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Rambus Inc. (RMBS - Snapshot Report) posted fourth quarter 2012 adjusted earnings per share (EPS) of 3 cents, much better than the Zacks Consensus Estimate of a loss of 12 cents per share. Adjusted EPS excludes other patent royalties received, acquisition costs and retention bonus, amortization, costs of restatement and related legal activities.

Revenue

Rambus reported total revenue of $57.4 million in the fourth quarter, down 31.1% from $83.4 million a year ago but was within the company’s guided range of $$57.0 million and $63.0 million. The year-over-year decline was mainly due to a decrease in the contract renewal process, coupled with lower royalty revenue and lower license agreement.

Royalty revenue fell 30.7% year over year to $57.3 million. Revenue from Contracts was $0.2 million, down a substantial 76.2% from the comparable quarter last year.

Operating Results

Total operating expenses in the fourth quarter were $61.5 million, up 39.4% from $101.5 million in the year-earlier quarter. The decline in operating expenses was due to higher cost rationalization, with a major cut in marketing, general & administrative expenses.

Reported operating loss in the quarter was $4.03 million compared to an operating loss of $18.1 million in the year-ago quarter. Operating margin was (7.0%) compared to (21.7%) in the year-ago quarter.

Reported net loss was $16.1 million or 14 cents per share compared to a net loss of $28.7 million or 26 cent 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 EPS came in at 3 cents versus 2 cents in the year-ago quarter.

Balance Sheet

Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $203.3 million, up from $207.1 million in the prior quarter, based on a slight decline in cash.

Guidance

For the first quarter of 2013, the company expects customer licensing income to be between $60.0 million and $65.0 million and revenues between $58.0 million and $63.0 million.

Pro forma operating expenses, which exclude restructuring charges, stock-based compensation, amortization of intangible assets and retention bonuses, are expected to be between $51.0 million and $46.0 million. These amounts include an estimate for litigation expenses between $2.0 million and $3.0 million. Pro forma net income is expected to be in the $4.0 million to $10.0 million range.

Our Take

We are encouraged by Rambus’ fourth quarter results as the bottom lines surpassed the Zacks Consensus Estimates. The company also provided decent guidance for the first quarter 2013.

The company has a restructuring strategy in place and we look forward to the success of this restructuring, but note the continued loss of legal suits against its top customers such as Garmin Ltd. (GRMN - Analyst Report),  LSI Corp. and STMicroelectronics (STM - Snapshot Report) and sluggish demand from the semiconductor companies are concerning.

Rambus is going through a recovery phase and expects the remainder of 2013 to be beneficial. We also notice that Rambus is doing well in the Lighting and Display category. In fact, the company mentioned enormous growth prospects in the LED arena. The company’s business strategy is slowly shifting toward LED to capitalize on the imminent opportunity in LED.

Currently, Rambus has a Zacks Rank #1 (Strong Buy).

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