What ARM and Rambus Have in Common

Both ARM Holdings PLC (NASDAQ: ARMH) and Rambus Inc. (NASDAQ: RMBS) have reported their earnings. There is something else that they have in common as well. They rely on licensing their architecture and designs to industry processor and memory industry players rather than manufacturing all the end products themselves to make their profits.

While ARM is much larger than Rambus, both companies have an arms-dealer model that sells without exclusivity to any company willing to pay license fees. Maybe the last commonality is why both companies saw their shares trade handily higher after earnings.

ARM designs microprocessors, physical intellectual property (IP), and related technology and software. The company also sells development tools that enhance the performance of embedded applications. Its products include microprocessor cores that consist of specific functions, such as video, graphics and display technology IP, as well as physical IP components for the design and manufacture of integrated circuits, which comprise embedded memory, standard cell and input/output components.

In its most recent earnings report, ARM noted that it had earnings of about $0.32 per American depositary share (ADS) on $348 million in revenue. Thomson Reuters had consensus estimates of $0.32, on $341.35 million in revenue.

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ARM believes that if the macroeconomic backdrop remains supportive of consumer spending, it should expect group dollar revenues for the 2015 full-year to be at least in line with current market expectations. The shipment period for ARM’s second-quarter royalties suggests a sequential decrease across the industry in revenues, which is broadly consistent with normal seasonality. In this context ARM expects group dollar revenues for the second quarter to be in line with current market expectations.

Some of ARM’s partners include:

  • Altera
  • Apple (reported, but not confirmed on ARM site)
  • Oracle
  • Samsung
  • Avago Technologies

Rambus operates as an international technology solutions company. Its technology solutions include memory, chip interfaces and architectures, end-to-end security, and advanced LED lighting. It focuses on designing, developing and licensing technology that is related to memory and interfaces, as well as providing various services, including know-how and technology transfer, product design and development, and system integration.

When Rambus reported its first-quarter earnings, it had $0.12 in earnings per share (EPS) on $72.9 million in revenue. Rambus noted in the report that it expects second-quarter revenues to range from $70 million to $74 million. The consensus estimates were $0.07 in EPS and revenue of $75.10 million.

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The company reiterated its 2015 outlook. For 2015, the company expects revenues to be between $300 million and $315 million. The consensus estimates for the full year are $0.30 in EPS on $305.84 million in revenue.
Some of Rambus’ partners include:

  • Texas Instruments
  • GlobalFoundries
  • Athena Group
  • Broadcom

ARM’s ADSs were up 4.6% to $53.72 at midday on Tuesday. The stock has a consensus analyst price target of $56.89 and a 52-week trading range of $37.75 to $54.64.

Rambus shares were up 12.5%, at $14.37 in a 52-week trading range of $9.87 to $14.82. The consensus price target is $13.10.

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