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Tickers in this Article: RMBS, MU
Rambus Inc. (RMBS) posted second quarter 2012 adjusted loss per share of 7 cents, much better than the Zacks Consensus Estimate of 20 cents loss per share. Adjusted loss per share excludes other patent royalties received, acquisition costs and retention bonus, amortization, costs of restatement and related legal activities, as well as non-cash interest expense on convertible notes but includes stock-based compensation expenses. Shares plunged 9.68% in the after hours.

Revenue

Rambus reported total revenue of $56.2 million in the second quarter, down 15.1% from $66.2 million a year ago. The quarter's revenue was within the company's guided range of $53.0-$59.0 million but below the Zacks Consensus Estimate of $57.0 million. The year-over-year decline was mainly due to a decrease in contract revenue, lower royalties reported by certain licensees and cessation of a patent license agreement.

Royalty revenue fell 8.6% year over year to $55.7 million. Revenue from Contracts was $0.5 million, substantially down (90.6%) from the comparable quarter last year.

Operating Results

Total operating expenses in the second quarter were $78.0 million, up 13.4% from $68.7 million in the year-earlier quarter. The steep rise in research and development expenses (58.3%) led to higher operating expenses.

Reported operating loss in the quarter was $21.7 million, compared to $2.5 million in year-ago quarter. The operating margin was (38.7%) compared to (3.8%) in the year-ago quarter.

Reported net loss was $32.2 million or 29 cents per share, compared to $10.6 million or 10 cents in the comparable quarter last year. Excluding the impact of other patent royalties received, acquisition costs and retention bonus, amortization, costs of restatement and related legal activities, and non-cash interest expense on convertible notes, but including stock-based compensation expenses, adjusted loss per share came in at 7 cents versus 1 cent in the year-ago quarter.

Balance Sheet

Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $203.2 million, compared to $232.5 million in the prior quarter. The company used $16.7 million to pay retention bonuses related to the acquisition of Cryptography Research Inc. (May 2012) and $4.3 million to pay the interest expense related to the company's convertible notes.

Guidance

For the third quarter of 2012, Rambus expects revenues between $54.0 million and $60.0 million. Pro forma operating expenses are expected in the range of $58.0 million to $63.0 million, including litigation expenses of $4.0 million to $7.0 million. Pro forma net loss is projected between $7.0 million and $1.0 million.

The Zacks Consensus Estimates for the third quarter and 2012 are pegged at 16 cents and 75 cents loss per share, respectively.

Our Take

Though Rambus reported a disappointing second quarter, the bottom line was better than the Zacks Consensus Estimate. Though revenue grew marginally year over year, it fell significantly when compared sequentially. Third quarter guidance reflects weak sequential growth, which according to management is due to lower contract price and royalty income.

One of Rambus' key customers, Micron Technology Inc. (MU) is taking over the bankrupt Japanese chip-maker Elpida, a 10.0%+ customer of the company. The market consolidation will likely reduce the amount of royalty income.

But Rambus' endeavor to diversify into the lighting and display technology space in an effort to tap the tremendous opportunity in solid state lighting is encouraging. During the conference call, management seemed quite positive on the growth prospect of its lighting and display biz. Rambus has recently licensed its patented lighting technology to Cooper Lighting, a leading lighting company. Rambus will help Cooper bring advanced LED lighting solutions to market.

With the growing popularity of energy-efficient lighting, the in-vogue LED products are finding place in the latest architectural, retail, commercial and residential lighting fixtures. We find Rambus in a favorable position for a share of this opportunity.

Currently, Rambus has a Zacks #2 Rank, indicating a short-term "Buy" rating.

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