Q3 2024 Rambus Inc Earnings Call

Thomson Reuters StreetEvents10-29

Participants Desmond Lynch; SVP & CFO; Rambus Inc Luc Seraphin; President & CEO; Rambus Inc Kevin Cassidy; Analyst; Rosenblatt Securities Inc Blayne Curtis; Analyst; Jefferies Group LLC Mehdi Hosseini...

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As a reminder, this conference call is being recorded. I would now like to turn the conference over to Desmond Lynch, Chief Financial Officer. You may begin your conference.Thank you, Des, and good afternoon, everyone. In Q3, the company delivered strong sequential growth, fueled by double digit increase in product revenue, driven by continued market leadership and from our DDR5 memory interface chips and sustained execution across our growing portfolio of products. And while we invest in our product and","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"RMBS":"Rambus"},"translate_title":"2024年第三季度Rambus Inc收益看涨期权","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"RMBS":1},"content_text":"Participants\nDesmond Lynch; SVP & CFO; Rambus Inc\nLuc Seraphin; President & CEO; Rambus Inc\nKevin Cassidy; Analyst; Rosenblatt Securities Inc\nBlayne Curtis; Analyst; Jefferies Group LLC\nMehdi Hosseini; Analyst; Susquehanna International Group LLP\nNaved Khan; Analyst; B. Riley Financial Inc\nGary Mobley; Analyst; Loop Capital Markets LLC\nNam Hyung Kim; Analyst; Arete Research LLC\nPresentation\nOperator\n Welcome to the Rambus's third-quarter fiscal year 2024 earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to Desmond Lynch, Chief Financial Officer. You may begin your conference.\nDesmond Lynch\n Thank you, operator, and welcome to the Rambus's third-quarter 2024 results conference call. I am Desmond Lynch, Chief Financial Officer at Rambus. And on the call with me today is Luc Seraphin, our CEO. The press release for the results that we will be discussing today has been filed with the SEC on Form 8-K. We are webcasting this call along with slides that we will reference during portions of today's call. A replay of this call can be accessed on our website beginning today at 5:00 P.M. Pacific Time. Our discussions today will contain forward-looking statements, including our expectations regarding projected financial results, financial prospects, market growth, demand for our solutions, and other market factors, and the effects of ASC 606 on reported revenue amongst other items. These statements are subject to risks and uncertainties that may be discussed during this call, and are more fully described in the documents we file with the SEC, including our 8-K's, 10-Q's, and 10-K's. These forward-looking statements may differ materially from our actual results, and we are under no obligation to update these statements. In an effort to provide greater clarity into financials, we are using both GAAP and non-GAAP financial presentations in both our press release and on this call. A reconciliation of these non-GAAP financials to the most directly comparable GAAP measures has been included in our press release and our slide presentation, and on our website at rambus.com, on the Investor Relations page under Financial Releases. In addition, we will continue to provide operational metrics, such as licensing billings, to give investors better insight into our operational performance. The order of our call today will be as follows: Luc will start with an overview of the business, I will discuss our financial results, and then we will end with Q&A. I'll now turn the call over to Luc to provide an overview of the quarter. Luc?\nLuc Seraphin\n Thank you, Des, and good afternoon, everyone. In Q3, the company delivered strong sequential growth, fueled by double digit increase in product revenue, driven by continued market leadership and from our DDR5 memory interface chips and sustained execution across our growing portfolio of products. And while we invest in our product and technology leadership, we continue to generate excellent cash from operations and deliver consistent returns value to our stockholders. In Q3 alone, we generated $62 million of cash from mine operations and repurchased $50 million of stock, marking our fifth consecutive quarter of share repurchases. In continued demonstration of our product leadership, earlier this month, we were the first to introduce complete chipsets for industry standard DDR5 MRDIMMs at 12,800 mega transfers was taken, and earnings at 8,000 megatrends gross per second, which are commonly refer and to as the MRDIMM 12,800, and RDIMM 8,000, respectively. Designed to meet the insatiable demand for higher memory performance in advanced data center and AI workloads, these new chipset represents a significant expansion of our addressable market and long-term growth opportunity. In Q3, memory interface chips delivered revenue of $66 million, up 17% sequentially, and 27% year over year. And in Q4, we anticipate our third consecutive quarter of double digit sequential growth. As expected, we are pleased to see that data center demand growth in the second half of this year is driving increased sales of our core DDR5 RCD products, where we continue to gain share and early contributions from new products. We are also very excited by the positive customer feedback on our new products with qualification shipments on the way for both server and client applications. The rapid development of new leadership memory subsystem quarters is difficult to sustain advancement of powerful server architectures. And the growth of AI and other data-intensive applications are accelerating the cadence of new products. As a fundamental pillar to our growth strategy, we will continue to leverage our strong balance sheet to support our strategic investments in new product to expand our market opportunity and to drive the long-term growth of the company. The recent introductions of our complete chipsets for the industry standard DDR5 MRDIMM 12,800 and RDIMM 8,000, which I mentioned earlier, are great illustrations of this strategy in action. These new chipsets enable the next wave of DDR5-based systems, and incorporate the advanced clocking, control, and power management features needed for higher capacity and higher bandwidth modules. As a recap, our newly announced offerings for DDR5-based systems include the Gen5 RCD, enabling next-generation standard RDIMMs operating at 8,000 mega transfers per second, the multiplexed RCD or MRCD; and multiplexed data buffer, or MDB, enabling industry-standard MRDIMMs running at 12,800 mega transfers per second; and finally, the second-generation server, PMIC, designed for both the RDIMM and MRDIMM. Our SPD hub and temperature sensor are also utilizing both the MRDIMM and RDIMM memory modules, rounding out our comprehensive chipset offerings. These chipsets are designed to intercept future generation server platforms currently targeted for 2026 and beyond that will use the next wave of DDR5. As part of this next wave, the RDIMM 8,000 and MRDIMM 12,800 are designed around a common architecture that allows an end user to populate a server with either module-type, enabling flexible and scalable server memory configurations. Addressing a broad range of traditional and AI servers, a DDR5 RDIMM 8,000 utilizes the Gen5 RCD and next-generation server, PMIC, to deliver more than 67% greater bandwidth versus the first generations of DDR5. This represents an important new benchmark in server main memory, and supports the ongoing growth of AI and other compute-intensive workloads. As AI continue to scale with a larger and more complex models, demanding ever-greater memory bandwidth and capacity, the industry standard MRDIMM will be key to extending the DDR5 roadmap to meet these needs. MRDIMM does this by employing a novel and efficient module design that boost data transfer rates and system performance by multiplexing to ranks of DRAM. In order to support the increased complexity of this functionality, each DDR5 MRDIMM 12,800 requires 1 MRCD and 10 MDB chips to multiplex the memory channel and support more memory devices. These doubles the bandwidth and provides for greater capacity, while using this same physical connections of DDR5 RDIMMs. As I previously mentioned, our second-generation server, PMIC, is part of the chipset for both the RDIMM 8,000 and MRDIMM 12,800, with new server PMIC, supports higher speeds as well as more DRAM and logic chips per module. This second-generation server, PMIC, along with the Gen5 RCD, MRCD, and MDB, are further demonstrations of Rambus product leadership and our exciting new additions to our portfolio that significantly increase our addressable market in the years to come. Turning to silicon IP, AI continues to drive long-term momentum across our IP business. We further expanded our portfolio of leading AI-focused offerings with the introduction of the industry's first HBM4 memory controller IP. This new HBM4 controller IP provides a vital building block for cutting edge AI accelerators, graphics, and HPC applications. Looking ahead, the requirements for power, performance, and security will only intensify spurred by Generative AI and other data intensive workloads. Across all of our businesses, Rambus is strategically focused on advancing system memory bandwidth and capacity through innovative memory connectivity and power management solutions. In closing, Q3 was a strong quarter for the company, driven by excellent execution and double-digit product revenue growth from our chip business. Consistent with our view that we would see our performance strengthening throughout the year, we are poised for another quarter of double-digit product revenue growth in Q4 and are on track for greater than 30% product growth in the second half, compared to the first half of the year. Through our continued leadership in DDR5 RCDs, growing momentum in new products, and the introduction of our industry-first MRDIMM and RDIMM chipsets, we continue to expand our addressable market and are well positioned to capitalize on secular trends in data center and AI. Our strong cash generation enables us to continue investing in innovative products and to pursue strategic initiatives that drive the long-term growth of the company while consistently delivering value to our stockholders. As always, I'd like to thank our customers, partners, and employees for their ongoing support. And with that, I'll turn the call over to Des to discuss the quarterly financial results. Des?\nDesmond Lynch\n Thank you, Luc. I'd like to begin with a summary of our financial results for the third quarter on slide 5. We are pleased with our strong Q3 financial results. Our team delivered double-digit product revenue growth, with strong cash generation in the quarter. Our profitable results and outstanding cash generation allowed us to continue to strategically invest in our product roadmap and return capital to our shareholders through share repurchases. Let me now provide you a summary of our non-GAAP income statement on slide 6. Revenues for the third quarter was $145.5 million, which was in line with our expectations. Royalty revenue was $64.1 million, while licensing billings were $65.4 million. The difference between licensing billings and royalty revenue mainly relates to timing, as we do not always recognize revenue in the same quarter as we bill our customers. Product revenue was $66.4 million, up 17% sequentially and up 27% year over year, driven by continued strength in DDR5. Contract and other revenue was $15 million, consisting predominantly of silicon IP. As a reminder, only a portion of our silicon IP revenue as reflected in contract and other revenue, and the remaining portion as reported and royalty revenue as well as in licensing billings. Total operating costs, including cost of goods sold for the quarter were $80.5 million. Operating expenses of $55.3 million, were in line with our expectations, and we ended the quarter with a total headcount of 685. GAAP interest and other income for the third quarter was $4.3 million, which includes $100,000 of ASC 606 interest income. Using an assumed flat tax rate of 22% for non-GAAP pretax income, non-GAAP net income for the quarter was $54.1 million. Now, let me turn to the balance sheet details on slide 7. We ended the quarter with cash, cash equivalents, and marketable securities totaling $432.7 million. This is flat to Q2, as our strong cash from operations of $62.1 million was offset by stock repurchases and cash capital expenditures. In the quarter, we repurchased $50 million of stock, which retired approximately 1.2 million shares in our fifth consecutive quarter of executing share buybacks. Third-quarter capital expenditures was $13.5 million for depreciation expense was $6.7 million. We delivered $48.6 million of free cash flow in the quarter. Let me now review our outlook for the fourth quarter on slide 8. As a reminder, the forward-looking guidance reflects our current base estimates at this time. We continue to actively monitor the macroenvironment and our actual results could differ materially from what I'm about to review. In addition to the financial outlook under ASC 606, we also provide information on licensing billings, which is an operational metric that reflects amounts invoiced to our licensing customers during the period adjusted for certain differences. As we have reported historically, licensing billings closely correlates with what we had historically reported as royalty revenue under ASC 605. Under ASC ASC 606, we expect revenue in the fourth quarter to be between $154 million and $160 million. We expect royalty revenues to be between $54 million and $60 million, and licensing billings between $57 million and $63 million. We expect Q4 non-GAAP total operating costs, which include COGS to be between $86 million and $82 million. We expect Q4 capital expenditures to be approximately $11 million. Under ASC 606, non-GAAP operating results for the fourth quarter is expected to be between a profit of $68 million and $78 million. For non-GAAP interest and other income and expense, we expect $4 million of interest income. We expect to pro forma tax rate to be approximately 22%, with non-GAAP tax expense is expected to be between $16 million and $18 million in Q4. We expect Q4 share count to be 108 million diluted shares outstanding. Overall, we anticipate the Q4 non-GAAP earnings per share range between $0.52 and $0.59. Let me finish with a summary on slide 9. In closing, I am pleased with our financial results and continued execution. In Q3, our team delivered double-digit product revenue growth with continued strong cash generation. Through our leadership and organic investments in DDR5 solutions, we are well positioned to capture the long-term opportunity ahead of us, while continuing to deliver value to our stockholders. Before I open up the call to Q&A, I would like to thank our employees for their continued teamwork and execution. With that, I'll turn the call back to the operator to begin Q&A. Could we have our first question?\nQuestion and Answer Session\nOperator\n (Operator Instructions) Kevin Cassidy, Rosenblatt Securities.\nKevin Cassidy\n Thanks for taking my question and congratulations on the good results. But just on the results, maybe just to help clarify the guidance for the contract revenue was $17 million to $23 million, and you came in at $15 million, you did much better on the licensing. But maybe can you just talk what some of the moving parts might have been there?\nDesmond Lynch\n Kevin, thanks for your question. As we have sort of talked about previously, silicon IP revenue can show up under both contract and other licensing billings. If we customize IP, then it's classified as contract another, and if the IP sold off the shelves, it will show up in our licensing billings. So if you really look at our Q3 results, what we did see is silicon IP revenue was relatively flat quarter over quarter at $28 million to $29 million. However, you did see a shift in revenue between the classification as we sold more off-the-shelf IP which resulted in higher licensing billings, which was offset by lower contract and other revenue. If you zoom out from an annual perspective, Kevin, I would expect around $40 million of silicon IP to show up under the licensing billings number. And if you add that to the contract in other revenue of around about $80 million, you will see a business that's growing in line with our expectation and continuing to operate at scale. But overall, we're very pleased with our performance in silicon IP, and we're on track to meet our annual growth rate targets here.\nKevin Cassidy\n Okay, great. Thanks for that explanation. And maybe just for further explanation, you announced having the HBM4 controller. That's, I guess, CPUs using that expected a couple of years out. Do you get paid for this now? Is this a license that you had signed and get paid currently? Or do you have to wait for the device to -- the CPU to be in production?\nLuc Seraphin\n Kevin, thank you for your question. Typically, we get paid when we deliver the IP to our customers. And we've done this consistently over the years, we've been actually leading the HBM road map with this IP. We announced our HBM3 in '21 -- HBM3 in '23. And this year, we are announcing our HBM4. And every time, we have a wave of silicon companies that buy that IP in the form of license. so we do not wait for these products to go to production to be paid for these licenses.\nKevin Cassidy\n Okay. Great. I'll get back into queue. Let other people ask questions.\nOperator\n Blayne Curtis, Jefferies.\nBlayne Curtis\n Hey, guys. Thanks for taking my question. Congrats on the product revenue growth. Maybe I just want to follow up on Kevin's question. In terms of silicon IP, I'm not sure I followed the math. But I guess for the guide, it's kind of lumpy in contract revenue and you have it back up. You had talked about kind of the silicon IP growing at like 10%, 15%. I don't think it's been growing that fast. So I'm just kind of curious, is this kind of a base that it grows off of? Or is it kind of lumpy and comes back down? It's just hard to kind of reconcile on a quarterly basis there, but maybe you can talk about if there's anything in December and then if that 10%, 15% growth is still the right number?\nDesmond Lynch\n Hi, Blayne, it's Des. You are correct, the correct way to think about silicon IP is, they're growing that 10% to 15% -- this year, we do expect silicon IP to grow around 10%, which is in line with that 10% to 15% expectation. When you look at the revenue, it split, silicon IP as I mentioned earlier, across the two categories, one that is a component within licensing billings, let's just call it $40 million for the round number there. And you also have around $80 million within contract and others. So that takes the business to about $120 million this year, which is up about 10% compared to last year when you normalize the PHY divestiture from there. And we're really excited about the business going forward. We have released new products this year, which are really targeted towards the AI solutions, which includes HBM4, PCIe 7 and GDDR7 solutions. So going forward, I would expect the business to grow in that 10% to 15% going into sort of next year, and we've been executing at that sort of growth rate in 2024.\nBlayne Curtis\n Thanks. And I just had a question on product. DDR4 had been quite small. I was just kind of curious within this pickup, is it still small levels or has it recovered any fit?\nLuc Seraphin\n DDR4 is still at small levels, as expected. We've seen the sixth consecutive decline of inventories in the channel. However, the sales of DDR4 remain modest. And Des indicated in the last -- it was about $5 million a quarter, and we see this continuing. We see a long tail but with low sales. The good news for us is that most of our sales on -- that's growing this double-digit quarter-over-quarter is coming from DDR5. And we were expecting this given the good design win footprint that we had on several generations of DDR5. So that translates now into that growth that you're seeing in Q3 and that we're expecting in Q4. But DDR4 plays a very modest role in that growth. Most of our sales are in DDR5.\nBlayne Curtis\n Thanks so much.\nOperator\n Mehdi Hosseini, SIG.\nMehdi Hosseini\n Yes, thanks for taking my question. First one is for Luc. When I look at your product revenue, you've had a very nice incremental increase from Q1 to Q4 from $50 million to $75 million to $25 million of incremental increase, what I want to learn from you is how much of these $25 million of incremental increases driven by companionship and how much of it is just migration to DDR5? And if we were to look into next year, should we assume kind of a scaling from the $75 million that you're exiting '24 from?\nLuc Seraphin\n Thank you, Mehdi. Thank you, Mehdi. In terms of the second half of this year, you're correct. Our product revenue for the second half of this year is going to be about 30% higher in the first part of this year. There are two contributors to that. The main contributor is, as I said earlier, DDR5, we've worked over the last few years in making sure that we're leading the DDR5 race by introducing the DDR5 products first in the market, to secure the footprint, and that footprint is translating now into market share. So that DDR5 market share is explaining the growth in the second half compared to first half. We also have the initial sales of companionships. We know we missed the first generation of products, but we're starting to ship those companionships Q4 should see an increase versus Q3. And we're also very excited with the traction that we have on our first wave of PMIC products which are in qualification with our customers and where we see qualification volumes into Q4. So the main contributor is DDR5 followed by a modest contribution of companionships in the second half but growing with growing qualification footprint. And I think we're going to see that pattern over and over again. That's why we announced the MRDIMM products, the second generation of PMICs as well because being first in the market with this leading-edge products eventually translates into market share. So that explains the growth that you saw between Q1 and Q4 of this year. We expect continued growth next year on our product revenue, probably with a similar pattern as this year, Granite Rapid has been announced. Typically, when a product is announced, it takes six months plus before it's in full production. So we're going to see qualification volumes, preproduction volumes into the first half, and then full volume production in the second half. So we're going to see a similar pattern as we saw with MRL rapid. And our companionships will continue to go through their qualification process with our customers and our customers' customers. and will continue to contribute growth quarter-over-quarter with them being in full swing in the second half of next year.\nMehdi Hosseini\n Great. And just a quick follow-up for Des, you're exiting the year with a private gross margin of low-60, should we think of product gross margin trending towards the higher end of your guided range of 60% to 65%?\nDesmond Lynch\n Good question. Why I would say is we are pleased with our gross margin performance in Q3. We ended at around 63%, which was up 3% against sort of Q2, driven by stronger product mix in the quarter. As a company, we have a real strong track record of being disciplined in our approach to pricing and continuing to drive cost savings, which have led to us driving and leading these strong product gross margins. For the full year of '24, I would expect gross margins to be around 61% to 62% on the sort of chip side, which is both in line with our historical performance of '22 and '23 and are also a long-term target of 60% to 65%. So that's really where we've been operating Mehdi. In any given quarter, we could the margins moving up or down depending upon what products are shipping. But again, over the longer term, in the course of the year, we have a really strong track record of driving towards these gross margins.\nMehdi Hosseini\n Thank you.\nDesmond Lynch\n Thanks, Mehdi.\nOperator\n Naved Khan, RBC.\nNaved Khan\n Hi. Thanks for taking my question. Can you give us update on CXL controller chip development and timeline? Recently, I feel the market sentiment of CXL doesn't seem very strong compared to a few years ago, maybe due to HBM. What's your view on CXL market in general and your opportunity there?\nLuc Seraphin\n Hello, thank you for your question. First of all, we do see CXL playing a role in our silicon IP growth. We continue to see people buying from us CXL IP, or OPCI IP for that matter, which is a sign that a lot of chips are actually using CXL interface. But at the same time, what we see is there's a fragmentation of that market, a lot of very different chips -- custom ships are using the CXL interface. And that's good for us on our silicon IP business. On the product side, we do have a product out with customers in the hands of our customers, and they are testing those products and more precisely testing the use case of those products. We believe, however, that the market will consolidate at the Diamond Rapid node at CXL 3.0. Until then, it's going to be very fragmented. That's our view. The other thing is that there are some use cases, such as memory expansion that are going to be addressed by alternative solutions like the MRDIMM that we've just announced, which allows actually to use more bandwidth and more capacity on existing infrastructure, where the whole ecosystem has agreed on the same solutions for the industry. So this is a place that we understand that we are monitoring. We're enjoying the growth on the silicon IP side for CXL IP. We are ready for the CXL 3.0 node on the product side, but we don't believe it's going to be sufficient volumes on a standard type of product until 3.0 is out. But we're also investing in MRDIMM for applications such as memory expansion.\nNaved Khan\n Okay, thank you.\nOperator\n Gary Mobley, Loop Capital.\nGary Mobley\n Hi, guys. Thank you so much for allowing me to ask a question. Sorry, I missed the last earnings call. Luc, you spent a lot of time in your prepared remarks talking about MRDIMM and I think it's an important topic. And consequential market evolution over time. But the way I think the technology first evolved was specific to Granite Rapids from Intel and then maybe some joint development between Intel, Hynix, and Renaissance initially. And if I'm not mistaken, MRDIMM has moved its way into the JEDEC standard set in, thus has become more open for folks like you to develop product correct me if I'm wrong in that review of the market evolution. But my question for you is that, do you think, given how that market evolves that you will have equal to or greater market share in MRDIMM that you have in current generation of DDR5 DIMM modules?\nLuc Seraphin\n Thanks, Gary. Welcome back. You're correct on your first statement that there were some point solutions in MRDIMM that were not JEDEC compliant that were probably good proof of concept for the ability to increase bandwidth on existing infrastructure. And the one we are announcing is the first JEDEC standard MRDIMM at 12,800, which is a notch higher than the current speed which is also adopted by the whole industry. And while we were not participating to the custom solution in the first generation, we were working on that JEDEC solution from day one because we think this is the one that is going to get traction in the market, as you said correctly, with Diamond Rapid node. And for this generation, not only are we developing the RCD chips set, the DB chipset, but as I said in my prepared remarks, we've got very good feedback on our first generation of PMIC. The PMIC is becoming more complex for MRDIMM. So we're also developing the PMIC for the MRDIMM solution. And our objective there is, over time, to get a similar market share as we have in the RCD market. This is a market that is going to show early volumes in 2026 for us. So we have next year to introduce the products to the market to go through the standard qualification with our customers, our customers' customers. But we're going to have a complete chipset, including the PMIC. And our goal is to reach the similar market share as we have on the standard RCD. The other aspect of MRDIMM is that the content increases just by the nature of what it is. We have on RCD chip per module and 10 DB chips per module. We will also have a complete power management and companionship offering there. So the content per module is going to be at least 4x what you see on the current target. So that's what we talk about when we say it's going to be a SAM expansion for us.\nGary Mobley\n Thank you for that clarification. Seeing the product revenue, up 30% second half versus first half, one thing you didn't mention that probably is factoring into that is the general market recovery and general server demand that as well, some inventory depletion in that specific channel. So to what degree is that impacting your outlook here and your trends in the second half of the year for product revenue? And how can you be sure that this isn't maybe another situation of an inventory rebuild and setting up for a situation like we saw back in maybe 2022?\nLuc Seraphin\n That's a good question. So yes, you're correct. We did see a recovery of the standard server market in the second half. So that's helping us. Our view of the server market is that this year is growing about mid-single digit. If you take the midpoint of our guidance for Q4, our product business should grow low double digits. So just from that standpoint, we believe we are gaining share on the DDR4 and I'll come back to DDR5. On DDR4, we do see long inventory depletion, we were starting from a very challenging point in early '23. On DDR5, we are not too concerned about the levels of inventory. They are in line with what we would expect for people to start production or preproduction depending on what generations they are in, so the levels of inventory on the DDR5 side of things are reasonable at this point in time.\nGary Mobley\n Thank you, guys.\nLuc Seraphin\n Thanks, Gary.\nOperator\n (Operator Instructions) Kevin Cassidy, Rosenblatt Research.\nKevin Cassidy\n Yeah, thanks for taking my follow-up question. And appreciate the details on MRDIMM being 4x the content of RDIMM. What are the expectations for, I guess, the number of CPUs or will this be the new standard? Will most servers use the MRDIMM architecture versus RDIMM?\nLuc Seraphin\n It really depends. That's a good question, Kevin. It really depends on the use cases. Typically, the MRDIMM will provide large capacities and very high bandwidth. So at the first approximation, one would say that if you take an AI box, for example, for processes, standard CPUs that do all the preprocessing, that's the typical type of application that would use an MRDIMM. Because in that AI box, the CPUs requires a lot of memory and very high bandwidth. So that's a natural place for MRDIMM. And you'll find it in other applications where the loads are important. But they will not cannibalize the standard RDIMM market as there are a lot of applications that don't need that type of bandwidth. So that's why we see MRDIMM as an addition to our current sand view in 2026. And it will start in the very high end data intensive type of applications such as AI boxes.\nKevin Cassidy\n Okay, great. Thank you.\nOperator\n Mehdi Hosseini, SIG.\nMehdi Hosseini\n Yeah. A quick follow-up for me. On HBM4, thanks for highlighting opportunities, but just is there any way you can help me better understand and compare Rambus's content, IP content in HBM4 and how it compares to HBM3? And then one follow-up for Des. How should we think about operating leverage looking into next year I'm not asking for a specific 2025 OpEx guide, but I just wanted to get a feel for the leverage given all the investments that you have made in generally?\nLuc Seraphin\n Yes. Thank you for your question on HBM. First of all, we've been developing HBM controllers for many years. So what we provide is actually the HBM controller that sits right before the PHY. We've had a history of providing HBM ahead of the market. We announced our HBM2E in '20 -- HBM3 in '21, HBM3E last year, HBM4 this year. And the difference between HBM3 and HBM4 is really a question of speed on that interface. And typically, when we release a new version of our HBM controller, we try to beat the speed that are defined by JEDEC so that our customers have room for their designs. So the main difference is the speed, but the basic offering is the same. That's an HBM memory controller that CPU vendors, NPU vendors, DPU vendors, ASIC vendors can use to integrate into their chips.\nDesmond Lynch\n Hi, Mehdi. It's Des. Let me jump into the OpEx sort of question that you asked. I think as a company, we've done a very nice job in managing our expenses where we've really struck a good balance between being disciplined and really investing at the right level to support our future growth opportunities. In 2024, I've been delighted with our R&D execution and new product rollout, which really has been achieved under a similar operating expense envelope as we've reinvested the divestify R&D expense back into the product programs. And as Luc mentioned in his prepared remarks, this has significantly increased the market opportunity from there. But looking ahead into sort of next year, I would say that R&D, we've been operating $36 million to $38 million per quarter. on the R&D side. And you will see additional investment to support our new product road map. Maybe the correct way to think about this as being around 23% to 25% of revenue might be a reasonable framework for you to think about. And then in terms of the SG&A side, we've been relatively stable at that $19 million to $20 million per quarter. You will see sort of inflationary increases here. But really, as the top line grows, you get to see some nice leverage on the SG&A side from there. But overall, I think we've been very happy with our investments into the business. They are paying off as a result of the new products that we're releasing which are increasing the future opportunities for us going ahead.\nMehdi Hosseini\n Thank you.\nLuc Seraphin\n Thanks, Mehdi.\nOperator\n Nam Kim, Arete Research.\nNam Hyung Kim\n Sorry, another question related to the MRDIMM. I understand the industry has been developing two new DIMM like MRDIMM and the other one is MCR DIMM, if I recall is correct. Now, I'm not sure if those two standards emerge recently, but I understand Rambus is not part of MCR DIMM initiatives. So can you explain why? And what's your view on MRDIMM versus MCR DIMM?\nLuc Seraphin\n To my knowledge, we are participating in every JEDEC standards that is related to MRDIMM or MCR DIMM. We are, like many other companies, we're part of JEDEC. We're participating into those definitions and our objective as a company, just like we did for the MRDIM is to be present for every JEDEC product that is out there.\nNam Hyung Kim\n So are you also embarked with MCR? I think I'm starting not to extend there, but I'm curious [you see] there?\nLuc Seraphin\n We are developing JEDEC standard, Nam. We are developing JEDEC standard.\nNam Hyung Kim\n Okay, got it.\nLuc Seraphin\n That's our strategy. Because as we said earlier, the investments for these type of solutions are huge, not only on our side but also on the part of our partners in the ecosystem. And it's important for us to make sure that there is traction in the whole ecosystem for the development of high-volume solutions, as opposed to custom solutions. Which when you take custom solutions and you add them up, the market may be large, but every single player in the market might not have revenues that justify the investments. By focusing on JEDEC standards, whether it's for RDIMM or MRDIMM or for all the products we make, we assure of the adoption of the whole industry, which drives revenue growth as opposed to depending on a custom solution for a set of different customers. So our strategy as a whole, and that's a very good question, our strategy as a whole is to develop products that are JEDEC or specified by JEDEC so that we know we do have the momentum and the traction from the ecosystem, and we address a market that everyone is participating to allowing us to have the growth that we expect to have as we did in the DDR5 generation of products.\nNam Hyung Kim\n Thanks, Luc. It's pretty clear. Thanks.\nOperator\n This time there are no further questions. This concludes our question-and-answer session. I would now like to turn the conference back over to Luc Seraphin for any closing remarks.\nLuc Seraphin\n Thank you to everyone who has joined us today for your continued interest and time. We look forward to speaking with you again soon. Have a good day.\nOperator\n Thank you. 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