Rambus To Buy Certain Serial Link IP Assets From Semtech

Technology licensing company Rambus Inc. (NASDAQ:RMBS) inked a definitive agreement to buy certain serial link assets of Semtech Corporation’s (NASDAQ:SMTC) Snowbush IP for about $32.5 million in cash plus "additional payments based upon specific new product sales through the end of 2022."

Rambus expects the deal to be wrapped up by the third quarter of fiscal 2016. The completion of the buyout is subject to fulfillment of customary closing conditions. Post-acquisition, the purchased assets will be included in Rambus Memory and Interfaces Division. With this strategic purchase, Rambus will be able to expand its portfolio to better serve its customers.

The Snowbush IP business is a part of Semtech’s Systems Innovation Group. Semtech is an analog and mixed-signal chipmaker for high-end consumer, enterprise computing, communications and industrial equipment.

With the fast growing server, networking and data center market, the need for high-reliability products and solutions is fast gaining traction. Semtech’s solution is a perfect fit for Rambus to tap this market demand. The acquisition of Semtech’s Snowbush IP will enhance its product offerings, thereby boosting its top and bottom line performance over the long run, in our view.

Semtech on the other hand agreed to sell the assets, shift its focus toward its core business and exit production of those items that no longer align with the company’s plan of providing analog/mixed signal product platforms. This in turn will de-leverage its business and strengthen its financial position. Therefore, the transaction is a win-win scenario for both the companies.

It is worth mentioning that Rambus is going through a restructuring phase and we expect it to yield favourable results. Additionally, licensing agreements — the result of successful monetization of Rambus’ patents — remains a recurring revenue source.

Going forward, Rambus is poised well to capitalize on the rising popularity of energy-efficient lighting, LED products in the latest architectural, retail, commercial and residential lighting fixtures.

However, competition from companies like Semiconductor Manufacturing International Corp. (NYSE:SMI) and Advanced Micro Devices (NASDAQ:AMD) and customer concentration remain headwinds for the company.

Currently, Rambus has a Zacks Rank #3 (Hold).

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