Financial

posted on 15 August 2008 15:34

Memory technology development and licensing corporation Rambus reported very poor business results in July and has now announced a 90-employee layoff, 21 percent of the workforce. Staff in the numerous companies Rambus has and is suing for patent violations may well feel sympathetic for the laid-off staff but have mixed feelings about Rambus' own fortunes.

For its Q2 08 Rambus' revenues were $35.7 million, down 25 percent from the year-ago quarter, and down 10.1% sequentially from the first quarter. The half-year revenues were $75.5 million, a decline of 23 percent over the same period in 2007. The Q2 08 net loss was a thumping $144.7 million, compared to the Q2 07 net loss of $2.7 million, a dreadful worsening of a business situation. The Q1 08 net loss was $12.6 million and there was an acceleration of net losses in Q2.

The half year net loss was $157.3 million compared to a net loss of $6.6 million in the year-ago half. Rambus' business model isn't working very favourably.

In fact Q2 revenue declined 10.1 percent sequentially but net losses worsened 11.5 times. Something went horribly wrong and that something was atax issue as we shall see.

General litigation expenses for the second quarter of 2008 were $9.1 million, a decrease of $4.1 million from the first quarter of 2008. General litigation expenses for the six months ended June 30, 2008 were $22.3 million, an increase of $10.6 million from the same period in 2007. The lawyers haven't eaten up all the money.

Satish Rishi, SVP and CFO, said in the earnings call: " The decrease in revenue from the previous quarter was primarily driven by lower contract revenue as we got close to completion on significant projects. The decrease in revenue from a year ago was due to decreases in patent royalties from Fujitsu and Qimonda and lower contract revenue."

The vastly increased loss was due to a tax matter. Rishi said: " During the quarter we booked a non-cash charge of $130.5 million to establish the valuation allowance against our U.S. deferred tax assets. Our history of cumulative GAAP losses in recent years, coupled with our revised outlook for the year, led us to conclude that we may not be able to fully realize the deferred tax assets according to FAS 109 guidelines, concluding that a valuation allowance is not required is difficult, particularly when there is significant evidence that is objective and verifiable, such as accumulative GAAP losses in recent years. In our analysis we weighed all the evidence, both positive and negative, and determined that the deferred tax assets were impaired and a valuation allowance should be recognized."

The big revenue hope is incresased royalty payments from litigation wins but Rambus has no control over the likelihood of litigation wins or their timing. It's in a hole but cannot stop digging because there may be legally-obtained pots of licensing revenue gold down there .... somewhere ... sometime ... maybe.

Harold Hughes, Rambus president and CEO, bit the bullet and said: “Despite the obvious headwinds faced in the quarter, we remain committed to a strategy that focuses on long-term success. We will continue to invest in technology development and fully fund our legal efforts. Nevertheless, we intend to reduce our current cost structure through actions which may include downsizing our workforce in order to maintain the financial strength of the company. In doing so, we will continue to support our customers and ensure we follow through on the commitments made to them.”

Rambus will reduce its workforce by approximately 90 positions and will take a restructuring charge, on a cash basis, of approximately $4.0 million in the next two quarters, primarily related to severance expenses. With this restructuring and related cost saving measures, Rambus expects cash savings of approximately $17 million annually, principally due to reduced compensation related expenses. After the restructuring, which is expected to be completed by the end of the year, Rambus will have a headcount of approximately 340 employees.

Hughes said: "This is a difficult but appropriate adjustment that will position us to succeed in our strategic objectives. These steps will enable us to enhance our investments in breakthrough technology and strengthen our efforts to protect and be fully compensated for our patented inventions. We remain dedicated to the product commitments that we have made to our customers including the continued support of our leadership XDR memory architecture."

^{[Chris Mellor.]}