Rambus Inc. (NASDAQ:RMBS) reported second-quarter 2010 loss per share of 19 cents (excluding one-time items, but including stock-based compensation expense) that missed the Zacks Consensus Estimate of 7 cents.
 
Revenues
 
Rambus reported total revenue of $38.9 million in the second quarter, up 44% from $27.0 million in the year-ago period, but down 76% from $161.9 million in the prior quarter. The sequential comparison was tough due to the huge amount ($95.9 million) received in the first quarter of 2010 as compensation for the settlement of a dispute with Samsung Electronics. 

However, the year-over-year strength could be attributed to an increase in licensing revenues, fueled by strong sales of computers, consumer electronics and game consoles, including higher royalties from Sony Corp (NYSE:SNE), which saw continued strong sales of its PS3. This drove revenues from Royalties, which increased 54% year over year to $38.2 million.
 
However, revenue from Contracts tumbled 69.9% from the comparable quarter last year, due to lower number of new contracts.
 
Operating Results
 
Total operating expenses in the second quarter were $45.5 million, down from $49.3 million in the year-earlier quarter. The improvement could be attributable to a gain of $10.3 million related to the Samsung settlement, and lower marketing, general and administrative expenses, partially offset by higher research and development expenses.
 
The operating loss in the quarter was $6.7 million, which was a significant improvement from operating loss of $22.3 million reported in the year-ago quarter. The operating margin was a negative 17% in the second quarter compared with 82.6% in the year-ago quarter. The improvement in operating results was driven by higher revenue and improvement in operating expenses (largely due to the Samsung settlement-related gain).
 
Reported net loss was $12.5 million or 11 cents per share, compared with a net loss of $24.0 million or 23 cents per share in the comparable quarter last year.
 
Balance Sheet, Cash Flow & Share Repurchase
 
Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $597.6 million, compared with $668.7 million in the prior quarter. During the reported quarter, Rambus repurchased 3.0 million shares for a total consideration of $68.8 million.
 
Guidance
 
For the third quarter, Rambus expects revenues to range between $31 million to $41 million. Operating expenses are expected to be in the range of $46 million to $51 million, including the $10 million credit from the Samsung settlement, litigation expenses of $6 million to $9 million, stock based compensation of approximately $8 million and the Samsung settlement bonus accrual of approximately $5 million. Interest expense (both cash and non-cash) is expected to be approximately $5 million and tax provision to be roughly $4 million.
 
Conclusion
 
We believe Rambus is well positioned as a key player to meet the escalating demand for LED lighting technology with the help of its tie up with GE Lighting, a unit of General Electric Company’s (NYSE:GE) Appliances & Lighting business.
 
We remain encouraged by Rambus’ contract wins, strong cash position with absence of any debt. However, we are a bit concerned about customer concentration risks, pending lawsuits against Hynix, Micron Technology Inc. (NYSE:MU) and NVIDIA Corp. (NASDAQ:NVDA), as well as competitive pressure from Samsung Electronics.
 
We have a short-term Hold recommendation (Zacks #3 Rank) on Rambus shares.

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