Rambus Inc Q4 FY2025 Earnings Call

Welcome to the Rhombus Fourth Quarter and Fiscal Year 2025 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 question and answer session. If you would like to ask a question, you may press star 1 on your touchtone phone at any time. If anyone should require assistance during the conference, please press star 0 at any time. As a reminder, this conference call is being recorded. I will now turn the conference over to Desmond Lynch, Chief Financial Officer. You may begin your conference.

Thank you, Operator, and welcome to the Rambus fourth quarter and fiscal year 2025 results conference call. I am Desmond Lynch, Chief Financial Officer at Rambus, and on the call with me today is Luke Serafin, our CEO. The press release for the results that we will be discussing today has been filed with the SEC on Form 8K. We are webcasting this call along with the 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 5pm 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 including reflections of the geopolitical and macroeconomic environment, 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 8Ks, 10Qs, and 10Ks. 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 in the financials, we are using both GAAP and non-GAAP financial presentations in both a 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. In addition, we will continue to provide operational metrics such as licensing billings to give our investors better insight into our operational performance. The order of our call today will be as follows. Luke 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 Luke to provide an overview of the quarter. Luke.

Thank you Des. Good afternoon everyone and thank you for joining us. 2025 was an excellent year for Rambus. We closed with a strong Q4 and finished the full year with record revenue and earnings. Our financial success is a testament to both our strategy and execution as we continue to deliver products and technologies that accelerate memory, compute, and connectivity advancements in rapidly growing markets. our diversified portfolio remains a core strength for the company and each of our businesses contributed meaningfully to our results as we delivered a new annual high in cash from operations these positions as well to continue to invest strategically in our product roadmap expand our market opportunity and drive long-term growth before i go into detail on our business results let me take a moment to discuss the important market and technology trends influencing our strategy and highlight several of our key accomplishments in 2025 both ai and traditional server markets remain strong throughout the year driven by the accelerating need for significantly higher compute and memory performance as workloads become more complex and diverse and inference rapidly expands across applications including agentic and physical AI the demands placed on memory subsystems continue to intensify this environment draw further adoption of DDR5 as well as other high-performance memory and interconnect technologies where Rambus signal and power integrity expertise are foundational the accelerated pace of innovation continued across the industry with customers increasingly operating on one-year product cadences to stay ahead of demand for greater performance this dynamic amplified the need for cutting-edge merchants and custom solutions where our advanced technology portfolio enables accelerated design cycles for our customers against this backdrop rambus had a number of achievements that fueled our performance in 2025 and strengthened our position across key markets as we move into 2026 we furthered our leadership in ddr5 with increased market share in our cities reflecting both the depth of our expertise and the continued trust of our customers Our power management chips made meaningful progress with growing adoption of our DDR5 PIMIX, contributing to revenue growth. We extended our reach in high-performance and AI PCs through the introduction of our complete client chipset. With this addition, Rambus offers a comprehensive chipset portfolio that supports all JEDEC standard DDR5 and LPDDR5 modules across server and client systems. With that, we offer customers greater assurance of interoperability and reliable performance at scale. And finally, in addition to these cheap milestones, we saw increasing design wins and customer engagement led by our latest generation HBM4, GDVR7, and PCIe7 Digital IP, as well as a broad range of security IP to safeguard data transmission and storage. Turning now to our quarterly business results, CHIP capped off the year with a strong Q4 performance, delivering product revenue of $97 million. This brought us to a new annual record of 348 million dollars which was up 41 percent year over year this achievement reflects our continued product leadership and ongoing market share gains in ddr5r CDs in addition customer adoption of new products continues to progress with growing revenue contributions and volume shipments on the way for silicon ip we are strategically focused on delivering industry leading solutions that empower the next wave of ai hardware the increasing pace and diversity of ai chip designs including custom silicon for hyper stairs is driving design wins for high speed memory interconnect and security ip with market leadership and expertise across multiple generations of HBM, GDDR, and PCIe, as well as our best-in-class security solutions, our IP is a critical enabler of the performance required by AI workloads. We see strong traction across our portfolio of cutting-edge solutions. In particular, there's growing demand for our interface and security IP solutions as we see the increased need to move and secure data in scale-up and scale-out scenarios. Looking ahead, the ongoing expansion of AI and the transformation of the data center continues to reshape memory and interconnect requirements. AI training and inference at scale are driving increased demand for bandwidth, capacity, and power-efficient performance. The expansion of agentic AI is catalyzing traditional CPU-based server demand and continues to drive the need for more DIMMs per system, higher speed interfaces, and sophisticated power management. Our product and IEPs sit at the core of this transition, enabling the massive compute infrastructure required for increasingly complex and diverse AI models. In addition, the rise of purpose-built systems and increasingly heterogeneous compute is accelerating the adoption of new memory architectures, higher data rates, and advanced security solutions. All of these trends play directly to Rambus' strengths, open opportunities to broaden our leadership across next-generation platforms, and reinforce the long-term tailwinds for our businesses. Rambus is well-positioned to capitalize on these trends, and in 2026, we expect to grow faster than market. Now, as reflected in our Q1 outlook, we experienced a one-time supply chain issue that will affect product revenue for Q1. the issue is being resolved in collaboration with our supply chain partners and we expect our product business to return to strong growth in the second quarter fueled by market share gains and the continued ramp of new products i am confident in our long-term trajectory for 2026 and beyond as always i want to thank our customers partners and employees for their continued support With that, I turn the call over to Des to walk through the financials.

Des, thank you, Luke. I'd like to begin with a summary of our financial results for the fourth quarter and for the full year 2025 on slide three. We delivered strong financial results in both the fourth quarter and full year 2025 as we continue to execute in our long-term growth strategy. Full-year revenue and earnings per share reached record levels driven by a 41% increase in product revenue to $348 million due to DDR5 market share gains and new product contributions. In 2025, we generated a company record $360 million in cash from operations, which was up 56% from 2024. Our established track record of generating cash enables us to invest in initiatives that fuel our long-term growth. Let me now provide you a summary of our non-GAAP income statement on slide 5. Revenue for the fourth quarter was $190.2 million, which is above our expectations. Royalty revenue was $71.7 million, while licensing billings were $71.5 million. Product revenue was $96.8 million, as we delivered another quarter of record product revenue. This represents 32% year-over-year growth, driven by continued strength in DDR5 products and ramping new product contributions. For the full year, we delivered $347.8 million in product revenue, which was a new annual record for the company. Contract and other revenue was $21.8 million, consisting predominantly 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 royalty revenue as well as in licensing billings. Total operating costs including costs of goods sold for the quarter were $103.2 million. Operating expenses of $64.9 million were in line with our expectations and flat compared to Q3. Interest in other income for the fourth quarter was $6.4 million. Using an assumed flat tax rate of 20% for non-GAAP pre-tax income, non-GAAP net income for the quarter was $74.7 million. Now let me turn to the balance sheet details in slide six. We ended the quarter with cash, cash equivalents, and marketable securities totaling $761.8 million, up from Q3, primarily driven by record cash from operations of $99.8 million. Fourth quarter capital expenditures were $8.6 million, with depreciation expense was $8.4 million. dollars free cash flow in the quarter was 91.2 million dollars and for the full year we delivered 320.9 million dollars or 45 free cash flow margin let me now review our non-gap outlook for the first quarter on slide seven as a reminder the forward-looking guidance reflects our best estimates at this time and our actual results could differ materially from what i'm about to review in addition to the non-gap 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 we expect revenue in the first quarter to be between 172 and 178 million dollars. We expect royalty revenue to be between 61 and 67 million dollars and licensing billings between 66 and 72 million dollars. As Luke mentioned earlier, our Q1 product revenue is impacted by a supply chain issue which has been resolved and we expect resumption of growth from the second quarter onwards. We expect Q1 non-GAAP total operating costs, which includes COGS, to be between $104 and $100 million. We expect Q1 capital expenditures to be approximately $13 million. Non-GAAP operating results for the first quarter are expected to be between a profit of 68 and 78 million dollars for non-GAAP interest in other income and expense we expect six million dollars of interest income we expect that our pro forma tax rate for 2026 will be 16 driven by tax legislation changes last year we expect non-GAAP tax expenses to be between 11.8 and 13.4 million dollars in q1 we expect q1 share count to be 110 million diluted shares outstanding overall we anticipate the q1 non-gap earnings per share range between 56 and 64 cents let me finish with a summary on slide eight in closing i am pleased with our excellent 2025 financial performance and the continued progress we are making against our strategic goals. We delivered record top-line revenue growth, resulting in record profitability and cash generation. Our diversified portfolio continues to be a core strength for the company. First, patent licensing continues to deliver consistent and predictable results. Also, our Silicon IP portfolio is well positioned to address the accelerating demand for AI solutions. In addition, our product business continues to drive our growth with strong leadership and market share gains in our core RCD business, which is complemented by our expanding new product contributions. Overall, we are well positioned to drive long-term shareholder value. Before I open up the call to Q&A, I would like to thank your employees for their continued teamwork and execution. With that, I'll turn the call back to our operator to begin Q&A. Could we have our first question?

Thank you. Ladies and gentlemen, if you have a question, please press star one on your touch telephone. The first question comes from Kevin Cassidy with Rosenblatt. You may proceed.

Yes, thanks for taking my question, and congratulations on the great results. But of course, the questions will be around the supply chain issue. I understand you've resolved the issue, will there be catch-up, meaning in the second quarter, can you make up for that revenue loss in the first quarter, or is that just loss to market share that a competitor picking up the business?

Thank you, Kevin. Let me maybe take a few minutes to explain what the supply issue is so that we understand the dynamics in the market. So in Q4, as we said, we identified the back-end manufacturing issue with one of our OSATs. We have identified the root cause of that issue, and we have implemented all the corrective actions in collaboration with our supply chain partners. And before I go into the detail, note that the issue was affecting an extremely low number of parts, which made the identification of the root cause a bit difficult because it was hard to reproduce. But we have identified the root cause, we've put the measures in place, and in reality what we've done is we've done two things. The first thing we've done is once the root cause was identified and the corrective actions were in place we did actually pull forward fresh material from inventory that was originally staged for q1 to meet our q4 customer demand because our customer demand remained very strong in q4 so that's the first thing we did we accelerated fresh material once these measures were in place the second thing we did is despite the very very low ppms that we observed and because quality is paramount out of abundance of precaution we actually quarantined all potentially impacted production material and now we are retesting this material with enhanced screens in place so these measures have put additional strain on capacity in a tight supply environment and that impacts you know Q1 as we said but the issue was identified in Q4 we accelerated material through you know So after we've put the measures in place, we are re-screening parts that, you know, were potentially tainted, and that's what's creating that issue in Q1. So that issue is behind us, and the lower Q1 product revenue does not change the trajectory of the business. You know, we expect the business to return to strong growth in Q2, and the product revenue for 2026 remain on track to grow faster than market. And, you know, that's how I would qualify the issue. Dave, I don't know whether we're going to add anything to this.

No, I think you summarized it well, Luke. You know, the issue in Q1 is behind us, and we're expecting strong recovery both in Q2 and also for the full year. And as you said, we do expect the business to grow faster than market for the year, so we're very well positioned from here.

Okay, great.

Thanks for that detailed explanation that, you know, maybe a more difficult question, but what what can you quantify what the revenue would have been hi kevin it's days uh you know what i would say is that you know the the impact would probably have been around low double digit million impact and what's already a seasonally soft quarter for the business uh so that's how i would sort of quantify the sort of q1 uh revenue impact from there if luke mentioned you know we are we will build inventory by the end of sort of Q1 and we'll be in a position to return to strong growth in Q2 from there but I would say quantification probably in the low double-digit million impact is what I would say Kevin.

Okay great thank you for that help. Thanks Kevin.

Thank you the following comes from Kevin Garrigan with Jeffries you may proceed.

Hey, guys, thanks for taking my question. Hey, can you just talk about how your RCD market share finished for 2025?

Yes, thanks, Kevin. So, you know, we believe that we ended up the year in the mid-40% share, you know, for DDR5. We, you know, we thought the market, you know, between 24 and 25, you know, grew mid-single digit. But the portion of DDR5 became more important. You know, DDR4 continues to decrease in terms of share. So, you know, in 2024, we were in the early 40s for DDR5. You know, in 2025, we believe we are in the mid-40s on DDR5. We're in a market where DDR5 dominates even more. And I think, as we said on the prepared remarks, you know, we expect to continue to grow faster than market in 2026, despite the glitch we had in Q1.

Perfect. I appreciate that color. And then just as a follow-up, so there's a lot going on with, you know, the Intel Diamond Rapids platform and, you know, even the AMD Venice platform. So I'm just kind of wondering if the timeline and opportunity that you're expecting on the MR-DIMM front hasn't changed at all.

Thanks, Kevin. No, it hasn't. we are monitoring, you know, the rollout of these platforms as every generation has been, you know, the same dynamic, you know, the rollout of our products, you know, mostly depend on the rollout of the platforms from Intel and AMD. So, you know, we expect our MRG to run towards, you know, the very end of the year at this point in time, but we will modulate that based on, you know, how the platforms roll out from both Intel and AMD are happening. I think that's nothing new. This has happened in every generation in the past. We are, you know, we are readying our products. We are working with the ecosystem to make sure that we are ready. But eventually, you know, that will depend on when those platforms roll out. As far as we're concerned, you know, we are ready.

I appreciate the color. Congrats on the results.

Thank you.

Thank you. The next question comes from Aaron Rakers of Wells Fargo. You may proceed.

Yeah thanks for taking the questions. I've got a couple if I can as well. I guess first of all going back to the supply chain issue, yeah I can appreciate you know that the issues have been rectified. I know Luke you've referenced a couple times growing faster than the market. So you know I guess the question I have is how do you define the growth rate of the market?

We've seen a lot of data points where server demand looks like it might be as much as mid-teens, maybe even high teams and some some of the commentary recently so I'm curious if you can just kind of contextualize what you think the market growth rate is in 2026 you know underpinning your expectations growing faster than that yeah thanks Aaron you know we we see a wide range of numbers you know for you know the market growth you know typically as you know there are many variables going into this you know one of the basis is really the market for servers. You know, the analysts, the marketing analysts, you know, have a range for market servers. Gartner is at 8%. You know, we hear from other sources that, you know, this could be, as you said, you know, double-digit growth. But, you know, we want to stay prudent with the, you know, the view of the server growth because we believe the demand is here. But I think, you know, some people tend to underestimate the impact of potential shortage, you know, especially on the memory side. So, you know, we tend to align with Gartner's view with, you know, 8% market growth for the servers. So we certainly, you know, exceed that. But you have other things happening, you know, the number of channels increasing, you know, the introduction of new platforms, you know in our case you know we also are introducing our new products so we're going to be higher than that but the basis we use is you know meet to high single-digit you know growth for the server market that's that's our basis okay that's very helpful and then kind of sticking with that when we talk about your companionship opportunities I think last quarter you talked about the the PMIF being I want to say with mid single-digit contribution to your total product revenue.

Can you unpack that a little bit? How fast is that growing? What's the expectations for this year? Thank you.

Hi Arden, it's Dev here. We're really pleased with the progress and traction that our new products continue to make in the market. Our new products have grown from low single digit contribution in the first half of 25 to upper single digits in Q4, which was in line with our expectations. As we look ahead to Q1, I do expect the strong traction really to continue, where I do expect that new products will continue to be, it'll grow to about double digit contribution of total product revenue. We have traction across all of our products, but I would say that in terms of revenue contribution, PEMIX remains the largest contributor there. Our customers continue to place value and the importance of the interoperability between RCD and PMIC and as we look ahead into sort of 26 with the continued rollout of new platforms, I would say that our new products are very well positioned within the market to continue to grow and take market share.

Thank you guys. Thank you.

Thank you.

Thank you. The next question comes from Bastian Falken with Susquehanna, you may proceed.

Hi guys, thanks for taking my question.

I guess one question that I have is, we're visiting the average of the DIMMs per CPU expected in 2027, and you mentioned it previously, given the cost of memory and the shortage. Has this changed your expectations of how many channels are being populated with DIMMs per CPU? Can I have a follow-up? Thanks, Sebastian, for your question. You know, the DIMS per CPU dynamic is a complex one. Typically, what happens is, you know, people who want, you know, very high bandwidth, like in AI types of applications, tend to use fewer DIMS per channel so that they can make the best use of these bandwidths. And people who are in need of more capacity tend to populate more DIMS, you know, on their channels. And then you combine this with, you know, the respective growth of standard applications with AI applications. So we continue to see, you know, on average, you know, the number of beams per channel growing. But it's a bit difficult to really put a number on. I think the memory situation is a broader situation than the number of beams per channel. You know, I think, thank God, memory is booming these days. There's dynamic between HBM and standard DDR, for example. And, you know, with a standard DDR, there's dynamic between the different speeds of these DDR. So I think, you know, overall, we believe that the market is going to be constrained. But, again, trying to put a number on how, you know, the supply constraints on the memory side is going to impact the number of games per channel It's something that is quite, quite difficult to figure out. Right, that is very helpful. And I have a follow-up. In terms of RCD contribution, you know, what are your expectations of the DVR5 Gen 3 RCD contribution relative to the Gen 1 and 2 in 2026 given the supply chain issue that you've encountered with your RCDs that will be impacting Q1? Yeah, that's a good question. Thank you. What we saw is in Q4, Gen 2 was predominant. You know, this is what we were expecting, and Gen 3 was starting to ramp. It was growing in Q4 compared to Q3. You know, when we look at 2026, our view is that Gen 3 will continue to grow and will probably be the predominant version of DDR5, you know, throughout the year. Gen 4 will contribute somehow, but because this is a different type of core, it will have more limited adoption. The big next step is going to be Gen 5, and Gen 5, you know, as we said earlier, is going to depend on the introduction of the next generation platforms from Intel and AMD. So, in summary, we continue to see Gen 2, Gen 3, and the mix between Gen 2 and Gen 3 is changing. Gen 3 is growing, and our expectation at this point in time is that Gen 3 is going to be dominant in 2026.

Thank you very much.

Thank you.

Thank you. The next question comes from Gary Mobley with Loop Capital. You may proceed.

Hey, guys. Thanks for taking my question. I had a multi-part follow-up question about the supply chain issue. First, do you see any reputational harm from this with your customer base? Did it impact the companionship business more than the RCD business? And I guess logically, you know, we should assume a sharp revenue recovery in Q2. It sounds like Q1 revenue would have been about $99 to $100 million, you know, which is described as seasonally weak. And, therefore, if you're going to, you know, recover that revenue and gain share in the year, presumably Q2 revenue would have been up sequentially from that. So can your supply chain recover to that degree that quickly to get back to the $100 million plus per quarter in product revenue?

So, thank you, Gary, for your questions. I'll start, you know, with your initial questions and let Dev comment on the numbers. Your first question is about the reputation of risk. No, there's no reputation of risk. Actually, when we identified that issue, we had all hands on deck, and we worked in close collaboration with, you know, our suppliers and our customers. And I think it's really, really important, we've said, you know, over and over again over the last few years that, you know, quality management is really, really important. We had a real-life example here where we identified an issue quickly. We had a very thorough quality process in place, you know, with our suppliers, with our customers, and we're back on track. You know, the only issue that is left for Q1 is the fact that we need to replenish, you know, our supply chain and make the best use of our, you know, testing capacity as we are also retesting old paths. But the reputation has not been damaged. We've been able to identify the problem, fix the problem, and put, you know, actions in place quite quickly. The second question was about, you know, whether it affected the RCD or the other chips. It only affected the RCD, and actually, you know, older versions of the RCD, but the companion chips were not affected at all on that. You know, on the numbers, maybe Des, you want to comment?

Hi Gary, it's Des. In terms of the inventory I do expect that the inventory will be replenished by the end of sort of Q1 and we'll be able to grow the inventory to a level which will be able to support our Q2 26 demand and going forward from there. So again as Luke talked about you know the issue has been contained we'll continue to replenish our inventory as we go throughout out Q1, and that will put us in a good position, ending Q1 for meeting customer's demand for Q2 going forward.

Got it. For a follow-up, I wanted to ask about MR-DIMM. Based on what you're seeing in timing of Vennish shipments and Downy Rapid shipments and sort of queuing the memory ecosystem around those two server processor launches, Do you still see revenue contribution, I guess, material revenue contribution from MR-DIM by the end of the calendar year?

You know, as we said earlier, we are monitoring the, you know, the rollout of these platforms, and we are continuing, you know, activities around MR-DIM. As we said on the earlier call, we see the initial contribution towards the end of the year. That's, you know, the very initial contribution of these platforms is going to be, you know, towards the very end of the year, and the main contribution is happening in 2027. Thanks, Yara.

Thank you. The following comes from Tristan Guerra with Baird. You may proceed.

Hi. Good afternoon. It looks like you started to be a little bit more bullish on your market share prospect in our city with companionships ramping. Is that the reason why we're now seeing market share that it looks like is, you know, above what your expectation was a year ago and, you know, mid-40s and what would be kind of the upside that you think you could get to by end of this year or even next year?

Thanks, Tristan. I'll make the first comment about the market share. When we talk about, you know, being in the mid-40s, it's for DDR5 RCDs, you know. So these market share gains, you know, year over year, are really referring to the RCD chip. And this is the result of, you know, the increased design wind footprint we were able to secure, you know, from generation to generation. You know, from D4 to D5, we had many more, much higher footprint. And at every generation of D5, we increased our footprint in terms of design wind. That translates into, you know, our market share for the RCD chip. So, when we mentioned that in 2025, you know, our market share was in the mid-40s, that's on the DDR5 RCDs. And, you know, the DDR5 overall generation is still early in its cycles. So, they still route to gain share, you know, in the mid-40s now. We always said we could be between 40 and 50. So, we're still chasing, you know, more share, you know, on the DDR5 RCD chip. You know, the companion chips are an addition to this, you know, And they're ramping steadily, slowly, you know, as Des explained, you know, into the market as, you know, the qualifications take place. But this is going to be additional revenue to the RCD revenue.

Yeah, and I was just wondering if the fact that you have companionship, does that help your RCD share, or is that completely separate? But I sense that perhaps you saw some cross-setting opportunities or benefits, you know, that would go beyond just the additional TAM of the companionship. And then also my follow-up question is, if there's any update on the potential so-can to Opportunity Quill platform or the upcoming platform for you to potentially participate?

Yes, I'll answer first on the, you know, on the companionship, the TAM. And, yeah, one way to look at it, as you rightly say, is to add the times. But is there a connection between the two? There's an indirect impact. You know, as the speeds on the DIMMs continue to increase, it is more and more important for our customers to get their chips from the same supplier for interoperability reasons. You know, these systems are very, very complex. And, you know, if we have all ships in-house, we can do a lot of system testing before shipping those parts to our customers. So that puts us in a favorable, you know, position. So there's a positive indirect impact, you know, on our ability to grow our PIMIC in particular, but also the other companion ships as the speeds on the RCD continue to increase. So that's the answer on that. On the SOCAM, you know, we continue to monitor, you know, the dynamic there, you know, on the SOCAM. There's definitely, you know, an SPD opportunity on the SOCAM for us. You know, we're talking about next generations and how, you know, these next generations can evolve, in particular in the field of power management that could open, you know, all the opportunities in the future. But I would say this, as we said in the prepared remarks, you know, our strategy is to have solutions for every JEDEX standard module, whether, you know, it's on the client side or whether it's on the, you know, on the data center side. So we will continue to monitor what's happening, you know, with SOCAM. On SOCAM 2, we have an opportunity for the SPD hub. As the evolution of SOCAM continues and new chips are being defined, we're going to be part of that definition, and we'll continue to develop chips to support that market. Great. Thank you, Tristan.

The next question comes from Sebastian Nagy with William Blair. You may proceed.

Yeah, thank you for taking the question. Could you maybe remind us how much of your product business today is not related to the server market? You mentioned some early success in the client market. And as we think about 2026, does rising memory costs maybe create some friction in this part of the market for Rambus?

The client market remains minimal for us at this point in time, you know, for a couple of reasons. One is the adoption of, you know, the CKD chip, you know, or the equivalent of the clock chip into the client space really is limited to the very, very high-end, you know, parts of that client space. So, you know, the contribution is minimal in terms of numbers. You know, our goal is still, you know, to get 20% share, you know, in the long run for that. But these platforms have to, you know, ramp in the market. Their contribution are still going to be minimal, you know, even in 2026 for clients. So the vast majority of the business is in the data center space. But this being said, you know, in the long run, the power management and the clock management are going to be very, very important in the client space as well. It's important for us to position ourselves there and to have solutions for all, you know, platforms. So that's why we are doing this in terms of the client space. And your second question was?

That was my first question. That was your question. IP side of the business. Okay. So, you know, Rambus has benefited a lot from the explosion in the number of ASICs that are being designed. You have many companies attempting to design their own XPUs. You've also seen an accelerated cadence of new chip releases. As we go into 2026, are you seeing any signs of a slowdown in some of these new chip design starts or that could start to impact your IP business?

Well, you want to go with this go ahead. Yeah.

I'll start working maybe you can add on. You know, we were very pleased with how our Silicon IT business performed in 2025. It performed in line with the expectations and the portfolio is really well positioned to address the demand for AI solutions from there. If you look at our portfolio, we have a leading-edge portfolio with critical IP solutions and the high-speed memory, interconnect, and security IP, which is tailored towards the AI sort of workloads from there. And our expectation is that that would continue to grow in 2026, in line with our long-term growth expectations from there. So, very bullish on our overall sort of portfolio and outlook for the IP business.

Thank you. Thanks.

The following is a follow-up from Kevin Cassidy with Rosenblatt, you may proceed.

Yeah, thanks for taking my follow-up. And maybe along those lines of custom, Luke, I think you mentioned custom hardware, and I wonder if you could give us a little more details on that is how many customers can you support and what would be the timing of that?

Yes, when we say custom hardware, there are a lot of people who are developing their own chips, you know, for their AI infrastructure or their server infrastructure, typically, you know, accelerators, you know, chips that are dedicated to inference and these kind of things. So every time they do develop those type of chips, you know, they have a potential need for HBM at high speed, PCA at high speed, or security solutions, so GDDR sometimes. So as you know, we position our portfolio to be at the high end of those. standards, so we typically talk to the people who work at the high end of those systems. We can support a large number of customers because we have a limited portfolio in terms of the scope. We focus on PCIe, TXL, HBM, GDVR, and security IP, so we have a laser-focused portfolio that addresses you know potentially a large number of customers who are working on the leading edge of those of those technologies that's that's really what's driving you know the the business for us as opposed to you know potentially other other IP suppliers have a much broader portfolio we narrow our portfolio for the needs of people who develop chips for the data center and most of these chips are either their own processors some people develop their own processors as opposed to, you know, buying merchant processors. Other types of applications are accelerators to improve the performance of the assistance.

Okay, great. Thank you.

Thank you. We'll have another follow-up from Aaron Rakers with Wells Fargo. You may proceed.

Yeah, thanks for taking a follow-up question. I guess the first one is, you know, Luke, you mentioned like, you know, there is risk in terms of memory supply and availability. I'm curious as you look back at this last quarter or coming out of, you know, the last quarter in these first couple weeks of this first quarter, have you seen any signs of memory constraints impacting your customers' ability to fulfill demand? Or how would you characterize inventory levels that you're seeing in some of your major customers? Any thoughts on that would be great.

Yeah, sure. You know, we are in a small, you know, ecosystem, as you know. And when we talk to our customers and partners, we hear those comments, you know, And one of the common themes that we hear is that, you know, the demand, you know, for servers is solid. You know, there's a refresh cycle. There's a, you know, that is not over. There's also, you know, agentic AI and all the inference applications that drive demand. But what we hear from the same customers is that they're going to be constrained by supply, you know. and we hear this directly from our customers and this is why you know when we look at you know the market potential for us you know we tend to be prudent uh because we are aware you know of these comments you know from uh you know from from from from our customers in terms of uh in terms of supply so that's that's you know that's what the basis of what our comments are we see you know on the supply side we also see aaron on the surprise excuse me on the supply side you know we also see you know lengthening lead times it's nothing to do with the memory guys but there's also you know on on the supply side you know lead times you know continue to increase um and and and that's why we believe in in 2026 the the the demand as is is is solid uh but we're going to be more constrained by supply that we're going to be by demand yeah that's helpful and then And, Des, real quickly on the gross margin line, you know, I want to make sure I'm clear.

Like, given the supply chain issues, you don't expect any kind of gross margin, any kind of inventory provisions or anything of that nature. And I guess what I'm trying to get at is, you know, the product gross margin looks like it's, you know, still hovering in that plus 60% range. Is that still the expectation that we stay in that low 60% range here as we look forward? Thank you.

I am. Yeah, that would be the right expectation going forward. If you look at the full year of 2025, gross margins were around 61.5%, which was in line with 2024's performance and consistent with our long-term model of 60 to 65%. I think what you will see is that we have a strong track record of delivering gross margins in line with these targets, and that would be my expectation. If you really look where we've been operating in the last sort of three years, we've been in a tight range of 61% to 63%, and I think that would be a fair way to think about the business in 2026 from a gross margin perspective. We'll continue to be disciplined in our approach to pricing, and as always, we'll continue to drive manufacturing cost savings going forward, which enables us to drive to the gross margins within the range I mentioned earlier. Thanks, Alan.

Thank you. At this time, there are no further questions. This concludes the question-and-answer session. I would now turn the conference back over to the company.

Thank you, everyone, who has joined us today for your interest and time. And we look forward to speaking with you again soon. Have a great day.

Thank you. This now concludes today's conference.