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Rambus Inc (NASDAQ:RMBS)
Q2 2019 Earnings Call
Jul 29, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Rambus Second Quarter and FY '19 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. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Rahul Mathur, Chief Financial Officer. You may begin your conference.

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Thank you, Phillip. And welcome to the Rambus second quarter 2019 results conference call. I'm Rahul Mathur, CFO, and on the call with me today is Luc Seraphin, our CEO. The press release for the results that we will be discussing today have been furnished to the SEC on Form 8-K. A replay of this call will be available for the next week at (855) 859-2056. You can hear the replay by dialing the toll-free number and then, entering ID number 3471916 when you hear the prompt.

In addition, we are simultaneously webcasting this call and along with the audio, we're webcasting slides that we will reference during portions of today's call. So even if you're joining us via conference call, you may want to access the webcast with the slide presentation. A replay of this call can be accessed on our website beginning today at 5:00 PM Pacific Time.

Our discussion today will contain forward-looking statements regarding our financial guidance for future periods, including Q3 2019 and beyond, prospects, product and investment strategies, timing of the expected product launches, demand for existing and newly acquired technologies, the growth opportunities of the various markets we serve, the expected benefits of our merger, acquisition and divestiture activity, including the expected timing of transaction completion, and the effects of ASC 606 on reported revenue among other things. These statements are subject to risks and uncertainties that are discussed during this call and may be more fully described in the documents we filed with the SEC, including our 8-Ks, 10-Qs and 10-Ks. These forward-looking statements may differ materially from our actual results, and we're under no obligation to update these statements.

In an effort to provide greater clarity in our financials, we're using both GAAP and non-GAAP financial presentations in both our press release and also on this call. We've posted on our website a reconciliation of these non-GAAP financials to the most directly comparable GAAP measures in our press release and our slide presentation. You can see this on our website at rambus.com on the Investor Relations page under financial releases.

The order of our call today will be as follows. Luc will start with an overview of the business. I will discuss our financial results, including our guidance for future periods and then, we'll end with Q&A.

I'll now turn the call over to Luc to provide an overview of the quarter. Luc?

Luc Seraphin -- President & Chief Executive Officer

Thank you, Rahul, and good afternoon, everyone. At the beginning of this year, we laid out a set of strategic priorities that are critical to our Company's success that included refocusing our product portfolio and R&D around our core strengths in semiconductor, optimizing the Company for operational efficiency, and leveraging our strong cash generation to reinvest for amplified growth. With that, Rambus made great progress toward our strategic priorities and executed well in the second quarter.

We delivered total revenue of $58.3 million, in line with guidance and strengthened our balance sheet, generating $38.7 million in cash from operations. We continue to meet or exceed our commitments to the market as a company, and our product revenue continues to show strong growth. The most notable recent events that took place to demonstrate our progress to strategy are last month's announcement of our agreement to settle our Payments and Ticketing business to Visa and today's announcement of our agreement to acquire Northwest Logic to augment our interface IP offerings with best-in-class digital controllers.

First, the transaction with Visa simplifies our portfolio of offerings to redefine our perimeter in the semiconductor market, which is a critical step in moving the Company forward. With Visa, we are excited that the Payments and Ticketing group will have an opportunity to develop and deliver rich new solutions to the global market and make an industry leader like Visa even better without tremendous product and talents.

Second, as we complete the necessary steps to simplify, we also continue to seek out opportunities to amplify our market and technology positions with new investments that fit within our areas of focus. In line with that strategy, we have signed an agreement to acquire the digital controller company, Northwest Logic, and we will be integrating their offerings and design team in our IP core business. As a market leader in memory, PCIe and MIPI digital controllers, Northwest Logic will expand our solutions by creating a complementary product portfolio of PHYs and controllers for data center, AI, communications and automotive.

Every SoC design that uses a memory or SerDes PHY also needs to use the necessary controller. The combination of digital and physical IP portfolios from Northwest Logic and Rambus will create a one-stop-shop for customers and improve the competitive positioning for the IP core team. The Northwest Logic acquisition is expected to close in Q3 of this year. Due to the timing of the close, this transaction will not materially impact 2019 results, but we expect it to have an immediate positive impact on the business and to be accretive to revenue and earnings in 2020.

In addition to the inorganic changes to drive growth, Rambus business units continue to execute with overall product revenue for server DIMM chips and silicon IP systematically increasing. Q2 was a record quarter for server DIMM chipset business, with first half revenue up significantly year-over-year and on track for 50% growth on the year as a whole. This growth continues to be driven by increased OEM and data center qualifications, leading to steady gains in our DDR4 buffer chip market share. We believe our growing market position will continue to outweigh any softness in the memory market. And we remain confident in our revenue targets for the buffer chips in 2019.

We're also well positioned as the first mover for next-generation DDR5 server DIMM chips, shipping samples at the top-end speeds for both the RCD and DB chips. We are engaged in the early bring-up and validation of DDR5 DIMMs and continue to have strong collaboration with the memory vendors as well as the broader ecosystem.

Our high-speed IP Core business also performed extremely well, bringing record revenue for the second consecutive quarter. We announced the addition of our 112-gig SerDes PHY for 400-gig and 800-gig networking, a win for GDDR6 at Achronix and continued to close new Tier 1 SoC design wins for data center, networking and AI. The team remains on the trajectory of approximately 50% compounded annual growth rate that has been said over the past few years and expects to further accelerate this growth with the addition of a digital IP from Northwest Logic.

Over the course of the first half of the year, our Cryptography business has refined its strategy with a simplified go-to market around secure silicon IP and provisioning. We are focused on creating the most resilient and deployable embedded security on the market. We are building the right portfolio mix to accelerate growth for the business, while managing costs to optimize profitability. The team is delivering on an application-driven product roadmap, incorporating the direct requirements from our focus markets and customers.

We expanded our family of CryptoManager Root of Trust cores to include a comprehensive suite of secure processors tailored for AI, data center, automotive and government. This makes the family of cores readily available to the market and easy to integrate for our customers. As a result, we are seeing increased traction in the market, including a security design win at a leading provider of AI accelerators for their large-scale state-of-the-art data center chips.

In closing, Q2 was another solid quarter with continued execution on strategy, delivery on revenue and strong cash generation from operations. Despite the challenging macroeconomic and industry environment, we met our numbers in the first half and maintained our profit expectations for the year through operational execution and gains in market share. We remain focused on our core strengths of moving and securing data. We will continue to leverage our technology expertise and strong IP portfolio to deliver first to market of high-quality memory, SerDes and embedded security solutions for our chip and system customers.

With that, I'll turn the call back to Rahul to discuss the quarterly financial results. Rahul?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Thanks, Luc. I'd like to begin with our financial results for the second quarter. Let me start with some highlights on Slide 6. As Luc mentioned, we continue to execute in our product businesses and delivered solid financial results, in line with our revenue and our earnings expectations. As you know, we've chosen to adopt ASC 606 using the modified retrospective method, which does not restate prior periods, but rather runs the cumulative effect of the adoption through retained earnings as a beginning balance sheet adjustment. Our reported revenue amounts discussed herein are reflected under ASC 606. As a result, any comparison between second quarter 2019 results under ASC 606 and prior results under ASC 605 is not the best way to track our Company's progress.

Now that we're through our transition period, we will no longer be presenting results as if we continue to recognize revenue under the older standard. However, we will continue to provide additional operational metrics such as licensing billings to give our investors better insight into our operational performance.

We delivered revenue of $58.3 million and licensing billings of $64.9 million, in line with our expectations. We ended the quarter with cash, cash equivalents and marketable securities of $337.7 million, up $31.8 million from the previous quarter, due primarily to cash from operations of $38.7 million. We delivered solid financial results, while continuing to leverage our high-margin historic businesses to fuel growth in adjacent areas where we have strong technical and market expertise with a focus on memory and security.

Now let me talk you through some revenue details on Slide 7. Revenue for the second quarter was $58.3 million, in line with our expected range of $57 million to $63 million, driven by execution in our product businesses. As we've mentioned previously, ASC 606 has a material difference in the timing of revenue recognition for our fixed fee licensing arrangements. Our licensing business continues to perform well. It's the foundation of our success and remains core to our initiatives in both our memory and interface and security businesses. And we'll continue to generate cash in years to come.

Royalty revenue for the second quarter was $27.1 million, while licensing billings was $64.9 million. The difference between licensing billings and royalty revenue primarily relates to timing, as we don't always recognize revenue at the same quarter we bill our customers. Going into additional details, our memory and interface revenue was $45.5 million and our security business revenue was $12.8 million. On Payments and Ticketing business, we expect to close our transaction with Visa in the coming months as we complete regulatory approvals and other customary closing conditions. While this business is currently reflected in our operating results to help minimize any confusion about the performance of our remaining businesses, we've removed approximately $11 million of revenue from Payments and Ticketing from the quarterly guidance we issued today.

For Q2, revenue for Payments and Ticketing was roughly $6 million for the quarter. This was approximately $2 million lower than our initial expectations for the quarter as certain partners paused at the end of the quarter to digest the news that Visa will be acquiring this business. We continue to expect this business to grow to $35 million to $40 million in 2019 and be roughly break even.

Let me walk you through our non-GAAP income statement on Slide 8. Along with our solid revenue performance in Q2, we met our profitability targets on a non-GAAP basis. Cost of revenue plus operating expenses or what we refer to as total operating expenses for the quarter came in at $64.1 million, below our expectations due to our cost containment actions because certain expenses related to the sale of our Payments and Ticketing business will be accounted for as part of the transaction.

We ended the quarter with headcount of 772, down slightly from 785 in the previous quarter. We recorded $5.3 million of interest income related to the significant financing component from our fixed fee patent and technology licensing arrangements for which we have not yet received the payment, but recognized revenue under the new accounting standards. We incurred $0.6 million of interest expense related to the convertible notes we issued in Q4 2017. This was offset by incremental interest income related to the return on our cash portfolio. After adjusting for non-cash interest expense on our convertible notes, this resulted in non-GAAP interest and other income for the second quarter of $6.1 million. Excluding the interest income related to the significant financing component related to ASC 606, this would have been $0.8 million. Within the assumed flat rate of 24% for non-GAAP pre-tax income, non-GAAP net income for the quarter was $0.2 million or diluted net income of $0.00 a share.

Now, let me turn to the balance sheet details on Slide 9. We're very pleased with the strength of our balance sheet. Cash, cash equivalents and marketable securities totaled $337.7 million, up $31.8 million from the previous quarter, due primarily to cash from operations of $38.7 million. We expect to maintain our ability to generate substantial cash from operations in 2019 and beyond. This will be an important metric to monitor under ASC 606.

Given our strong performance in the first half of the year, we expect over $100 million of cash from operations this year, while continuing to invest strategically in our patent portfolio and our growing [Indecipherable]. We also expect to collect roughly $70 million from the sale of our Payments and Ticketing business in the coming months, net of expenses. Our cash balance positions us very nicely to take advantage of current opportunities in our industry.

Let me spend a few minutes to discuss our capital allocation strategy. As we've discussed previously, our capital allocation priorities are organic growth, inorganic growth and return of capital to shareholders. First, in terms of organic growth, our primary focus is to invest in our patent portfolio and our product programs. Rambus has a long legacy investing in R&D throughout our history, and our patents are foundational to our industry. As part of our strategic planning cycle, we've renewed our focus and investment on patent generation with an emphasis on key technology challenges facing the industry in the years to come. Our patents provide a strong platform for our investment in product development and innovation, and we believe investing strategically in this area positions us to deliver long-term profitable growth. As we look ahead to our significant patent renewals in the future, we should note that while our typical licensing agreements last five to 10 years, our patents are valid for 20 years. Based on our strong track record, we remain confident in our ability to continue to renew with our partners at favorable economic terms in the future.

Our organic product programs also continue to grow nicely. Our buffer chip revenue of $60 million [Phonetic] was a quarterly record, as was our IP Core revenue for the quarter. We've been disappointed with the performance of our security business over the past year. Nevertheless, based on our current customer engagements, we continue to believe in the market for embedded silicon and are confident our investments in an area more central to our core strength will pay off in our future.

Second, in terms of inorganic growth, we were pleased to announce the acquisition of Northwest Logic. Our purchase price, including retention agreement, is approximately $30 million. This is highly synergistic and will integrate seamlessly into our existing IP Cores business. Though this transaction will not materially impact 2019 results due to the expected timing of close and acquisition accounting, we do expect this acquisition to add roughly $10 million of accretive revenue in 2020. We continue to be very active in evaluating M&A opportunities in our focus areas of high-speed interface IP and chips and embedded security solutions. We will target complementary businesses that meet our strategic, financial and operational targets.

Third, we've been very active in returning capital to our stockholders. In 2015, we returned $200 million to our stockholders through accelerated share repurchase program. While we're currently exploring several exciting M&A opportunities to drive long-term growth, we will continue to consider share repurchase at the appropriate time.

Let me now provide additional details about our balance sheet. At the end of Q2, we had contract assets worth $597.4 million, which reflects the net present value of unbilled AR related to licensing arrangements for which the Company has no future performance obligations. I expect this number to continue to trend down as we bill and collect for these contracts. It's important to note that this metric doesn't represent the entire value of our existing licensing agreements as several customers have royalty-based agreements that allow us to recognize revenue each quarter under ASC 606.

As I mentioned previously, we entered into a share purchase agreement with Visa last month to acquire our Payments and Ticketing business for $75 million in cash. We expect to close in the coming months pending regulatory approvals and other customary closing conditions. We classified the assets and liabilities for our Payments and Ticketing business as held-for-sale until the transaction is completed. The net carrying amount of this business as of the second quarter was $88.5 million considering assets and liabilities.

After considering the $75 million purchase price and approximately $3.5 million in transaction costs, we recorded an impairment charge of $17 million in our GAAP results in Q2. Of course, these numbers are subject to final working capital amounts once the transaction closes. Second quarter CapEx was $3.3 million and depreciation was $3.1 million. Looking forward, I expect roughly $3 million of CapEx for the third quarter and roughly $11 million for the full year of 2019. I also expect depreciation of roughly $3 million for the third quarter and roughly $12 million for the full year of 2019. Overall, we have a strong balance sheet with limited debt and expect to continue to generate strong cash from operations in the future.

Now, let me turn to our guidance for the third quarter on Slide 10. As a reminder, our forward-looking guidance reflects our current best estimates and our actual results could differ materially from what I'm about to review. Going forward, we'll only provide financial outlook under ASC 606. Future revenue under ASC 606 will be volatile from financial period-to-period due to the timing and structure of our licensing arrangements. We will continue to focus on leveraging our vast patent portfolio to maximize the value for our business, as well as to provide the best economic structure. To offer additional transparency, we've also been providing information on licensing billings, which is an operational metric that reflects amounts invoiced to our licensing customers during the period adjusted for certain differences.

As you see in the supplemental information we provided on Slide 17 of our earnings deck, licensing billings closely correlates with what we've historically reported as royalty revenue under ASC 605. We'll continue to provide licensing billings as another operational metric to help our investors understanding the underlying performance of our Company. As I mentioned previously, because we expect to close the sale of our Payments and Ticketing business in the coming months, we've excluded that business in the guidance we have provided today. Similarly, due to purchase accounting and the timing of close, I do not expect Northwest Logic to have a material impact on our guidance for the third quarter.

With that said, under ASC 606, we expect revenue in the third quarter between $41 million and $47 million. We expect royalty revenue between $13 million and $19 million. We also expect licensing billings between $58 million and $64 million. Excluding the Payments and Ticketing business, we expect Q3 non-GAAP total operating expenses, which includes COGS, to be between $54 million and $58 million. Over the remainder of 2019, we expect to keep operating expenses roughly flat and provide leverage to our financial model. We continue to expect that our buffer chip business will grow nicely in 2019 as we're executing at the run rate required for the $50 million to $70 million range we've discussed previously. While we cannot control the macroeconomic environment, we remain focused on our execution and are very pleased with our continued market share gain in our buffer chip business.

Under ASC 606, non-GAAP operating results for the third quarter is expected to be between a loss of $16 million and $6 million. For non-GAAP interest and other income and expense, which excludes interest income related to ASC 606, we would have expected $0.8 million in income, which includes $0.6 million of interest expense related to the notes due in 2023. Based on the new tax legislation passed at the end of 2017, we expect a pro forma tax rate in 2019 to remain consistent with our 2018 pro forma tax rate of roughly 24%. The 24% is higher than the new statutory rate of 21% primarily due to higher taxes in our foreign jurisdictions.

As a reminder, we pay roughly $20 million of cash taxes each year, driven primarily by our licensing arrangements with our partners in Korea. We expect non-GAAP taxes to be between a benefit of $4 million and $1 million in Q3. We expect our Q3 share count to be roughly 113 million basic and diluted shares outstanding. This leads you to between a non-GAAP loss per share of $0.11 and $0.04 for the quarter.

While we do not issue annual guidance, as we have discussed previously, this year, we have structural step-downs in several of our long-term licensing agreements that impact our 2019 revenue. In balance, we've executed on growth and our product programs to offset these structural step-downs. Therefore, we remain comfortable with current consensus analyst expectations on the bottom line for the fourth quarter of 2019. We will provide more detail about our business outlook at our Analyst Day on September 17 at NASDAQ in New York. We hope to see you there.

Let me finish with a summary on Slide 11. We're proud of the solid performance by our team and the progress we continue to make against our strategic initiatives to drive long-term profitable growth. We're very pleased with the announcement of the sale of our Payments and Ticketing business with Visa and our pending acquisition of Northwest Logic. While we understand that ASC 606 added a level of complexity to our financial reporting, it's important to reiterate that the underlying financial strength of our business remains strong, reflected in our demonstrated ability to generate cash.

In closing, we've refocused our product portfolio around Rambus' core strength in the semiconductor industry, improved our operational efficiency and profitability, generated solid cash from operations and leveraged our strong balance sheet to support our strategic initiatives. We continue to focus on our growth drivers and are well positioned for long-term profitable growth.

With that, I'll turn the call back to Phillip to begin Q&A. Could we have our first question?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question is from the line of Gary Mobley.

Gary Mobley -- Wells Fargo Securities -- Analyst

Hey, guys. Thanks for taking my question. Bear with me for a minute as I sort of walk through all the different moving pieces. And if you could help me reconcile some of these numbers. So the midpoint of your license billing is $61 million. If I add in the -- what is implied in terms of the product revenue in the contract and other revenue, it gets to $91 million mark. Is that correct?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Gary, I'm sorry, which quarter are you referring to?

Gary Mobley -- Wells Fargo Securities -- Analyst

For your Q3 guide?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

So for Q3, I think what you're referring to is that we gave a guidance on revenue between $41 million and $47 million of revenue. Included in that guidance was royalty revenue of $13 million to $19 million. And what we assumed operationally is we'd have licensing billings of $58 million to $64 million.

Gary Mobley -- Wells Fargo Securities -- Analyst

Okay. And so...

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Our licensing billings and royalty revenue is roughly $45 million for Q3.

Gary Mobley -- Wells Fargo Securities -- Analyst

Okay. And so, to get to what was considered one point a comparable metric to ASC 605 accounting, it's roughly $91 million, correct?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

I think if you would take the midpoint of our revenue between $41 million and $47 million, which is about $44 million, and add that delta from the licensing billings, I think you'd have something a little closer to about $89 million if I understand the math that you're trying to do.

Gary Mobley -- Wells Fargo Securities -- Analyst

Okay. And so, if it were not for the exclusion of SCS or the revenue generated from the Payment business, you'd be close to $100 million, right?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Yes. I understand the math that you're doing. As I discussed in our prepared remarks, we took about $11 million of revenue out of our guidance for Q3 related to Payments and Ticketing business.

Gary Mobley -- Wells Fargo Securities -- Analyst

And since that business break even, no impact either way on the OP margin, correct?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Well, there will be movement on OP margins, but no impact in terms of operating or net profit.

Gary Mobley -- Wells Fargo Securities -- Analyst

Okay. All right. And could you give us a little more detail on sort of the evolution of Northwest Logic? I know the company has been around for like 25 years or so. I think it's been part of Altera and Intel. How does it stand today as an independent company, employee count and maybe some particular type of customer or ASIC concentration?

Luc Seraphin -- President & Chief Executive Officer

Hi, Gary. This is Luc. So you're right. It has been around for some time. They were founded in 1995. At some point in time, they were part of Altera. At that time, there were more of a design house than a company designing IP per se. And after some time, when the market was a little soft, Altera [Indecipherable] them off again. And they decided to do development of critical IP for the communication network. And specifically, they have been developing controllers for PCIe interfaces for high-speed memory interfaces and for MIPI interfaces. And that's how we got to know them.

We've actually worked with Northwest Logic for many, many years because in every SoC design for communication, every time you have a PHY which we provide, you have to interface that PHY to a controller. So we've known these guys for a long time because with many of our customers, we are designing and supporting the customers together. So they provide PHYs -- controllers as I said, vast majority, memory controllers, but 50% PCIe controllers and MIPI controllers. That's what they do. So we have a large common set of customers, but they're also adding customers to our customer set because when you have controllers, you typically have a broader channels.

This is a profitable company. They will add about $10 million of accretive revenue to our business in 2020. The group has been very stable. It's about 30 people. They're based in Hillsboro in Oregon, same time zone, same type of culture, so the integration is going to be very easy for us if I say so. So it's a great acquisition for us. It gives additional potential for our PHYs. It will mean to us faster growth driven by channel synergies and the roll-out of GDDR6, HBM3 and PCIe Gen 5. And it's accretive revenue for us in 2020. So we're really excited with this acquisition.

Gary Mobley -- Wells Fargo Securities -- Analyst

Okay. Last question, I'll hop in the queue. I think your message is clear on the buffer chip business growth, mostly via market share gains, but could you give us an update on how you see the inventory situation as it relates to data center, inventory digestion, and sort of the order, linear order patterns in the buffer chip business?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Yes. We had a -- first of all, we had a record quarter in buffer chip since we've been in that business. So Q2 was really, really good for us. As Rahul said, we are well on our trajectory to grow that business 50% compared to last year, which was also 50% compared to the year before. So we are making steady gains there. The inventory situation that we faced in Q1 in particular, in the beginning of Q2 seems to ease up a bit. Now, we start to see orders coming our way. And as we said earlier, the strength of our design win footprint compensates for any inventory concerns that we had earlier in the year. So are we're confident about the rest of the year -- we're very confident about the rest of the year for this business. And again, it's based on the strength of our design win footprint.

Operator

Your next question is from the line of Suji Desilva.

Suji Desilva -- ROTH Capital Partners -- Analyst

Hi, Luc. Hi, Rahul. Congratulations on the transaction. So I was doing the same math Gary was. I just want to make sure I do it right as well. So for Q2, it was ASC 605, Rahul, I got $96 million roughly of revenues and $0.22. Is that roughly where that would came out on 605? Does that sound ballpark?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

So, Suji, we can't provide 605 numbers, but I think I understand the math you are trying to do. And if I were to do the same math, I think I would have gotten the same result.

Suji Desilva -- ROTH Capital Partners -- Analyst

Okay. And I guess just to follow up on that with the 3Q guide, I just wanted to use the same math obviously, and I got a midpoint $89 million, $86 million to $92 million and EPS at $0.23. Does that all sound ballpark as if the same math was used?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Again, I mean, that the math we can't do. But if I were to follow your math and how you laid out your model, I get the same numbers.

Suji Desilva -- ROTH Capital Partners -- Analyst

Excellent. And then also on the memory buffer business question there, with DRAM prices being so volatile, is that impact favorable for you guys, neutral or is it a headwind just to understand how the two are interplaying, I know your guys are gaining share more than impacted by the market, but maybe any color that would be helpful?

Luc Seraphin -- President & Chief Executive Officer

Yeah, there were two -- thanks. Suji. There are two main reasons for the volatility in the DRAM market. One was volume based with the inventory buildup at the end of last year and the beginning of this year. And I think that we've gone through the worst part of it now, and people are starting to place orders again. The second factor was that there was pressure on DRAM pricing, which does not really affect us at all. We're more dependent on the volume impact and the price impact on what's happening on the DRAM. So we see the current environment as being better than the environment we were facing a quarter ago. What we also see is the market is transitioning from the Skylake platform to the Cascade Lake processor and as we go through that transition, because our footprint is twice what it used to be in Skylake, we see a nice flow of orders coming our way, and nice growth for that business.

Suji Desilva -- ROTH Capital Partners -- Analyst

Okay. And my last question on the acquisition of Northwest. I just want to understand the term digital controller as an implication versus you guys having a good competency in mixed signal analog, whether that's just semantics? And also what kind of growth rate can we expect for the Northwest business long term? Thanks.

Luc Seraphin -- President & Chief Executive Officer

So the growth rate is typically we expect to be double-digit growth and that's what we've done historically. So -- and it's a profitable business. It's a nice piece of business. In terms of the role of the controller, every time a processor has to transfer data over a memory bus or a PCIe interface, it needs a controller and that controller actually sends the data to the PHY. So we do the PHY, which is analog technology. We didn't have the controller, but every interface, whether it's a memory interface or a serial interface needs both a PHY and a controller and that's why it makes so much sense for us.

Operator

Your next question is from the line of Sidney Ho.

Sidney Ho -- Deutsche Bank -- Analyst

Thanks for taking my questions. And I'll add my congrats to the two transactions. My first question is, I think the last quarter, you talked about in the near term, things are little challenging, visibility is low, inventory is a little high, I think you kind of reiterate that the challenging part and the answers to your previous two questions is mostly relate to buffer chip set. Can you talk about maybe outside of buffer chipsets, any update on visibility, is it getting better or getting worse? Any color on specific end-market may be helpful. Thanks.

Luc Seraphin -- President & Chief Executive Officer

Right. Sidney, if I may understand on where you're asking about the other business and buffer chip, right. So on the IP core business, we continue to have very good traction. That business has grown over the last four years at a CAGR of 50% per year. That was based on the strength of the technology and the design wins, and we had very good traction this quarter again. I think as I said earlier in my notes, this is the second largest -- this is the second time we had the largest revenue from that business in IP cores and the fact that we are acquiring Northwest Logic will accelerate that growth and would also give us access to more customers, number one and number two, would accelerate our design, because the PHY has to be designed in the SoC with a controller. If you don't own the controller, you have to have a three-way relationship between your partner, your customer and yourself. So this whole process is going to accelerate as we do that. So IP cores, very good results.

I would say more on the strategic side on IP cores, one of the reasons we see that growth is that over the past few years, we have invested in all the foundries, in particular in TSMC, who has the largest market share. Historically, we were with the other two foundries, which we continue to be but by investing in TSMC, we have a larger customer pool to go after. And we are also focusing our development to markets that matter. In the past, we used to do all sorts of interface developments for all sorts of customers, bespoke developments I would say. Now our developments are really focused on applications that we think are going to generate demand. But for example, PCIe Gen 4 and Gen 5 are going to be a large -- are going to create large demand in particular in 5G or in network. We are developing 112-gig PHY in TSMC 7 nanometer that will be critical to 400-gig networks and 800-gig networks.

And for the high-speed memory side, we are betting on our ability to develop high-speed, high-bandwidth memory not only for the graphics space, but also for spaces that need this high-bandwidth and high-speed, specifically AI and automotive. So we refocused our product portfolio. We expanded into TSMC. We're targeting markets that are going to create demand. We are adding content with the digital controller. We're expanding our segments because digital controllers address more segments. So with all of that, we expect to continue to see growth with the IP business.

On the Cryptography business, we've done a lot in terms of simplifying that business and creating growth. We started a bit later than the other two businesses, but we see very good traction. Remember that what the two things we did is we refocused on embedded security for the semiconductor ecosystem. So we developed secure silicon IP for AI, data center, defense, IoT and automotive segments. They are based on programmable processors. Then we have an approach again, which is not an approach of creating bespoke solution for customers, but we are creating programmable solutions based on the platform and derivatives for different markets.

And the second part of our offering is the secure provisioning for the general semiconductor market. So we've simplified our offering. We've refocused on semiconductors, and we're starting to see traction. If you remember, our first customer was Qualcomm in the mobile space. In Q4 of last year, we announced a win in IoT with Micron. This quarter, we got a major design win with an AI acceleration chip for a major data center provider. So in terms of design win, we see that traction, we see the attractiveness of the product portfolio, and we are starting to see growth in that business as well. That summarizes what we do outside of buffer chip.

Sidney Ho -- Deutsche Bank -- Analyst

Sounds great. Wonderful. That's a good segue for my next question. Now that you have sold your software tokenization technique business, which obviously you have pretty good growth rate in last year as well, how do you think about the overall growth trajectory for the remaining of the business on an organic basis? And specifically if you back out the memory of related revenues whether it's licensing or chipset revenues, I want to see how we should think about the remaining of that business going forward?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Hey, Sidney. It's Rahul. So I'm having a little difficulty following your question just in terms of the overall growth rate. We continue to target growing faster than our overall industry. As we've talked about, we have several patent licensing agreements, which have structural step-down shift in the way that our partners schedule their payments and we've been able to offset that through very attractive growth rates in our product programs as Luc has laid out. I think what I would suggest is give us an opportunity to talk to you more holistically about our overall growth rate when we have our Analyst Day coming up in September.

Sidney Ho -- Deutsche Bank -- Analyst

Okay. That is fair. Maybe last question, if I could squeeze one in. Related to Northwest Logic, can you help understand what kind of expenses are needed to support that business and is that pretty much a 100% licensing model with a 100% fall-through?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

So, that's a great question. That business doesn't require a bunch of additional overhead beyond what it already has. It will assimilate fairly cleanly into our existing business. It's an accretive transaction for us. So there's a strong engineering team that we are delighted to welcome into Rambus. One of the many things that we like about this business is that I thought we did a very nice job of integrating our team from Snowbush several years ago, and it's going into that same organization under the same general manager. So, our confidence that will continue to be able to execute on double-digit or higher growth is very high.

In terms of expenses, there's expenses associated with the folks there. The model there is similar to our existing IP Cores revenue model, so the margins are the same. So there is a combination of both licensing as well as work that we would put into kind of the contract and other from a deal structure perspective. But I think that margin profile is very similar to our existing IP Cores business, and we expect it to be again about $10 million of revenue for us next year and be accretive.

Sidney Ho -- Deutsche Bank -- Analyst

Great. Thank you very much.

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Thank you, Sidney.

Luc Seraphin -- President & Chief Executive Officer

Thank you, Sidney.

Operator

[Operator Instructions] Your next question is from the line of John Pitzer.

John Pitzer -- Credit Suisse -- Analyst

Yeah. Good afternoon, guys. Thanks for letting me ask the question. Rahul, just going back to the settlement, the sale of the Payment and Ticketing to Visa, I think you said it would have been $11 million in the September quarter guide. I thought you said $6 million in the June. I'm just kind of curious, how do we think about kind of a full year revenue for that business as we think about truing up our 2020 estimates?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Yeah, absolutely. That's a great question, John. And you got it exactly right. So that business is about $7 million for us in Q1. It ended up doing about $6 million for us in Q2. That $6 million was about $2 million less than we anticipated because as I mentioned, we had several partners who just took a little pause once we announced that we had a transaction just as they were evaluating that for their business. So that shift is about $2 million of revenue we would have expected in Q2, most likely into Q3. So what we have targeted for that business in 2019 is to do between $35 million to $40 million. So, that ramp could easily have been something like a $7 million, $8 million, $9 million and $11 million, and you have about $2 million shift from Q2 to Q3. So then you can look at a portfolio that would be closer to kind of a $7 million, $6 million, $11 million, $11 million and still be in that $35 million to $40 million range. That business, I think, still has an opportunity to grow very nicely in terms of 2020. So we've talked about $35 million to $40 million for us in 2019. It could be in the $45 million to $50 million range in 2020. I think it certainly could have been. But as I mentioned earlier, now there's several changes that we're going to have to remodel. We're just simply going to look differently with no longer having Payments and Ticketing, but having Northwest Logic. And so, we'll provide more data about how we look and what we look like in 2020 at our Analyst Day in September.

John Pitzer -- Credit Suisse -- Analyst

That's a good segue to my second question. Just on the Northwest Logic, you said $10 million of revenue for next year. I'm kind of curious as to how we think about the 2019 sort of revenue run rate for that business. And just given the big discrepancy in your organic business between 605 and 606, is there a similar discrepancy you can talk about with Northwest Logic or not?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Yeah. I don't expect that same discrepancy in Northwest Logic because those are more specifically related to specific agreements that we have with customers. So we don't see that same level of discrepancy for example, in our IP Cores business as we do in our patent licensing business. So I wouldn't expect that much of a change. So if it was $10 million of revenue under -- when I say $10 million of revenue, I think it's going to be about [Phonetic] $10 million of revenue under ASC 606, right, for us in 2020. Does that help answer your question?

John Pitzer -- Credit Suisse -- Analyst

It does. What sort of base should we think for 2019 for Northwest Logic?

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Sure. So for 2019, for Q3, I don't expect it to have a material impact to our Q3 results. The reason is that it will still take a little time for that to close. So we're already about a month into the quarter. In terms of Q4, there might be a little bit of revenue that we get in Q4 as John, you're well aware, because of purchase accounting. We don't get to account anything that comes over as an assumed contract as revenue. But I would expect that we would still get to recognize some of the expense that comes over in Q4. So I think it's going to have a relatively neutral impact to our earnings in Q4.

And as I mentioned in prepared remarks, we were comfortable with the consensus earnings estimates that folks had for Q4. Obviously, revenue would probably come down by, say, that $11 million, $12 million associated to the Payments and Ticketing business, which we wouldn't expect to be with us any longer.

John Pitzer -- Credit Suisse -- Analyst

That's helpful. Then my last question for Luc. Luc, you talked about the revenue synergy between the Core business and Northwest Logic, and it makes a lot of sense PHY versus controller. I'm kind of curious as to whether if you could help us quantify, if everywhere you had a PHY today, you could get a controller with Northwest Logic. What's the revenue opportunity and vice versa everywhere where they have a controller? If you could bring a PHY into that, what's the revenue opportunity? How do we think about the revenue synergies here?

Luc Seraphin -- President & Chief Executive Officer

Yeah. That's a good question. That is also a difficult question to answer. We have different sets of customers. So we do have customers where they use today both our PHY and Northwest Logic revenue. So that revenue is going to come to us naturally. There are customers where Northwest Logic is selling the controller, but the customers are using a different PHY. And our 5G will be to continue to support those customers who we will continue to benefit from that revenue where customers are using the controller, but not using our PHY using a competitor's PHY, so that's a revenue that we'll take on board as well. And then, there are all of these customers that are using our PHYs, but are using a different controller, in which case we're going to try to win those customers.

So overall, the fact that we have the two solutions and the fact that we are flexible with our customers in terms of what positive solutions they are going to use will create higher demand for the combined. The other thing that we should not underestimate is designing a PHY that interface with the controller takes time. When you have both in house, that time is being reduced, so time to revenue is being reduced as well. So whatever the time is, our speed of access to that time is overall going to increase because we're going to have two solutions in house.

John Pitzer -- Credit Suisse -- Analyst

Thank you.

Luc Seraphin -- President & Chief Executive Officer

Thank you, John.

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Thank you, John.

Operator

At this time, there are no further questions. This concludes the question-and-answer session. I would now like to turn the conference over to the CEO, Mr. Luc Seraphin.

Luc Seraphin -- President & Chief Executive Officer

As you can see, we remain confident in our strategy and ability to execute with demonstrations of success across the Company. So thank you for your continued interest and time and have a good day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Rahul Mathur -- Senior Vice President & Chief Financial Officer

Luc Seraphin -- President & Chief Executive Officer

Gary Mobley -- Wells Fargo Securities -- Analyst

Suji Desilva -- ROTH Capital Partners -- Analyst

Sidney Ho -- Deutsche Bank -- Analyst

John Pitzer -- Credit Suisse -- Analyst

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