Operator: Welcome to the Rambus Second Quarter Fiscal 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a Q&A session. If you would like to ask a question, you may press *1 on your touch-tone phone at any time. If anyone should require assistance during the conference, please press *0 at any time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Sumeet Gagneja, chief financial officer. You may begin your conference.
Sumeet Gagneja: Thank you, operator. And welcome to the Rambus second quarter 2026 results conference call. I am Sumeet Gagneja, Chief Financial Officer at Rambus. And on the call today, with me 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 the slides that will reference during portions of today's call. A replay of this call will be available on our website beginning today at 5 p.m. Pacific time. Our discussion today will contain forward-looking statements, including our expectations regarding projected financial results, financial prospects, market growth, demand for our solutions, other market factors, reflections of the geopolitical and macroeconomic environment amongst other items. These statements are subject to risk and uncertainties that may be discussed during the call and more fully described the documents we filed with the SEC, including our 8-Ks, 10-Qs, and 10-Ks. 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 on the 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, in our slide presentation, and on our website at rambus.com on the investor relations page under financial releases. I would like to note a change in how we present our results going forward. Since the adoption of ASC 606, we have disclosed licensing billings, an operational metric that bridges the difference between GAAP revenue and actual billings to our licenses. This was an important metric in the initial year after ASC 606 adoption when the delta between royalties revenue and licensing billings was material. As the difference is now minimal and we expect it to remain small, we will focus our financial results and guidance on an ASC 606 revenue basis going forward. The order of the 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 will now turn the call over to Luc to provide an overview of the quarter. Luc?
Luc Seraphin: Thank you, Sumeet. Good afternoon, everyone, and thank you for joining us. Before we begin, I would like to take a moment to welcome Sumeet Gagneja, to his first earnings call as Rambus' chief financial officer. Sumeet brings more than 2 decades of leadership experience in the semiconductor industry and a wealth of knowledge in the data center ecosystem. Since joining Rambus, he has quickly become a valued member of the leadership team and we are very pleased to have him on board. Welcome, Sumeet. With that, let's turn to our results. Rambus had an excellent second quarter. Delivering a new all-time high in revenue and non-GAAP earnings, and beating the high-end of our guidance ranges. Fueled by record product revenue strong contributions from our diversified revenue streams this quarter marks the first time we have exceeded $200 million in revenue. These results reflect our sustained execution and leadership across our expanding portfolio of chips and IP We also generated solid cash from operations, underscoring the strength of our business model and enabling us to continue investing in our product roadmap to drive long-term growth. This combination of record performance, disciplined execution, and sustained investments positions Rambus to capitalize on the exciting market trends in data center and AI. AI continues to drive a fundamental evolution in computing, as inference and agentic use cases scale workloads are becoming more diverse more persistent, and more memory intensive. To support these workloads, AI infrastructure deployments are becoming more complex and heterogeneous, combining a mix of traditional and AI server platforms. This is accelerating demand for CPU-based servers to support orchestration, data management, and real-time execution at scale while increasing requirements for memory, capacity, bandwidth, and power efficiency. These trends align directly with our strengths, and are driving new opportunities for richer chip content and broader adoption of our industry-leading IP. Now let me turn to our quarterly business results. Starting with chips, product revenue reached a new record of $99 million, up 22% year-over-year, and we expect another quarter of double-digit growth in Q3. This reflects our continued leadership in DDR5 RCDs, strong execution, and growing traction in new products. And looking ahead, we see increasing customer adoption and remain well positioned to support the ramp of next-generation platforms as they enter the market. We continue to execute well across our DDR5 roadmap, We expanded our portfolio with complete chipsets for DDR5-9600 client and server memory modules, further expanding our leadership in high-speed memory interface solutions. Our new DDR5-9600 client chipset enables top-of-the-line performance for emerging AI PCs and leverages the same high-speed memory interface expertise we have developed across multiple generations of server platforms as technology requirements increasingly waterfall from the data center into high-performance client systems. For servers, our new DDR5-9600 RCD chipset built around our 6th generation RCD and PMIC5030 supports the next level of memory performance required by advanced CPU-based server platforms. As core counts, memory channels, and bandwidth requirements increase, solutions like these are essential to enabling higher system throughput and power-efficient performance. Importantly, our server chip solutions support the expanding range of new and existing process and system architectures positioning us to benefit from increasing memory requirements across the industry. Together, these additions expand the breadth of our DDR5 roadmap and demonstrate our continued enablement of higher performance improved signal integrity, and advanced power management across both data center and client applications. As AI workloads continue to diversify, there is increasing demand for novel memory architectures with application-specific performance, capacity, and power requirements. We are addressing these needs through products like our complete chipsets for MRDIMM and LPDDR5X SOCAMM2 and remain on track to intercept the market as these architectures gain adoption. Supported by active engagements across customers and ecosystem partners, we are expanding our roadmap of differentiated memory subsystem solutions to help shape the next generation of server modules. This reinforces our opportunity for increased chip content and sustained growth in 2027 and beyond. Turning now to silicon IP, we delivered another strong quarter with increasing customer traction and key design wins across hyperscalers custom silicon companies, and emerging AI semiconductor developers. As AI infrastructure scales, chip development cycles are accelerating, and performance requirements are pushing beyond industry-standard specifications. Customers are building advanced SoCs for high-performance AI systems, driving robust demand for our differentiated IP solutions, spanning advanced memory, connectivity, and security IP. We also have a growing number of deep architectural engagements, ahead of standards being finalized to help our customers be first to market with state-of-the-art performance. This includes an exciting design win with a Tier 1 U.S. hyperscaler for next-generation HBM in future AI chips. These engagements are great testament to the strategic importance of our premium IP portfolio. The growth of custom silicon for acceleration and connectivity remains an important long-term trend particularly among hyperscalers and leading AI infrastructure companies. As customers optimize hardware for their own workloads, software stacks, and deployment requirements, they need Rambus advanced IP to help them deliver performance, power efficiency, and reliability at scale. Secure connectivity is also an increasingly important part of the overall architecture, and Rambus proven security IP is foundational to enabling trusted high-performance data movement across distributed AI infrastructure. During the quarter, we also expanded our AI IP solutions with PCIe 7.0 switch IP, supporting 128 gigatransfers per second This solution is designed to support the next generation of AI scale-up and scale-out architectures where high bandwidth low latency connectivity is critical to overall system performance. As AI infrastructure scales, Rambus IP is in great demand, enabling faster, more efficient, and more secure data movement. With our strong customer partnerships, and deep architecture engagements, we are enabling the future of advanced AI hardware. In summary, Rambus delivered an excellent second quarter with record revenue and earnings. Our results reflect the strength of our product leadership the depth of our customer relationships, and our ability to execute in markets that continue to present significant opportunities for growth. Looking ahead, we are well positioned for the major trends reshaping data center and AI infrastructure. As AI scales, and agentic workloads drive greater demand for CPU-based servers and memory, Rambus chip and IP are enabling the performance, connectivity, and security customers need to build the next generations of advanced computing systems. We remain confident in our strategy, our roadmap, and our ability to drive strong growth in 2026 and beyond. As always, I want to thank our customers partners, and employees for their continued trust and support. Now I will turn the call over to Sumeet to walk us through the financials. Sumeet?
Sumeet Gagneja: Thank you, Luc, and good afternoon, everyone. Before I turn to the quarter, I want to say how excited I am to be here and how much I have appreciated the warm welcome from the team. Having spent the past several weeks meeting with our employees and investors, I have come away with a clear conviction. We have differentiated technology, deep customer relationships, and meaningful long-term growth opportunities ahead. As CFO, my focus is straightforward. Drive profitable growth through disciplined financial execution, allocate capital thoughtfully and provide shareholders with transparent and consistent communication. Now let me turn to our second quarter financial results. As I noted earlier, because the difference between royalties revenue and licensing billings is now minimal, we will focus our financial results and guidance solely on an ASC 606 revenue basis. We delivered Q2 revenue and non-GAAP earnings per share exceeding our Q2 guidance driven by strong contributions across our diversified revenue streams. Revenue for the second quarter was $207.4 million, which is up 20% year-over-year and up 15% sequentially. Led by strong performances from our product and royalties revenue, Product revenue was $99.2 million, which is up 22% year-over-year and up 13% sequentially. Royalties revenue was $84.2 million. Contract and other revenue was $24 million consisting primarily of silicon IP. As a reminder, only a portion of our silicon IP revenue is reflected in contract and other revenue and the remaining portion is reported in royalties revenue. Total non-GAAP operating costs including cost of goods sold, for the quarter were $113.7 million. Operating expenses of $73.5 million were up sequentially due to higher SG&A expenses. Interest and other income for the quarter was $6.8 million. Using an assumed non-GAAP tax rate of 16%, non-GAAP net income for the quarter was $84.4 million. Resulting in Q2 non-GAAP earnings per share of $0.77, which is up 24% year-over-year and up 21% sequentially. Now let me turn to the balance sheet details. We ended the quarter with cash, cash equivalents, and marketable securities totaling $825 million, up $39 million from Q1 with solid operating cash flow of $61 million, partially offset by $12 million in capital expenditures, and $9 million of net equity outflows. Inventory increased by $16 million during the quarter as we leverage the strength of our balance sheet to support future product ramps and provide customers with greater supply assurance in the coming quarters. Free cash flow in the quarter was $49 million. Let me now turn to our non-GAAP outlook for the third quarter. As a reminder, the forward-looking guidance reflects our best estimates at this time, and our actual results could differ materially from what I am about to review. We expect revenue in the third quarter to be between $210 million and $216 million. We expect product revenue to be between $110 million and $116 million a sequential increase of 14% at the midpoint of guidance. We expect royalties revenue to be between $69 million and $75 million and we expect contract and other revenues to be between $25 million and $31 million. We expect Q3 non-GAAP total operating cost which include cost of sales to be between $115 million and $119 million. We expect Q3 capital expenditures to be $13 million. Non-GAAP operating results for the third quarter are expected to be between a profit of $91 million and $101 million. For non-GAAP interest and other income, we expect $7 million of interest income. Assuming a non-GAAP tax rate of 16%, and Q3 share count of 110 million diluted shares outstanding, we expect Q3 non-GAAP earnings per share range between $0.75 and $0.82. In closing, we delivered a strong quarter reflecting the diversification of our business and contributions across our revenue streams. Our third quarter outlook reflects continued sequential growth in both revenue and earnings per share supported by sustained momentum across the business. We remain firmly focused on driving long-term shareholder value through disciplined execution, thoughtful capital allocation, and consistent operational performance. Before we open the call to questions, I want to thank our employees for their continued dedication and execution, our customers for their trusted partnership, and our investors for their ongoing support and confidence in Rambus. With that, I will turn the call back to our operator to begin Q&A. Could we have our first question, please?
Operator: Thank you. Ladies and gentlemen, if you have a question, please press *1 on your touch-tone phone. We request to limit yourself to 1 question and 1 follow-up. Your first question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open.
Kevin Cassidy: Yes. Congratulations on the great results. And thanks for taking my question. Just confirm, did you have any capacity issues during the quarter Any orders you were not able to meet?
Luc Seraphin: Hi, Kevin. No. We did not have any issue in the second quarter. We continue to see tightness, in the supply chain. We continue to see lead times increasing, but we did not have any capacity issue in Q2. We have built strong relationships with our suppliers. And at this point in time, you know, we are able to serve, you know, the market demand.
Kevin Cassidy: Okay. Great. And just speak because it is topical today, you know, China-based CXMT had a big splash today. Is Rambus involved with CXMT either on the IP side or product side?
Luc Seraphin: Yeah. it is great news for CXMT. I think they are going to be a strong player in the market. You know, every company that builds, you know, memory has to have a license agreement with us. And they are 1 of them. So we are very pleased with the success, and that is going to be a good thing for us in the long run as well.
Kevin Cassidy: Okay. Great. Thank you.
Luc Seraphin: Thank you, Kevin.
Operator: Your next question comes from the line of Sebastien Naji with William Blair. Your line is open.
Sebastien Naji: Good afternoon. Thank you for taking my questions. Maybe just for the first 1, could you update us on your expectation for MRDIMM, for the ramp of MRDIMM? AMD is in production with the Venice CPU today. Sounds like servers will start shipping in Q4. Are you starting to get any better visibility into how much of the market will go down the MRDIMM route versus sticking with, more traditional RDIMMs?
Luc Seraphin: Yeah. Thank you. We do continue to see MRDIMM as a, you know, material opportunity. But as you said, the timing is going to be dependent on the platform adoption, when the servers go to market and whether those servers you know, what percentage of MRDIMM are they going to use as compared to a standard DIMM? We are excited by the opportunity but this point in time, we will not overcall the adoption curve before the platform actually ramps and we get feedback from, you know, from the market. The contribution for Q4 is going to be minimal. We continue to ship to our customers, you know, for these early system buildups and a more material contribution is going to happen in 2027 when both platforms from the CPU guys ramp in the market. in earnest.
Sebastien Naji: Got it. Okay. Great. that is helpful. And then maybe for my follow-up, one of the concerns that we are hearing more about from investors is the risk of potentially over-ordering in this very tight memory supply environment. Are you seeing any signs of inventory buildup at your customers? Or what kind of signals are you looking at that gives you some confidence this is not right now?
Luc Seraphin: We do not see any signs of our customers building inventory, for the concerns that you expressed. This said, however, we are building some inventory on critical products that we believe are going to ramp you know, in Q3, Q4, and early next year as we do see our lead times lengthening, you know, given the tightness in the supply chain. So no inventory buildup from our customers. We build strategic inventory for the products we believe are going to contribute to our growth in the next few quarters.
Sebastien Naji: Great. Thank you, Luc.
Luc Seraphin: Thank you.
Operator: Your next question comes from the line of Gary Mobley with Benchmark, a StoneX company. Your line is open.
Gary Mobley: Hi, guys. Thanks so much for taking my question, and let me extend my congratulations on the you know, snapback in your product revenue. Now relating to that, I think you have always stated at least so far this year, that typically you see seasonal strength in the second half of the year, and that certainly in your Q3 guidance. And you are obviously building inventory I assume, in preparation to fill strong demand. And we have also heard from the server processor supply chain that you know, volumes continue to exceed expectations. So I am curious to know what kind of visibility you have currently versus, say, last quarter. And what kind of visibility you have looking into the fourth quarter? In terms of the continued strength?
Luc Seraphin: Thank you, Gary. I think our confidence is continuing to build one of the reasons is the use of CPU in the agentic AI is certainly a demand driver. And we sense this, you know, with our customers. Our guide for Q3 shows another 20% growth year-over-year. Compared to last year. So this is a good sign as well. We wanna be reasonable, though, in terms of guiding beyond 1 quarter for 2 reasons. The same reasons, 1, is the timing of ramp up the platforms. We hear good things, but, you know, they have to ramp. And the second one is the supply tightness. So we believe our second half is going to be stronger than our first half. We are gonna see the same dynamic. As we saw in prior years. But we will continue to guide quarter by quarter.
Gary Mobley: Okay. Thanks for that color. And as a follow-up, I want to ask about the silicon IP business. If I am not mistaken, you have been pretty steady and assuming that business is about $130 million, correct me if I am wrong, But you have consistently and seemingly delivered upside to that number, at least through the first half of the year. So what is your most up-to-date view on the performance of the silicon IP business, whether be expressed in growth or, you know, dollar terms.
Luc Seraphin: So we continue to see, you know, that business growing 10% to 15% a year. I would say that this is another business where our confidence in that number is continuing to build. Again, with, you know, the inference and agentic AI coming up into the market, we do see a lot of our customers building custom solutions that use IP, whether it is on the interconnect side or the security side, or on the memory side. Our confidence is building up and we are confident in this 10% to 15% growth, going forward. We also, it gives us comfort as well in terms of the strategy we are using. We try to stay at the leading edge of technology on these interconnect memory or security IPs, and that allows us to engage with customers very, very early and gives us a longer-term visibility into, into that growth. Again, I would say we still see that business growing 10% to 15% a year, But our confidence in that growth continues to grow. We had a great quarter in Q2. In particular, as you could see.
Gary Mobley: Excellent. Appreciate it.
Luc Seraphin: Thank you, Gary.
Operator: Your next question comes from the line of Aaron Rakers with Wells Fargo. Your line is open.
Aaron Rakers: Yeah. Thanks for taking the questions. I guess my first question is, earlier was asked about MRDIMM, but there is just a lot of architecture stuff going on in memory or the memory subsystems in general. I am curious, Luc, as you think about MRDIMMs, and you maybe juxtapose that relative to, let's say, CXL. What is the company's views on CXL now that we have seen Meta endorse the technology? there are kind of other inklings that other hyperscalers have excitement around the model.
Luc Seraphin: Now when it comes to CXL, we are we are very supportive of CXL as a very important interconnect protocol. And it is not a chip. It is an interconnect protocol. Excuse me. And I think it is going to play a role in the AI evolution, in particular, in agentic AI, it is going to play a role on managing the memory stack or the memory and moving you from cold memory to hot memory. But that is still an, I would say, interconnect protocol and not a product. It remains very, very relevant to our silicon IP business. Now at the product chip level, because we actually talk to the people who build those products, we continue to see a fragmented market from the product standpoint with many deployments looking like ASIC-like or customer-specific products. So our position, you know, with respect to CXL remains the same. We will continue to enable the ecosystem with our IP engagement, and that is why we are building confidence on our IP business. And we will continue to monitor the traction there we will continue also to, focus our product investment where we see I would say, the strongest market opportunity for scaling and in particular on standard products. So, again, we play a critical role in the deployment in the ecosystem through our IP business. And we are monitoring the product business. At this point in time, we see this as a custom ASIC business. it is fragmented for us. And from the product standpoint, we rather invest into standard products. At this point in time.
Aaron Rakers: Yep. That makes a lot of sense. Appreciate that. And then as a quick follow-up, I know you referenced in your prepared remarks that you were engaged with a hyperscaler on some of the IP and some future generation, I am guessing XPUs or programs that they have in place. I am curious. Is that changing Like, that opportunity set of your business, is that necessarily a new dynamic Or any thoughts on hyperscalers being direct, like, real customers and driving some incremental growth for Rambus?
Luc Seraphin: Aaron. that is a very good question. I think the trend we see is that, you know, hyperscalers are playing a growing role in defining their own architecture whether they build the products themselves, or whether they have ASIC companies or product companies building the products for themselves. Because you know, they want to stay competitive and move fast. So their role in defining the architectures complex as subsystems, like the memory subsystems, is becoming more and more important So they work very early, with us, for example, before even the, the specifications are complete. To make sure that, you know, we can meet the system requirements once this is done, you know, they can use that to either build their own products or actually have semiconductor companies building their own products. Against those, those, those high-end specifications. And the trend that I see here is that these technologies actually proliferate. You know, once a hyperscaler has decided upon a particular implementation of a memory controller for example, then that proliferates into their own ecosystem. And that, again, is 1 of the reasons, you know, we feel confident in the growth rate of our IP business.
Aaron Rakers: Yep. Thank you.
Luc Seraphin: Thank you, Aaron.
Operator: Your next question comes from the line of Kevin Garrigan with Jefferies.
Kevin Garrigan: Yeah, hey, team. Thanks for taking my questions, and congrats on the results. Hey. I may have missed it, but can you just talk about how much of your revenue was from companion chips or new product revenue this quarter?
Luc Seraphin: We continue, like, in the first quarter, you know, we indicated that you know, our products, would I would say these new products were in a low-double-digit percentage of the product revenue. We continue to be at that type of rate, and we continue to run those products into, into the market, and it is gonna it is going to be, you know, in the mid-double-digit by the end of Q4. So we are on that trajectory. Remember, this is on a growing, you know, revenue base for the product side. Actually, it is growing quite nicely. But it has to go through the qualification process with our customers, with our customer customers and ecosystem. So it is never gonna be a step function. But we do have a momentum there. You know, across the board, and we are happy with the performance of those products.
Kevin Garrigan: Yep. Okay. Great. That makes ton of sense. And then so I get a lot of questions about, about, you know, just LPDDR-based servers. And, you know, you guys now have your SOCAMM2 chipset And I believe just SOCAMM in general has lower content overall versus RDIMM and MRDIMM. But, you know, as the industry kind of shifts or potentially shifts towards more LPDDR-based server modules, I mean, does that does that kinda cannibalize your RDIMM or MRDIMM opportunity at all?
Luc Seraphin: that is a great question. I would not say that the industry is shifting to LPDDR. I think, you know, LPDDR is actually an incremental opportunity for servers. We believe that DDR will remain dominant where, you know, server, grade scale, capacity, reliability, serviceability are required. So that is gonna be, continuing to be dominant in the server space. But LPDDR and SOCAMM, have a role to play where power efficiency is really, really important. So we see this as complementary. You know, we talk a lot about, you know, the AI market becoming heterogeneous. This is 1 aspect of that. So our SOCAMM2 gives us, you know, a seat at the table You know, we have a chipset for the current generation. To the extent that LPDDR is adopted more in the future with future generations, we will continue to develop chipsets there, and I think the content is going to continue to increase, you know, as the complexity increases. So we do see this as a as a, you know, as an opportunity We said in the last call, you know, the revenue outlook in the short run is modest. But the strategic importance is really high for us.
Kevin Garrigan: Yep. Okay. Perfect. Thanks, Luc.
Luc Seraphin: Thank you.
Operator: Your next question comes from the line of Tristan Gerra with Baird. Your line is open.
Tristan Gerra: Hi. Good afternoon. The 20% year-over-year increase in product to revenue guidance that you provided. Is that a good reflection of the unit demand that you see for x86 CPU in light of AMD provided a or raising their x86 CPU. CAGR to a 50% over the next several years, but I understand this includes pricing. So is 20% gonna take good proxy in terms of unit that you expect, you know, for CPU, and then on top of that, you are layering additional channel count.
Luc Seraphin: Thank you, Tristan. Yes. it is good that you remind that, the way we look at our business is unit based more than dollar based. As we do not see the same, you know, pricing dynamics than the CPU or the memory guys have. You know, that is that is the nature of a standard product business. But if you look at our business, you know, we grew 20% year-over-year next quarter, we are gonna see the same growth, type of growth, you know, year-over-year. And in the first quarter, despite the-- you know, it was 15% higher than the same quarter year earlier. So, you know, we are on that trend The server market, you know, view in terms of unit has changed positively. You know, the I would say last quarter, we would say it was mid to high single-digit growth. Now it is double-digit growth. You know, Gartner had mentioned 12% growth. So, you know, we believe that we are growing faster than that, and it is coming from, you know, a combination of the channel counts, but also the initial contribution of new products. Remember, on the on the channel counts, we always make the same reflection. it is it is a great trend for us. But it is not a step function. You know, we had, you know, AMD at 12 channels and Intel moved from 8 to 12, then the whole market is gonna move to 16. So all of that is pointing in the right direction, and the secular trend is really, really good. But that is not a step function. I would say that we are growing faster than market. We continue to believe we are growing faster than market. And all of these factors come into play.
Tristan Gerra: Okay. Great. And then as my follow-up, for next year, would you think that we could see an acceleration from that 20% year-over-year growth, you know, given the dynamic that you have mentioned. Is that something that you would be able to get sufficient supply then if you could also talk about any potential mix changes that you are seeing, you know, and anything that could impact, you know, ASPs given the supply constraint in DRAM and the potential, you know, this has in terms of DRAM content and CPU usage.
Luc Seraphin: So as we said earlier, you know, we do not guide beyond, you know, the current quarter. The data is so dynamic. But I would say there are few things to take into consideration when we look into 2027. I think the Gen 5 DDR5 is gonna grow in earnest So, you know, that is the time where the market will have moved to 16 channels per, you know, per CPU. So that is that is a good thing. You know, this is the trend we were talking about. Know, this is also, as we said earlier, when MRDIMM is going to start to kick in the market, So that is another good thing. And we continue to see you know, growing contribution from our companion chips and the client space. So from a demand standpoint, the environment is very positive. When we look at 2027. This being said, the supply constraints will continue. To be there in 2027. You know, when we talk to our suppliers, you know, we work with them that is the situation that is going to last with us, you know, for some time now. So we have to take this into account when we look at the potential of our business and as well as, you know, the platform timing. You know? By experience, we know that you know, platform, you know, ramps, typically take a little bit longer than what people anticipate. So, you know, we when we look and we guide, and, again, we cannot guide beyond 1 quarter. But when we look at the business, we feel very comfortable with the underlying assumptions on the demand side. But we are prudent with respect to, you know, platform timing. And supply, in particular. You know, at this point in time, because we have standard products we do not see any opportunity, I would say, for price increases because this is what you were talking about. But, you know, we want to stay competitive and maintain or continue to increase our share. In the in the DIMM market.
Tristan Gerra: Great. Very useful. Thank you very much.
Luc Seraphin: Thank you.
Operator: Your next question comes from the line of Mark Lipacis with ISI. Your line is open.
Mark Lipacis: Hi. Thanks for taking the questions. First question is, you know, I think there is a framework to think about CPUs ramping in data centers along 3 dimensions. 1 would be CPU head nodes next to the GPU or accelerators. 1 would be, you know, CPUs kind of standalone agentic AI CPUs, and then the third 1 would be, you know, CPUs in standard server configuration supporting you know, legacy workloads like database. Is there is there a should we think about a different framework for your Silicon content opportunity in either of these 3 categories or is the MRDIMM opportunity, does it does it ramp more obviously in 1 of these versus the other? that is the first question. Then I had a follow-up. Thanks.
Luc Seraphin: Yeah. that is a good framework to look at this. I would say that, you know, every segment that you described have their own, you know, requirements You know, in head nodes, you know, we see sometimes the emergence of or where people are starting to look starting to look at, you know, very high bandwidth, low-power You know, that was 1 of the driver for the thoughts around SOCAMM. You know, in AI servers, you know, we typically see, them as a catalyst for the adoption of the fastest technology and the highest, I would say, configuration in terms of capacity So if we put the questions of platform ramps and DRAM pricing on the side for a moment, you know, that could be a good candidate for MRDIMM types of solutions, you know, close to the GPUs, HBM where you a lot of memory there. You know, that could be that could be an option. And then, you know, standard servers, I would say whether they are used for, legacy or agentic AI, you know, would have more, you know, standard solutions. In agentic AI, the latency is becoming, you know, very, very important. You know, you have to you have to build the key value cache. But then once you have to pull from that key value cache, you know, you need to be very, very fast. Latency become very, very important, and we see those servers actually using maximum number of channels, not necessarily with the highest, I would say, capacity. To maintain that, you know, latency smaller or shorter So 1 of the strengths we have is, you know, we have a good understanding of those trade-offs. Whether it is through our product business or, you know, our IP business. And if you look at, you know, our roadmap, we are trying to have solutions for each 1 of those segments. The question we have, as usual, is, you know, we have to understand, you know, the ramp profile of each 1 of them as well as, I keep saying the supply constraints we are gonna have in 2026 and 2027.
Mark Lipacis: Okay. Gotcha. that is a that is very helpful, framework. Luc. And then the design win with the hyperscaler for next-generation chip, just to be clear, this is a is this a product design win for you, or is this IP?
Luc Seraphin: it is an IP design win for a company that designs a product.
Mark Lipacis: Gotcha. it is it is someone building an SoC, you wish, or providing a spec for an SoC for others to build.
Luc Seraphin: And we provide critical IP in that SoC. But we see that trend, you know, with the requirements of AI as it moves to agentic AI the requirements for high-speed or the best performance, I would say, are accelerating And, you know, this is a trend that we have seen that we are talking more and more directly to the hyperscalers. Develop with them the architecture, and then it proliferates into people building the silicon. But this is an IP win.
Mark Lipacis: Gotcha. And is that would that be a royalty-based opportunity for you or license?
Luc Seraphin: Like most of our silicon IP business, it is a license or multi-license. Meaning that, you know, anyone who is gonna use that architecture in any product, you know, will we will we will have an opportunity for a license. So it is not volume-based. And, typically, the volumes might not be necessarily high. Know, in big shifts. But it is a it is a license-based, which is typical with our silicon IP business. And the silicon IP business in the market.
Mark Lipacis: Okay. that is very helpful. Thank you. And then the last question, you mentioned the PCIe Gen 7, I believe, IP. When you know, what is the timeframe for seeing revenues from that product.
Luc Seraphin: So it is similar it is yeah. it is a similar business model as the 1 we talked about, you know, HBM controllers. This is, again, a similar trend where customers are working with us ahead of the specifications being finalized or you know, as the specifications are being finalized, So it is a it is a license opportunity for us. Which we will see, you know, very quickly, I mean, in the coming quarters. Right? Because that is the licensing business. Right? It does not need to ramp in the market. it is very well ahead of the end products ramping in the market. So you could get license revenues well ahead of this the end product shipping from that.
Mark Lipacis: Gotcha. Okay.
Luc Seraphin: Yes. And that is typical for, that is typical for our IP business. We engage very early. We get the license as we engage. And then, you know, our customers build their chips, and it can take them know, 12, 24 months before the product actually goes into the market. But we see the revenue much earlier than that, But what we see as well is the trend because we understand what people are building and why they are building it, and that gives us a very good insight as to where the market is going.
Mark Lipacis: Gotcha. Alright. Very helpful. Thank you. For all the insight.
Luc Seraphin: Thank you. Appreciate it.
Operator: Thank you. Your next question comes from the line of Mehdi Hosseini with SIG. Your line is open.
Mehdi Hosseini: Yes. Thanks for taking my question. All the good questions have already been asked. I just have a couple of follow-ups. Starting off with Luc. I look at the slide number 7. And it is very exciting that chipset, especially for memory interface, is diversified. But what I wanted to ask you is, how do you see or what gives the confidence that this combined with additional silicon IP is going to help you with a growth acceleration. We have gone through the DDR5 and you have done a great job of carving out market share in SPD companion chip But as I look into next year and I think about agentic AI, an Arm-based solution, where channel number of channel per CPU is not really high priority and at the same time you have all of these exotic chipset architecture coming to the market. What is it that you see that would give you the confidence that you can actually grow revenue there? At a higher rate? And I have a follow-up.
Luc Seraphin: Yeah. Thank you, Mehdi. I think, you know, as we said earlier, we believe that we have a very strong secular setup for our business. If you look at it and you look into next year, you know, the market will be entirely DDR5 as we move from that transition from DDR4 to DDR5. We continue to see an acceleration of the DDR5 subgenerations, which gives us additional opportunities to grow share on the core business In the prepared remarks, we talked about, you know, introducing Gen 6. Our Gen 5 is not in the market yet, and we are introducing our sixth-generation for after that. So every generation gives us an opportunity to gain share On the companion chips, we have a great growth opportunity there. You know, we talked about you know, increasing the percentage, of revenue from our companion chips but there is still a lot of room to increase that in 2027. So that is another vector for us. MRDIMM with 4 times the contents, silicon content on the module, another vector and we are starting to see more and more platforms in the client side. So all the seeds that we have planted over the last 2 years actually going to grow into something quite solid in 2027. I am very confident in the, you know, in the setup from a demand standpoint. Now if you look at the silicon IP business, although this is a license-based business, not a not a not a volume-based business, You know, we do see this trend with hyperscalers, you know, defining their own products you know, with advanced IP, which is also a source of growth for us. So I am confident that we can grow. I know I said it, but I will say it again. I think the challenge next year for the industry, not only for us, is gonna be the tightness of the supply chain, but we are working with our suppliers to address that as early as we can.
Mehdi Hosseini: Sure. So if part of the strategy is to increase market share, does that mean that your product revenue gross margin is actually gonna remain in the low 60% because that is what is been a trend despite double-digit product revenue. The gross margin is in the low 60. So is there a trade off here?
Luc Seraphin: Our model remains 60% to 65%, and we do see, you know, fluctuations from quarter to quarter. You know, we like to see, you the product margin looked at on an annual basis at the end of the year. Because with you know, short-term supply constraints, mix, and all of that, it can fluctuate from quarter to quarter.
Mehdi Hosseini: Got it. Thank you.
Sumeet Gagneja: And if I may add to that, Luc, you covered it. it is just to reinforce that, you know, on a quarterly basis, you may see that our gross margin may fluctuate based on product mix and other factors. But recently, as you know, we have been operating in the 60% to 63% gross margin, but our long-term model of 60% to 65% remains intact.
Mehdi Hosseini: Got it. Thanks for the details.
Operator: At this time, there are no further questions. This concludes the Q&A session. I would now like to turn the conference back over to the company.
Luc Seraphin: I would like to thank everyone who has joined us today. For your continued time and support. and we look forward to speaking with you again soon. Thank you, everyone. This now concludes today's conference.
