Rahul Mathur – Chief Financial Officer Ron Black – President and Chief Executive Officer.

Sujeeva De Silva – Roth Capital Gary Mobley – Benchmark Paul Coster – JP Morgan Matt Robison – Wunderlich Delos Elder – Jefferies Atif Malik – Citigroup.

Good day, ladies and gentlemen, and welcome to the Rambus Fourth Quarter and Fiscal Year 2016 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded.

I would now like to hand the floor over to Rahul Mathur, Chief Financial Officer. Please go ahead, sir..

Ron will start with an overview of the business; I will then discuss our financial results including the guidance we issued in today’s press release; and then, we will end with Q&A. I’ll now turn the call over to Ron to provide an overview of the quarter and 2016.

Ron?.

the memory and SerDes side as well as our DPA Resistant Cores from our security business. We will also be conducting a full day technical training session where some of our engineers and partners will outline techniques for high-speed designs across multiple platforms.

Another highlight for 2016 that I would be remiss not to mention is our collaboration with Microsoft on cryogenic computing. This initiative is part of our advanced architecture work in the emerging solutions division along with our resistive RAM initiative and our FPGA acceleration platform, Smart Data Acceleration, or SDA.

We were very proud to be Microsoft's partner to design this advanced memory subsystem and believe it may be something that can transform the data center. In closing, we were pleased with the fourth quarter results and 2016 overall. We have several avenues of exciting opportunities to extend and expand our business and are largely executing to plan.

Consequently, we are excited about 2017 both tactically and strategically. With that, I'll turn the call to Rahul to walk everyone through the quarterly and full-year financial results.

Rahul?.

Thanks, Ron, and thank you again for having me at Rambus. Before I go through our financial results, I'd like to remind everyone that for this call and for internal assessment, we use non-GAAP or pro forma numbers to discuss our operating results and forward-looking projection.

We believe these numbers are more indicative of our performance since they exclude certain discrete items such as stock-based compensation, amortization, impairment and restructuring charges, as we believe these expenses or charges are either non-cash or not indicative of long-term performance.

As noted earlier, the reconciliation to our GAAP financials is available in our press release and in our earnings presentation and posted on our IR website. In Q4, our numbers reflect a full quarter of the Snowbush IP and Inphi Memory Interconnect Business acquisitions we closed in the middle of Q3.

And with that I'd like to turn to our financial results for the quarter. Over the past three months since joining Rambus, I've traveled all over the world meeting our employees and investors.

I've learned a lot about our company and I'm delighted at the progress we've made integrating our recently acquired memory interconnect and networking semiconductor businesses.

I’m more happy than ever to be here and what I've seen is made me even more confident in our ability to take advantage of the trends we're all seeing in cloud infrastructure particularly in the data center and mobile edge. Let me start with some highlights on Slide 8.

Our Q4 revenue performance shows execution on our key growth initiatives and we delivered quarter-over-quarter growth across every portion of our business from licensing and cores to our newly acquired businesses in security and memory. For 2016, we delivered 14% revenue growth from 2015 principally driven by the acquisitions we made in the year.

Adjusting for our acquisitions in our lighting business, our historic licensing and cores business was roughly flat. Our financial performance over the course of the year is a validation of our M&A strategy.

We are leveraging our high margin historic business to fuel growth in adjacent areas where we have strong technical and market expertise, particularly in our focused areas of memory and security. We are focused on profitable growth and through disciplined cost management we delivered on the profit we promised to our investors.

Now, let me walk you through some revenue details on Slide 9. Revenue for the fourth quarter was $97.6 million at the high-end of guidance we gave out of $94 million to $98 million, an 8.6% quarter-over-quarter increase and up 27% from a year ago.

The key reason for our growth in the quarter was primarily attributed to incremental licensing agreement and solid execution by our newly acquired businesses. As a reminder, some of our quarter-over-quarter growth was from revenue contribution from our acquisitions that closed midway through Q3.

Going into additional detail for the fourth quarter, our memory and interface revenue was $68.7 million, security was $23.2 million and our lighting and display technology revenue was $5.7 million. Quarter-over-quarter, these numbers represent an increase of 9% for memory, 3% for security and 37% for LDT.

In Q4, lighting revenue bounced back as we expected. However, we anticipate that business to decline seasonally in Q1 by approximately $2 million. This is larger than our normal seasonality in this business because of the timing of royalties and we expect to bounce back a bit in Q2.

I would like to note that this seasonal decline in lighting revenue is a key factor in the quarter-over-quarter revenue decline we expect to see in Q1 as I will discuss in greater length later. Year-over-year net revenue increased by 20%, our security division increased by 70% and the lighting business was roughly flat.

The increase in revenue from our memory and security divisions was driven by our acquisitions. As we look to 2017, we’re on track to meet our internal revenue targets for each of our acquisitions. Let me walk you through our pro-forma income statement on Slide 10. Along with our solid revenue growth in Q4, we actively managed our expenses.

Cost of revenue plus operating expenses or what we were referred to as total operating expenses for the quarter came in at $67.5 million, $6.7 million or 11% above the previous quarter reflecting a full quarter of our acquired businesses, additional costs related to integration as well as some discretionary spending we've pulled forward from 2017.

In terms of headcount, we ended the quarter with headcount at 767 flat with 773 in the previous quarter and 494 a year ago. Again the increase in headcount is related to the new employees we welcome to Rambus through our acquisitions in 2016 to support our growth.

Revenue and operating expenses led to operating income of $30.1 million in line with our guidance of $26 million to $33 million and an increase of 3.5% quarter-over-quarter.

After adjusting for noncash interest expense on our convertible debt, pro forma interest and other expenses for the fourth quarter were $1.3 million as compared to $1.4 million in Q3 of 2016. Using a flat rate of 35% for pro forma pretax income, net income for the quarter was $18.7 million, or $0.16 a share, as compared to $18 million last quarter.

We are proud of the solid execution by our team. Now, let me turn to the balance sheet details on Slide 11. Overall cash defined as cash, cash equivalents and marketable securities was $172.2 million, an increase of $21.4 million from the previous quarter.

During the quarter, we generated approximately $32.4 million in cash from operations offset by $10.2 million of purchase considerations related to the SCS acquisition. Fourth quarter CapEx was $3.8 million and depreciation was $3.6 million.

In 2017, we now expect to make additional capital investments to help fuel our growth specifically at some of our international facilities and for our chip programs. As a result, I expect that we will have roughly $12 million of CapEx for the year with $9 million or so in the first half of this year.

Correspondingly, I expect depreciation of roughly $4 million per quarter. As we expected, we saw strong operating cash flow in the fourth quarter and our ability to generate cash, positions us nicely in the current industry environment. Now let me give you additional details regarding the impairment we recorded in Q4 related to the Snowbush IP assets.

A few weeks after we reported our Q3 results, we learned that there will be a delay in the markets served by this initiative. This delay will not impact Rambus’s revenue expectations in the near-term, but will impact the timing of our revenue expectations several years into the future. As a result, we impaired $18.3 million of in-process R&D.

This was partially offset by $6.8 million reduction of acquisition purchased consideration related to this product line. There is a net impact of $11.5 million to our GAAP P&L. This impairment only impacts our GAAP results and has no impact to our cash flow.

In fact had we been notified a few weeks prior or had we announced our results a few weeks later, we simply would have changed our purchase accounting and seen a different allocation between in-process R&D and goodwill as we don't believe this would have materially impacted the purchase price for this asset.

Our conviction in this technology remains unchanged and we continue to work with our customers and partners to further our technology.

Overall, we believe we have a strong balance sheet with limited debt, we expect to continue to generate strong cash from operations and we're well positioned to opportunistically participate in future growth initiatives like M&A when they are at the right terms for us. Now let me turn to our guidance for the first quarter on Slide 12.

As a reminder, our forward-looking guidance reflects our best estimates at this point of time and our actual results could differ materially from what I'm about to review. We expect revenue in the first quarter between $93 million and $98 million.

As I mentioned earlier on the call, our lighting business will experience greater seasonality than typical in Q1, which we expect to result an approximately $2 million quarter-over-quarter decline. This will be coupled by a normal seasonality in Q1 when our base business is typically down 2% quarter-over-quarter.

However, we expect to offset our normal seasonality by growth from our acquisitions. As a reminder, given that a substantial portion of our revenue is related to licensing agreements, we don't exhibit the same seasonality as other semiconductor businesses that have a larger mix of product revenue.

Looking back over the last several years, on average we find Q1 down 2% from Q4, Q2 down another 5% from Q1, Q3 up 5% on Q2 and then Q4 up 2% over Q3. Of course, this would indicate no growth or decline and does not reflect the impact of any acquisitions, but is a rule of thumb to use as you model our quarters.

We expect Q1 non-GAAP total operating expense, which includes COGS, to be between $67 million and $70 million. These expenses reflect roughly $3 million of additional expenses related to payroll taxes and other expenses that impact most companies in the first quarter.

Non-GAAP operating income for the first quarter is expected to be between $23 million and $31 million. We expect roughly $1 million in non-GAAP interest and other income and expense. And based on the 35% tax rate, we expect between $8 million and $11 million in taxes.

We expect our Q1 share count to be roughly 114 million fully diluted shares outstanding, which include roughly one million shares of dilution related to the $138 million, convert due in the third quarter of 2018. This leads you to between $0.13 and $0.17 of non-GAAP earnings per share for the quarter.

Looking ahead to the remainder of 2017, we're very focused on ramping our acquisition to our expectations and maintaining our long-term focus on profitable growth.

I will no longer be issuing annual guidance as we look at forecast from our sell-side analysts; we are comfortable with their revenue estimates in aggregate for the subsequent quarters and full-year of 2017. Let me finish with a summary Slide, Slide 13. Our strategy remains unchanged.

We're focused on key technology megatrends driving opportunities in the data center and mobile edge. We have executed well and are growing profitably through strategic acquisitions and execution on key programs. We have a large predictable high margin revenue base and we have a strong balance sheet to support our strategic initiatives.

We see demand for our product portfolio and continue to execute. With that, I'll turn the call back to our operator to begin Q&A. Could we please have our first question..

[Operator Instructions] Our first question comes from the line of Sujeeva De Silva from Roth Capital..

Hi, Ron. Hi, Rahul. Now, you guys have a full quarter of the acquisitions.

And can you give us a sense of where you gross margin will settle out and how operating expense trends this year and the operating leverage in any growth you have?.

Yeah, absolutely. Sujeeva, I think we have one of the highest if not the highest gross margin in our industry. I think for the year of 2016, we were roughly in the 94% range, but what we saw is as the growth in our acquired businesses increased our margins tick down.

Now, this is part of our design because even though the margins of the businesses we acquired are very healthy in those respective industries, there is still dilutive to our licensing margins overall.

So if I look at where we ended in Q4 2016, what I'd expect is that 92% margin would be flat to maybe down a point or quarters as we ramp those other businesses. So if I look at 2017 – then I’d expect it to be over the course of 2017 between 90% to 92% from a gross margin perspective.

Does that answer your question?.

Yes. And then maybe on the operating expense trend perhaps and the operating leverage you’d expect as you see growth..

Absolutely. So from the total operating expense side as well, I’d also expect our operating expenses to come down after the first quarter of 2017. The reason for that is that we have a few million dollars of expenses again associated to the statutory pieces that happened for us in the first quarter.

And then what I'd expect is that our overall expense would come down probably several million a quarter by the end of the year..

Okay, great, that’s helpful.

And then on the memory side of the business, interconnect, can you talk about how that would trend between DDR3, DDR4 through the year? And what the impact opportunity would be as Intel ramps up its new Skylake platform?.

Yes, hi, Sujeeva. It's Ron. So, we're kind of in the same situation we were before. We're seeing good DDR3 demand, which is positive, but we certainly expect a transition through the year and we don't have great visibility on that specific transition. We're shifting all of the parts, DDR2, 3 and 4, so I think we're well positioned.

I think we have better and stronger design wins in the second half, which is what we have said before, but still pretty good DDR4 shipments even in the first half. It's a long way of saying. I don't have a better update other than what I told you last quarter..

Okay, that helped.

And then lastly, is it the right way to think about the acquired SCS assets weather Ecebs grows faster or Bell ID grows faster one versus the other if you could handicap that in 2017 or is it no longer appropriate to think of them a separate given there is some combined projects?.

Yes, we look at them as more homogeneous. They're just different market categories or segments that they participate in.

And as I had in the prepared script, as you think through Mobile World Congress, we're going to be announcing some things that will make it a little more transparent that this is a broad services platform focused on the mobile and of course the underlying server technologies as enterprise software, but it has this client edge to it.

So, they'll look more and more homogeneous..

That's great color, great. Thanks guys. Nice job in the quarter..

Thank you. And our next question comes from the line of Gary Mobley from Benchmark..

Hi, guys, good afternoon. Thanks for taking my question. A question about the impairment and the contingent consideration. So I'm assuming the contingent consideration is relates to the fact that you won’t be paying an additional earn out above and beyond the $32.5 million initially paid for Snowbush.

Am I reading that correctly? Is that all of the earn out provision for that acquisition?.

Yes, that's correct, Gary. I think you're looking at it the right way..

Okay..

Now, what I would add Gary is what we did is once we had the notification regarding the change of market timing because that was a triggering event from an accounting perspective we chose to take the most conservative view.

As Ron mentioned in his prepared remarks, obviously our team is still marching forward and we're working with our partners and customers in this ecosystem to still try to meet our original forecast, but just the way it works from a timing perspective and because of the way purchase price accounting works that’s why we had to accord the impairment in Q4..

Okay. In the impairment, I'm assuming it relates to this communication. I see that has been under wraps and not fully disclosed yet and if I'm not mistaken this was being co-developed with one specific customer in mind.

Am I reading that right?.

Correct..

And in essence were delayed with this one specific customer?.

Yeah, that's correct..

Okay.

Is it delayed or are we talking about maybe the project is not moving forward at all?.

We're not talking about the customer that we believe it's just the market will be delayed..

Gotcha..

Gary, the way I look at it is that because the revenue stream for this particular product and as Ron mentioned it's just a portion of the revenue stream associated with the acquisition.

But because the revenue stream is so far out in the future even a relatively small change like this has an impact of valuation and that's why we chose to took the most conservative view..

Okay, all right. And I know there are some seasonal elements or some variable elements here DRAM license agreements and we've certainly seen some escalating DRAM prices since the bottom in June.

And I am just wondering if you can maybe sort of – as you see here today call the impact of that looking over the next three months or even 12-months?.

Yeah, Gary, the DRAM contracts are all fixed, $150 million per annum, and they go out many years into the future as you recall. So, there is no variability because of volume or price or revenue..

Gotcha, okay.

I guess that seasonality you’ve talked about in the past really relates to exactly what’s happening in the LDT division in Q1, right?.

So, in Q1 Gary that's exactly right. We expect the LDT division to come down about $2 million quarter-over-quarter. And if you look at the revenue we posted on the board in Q4 versus the guidance that we issued today then that two million is really from LDT coming down.

Now typically what happens is that we do have other licensing agreements beyond just the DRAM industry and that's just an example of us being able to expand beyond DRAM into SOC and other adjacent areas for our partnership opportunities. Now those tend to be a little more scattered over time.

And so, we're usually in a constant state of working with our customers for the next renewal cycle and that has to do with the linearity that I gave you a little bit earlier..

Okay. You mentioned in your prepared remarks that the cores and licensing business was basically flat in 2016 with 15. Is that just for the MID group or does that include CRI as well – or CRD is better….

Gary, that’s everything. That's when I look at all of the licensing agreement that we have not just in mid but on security side, and I am looking at the architectural licenses as well as our cores as well..

Okay.

Could you give us any sort of sense of what the organic growth rate for the Company might be in 2017, maybe not exact amount, but will there be some, will it be below single-digit percent type growth?.

So, I think about what I said in my prepared remarks, Gary, is that we feel pretty comfortable with the consensus revenue estimates in aggregate for 2017.

When I look at where that growth is coming from, I think my expectation is that that licensing historic business, which is not just the DRAM, but the other pieces I talked about as well will be roughly flat. And then the growth will come from both the businesses we acquired.

So when I look at the growth in 2017, I think roughly half will come from the buffer chip business and roughly half will come from the security business particularly our initiatives in mobile payments..

Okay. I mean let me extend my congratulations on the strong finish to the year and some good execution. Good job, guys, and that's it for me..

Thank you, Gary..

Thank you. And our next question comes from the line of Paul Coster from JP Morgan..

Yes, thanks. Rahul, just to be clear, you've said that you're comfortable with consensus revenue estimates, yet you didn't say anything about EPS.

So is that an intentional emission or are you also comfortable with the EPS forecast that's out there?.

I apologize, Paul. It wasn’t an intentional emission. I am also comfortable with the consensus EPS forecast that are out there for 2017..

Okay, got it. Thank you. Talk to us a little bit about the significance of the Strathclyde project. It doesn't seem very significant in the grander scheme of things, but clearly, it's important validation.

So what does it mean, in terms of future revenue prospects?.

Well, we haven’t outlined the specific revenue, but one of the pieces on the ticketing business is we get per ticket download click of some significance. So the more tickets that are downloaded in a mobile app or on the PC, we get revenue. So I think it's just going to depend on how quickly that that takes off.

So the plan is fundamentally to make it more accessible. And right now everybody wants to have a mobile solution and there wasn't one. So this just enables that faster ticketing and we get revenue growth from that.

I also believe that it will help to drive more of the regional areas to switch to the ITSO-based ticketing solutions, which is where we get the larger enterprise class software.

And last, I’m trying to dance around this because I don't want to preannounce something more than we're doing, but from a merchant standpoint there are other types of merchants and other types of value besides the ticket and the team is working on a similar solution that could be far more pervasive than just transport. So that's something.

If you come to Mobile World Congress, you'll see that and you'll see a really cool slick demo..

So, you know, the UK seems to be harmonizing its transportation system, as using its infrastructure across the board as far as I can tell. The big hub I suppose is TFL, and everything that radiates from London. Strathclyde seems to be a satellite of that.

Is there is there any way in which that project in Strathclyde could ultimately find its way into the broader ecosystem, or is it really kind of a battle at the moment between competing solutions for HCE solutions?.

No, we don’t see it as a battle. We see it is just a convenient place for us to work. We've worked with SPP for a long time. We have a great relationship with them.

They tend to push things more quickly, which is one area, some of the transit is not the fastest moving industry maybe a little bit faster than lighting where it's every hundred years, a new technology, but not super fast. And the two guys, the CEO and the COO that run it are just fantastic to work with. So it's also a very interesting area.

It's a small area geographically, but there's a lot of universities. Universities have lots of student. Students adopt mobile technology really, really quickly and they love to get feedback on Facebook and other things. So it's kind of a unique little microcosm. But obviously our plan is to go much broader.

And what was most exciting I wasn't at the show I was at another event, but several of our team was there and we got not just ITSO-based U.K. interest from other operators, but international interest, which is one of the strategic trusts for that business, is to look at ticketing beyond the U.K.

and there's a lot of evolving standards and to also look at ticketing besides transit..

Okay. If I understood things correctly on the Snowbush front, obviously there's some adjustment and impairment associated with some huge dated project. But I think I also heard you say Ron that there are some design wins in the interim and nearer term stuff. I'm wondering, of course, why the latter doesn't offset the former.

But in addition to that, what is the probability of these design wins yielding revenue in the next 18 months to two years….

Well, let answer the part about the revenue and then I think I will be good to explain that this was in-process R&D. So you can't – it’s something that was going on and then it changed. So we had to impair that as a change and we would have just done it differently if it had been a little bit earlier.

So, we look at the SerDes space and we're very attracted by it because there's a lot of demand for high-speed networking and storage capabilities. We had a great set of products. We thought that that Snowbush guys had a great set of products. There is a lot of mutual respect and the combination has gone really well.

What was really interesting about their product sets is that they had a lot and many different fabs of lower speed sorts. So, we really like these because they're not new development initiatives, they're off the shelf IP.

And we've had a significant number of these including in China, which is getting licensing out of China is often very difficult, but we've been very successful on that. So we do see this growing. We've gotten a lot of new wins on the 56 gig. So this is a new architecture, new process nodes.

And we think we're going to get even more as we go forward in the future. And certainly, that's good offset it in the future, right. But as Rahul said he thought it was appropriate to be more conservative in the judgment because we just don't have enough time yet..

Apologize to add on a bit. Ron is exactly right and that the execution from the team has been very strong and we've seen revenue contribution from what Ron discussed. What we impaired was actually in process R&D, so these were activities that were already underway.

And as you know from a purchase price accounting perspective, what we have to do is put some value there as what some value on goodwill.

Had the timing changed literally by a matter of a few weeks either we would have learned about the market timing a little bit earlier or we would announce results a little bit later, what we simply would have done is a different allocation of purchase price accounting between in-process R&D and goodwill..

Got it.

My last question, so it's about the Microsoft partnership with Cryogenics, is there any update to the timeline for realizing something from that project?.

No, it’s on track to exactly what we had expected. I mean this is research. It's really core strategic research where it's adding a lot to our IP portfolio. We're looking forward to providing the prototypes and getting to the next stages with Microsoft. As I think I mentioned before while there is high risk.

We absolutely intend to productize this and deliver it as a full fledged product not just in cryogenic, but also in room temperature. So we think this could be a very interesting solution for multiple customers and multiple temperature points..

Thank you..

Thank you. And our next question comes from the line of Matt Robison from Wunderlich..

Hey, thanks for taking the question. Just one more question on the impairment.

How many years into the future were you looking here? Usually I think of some development like this, you would think two to three years, is that the right kind of range?.

You know, Matt, that’s exactly right. What Ron mentioned is we're talking about revenue forecast towards the end of the decade. So we're talking three years plus out. And that's why even just a little change in terms of that forecast has an impact in terms of how you look at the valuation. I'll be honest with you, Matt.

I'll be honest with you is that as I've worked in various companies, particularly in terms of technology, these sorts roadmaps and relationships change often. So this isn't a surprise from my perspective in terms of this particular business or what happens, I think we just got caught with the timing..

Are you going to be able to apply the work you've done to any other projects or will you re-task the staff completely?.

No, no, it’s still going on. It’s just later in time..

Okay..

We’re still pursuing the segment. There’s nothing new. I mean, we always do our capital budgeting and look at programs in light of any changes, but there's been nothing decided to change on this at all..

Okay.

So you're still staying on it?.

Yes..

So why wouldn't you just kind of – so I guess you've revalued it only partially would that be the right way to look at that just for the value discussion?.

Yes, I think, we’ve done that revaluation in terms of just changing the timing of when we expect future revenues and profits based on the update from the customer.

What happens from an accounting perspective is that when you have that kind of update, it's considered as a kind of a triggering event and that causes you to go back and look at the valuation.

Otherwise typically what happens in an acquisition is you generally have about a year to look at how you've done the purchase price accounting and make adjustments. But because we had a kind of what’s considered a triggering event, we had to make those changes in Q4..

Just for my own housekeeping, can you say what the CapEx cash flow from operations and depreciation were in the quarter?.

Yes, absolutely. I think, I gave that out in the call as well, but for the fourth quarter CapEx was $3.8 million and depreciation was $3.6 million. I wanted to give you an update also that I expect will have about $12 million of CapEx for 2017 with $9 million or so in the first half.

And I expect depreciation is going to be roughly $4 million a quarter for us in 2017..

Okay. Thank you..

Thank you. And our next question comes from the line of Delos Elder from Jefferies..

Hi good afternoon. Thank you for letting me ask a question.

I wanted to see if you could share – based on your design pipeline, what are your expectations for market share in the buffer chip business?.

So we have a very high share in DDR3. We have a lower share in DDR4 as I had said before. Obviously, our targets are to get to 50% market share throughout the year..

Okay, thank you.

And then how is consolidation of this market affected your view of the business?.

In which market?.

Oh, in the buffer chip business..

I am more optimistic than I've ever been. From the very beginning, I thought the timing was correct. Rambus has been looking at buffer chips long before I was in the company and I think appropriately thought that that it wasn't at a tipping point.

The team assessed the DDR4 was in an important part and I think it's going to have higher attach rates over time. And more importantly that's a very strategic little piece of real estate where there is more functionality that can be provided.

I don't want to give you for competitive reasons some of the things that we're looking at doing there, but we think it can be very interesting. And that’s an obvious position because there's three suppliers and I think we have put together a really good team. They're really focused.

They know exactly what they have to do to be successful and I think they're doing it. So I think it's a great opportunity for a company like Rambus. It is exactly the $300 million-ish TAMs relatively high gross margin. We wish it could be a 100% gross margin like licensing, but that's a stretch for any product business.

So on a margin percentage basis as Rahul said it's going to be dilutive, but in terms of what it does it's great..

And Delos I just want to clarify. I think for us from a gross margin perspective from a pro forma basis, we're probably about 90% for fiscal year 2026. But as we expect that buffer chip business to ramp and grow even though it's a very strong solid margin for chip businesses in general.

It’s probably not our full year gross margin, down probably a couple of points as you see that revenue growth..

Great, thank you.

And then in the SerDes business, I was curious if you could share anything about what the competitive landscape looks like in terms of how much of a lead you might have over others, are there in terms of timing or say performance of the product?.

So that's kind of a complicated question. Obviously, Broadcom Avago LSI when they were licensing had a very strong product. There is smaller players that are out there that I think are quite a bit behind us.

The feedback that we've gotten is rather good which is why we've seen a significant amount of new design wins because it was really in a lot of space us and Snowbush. We’re at the same accounts.

What I like about it as well and the philosophy I think I described is Rambus has historically been very innovative, but it's not a product company, so the business processes were not robust or as robust as they should be on products.

And both Snowbush and Inphi not that they were very good at the productization of what they do whether it was a physical product or design IP block, I think they did a very, very good job. So by putting these two together for the next generation things, we've been able to take the best of both of these worlds and put it on it.

So we think our 56 gig and beyond solutions are going to be great. They seem to be getting that kind of feedback from customers, the same thing on the buffer chip. We're really excited about DDR5 and our innovation there and where we're trying to take it. So we feel pretty solid about both of those.

Just to have a balanced view for credibility being in the product business from abroad – especially from a patent licensing is a bit of a challenge culturally. So, we're keeping that one very innovative patent side of the business because it's strong and it's a great business for us, but slower growth.

And we're complementing it and trying to have that cultural evolution to the product side. We’re going fast with products is great; going fast with patents is usually not. So those are very, very different philosophies..

Great, thank you. And then in the payment to ticketing business, it seems like the launch of the app and the announcement there is significant along with what you're doing to DesignCon and Mobile World Congress.

I was curious if you share you know maybe some of the other potential milestones in the future for that segment?.

For which segment?.

For the payments and ticketing or security business?.

Payments and ticketing, yes. So, it goes back to what I've said a couple times on the call. If you think about any merchant and it doesn't have to be a transit, a ticket, it could be a retail store. It could be a gas pump store. It could be a DIY store. There's lots of things out there in the smart card world that customers have.

They have loyalty cards and they have gift cards and all sorts of different units of value. And there's new currencies that are out there like bit coin or new peer to peer initiatives that are developing.

And we have a deep understanding of the enterprise class software that goes to banks and to merchants and we have – it's really built around tokenization.

And what we've done is through the work that Rambus has done especially Jerome Nadel, our CMO, we've complemented these enterprise software businesses with real value that they can take to their customers with these apps.

And so we're trying to – the next milestone is Mobile World Congress where we're going to talk a little bit more about what we're delivering more broadly to the merchants. And then it's just some pilots, which we already have pilots planned and underway with some customers, but we won't tell you about those right away, but it's later in the year.

And most importantly, its revenue and profit, which we hope to have as early as the second half and obviously in 2018..

Great, thank you. That was all my questions..

Thanks..

Thank you. [Operator Instructions] Our next question comes from the line of Atif Malik from Citigroup..

Hi, thanks for taking my questions. Ron, can you provide an update on the storage-class memory project with Tsinghua University and then maybe the scope of that project and then I have a follow-up..

Sure, the Tsinghua University initiative is on the resistive RAM. We've been working with them and doing multiple designs. We've had a prototype chip and we've done a second larger chip. And we're in discussions more broadly in China on how to jumpstart that in a commercial way, which is still early days, but we didn't have a staff in China.

Now, we have some really high powered executives that came to us from the memory industry and they're trying to set up the right commercial structure, so that we can expand this..

Okay. And then, Rahul, can you talk about the use of cash from here.

Will you be looking at more acquisitions this year to sustain that 12% to 15% long-term revenue growth you guys talked about in September?.

Sure, Atif, I’m happy to talk about the use of cash. Look what we did is we generated quite a bit of cash flow in Q4. And I expect that in the future over the course of 2017, we'll continue to generate cash. Now, what we look at is a couple of different ways to deploy that.

One is to be opportunistic in terms of acquisitions as they occur or as they become available, again targeting areas where we have market or technical expertise where it makes sense for us to go serve a market for our existing customers.

Now, the other potential use of cash is, of course, a stock buyback and that's something that Rambus has done in the past as well. And looking at our opportunities, I think those are two most likely uses of cash either an acquisition that has to again be at the right terms for Rambus or from a stock buyback perspective..

Okay, thank you..

Thank you. And that concludes our question-and-answer session for today. I’d like to turn the conference back over to Dr. Ron Black for any additional comments..

As you can see we are well aligned with the needs of the industry and have the right programs in place to capitalize on the trends driving technology choices. Thank you again for your continued interest and time. Have a very good day..

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a great day..