Rambus wounded by litigation cost

Escalating legal bills have deflated profits for chip designer Rambus, and its financial picture will likely only worsen.

Escalating legal bills have deflated profits for chip designer Rambus, and its financial picture will likely only worsen.

Excluding one-time charges, the Los Altos, Calif.-based company reported earnings of $8.2 million, or 8 cents a share, for its fiscal second quarter, which ended March 31. In the same period last year, earnings came to $4 million, or 4 cents per share. A consensus of analysts had expected the company to earn 11 cents per share, according to First Call.

Revenue grew to $31.2 million, up from $15.7 million in the same period last year.

The company's earnings were nicked by the $7.3 million it spent on legal fees during its second quarter--far more than the $600,000 spent in the same quarter last year and more than the $4.3 million spent in the previous quarter. Legal fees shot up toward the end of the quarter because of additional discovery in an ongoing legal battle between Rambus and German chipmaker Infineon.

Rambus' earnings were also affected by a general decline in memory prices early in the quarter and slowing PC sales, a situation that will continue.

Earnings and sales showed a decline from the previous quarter. In its fiscal first quarter, Rambus had reported $13.2 million in earnings and $34.7 million in revenue.

Revenue will likely decline by 20 percent in the current quarter, the company said in a statement.

"Our second fiscal quarter results show the effect of both declining SDRAM prices and costs associated with the continuing vigorous legal defense of our intellectual property," CEO Geoff Tate said in a statement. "Prices have continued down on RDRAM, but we anticipate that increases in unit volume will more than offset the price declines."

Tate added that expenses will not decline in the current quarter. The Rambus-Infineon trial is slated to start April 20. Cases against Hyundai and Micron Technology are pending as well.

Rambus designs high-speed memory and then licenses the intellectual property to manufacturers. Rambus memory, called RDRAM, is used in Sony's PlayStation 2 and Pentium 4 computers.