remarks about developing new technology. One of the things we’re aiming for as we invest more in new technologies is to bring somewhat of a balance between those two parts of our business, a little more balance between the revenues coming in from patent licenses versus solutions license. I think we believe that’s strategically important because that means your new technology is being adopted which obviously gives us a pipeline for the future.

Joe Moore – Morgan Stanley

Yes, on the DRAM side, are you still finding those opportunities? I know it’s been sort of an entrenched environment for solutions licensing?

Sharon Holt

Yes, absolutely. The DRAM environment for us, we’ve had some great successes in the past for solutions licensing obviously with our DRAM and with XDR. We haven’t had any major new announcements in that area in the last several years. Partly if you look at the DRAM market becoming very commoditized over time, I think the opportunities to introduce new solutions there are fewer and farther between than they may have been in the past. That being said, I don’t think they are nonexistent and I think we believe certainly in the mobile space and in the server market there are real opportunities to add value with new technologies because there are real problems as the mobile platforms are driving beneath for more and more performance yet with very low power and the trends in mobile usage are driving incredible demands on the server farms and all the big data centers.

And so even though you think of data centers, while your computers plugged into the wall they don’t have power issues. They have massive power issues because the compute power being demanded out of the data centers is just so huge, it’s a cost issue, it’s an environmental issue and so the concern is there too. Those are two areas within DRAM that we’re focused on for new solutions but we’re not focused broadly on the commodity space for introduction of new solutions in DRAM.

Joe Moore – Morgan Stanley

And I would think your relationships on the DRAM side is sort of better with some customers than others, given the sort of the history of litigation but you still find opportunity to introduce those.

Sharon Holt

Yes, absolutely. Because depending on the application space, the application sort of drives how many partners you need on the DRAM side and so obviously that’s a factor in our thinking too, when we look at bringing a new solution to market, we need to make sure we will have the ecosystem to support it.

Joe Moore – Morgan Stanley

And then you mentioned Elpida a bring licensee. It raises a question whether they’re buying, how does that affect you guys?

Sharon Holt

Well obviously it’s late breaking news and we’re going to be following it closely because it’s important to us, not only from a revenue perspective but as you are probably aware, we’ve had a long and very positive relationship with Elpida over the years. So we’d certainly like to see them do well.

It’s too early to tell. We’re going to be following the proceedings in Japan very closely but in terms of the long term outlook I think it’s too early to tell. Did you want to add any remarks?

Satish Rishi

They pay us in arrears and we only received the payment for Q1. So it becomes a bigger issue for us going forward in Q2 and Q3 but there is plenty of time in between to figure out how the proceedings work out.

Joe Moore – Morgan Stanley

And you may not be able to answer this, in which case just feel free not to but to the extent that we have the fabs running full, they are allowed to do that I think. Do you anticipate that there is still difficulty for you guys to collect royalties in that scenario or?

Satish Rishi

Well they are going into what’s called a rehabilitation program and there is a receiver who is involved and the receiver decides which creditors get paid and which debtors get paid and how much and so on. So we don’t know exactly how they will determine who gets paid, who doesn’t get paid but my perspective, and it’s barely my perspective is given that we are licensing company, if a bankrupt company or a company in bankruptcy is shipping products that are not licensed they are taking on more risk than they should take. So I think that probably should rise higher up into the payments than other areas. That’s maybe a biased view but that’s my view.

Joe Moore – Morgan Stanley

Okay. And well I guess have you guys broken out how big Elpida is or can you give us how significant that is?

Satish Rishi

No we haven’t. Some customers we do break out when the revenues are on the (inaudible) basis but others where we have confidentiality agreements we just can’t.

Joe Moore – Morgan Stanley

Okay. And you mentioned, that a lot of the opportunities on the solutions side are probably outside of DRAM. Can you talk about, I guess first talk about the Unity acquisition and what that brings and where you might take that?

Sharon Holt

Sure. We’re very excited about the Unity acquisition. We’ve been studying for the last couple of years the trends we’re seeing in the forecasted end of the current memory technologies, both on the DRAM and the flash side and the candidates for replacement technologies for the future. And so we’ve been looking actually at both the DRAM replacement technologies NAND replacement technologies. Obviously DRAM is going to continue to be a big market. So whatever successor technology is there is something we’re going to want to have a hand in.

On the NAND side you may or may not be aware, we really don’t have a position there today and it’s been an interest of ours to find a way to enter that market. When there is a technology, it is a great time for us to enter with our licensing business model and we believe after taking a look at the all the various technology developments over the last few years that the sort of resistive ram that the Unity team has been developing over the last several years is one of its most likely successors for the current generation NAND technology.

It’s got a few very promising features, most notable it’s scalability and very low power. Now as with any new technology there are things to be worked out to get it ready for productization and the Unity team now as a part of Rambus is going to continue to work through that but believe the combination of the specific technology that they’ve been developing which we believe holds great promise for licensing into NAND replacement applications and the underlying patent portfolio which we believe is applicable, not only to their technology but also to a wider array of future resistance ram technologies will put us in a very good position and really be an anchor for us to begin building our position in that market going forward.

Joe Moore – Morgan Stanley

And SanDisk at their analyst meeting a couple of weeks ago had talked about those incremental challenges as you moved on the process curve in different technologies, they’re going to need to address it. I guess if the resistive RAM is the right technology how do you then monetize your position there? Is it through solutions or is it through licensing?

Sharon Holt

We believe that there will be an opportunity to do both. The specific technology that Unity is developing, complex metal oxide technology, we’re going to be working very hard to work out the kinks as I said and pursue technology licenses for that where we would have a significant hand in enabling the partners to bring the technology up and into production.

We will of course also being pursuing opportunities to license it via our patent licensing efforts for other implementations.

Joe Moore – Morgan Stanley

Okay. Great. In terms of other non-memory types of applications, I guess you recently signed nVidia. Weren’t they already licensed and can you give us some kind of color on the nVidia relationship deals?

Sharon Holt

Sure. As you may recall nVidia took a license in August 2010, largely as a response the limited exclusion that was put in place through our ITC proceedings against nVidia back at that time. So nVidia had been paying for a somewhat limited license since August of 2010 covering a portion of their products and only on a forward going basis. Keep in mind while they were paying for that license we still had other litigation going with them in the ITC as well as in the district court. So what we’ve done recently is settled all of the outstanding issues with nVidia. So all of the litigation with them has come to an end as well as putting in place a forward license.

So that is the difference. We are certainly hopeful that with that aside, there will be opportunities for us to engage with nVidia in some of our new technology areas a going forward but nothing eminent to announce. As I said, I think having the issues aside, there is now the possibility for that and we’ll certainly be toward that.

Joe Moore – Morgan Stanley

Okay. And then other non-DRAM technologies, you’ve talked about I think multicore CPU capabilities, TSV capabilities for advanced packaging. Can you talk about what technology you have and how are you going to turn it into revenue over time?

Sharon Holt

So we have a lot of I would say non-DRAM, non-Unity related work going on within the Semiconductor business. Much of it is, as I would like to say in somewhat of a stealth mode. We’re really trying to get some startup activities going on within Rambus and so we’re planting several seeds for promising new technologies going forward. Some of them we just talked about and packaging is certainly a very fertile area, obviously for memory technologies but for semiconductor technologies in general as we look at the advent of through silicon and 3D solution.

We believe it’s going to be fundamentally important for us to have a position there to offer our own solutions in the future but also as a way to continue to our build our portfolio even from a pure patent licensing perspective. So we’ve had some internal work going on there. We are also always on the lookout for interesting acquisitions of technology in the 3 Silicone or 3D space.

And multi core, which was your other question, obviously multicore computing at all levels is a major trend not only for the big companies like Intel and AMD but also for embedded applications in other types of SOCs. There are a lot of interesting challenges that creates particularly in the context of an SOC and so we’re exploring several different areas ranging from how in that environment within an SOC does the multicore device interact with memory, how does it interact with other functionality on the chip. We believe there are several interesting areas where we may be able to come up with some interesting technologies but nothing specific to announce.

Joe Moore – Morgan Stanley

And again how much of the value add of those solutions is sort of the fact that you have controlling patents versus sort of just underlining, how to help people create stuff that they wouldn’t be able to make otherwise.

Sharon Holt

I think the mix of those two vectors really depends on what it is, what the technology is and sometimes there is a lot of value in knowhow and the implementation because it’s just really hard to do, even once you have the idea. Sometimes it’s really easy to do, once you know what the fundamental problem is it really varies from one area to the next but I think what’s important for us is that we have both and I think that’s a pretty fundamental time for the company. It’s got to be really compelling technology that is solving an important problem related to a big market and we need to have a fundamental patent position.

Joe Moore – Morgan Stanley

Okay. I want to give you a few minutes to talk about the non-semiconductor opportunities as well. If you could talk about cryptography and lighting, if you can just give us a review of what those opportunities are long term?

Satish Rishi

Sure. So a couple of years ago we embarked on the diversification strategy and our premise was that overtime as we sign many of the semiconductor companies, both DRAM and controllers, we would have good steady revenue but then where will the growth come from and that’s when we started looking at other areas that would build upon platform of licensing and monetization and innovation. So the first significant acquisition we did was of patents from a company called GLT, Global lighting and typically our acquisitions involved the acquisition of the patent but we also hired the inventors and the R&D team so they can continue furthering work on their inventions.

So in the lighting area, they deteriorated from the lighting side that we have. One is on general lighting and the other one is in display. We took about a year or two, build the facility since typically from the semi side our “facility” would be a room with a tester and a couple of lab benches and so on whereas in this case we had to build a prototyping facility where we could show people how we can build these lenses that will allow them to have better displays. At the same time we signed GE in June of 2010 where we started partnering with them so that we could show them how to make light fixtures because GE is a lighting company, a bulb company and they wanted to move into a light fixtures where we have a lot of the IP. So we started working with them and them and then we had quite a good display at Light Fair last year with GE and non-GE products, technologies that we showed.

So we are continuing investing in that and at this point in time GE will start shipping some products and low volume. I think there are two SKUs that should be shipping sometime this quarter or next quarter and we’ll see subsequent slow RAM and we get paid when their products ship.

In the meantime we’re also working with the display companies and working with them again here too, as Sharon mentioned the goal is to really work with them in improving the technology and the product. So work on the solution licensing partnership collaboration. CRI is a company, right down the street here, market street and there too Paul Cuture (ph) and the whole team that he had been working with, some for 10 years, some for 15 years, they joined Rambus and in that area what they have is they have technology in a couple of different areas. The first one is called DPA countermeasures or Differential Part Analysis countermeasures. So this is a technology that is found in smartcards. So whether it’s embedded chips in a card or different types of cards that many of the credit card companies have and there are (inaudible) devices that already have that chipset user technology.

The other area where this could be used is called crypto firewall. In this case the technology is embedded on the SOC and it is a key generator which again has a very rapid key generation that occurs and the application for those right now that we’ve already started licensing companies would be in preventing counterfeits. So an example of that is in printers, cartridges get ripped over easily and a lot of printer companies lose money because of that. So you can have, on the printer there will be an SOC and on the cartridge also there will be a fairly cheap SOC where they will be communicating and if the device is not genuine then the printer will not work and the cartridge will not work.

The next application of that is also in paid TV so we see that as a fairly large opportunity where a lot of content that is streamed over the internet, over the media, through cable companies and so on, does get compromised and I guess pirated. So here too the CF technology goes in the core and it can get turned on remotely on site. So set top boxes can shift with the technology in there and the content provider can decide at a later stage whether or not they would have turned it on or not and in that case the model is such that when the content provider turns the technology on, that’s when they pay us. So the SOC manufacture gets to differentiate their product but doesn’t pay us anything and there is a partnership there but the content provider who was streaming the content is the one who pays us.

And a lot of the opportunity, we anticipate a great set and we’re very excited about what they will do in the future, what they can do in the future. There is an RSA conference going on right now in (inaudible) center down the street here and I think we have four or five different sessions that we are speaking at and most of the people are fairly well known in that industry.

Joe Moore – Morgan Stanley

That’s great. I did want to touch on the litigation and to the extent that it seems like it’s a full time job, keeping track of it but they say you can just clarify where are we now, is there an appeal in the price fixing case and what other milestones should we be aware of over the course of this year to the extent that you can talk about them.

Sharon Holt

Yes, so in the price fixing case the final decision was filed by the court on February 15 and we have 60 days, is that?

Satish Rishi

60 days, yeah.

Sharon Holt

To file our appeal to stay tuned. Also on the litigation front, a few other key things going on related to the DRAM manufacturers. Both Judge White who rendered the decision for Hynix and Judge Robinson who did the same for Micron are in the process of analyzing the remands that came back to them from the CAFC and we’re expecting at any time although there isn’t a specific deadline, some kind of decision from both of those courts which I think will be informative to both us and those two DRAM manufacturers about what happens next.

In the ITC, we have a couple of things going on and so you are probably aware we settled three of the litigants out of our second ITC action. So nVidia, Freescale and Broadcom. Three others remain and that initial decision is actually due this Friday. So at this point we’re expecting that decision to come out, no reason to believe that it won’t. Those are the major things going on, on the litigation front. So it was a very busy year last year. Now we’re waiting for a lot of decisions to come out of that but I think an important thing to note, obviously we settled three of the largest three companies out of the ITC even though the initial staff finding there were not very positive for us quite frankly.

So we’ve set our expectations that the decision coming Friday may also not be positive given the preliminary finding from the staff but nonetheless we’ve been able to make the three settlements and we’re going to continue to work on the others and continue to work on licensing other companies because those patients, that issue were not the only things that we have. As I mentioned at the beginning we have our 1,400 and relativity few of those were involved in the litigation. So from our standpoint our business plan continues, regardless of that decision comes out Friday.

Joe Moore – Morgan Stanley

And are any of the existing patent royalty streams affected by any of these other issues and the ones that are already settled, they can maybe change, or alter based on what happened the courts.

Sharon Holt

Well licensees can always decide what they want to do. It’s important to note many of our licenses have very limited termination rights, particularly those which were done in a settlement context. Some of our licenses which were done just with normal arm’s length negotiations, some of those do have broader termination rates but keep in mind our patent license tend to be very broad covering all of our patents that might be applicable to a particular product. So I think it's very unlikely that we would see any terminations as a result regardless of what the decision is on Friday?

Joe Moore – Morgan Stanley

Any questions from the audience? Okay. If not then I think we’ll wrap there. Thank you very much.

Sharon Holt

Thank you.

Satish Rishi

Thank you.

Question-and-Answer Session

[No Q&A session for this event]

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