Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong growth in quarterly product revenue, driven by DDR5 RCDs and high-end DDR5 server PMICs.
- Outstanding cash generation from operations of $70 million, further strengthening the balance sheet.
- Introduction of new products such as the DDR5 Client Clock driver chip and PCIe 7 IP solutions.
- Double-digit sequential and year-over-year product revenue growth anticipated in Q3.
- Positive customer reception and strong traction with qualifications in progress for multiple module types across high-performance applications.
Negative Points
- Modest shipments of DDR4 as the industry transitions to DDR5, impacting overall revenue from older products.
- Low-single digit price erosion in Gen 1 DDR5 RCDs, indicating some pricing pressure.
- Higher costs associated with the ramp of new products impacting short-term gross margins.
- Silicon IP revenue showing a downward trend year-over-year due to divestitures.
- Dependence on the speed of customer qualifications for new products, which can affect the growth trajectory.
Q & A Highlights
Q: How many generations of DDR5 RCDs are you shipping now or do you expect to ship in the next quarter?
A: We are currently shipping Gen 1 in production, Gen 2 is ramping into production today, and we have qualification volumes for Gen 3 that will also contribute to the second half of the year. (Luc Seraphin, Vice President)
Q: How are the average selling prices for Gen 1 DDR5 RCDs? Is there any price pressure?
A: The overall pricing environment is in line with our expectations with low-single digit price erosion for Gen 1, which is normal and expected. (Desmond Lynch, Senior Vice President - Finance, Chief Financial Officer)
Q: Can you revisit your share position in the DDR5 market?
A: We are pleased with our growth on the product side, with Q2 being 13% higher than Q1 and Q3 expected to be 15% higher than Q2. Our share was slightly higher than 30% last year, with 40% on the DDR5 side, and we continue to increase share as DDR5 becomes the main product we sell. (Luc Seraphin, Vice President)
Q: What is the plan for stock buybacks for the year?
A: We have a consistent approach to capital allocation and shareholder return, targeting 40% to 50% of our free cash flow back to shareholders. We will continue making these returns to shareholders going forward. (Desmond Lynch, Senior Vice President - Finance, Chief Financial Officer)
Q: To what extent does sequential growth in the second half impact the mix of companionship products?
A: We mentioned double-digit growth, Q3 over Q2, and Q3 is also more than 20% higher than Q3 of last year. The contribution of new products to the mix is small at this point, probably low single digit in Q3, but we are seeing traction with qualifications in progress for multiple modules types across our customers. (Luc Seraphin, Vice President)
Q: What is driving the gross margin improvement in the second half?
A: The improvement will be driven by a combination of favorable product mix and cost savings. We expect our gross margins to be in line with our long-term model of 60% to 65% gross margin. (Desmond Lynch, Senior Vice President - Finance, Chief Financial Officer)
Q: Can you dig deeper into the opportunity emerging in the client market with the new DDR5 Client Clock driver?
A: The performance requirements in high-end client systems are similar to those in the data center. We are targeting high-end desktop and notebook solutions with speeds of 6,400 and 7,200 megatransfers per second. This market is expected to grow to about $100 million in a few years, and we will grow our share as we go through qualifications. (Luc Seraphin, Vice President)
Q: Are the new DDR5 Client Clock drivers going to be aligned with various x86 CPUs from Intel and AMD, and do you expect any ARM processors to be included?
A: The first platform will be the equivalent of Arrow Lake from Intel, followed by AMD platforms. We are agnostic to whether it's an ARM or x86 solution, as the memory interface remains the same. (Luc Seraphin, Vice President)
Q: Should we assume that the AI story scaling will lead to growth in contract and other silicon IP revenues into 2025?
A: On an adjusted basis, we expect our silicon IP business to grow at 10% to 15%. Year-to-date performance indicates we are on that trajectory to meet the growth rate of the business going forward. (Desmond Lynch, Senior Vice President - Finance, Chief Financial Officer)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
