Rambus, Inc. (RMBS) Q4 2021 Earnings Call Transcript

Rambus, Inc. (NASDAQ: RMBS) Q4 2021 earnings call dated Feb. 07, 2022

Call Participants:

Desmond Lynch — Vice President of Finance & Investor Relations

Luc Seraphin — President & Chief Executive Officer

Keith Jones — Vice President, Finance & Interim Chief Financial Officer

Analysts:

Gary Mobley — Wells Fargo Securities LLC — Analyst

Sidney Ho — Deutsche Bank Securities, Inc. — Analyst

Mehdi Hosseini — Susquehanna Financial Group LLLP — Analyst

John Pitzer — Credit Suisse Securities (USA) LLC — Analyst

Kevin Cassidy — Rosenblatt Securities, Inc. — Analyst

Mark Lipacis — Jefferies, Inc. — Analyst

Presentation:

Operator

Welcome to the Rambus Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. [Operator Instructions] As a reminder this conference call is being recorded.

I would now like to turn the conference over to Desmond Lynch, Vice President of Finance, and Investor Relations. You may begin your conference.

Desmond Lynch — Vice President of Finance & Investor Relations

Thank you, operator and welcome to the Rambus fourth quarter, and full year 2021 results conference call. I am Desmond Lynch, VP of Finance, and Investor Relations, and on the call with me today is, Luc Seraphin, our CEO, and Keith Jones our Interim CFO. The press release for the results that we will be discussing today has been filed 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 5264419 when you hear the prompt. In addition, we are simultaneously webcasting this call, and along with the audio, we are 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 discussions today will contain forward-looking statements, including our expectations regarding business opportunities, industry growth rates, products, and investment strategies, timing of 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 success of our integration efforts, the company’s ability to deliver long-term profitable growth, the long-term sustainability of the company’s increase product revenue, and cash generated from operating activities, the company’s outlook and financial guidance for the first quarter of 2022 and related drivers, the company’s ability to effectively manage supply chain shortages, risks, and the potential adverse impacts related to or arising from COVID-19, and its variants, and the effects of ASC 606 on reported revenue, amongst 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 file 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 are under no obligation to update these statements. In an effort to provide greater clarity in the financials, we are using both GAAP and non-GAAP financial presentations in both our press release and on this call. A reconciliation of these non-GAAP financials to the most directly comparable GAAP measures has been included in our press release, in our slide presentation, and on our website at rambus.com on the Investor Relations page under Financial Releases.

We adopted ASC 606 in 2018 using the modified retrospective method, which did not restate prior periods, but rather ran the cumulative effect of the adoption through retained earnings as a beginning balance sheet adjustment. Any comparison between our results under ASC 606 and prior results under ASC 605 is not an accurate way to track the company’s progress. We will continue to provide operational metrics such as license billings to give our investors better insight into our operational performance. The order of our call today will be as follows. Luc will start with an overview of the business. Keith will discuss our financial results and then we will end with a Q&A.

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

Luc Seraphin — President & Chief Executive Officer

Thank you, Desmond. Good afternoon everyone. 2021 was a great year for Rambus, driven by strong execution by our global teams, and continued product growth. We delivered an excellent fourth quarter with $91.8 million in revenue exceeding revenue, and profitability targets for the quarter. It was also an outstanding quarter for cash generation. We set a 10-year high with $72 million in cash from operations in Q4, and a new annual record at $209 million for the full year. Our ability to generate strong cash from operations allowed us to both continue to invest in new products, and to return value to stockholders.

As we continue to scale the business, we benefit from the balanced and diverse portfolio of offerings, and revenue contributions across chips, Silicon IP, and patent licensing. Memory interface chips contributed to a record product revenues for the second consecutive quarter at $45 million which is up 23% over last quarter’s record. This brought the full year revenue to an annual record of roughly $144 million, growing the chip business by 26% over 2020. We achieved key milestones throughout the year that drove the product business performance. We continue to focus on execution with our first generation DDR5 RCD. This product is in volume production and has a growing qualifications pointing next generation system.

As we mentioned last quarter we were also the first to sample a second-generation DDR5 RCD. We are sampling our second generation products to customers and have begun receiving preproduction orders for the second half of the year. Being first to market on DDR5 has given us an edge to gain share during the DDR5 transition cycle. We had a strong year. However it is important to acknowledge the continued industry wide challenges in semiconductor supply chains. We are working closely and proactively with our supply chain partners to minimize the impact of any disruptions, and focus on our ability to meet the growing demand for our products.

Despite these supply chain challenges, we delivered record results, and expect the business to continue to grow in 2022. In addition to the record financial performance the team continues to broaden the range of Rambus products and available markets with the ongoing development of new DDR5 companionships, and CXL interconnect solutions. Let’s now turn now to Silicon IP. Through a combination of disciplined execution, and strategic investments to scale the business, we have grown to a run rate of over $100 million a year in bookings, and it continues to grow with leading in our chosen focus areas including HDM, CXL, PCIe Express, and Security IP, and see a growing number of design wins across our target markets.

Our Silicon IP business contributes to the company’s a balanced revenue streams diverse between the customer base, and broad relevance in the ecosystem. It also gives us the ability to leverage the solutions developed to the data center, and the edge to address additional markets like automotive, IoT, and [Indecipherable]. In closing this was an exceptional year for the company. We increased our investments in ESG and are ensuring that we’re working with environmentally conscious companies that shares our values, and commitments to the health, and welfare of employees, and the community.

We successfully closed key patent licensing agreements, solidifying our foundation of sustained cash generation, and continued investments. We returned $100 million to our stockholders through an accelerated share repurchase program. We acquired, and integrated two Silicon IP companies augmenting our world class design team and products portfolio. We expanded our roadmap for next-generation data center solutions. With the launch of CXL initiative, and the development of DDR5 companionships helping to double our the time in the years to come. And finally we extended our technology leadership with key product releases, and performance milestones including the production ramp up of our DDR5 RCD extending our market share.

I’m very proud of what the Rambus team has achieved. We said we would deliver profitable growth and we did. With the expansion of our product roadmaps into new chips, the industry’s transition to a new memory, and interface technologies, and the growing demand for state-of-the-art Security technologies across a wide range of markets, and applications, we are very excited about the prospects for 2022, and beyond.

With that I’ll turn the call over to Keith to discuss the quarterly financial results. Keith.

Keith Jones — Vice President, Finance & Interim Chief Financial Officer

Thanks Luc. I would like to begin with a summary of our financial results for the fourth quarter and for the full year of 2021 on slide 5. Once again we delivered great results this quarter with product revenues growing 23% and generating $72.2 million in cash from operations. The cash flow contributions is an all-time record for us in our evolution as a products company and a pure testament to our success in profitably growing the company. Our ability to consistently generate cash has helped us both invest in our strategic growth drivers and consistently return capital to shareholders.

Let me walk you through our non-GAAP income statement on slide 6. Revenue for the fourth quarter was $91.8 million exceeding our expectations. Royalty revenue was $32.9 million while licensing billings was $66.6 million. The difference between licensing billings and royalty revenue primarily relates to timing as we don’t always recognize revenue in the same quarter as we bill our customers. Product revenue was $45.3 million consisting primarily of our Memory interface chip business. As Luc mentioned memory interface chip revenue was a record for the company despite the supply chain challenges seen in our industry, and we are delighted to see such strong demand from our customers.

Contract and other revenue was $13.6 million consisting primarily of our Silicon IP business. Total operating costs including cost of goods sold for the quarter came in at $65.4 million. Operating expenses of $51.4 million were in line with our expectations. We expect to continue to grow investments, and expanding our product road map in the coming quarters, as we further expand our product portfolio to help drive our long term growth. We ended the quarter with total head count of 690 employees which was relatively flat from the prior quarter. Under ASC 606, we recorded $1.9 million of interest income related to the financing component of fixed fee licensing arrangements for which we have recognized revenue, but not yet received payments.

We incurred $800,000 of interest expense primarily associated with our convertible notes. This was offset by incremental interest income associated with our cash, and investment portfolio. After adjusting for non-cash interest expense on the convertible notes this resulted in non-GAAP interest, and other expense for the fourth quarter of $800,000. Excluding financing interest income related to ASC 606, this would have been $1.1 million of interest, and other expense. Using an assumed flat tax rate of 24% for non-GAAP pre-tax income, non-GAAP net income for the quarter was $20.6 million. With disciplined execution and focus due to a difficult industry wide supply chain environment we again delivered earnings that were above expectations.

Now let me turn to the balance sheet details on slide 7. We ended the quarter with cash, cash equivalents, and marketable securities totaling $485.6 million up from the previous quarter as we generated cash from operations of $72.2 million. As we deliver on the top line, and execute on operational efficiency, we expect to continue to deliver strong cash from operations in the future. At the end of Q4, we had contract assets worth $258.6 million which reflects the net present value of unbilled accounts receivables related to licensing arrangements for which the company has no future performance obligations.

We expect this number to continue to trend down as we Bill and collect for these contracts. It is important to note this metric does not represent the entire value of our existing licensing agreements, as at each renewal opportunity we restructure our patent agreements in a manner that allows us to recognize revenue each quarter. Fourth quarter capex was $8.9 million. Our depreciation expense was $5.7 million. We delivered $63.3 million of free cash flow in the quarter. Looking forward we expect capex for the first quarter to be roughly $7 million. As a reminder, the forward-looking guidance reflects our current best estimates at this time and our actual results to differ materially from what I’m about to review.

In addition to the financial outlook under ASC 606, we’ve also been providing information on licensing billings which is an operational metric and reflects announced invoice to our licensing customers during the period adjusted for certain differences. As we have reported historically, licensing billings closely correlates with what we had historically reported as royalty revenue under ASC 605. Now let me turn to our guidance for the first quarter on slide 8. Under ASC 606, we expect revenue in the first quarter between $91 million and $97 million. We expect royalty product revenues between $30 million and $36 million and licensing billings between $64 million to $70 million.

We expect Q1 non-GAAP total operating costs which includes cost of goods sold to be between $69 million and $73 million as we increase our investments in strategic initiatives and expand our product portfolio. Under is ASC 606, non-GAAP operating results for the first quarter is expected to be between a profit of $17 million and $27 million. For non-GAAP interest and other income expense which excludes interest income related to ASC 606. We expect approximately $1 million of expense which includes $600,000 of interest expense related to the convertible notes due in 2023. We expect the pro forma tax rate to remain consistent at roughly 24%.

The 24% is higher than the statutory tax rate of 21% primarily due to higher tax rates in our foreign jurisdictions. As a reminder, we pay roughly $20 million of cash taxes each year driven primarily by licensing agreements with our partners in Korea. We expect non-GAAP taxes to be between an expense of $4 million and $6 million in Q1. We expect Q1 share count to be roughly $115 million basic and diluted shares outstanding. Overall, we anticipate non-GAAP earnings per share to range between $0.11 and $0.18 for the quarter.

Let me finish with the summary on slide 9, our financial results for 2021 show great growth and sustained profitability and continued investment in our long-term growth and strategies. We saw our Memory interface chip business drive record annual product revenue of $143.9 million reflecting 26% year-over-year growth as we outpaced the market and continue to gain market share. With that being said, I’m pleased with our execution, this growth has been achieved during a challenging industry-wide supply chain environment.

Our Silicon IP business continues to show great momentum and scale as the business also had a record performance and an excellent year with an annual rate in excess of $100 million. As a reminder, in 2021, there was approximately $50 million of our Silicon IP business that’s reflected in our licensing billings. Our patent license business remains the backbone of our financial base and continues to provide consistent and predictable financial results. Our ability to grow revenue profitably is resulted in record cash flows from operations of $209.2 million for the full year.

Our proven track record of cash generation helps us fund our strategic initiatives to invest in our product portfolio, make inorganic acquisitions and return value to our shareholders through stock repurchase programs. Leveraging our strength and with focused execution we made great strides in 2021. This will serve as the foundation for future success as we’re well positioned in the data center and the cloud markets and we anticipate long-term growth. Before I open the call up to Q&A, I would like to thank our employees for their continued teamwork, execution and resilience during these uncertain times. We truly appreciate your dedication and commitment as we all look forward to continued success in 2022.

With that I will turn the call back to the operator to begin Q&A. Can we have our first question?

Questions and Answers:

Operator

Thank you Keith. [Operator Instructions] Your first question comes from the line of Gary Mobley with Wells Fargo Securities. Your line is now open.

Gary Mobley — Wells Fargo Securities LLC — Analyst

Good afternoon everybody. Let me congratulate you on a strong finish of the year and what seems to be a good start to the current fiscal year. I wanted to start out by asking about some of the supply demand dynamics on the Chipset of the business the buffer chip specifically, I’m curious if we’re in a situation where your revenues constrained by supply and if so to what extent and I know it’s a week-by-weak situation and trying to given a product from your bad partners maybe perhaps you can give us an update in terms of visibility on that particular front as well.

Luc Seraphin — President & Chief Executive Officer

Hey, hi Gary. Thanks for your question. Yes we have supply constraints for the buffer chips, yet we grew our revenue 26% over the previous year. And this last quarter in Q4 we grew 23% over the previous quarter and so we continue to grow and gain share in the market that’s single digits. So we’re able to do that. We could have generated a few more million dollars of revenue last year had we had these supply that we required and as you said in your question we’re working on this at least thoroughly on the weekly basis both with our suppliers and with our partners to minimize in the restructuring from supply and to maximize our revenues with our customers. We don’t have much visibility beyond 90 days.

And as saying, we’re going to stay in that low visibility environment until the second half of this year unfortunately this is what we’re facing to today, but this being said we’re very happy with the demand, I think it’s driven by the fact that the last generation of Ice Lake, we had a better footprint in terms of design wins so that generated DDR4 revenue and we started to shift DDR price and volume in anticipation for the DDR5 platforms to be launched in the market in the next year. So the design win footprints from generation-to-generation is increasing the demand for our products. It’s good for us we’re growing our business fast to the market. We’re constrained by supply and we’re working with this on a weekly basis with our suppliers.

Keith Jones — Vice President, Finance & Interim Chief Financial Officer

And Gary, can I add to that?

Gary Mobley — Wells Fargo Securities LLC — Analyst

Sure.

Keith Jones — Vice President, Finance & Interim Chief Financial Officer

To Luc’s point, we’re very excited with the demand that we’re seeing, but however there is a noticeable difference between our demand forecast and our supply forecast. So from demand perspective as Luc noted, we’re seeing great demand from DDR5 and DDR4 and we’re just really pleased with the traction we’re making in the marketplace. However from a supply perspective for our product business we’re constrained and that’s fundamentally how we have to manage the business and to add a little bit more color if you take a look at what the consensus for the analyst models that were put out as part of the Q3 or earnings process, those consensus product numbers are really in line with what we see for the full year 2022 from a product revenue perspective. We see some differences within the quarters for the full year and that’s we clearly do to the supply constraints. So that’s why we’re still bit cautious and we have good visibility for 90 days as Luc had talked about, but further we look out it’s a bit more challenging.

Gary Mobley — Wells Fargo Securities LLC — Analyst

Got it, I appreciate the color. Keith and Luc; on the topic of the buffer chip business I realized the DDR5 is probably a large mix of the total buffer chip revenue today but maybe if you can give us a sense of what it might represent at an exit run rate at the end of the fiscal year and then as well how would you characterize your market share in DDR5 relative to DDR4, is it moving higher.

Luc Seraphin — President & Chief Executive Officer

Great question, Gary, I think in Q4 it might not reflect the market in the sense that this is the first quarter where DDR5 buffer chips will be shipped to the market so we have a combination of as we said earlier higher ASP and typically happens when move from one generation to the other. The other aspect of the question is that the manufacturers had to deal deem in preparation for the launch of the platforms next year.

So, we have a combination of an unusually high demand for DDR5 in fourth quarter which is normally prelaunch of the platforms with an usually high ASP. I think over time, this is going to normalize as Keith said, we’re confident with the revenue that we talked about in Q3 for the year 2022 and over time pricing between DDR4 and DDR5 seems normalized, but I would say that Q4 is not liar quarters in that standpoint.

Operator

And your next question comes from the line of Sidney Ho with Deutsche Bank, your line is open.

Sidney Ho — Deutsche Bank Securities, Inc. — Analyst

Great, I would add my congratulations. It’s a very solid quarter and guide. My first question is just a follow-up with the previous question on product, specifically related product gross margin. It was very strong in Q4, seems like you already answered this part, it sounds like it’s a better ASP was a reason, but beyond that — beyond the first quarter when you look at the mix of this year’s kind of gross seems like you are suggesting 30% — 40% kind of growth is doable, what kind of product gross margin do you expect and maybe you can talk about the puts and takes on what was driving the gross margin — the product gross margin seems typical.

Luc Seraphin — President & Chief Executive Officer

Hi Sydney. So on the gross margin side, you saw I mean, in Q4 we had a relatively high gross margin at 71% and that was really due to having a little bit more DDR5 mix during the quarter, but however as Luc mentioned DDR5 is in its early stages of ramping and we have some very favorable ASPs in 2021 and starting in 2022 we’re going to see a lot more normalized pricing. We are going to see that immediately throughout the year and just kind of given where DDR5 as in DDR4 is relative to their product lifecycles overall but blended gross margin rate is going to be at that 60% to 65% that we have consistently and historically been talking about.

Sidney Ho — Deutsche Bank Securities, Inc. — Analyst

Okay, that’s helpful maybe switching gears to the capital returns. You guys generated very consistent cash flow from operations and called it at around $200 million range, your cash balances is close to $500 million, you probably don’t need that much to run the operations. In the past, you do opportunistic buyback but doesn’t make sense to be a little more systematic going forward in terms of maybe not dividend, but more buybacks and will be paying down the convertible note that is I think that is — I think due within a year, is that a use of cash and maybe just how do you think about capital structure of the company longer-term? Thanks.

Luc Seraphin — President & Chief Executive Officer

Yeah, Sidney, great questions there. So from a capital allocation standpoint what we take a look at in terms of buybacks and then our history is that we have consistently returned. If I look back into 2015 we returned about 45% of our free cash flow back to our shareholders and that’s something that we have consistently done. If you take a look at 2021, we’ve returned 55% on $100 million ASR. Now if you take a look at the periods of times that we have done over the years it’s various, not one particular quarter that will impact, but we have the consistent as part of our overall capital allocation strategy.

So that’s something that we monitor, but it also ballots that you mentioned on the convertible note. In overall kind of capital allocation structure and how we’re going to look long-term. So, on the convertible notes side we’re deeply reviewing all other alternatives that might avail themselves to us. So we’ll go through and continue to manage that, but it also just kind of really lines up to what we want to do long-term for capital allocation. Which also includes looking at M&A opportunities so, it’s a balance, so we are committed to returning capital to shareholders, we will continue to look for M&A and we’re actively managing the convertible notes.

Operator

And your next question comes from the line of Mehdi Hosseini with SIG. Your line’s open.

Mehdi Hosseini — Susquehanna Financial Group LLLP — Analyst

Yes thanks for taking my question. Just Keith I want to go back to your guide for product revenue in 2022. Did you mean to imply that you’re guiding to 20% year-over-year growth or $172 million of product revenue for the year. Was that what you were implying?

Luc Seraphin — President & Chief Executive Officer

Mehdi, basically there is the reports that are out today. And from what we see right now from a supply perspective. We’re in alignment, our forecast look very consistent with what’s there. I think number’s a little bit higher than that. March it was $172, I think it’s not the 180’s or so that’s out there, but that’s just really based on our current outlook from what we see from supply.

Mehdi Hosseini — Susquehanna Financial Group LLLP — Analyst

Got you, that’s where I was confused starting the year with a very strong momentum given your guide for March. I just want to make sure I didn’t misunderstand you so you’re conservatively won ADH with a 60% to 65% gross margin right?

Luc Seraphin — President & Chief Executive Officer

That’s accurate and clearly those numbers where the top-line is, it’s just very much a supply outlook. It’s not a demand outlook. We’re extremely pleased with what we are seeing for DDR4, DDR5 very pleased with that.

Mehdi Hosseini — Susquehanna Financial Group LLLP — Analyst

Okay and one follow-up for Luc here. How should I think about the adoption of DDR5 by notebook, commercial notebook versus server? Do you think this is going to be driven by servers first and then notebook or is that different dynamic you see? And as a follow-up to what you see — where do you see the mix of server DRAM in terms of the DDR4 versus DDR5 exiting this year?

Luc Seraphin — President & Chief Executive Officer

So to the first question, thanks Mehdi. To the first question the vast majority or the demand for DDR5 buffer chip is coming from servers. The introduction of proper cheap type of products into client type of customer as far as we see it’s going to come later not this year. So most — 100% of the demand for DDR5 buffer chip is going to come from servers. And again I’m talking about buffer chip not the memory [Indecipherable] there is no buffer chip in the plant.

The second question has to do with the mix between DDR4 and DDR5. The reports from IDP and I do agree with that is the e-crossover in volume happening towards the middle of 2023 or the second part of 2023. This is still our view. We think that the crossover in revenue is going to happen before that just because of the AFC dynamic when you move from one generation to the next.

Operator

And your next question comes from the line of John Pitzer with Credit Suisse. Your line’s open.

John Pitzer — Credit Suisse Securities (USA) LLC — Analyst

Hey, guys, thanks for letting me ask a question, congratulations on the solid results. Look I just want to go back to the supply issues. And make sure that I fully understand to what extent are these direct issues that you’re having, that’s preventing you to ship to full demand versus kind of issues you see out there in the ecosystem perhaps around server substrates or whatever that’s kind of holding back full potential this year?

Luc Seraphin — President & Chief Executive Officer

Yeah, thanks John. The issues we see are direct issues. They come in directly from our supply chain, our own supply chain, we work with them. We’ve not seen what happens in other markets where we would be constrained by other components that would go into the safety set. And so all of our supply issues are spending from our supply challenge, supply chain and again we’re working with them to remediate any disruptions as we go ahead.

John Pitzer — Credit Suisse Securities (USA) LLC — Analyst

And Luc just a relative to those direct issues do you feel as though you are any better or worse positioned than competition. How do you think about your share as you navigate through some of the supply constraints?

Luc Seraphin — President & Chief Executive Officer

Difficult to say. I think everyone in buffer chip everyone knows that experience supply chain challenges, us as well as our competitors. So I think we all are suffering from that. I would just say that last year we grew our revenue 26% in the market only grew 5% so we managed to work with supply issues quite, quite well. Again the people and the challenges as we said earlier it’s going to be beyond 90 days from now.

Operator

And our next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line’s open.

Kevin Cassidy — Rosenblatt Securities, Inc. — Analyst

Yeah thanks and congratulations also, excuse me, I think you had mentioned that second half 2022 you expect that the supply will improve. And was it from your last comment that you say you are expanding your number of suppliers is that why you’re confident the second half 2022 will be better?

Luc Seraphin — President & Chief Executive Officer

Maybe we’re not going to expand our number of suppliers. We have the same suppliers anything do we think things may improve towards the end of 2022 in the second half of 2022. Just because there are other markets increasing demand on the same type of technologies that we think might up be up. But again as we keep repeating unfortunately, we have very little visibility beyond in the coming 90 days, but again we’re not going to add supply or new suppliers. We’re going to use the same suppliers, which is believed that things might ease off towards the end of the year.

Kevin Cassidy — Rosenblatt Securities, Inc. — Analyst

Okay, maybe if I moved to a different topic of CXL adoption or can you give us a feel for how many engagements you’re talking to maybe for the IP how many licensees there are and what do you think the percentage of server CPUs will be using CXL?

Luc Seraphin — President & Chief Executive Officer

So, a great question. The different types of engagements we have with CXL. The first type of engagement we have is through the cell of the CXL controllers and with the acquisition of PLDA we really have great momentum there. But it is IP cell so people buy our controllers and integrate the controllers into the chips that are going to be CXL capable down the road. So that’s the first I’d say wave of revenue that we have seen CXL. These acquisitions also to develop our own CXL chips.

We’re in full swing in the developments and we are targeting the chips at 2.0 standard which is going to hit the market in 2023. And with those we engaged with the same players in the ecosystem as we have for our buffer chip. And finally, we are also talking to cloud service providers about CXL certified chips that would hit the market a bit later. So we have a wave of different technology and products that we have introducing into the market the main one being a Memory expander that will hit the market in 2023 based on the CXL.

Operator

And your next question comes from the line of Mark Lipacis with Jefferies. Your line’s open.

Mark Lipacis — Jefferies, Inc. — Analyst

Hi, thank you for taking my question. The question I have is on your M&A strategy going forward. To what extent would do you expect your — the M&A that you make going forward be like pure IP companies for the sake of increasing your IP portfolio versus IP companies for the sake of delivering a product, selling a product also versus kind of a semiconductor product kind of companies. If you could share your thoughts on that idea, that would be great? Thank you.

Luc Seraphin — President & Chief Executive Officer

Yeah, thanks Mark. The first objective with M&A is obviously to generate profitable growth and to scale the business to the extent that we can find the right targets. We would be looking for semiconductor companies or semiconductor companies in the types of markets we are serving today the other type of companies that we’re looking at is the type of things that we did with PLDA and AnalogX last year where we both complement our IP portfolio in the same ecosystem and we secured IP that we don’t use in our own products.

And again with end use increasing product revenue growth going forward and as you know it’s difficult to predict M&A, it takes two then we have to find the right partner but the idea here is at least to generate growth with semiconductor products either by buying directly semiconductor product companies or products or by IP companies that allow us to generates our own development of semiconductor products.

Mark Lipacis — Jefferies, Inc. — Analyst

Got you, very helpful. Thank you.

Luc Seraphin — President & Chief Executive Officer

Thank you Mark.

Operator

And we have a follow-up question from Mehdi Hosseini with SIG. Your line is open.

Mehdi Hosseini — Susquehanna Financial Group LLLP — Analyst

Yes there, thank you, just a quick follow up for Keith. Can you give us an idea how we should think about increasing opex in 2022 versus 2021?

Keith Jones — Vice President, Finance & Interim Chief Financial Officer

Hi Mehdi. To think from opex perspective, we’ll just take a look at some of the guidance that we have put forth for the current Q1 quarter. So we will have it continue to have some additional cost at least from Q1 from the perspective that we have some seasonal payroll cost but will just kind of add to the natural run rate as tax, payroll tax [Indecipherable] that we said. And then we’re continuing to hire. We’re looking to we’ll talked about expand our product portfolio so there is hiring that we have and that will be slightly incremental throughout the course of the year.

Mehdi Hosseini — Susquehanna Financial Group LLLP — Analyst

Got it, okay. And if I may just have follow-up for Luc. Just looking at your Silicon IP revenue mix which has also benefited from recent acquisition, I want to better understand how I should think about the diversity of your customer mix? And how is the revenue mix between the actual [Indecipherable] manufacturing at your customer side versus continued R&D budgets? So kind of a two-part question and just trying to better understand how you are able to scale those acquisitions?

Luc Seraphin — President & Chief Executive Officer

Thanks, Mehdi. The nice thing about the Silicon IP business is that especially in the current environment is much less than you need to supply chain and that’s a good thing to have. If we look at Silicon IP business across interfaces controllers and security, the range of customers we have is much broader than what we have for our semiconductor products. The vast majority of our design wins are in the data center and edge. And then as we said in our prepared remarks this Silicon IP business allow us to go into other markets and so we have a very large number of design wins in 5G, in IoT.

We have a lot in governments and really in particular by our security, IP technology and in automotive. So we have a much broader range of customers and customer reach with our Silicon IP just because there is so many more products that can use just a piece of technology that we provide. The Silicon IP business I’m not going at half as our Silicon IP market is going as fast as this semiconductor product markets but we’re challenging that this will grow this business double-digit which is higher than the market growth. So it’s a good contribution to both our margins really growth going forward.

Operator

[Operator Instructions]. We have a follow-up question from John Pitzer with Credit Suisse. Your line is open.

John Pitzer — Credit Suisse Securities (USA) LLC — Analyst

Yeah, thanks, Luc just a real quick, there were a bunch of questions around ASPs and the memory buffer business as you move to DDR5 but I’m a little bit more curious if you can talk a little bit about server DRAM content and kind of how you are levered to the growth in content and I guess to the extent that street models have product revenue up this year as about as much as last year, I am kind of curious if your view is the overall underlying market, do think it shows accelerating growth versus kind of that mid-single-digit number you saw in calendar year 2021 because of this accelerating content growth?

Luc Seraphin — President & Chief Executive Officer

Yeah, John, Thanks for the question. So, it was a bit difficult for us to correlate with the DRAM market precisely because of the dynamic on the capacity on the modules but also the volatility on pricing on the DRAM. The way we look at it is that people are recycling there, DDR4 designs into DDR5 as demand for data and demand for speed is going up and this is what drives the demand for new generations of products. And as we do that we accelerate or we improve our footprints within the market and that’s how we can generate these 20X% of growth which should not directly correlated to the DRAM goals, it’s more correlated to our footprint being better generation from generation to generation, does that answers your question.

John Pitzer — Credit Suisse Securities (USA) LLC — Analyst

No, that’s helpful, and then I know it’s difficult beyond 90 days but is there any way to figure out to what extent, what revenue could have been or could be this year without some of the supply constraints. You’re talking about 4% to 5% deficiency of supply/demand or are you talking about something that’s more in the double-digit line?

Luc Seraphin — President & Chief Executive Officer

John, I think it’s a meaningful number in that regard, it’s a little bit of that challenge to quantify. There is a lot of dynamics, pricing changes and whatnot but I think really the takeaway is the demand is very strong and we’re getting some great design wins in DDR4 and DDR5 and with that that seems very exciting but trying to put that big number around it. We — it’s obviously a larger number is kind of how I phrase it but it’s something that is a little bit more challenging just from all the pricing dynamics and other things.

John Pitzer — Credit Suisse Securities (USA) LLC — Analyst

That’s helpful, Keith. Thank you.

Operator

All right, at this time there are no further questions. This concludes the question-and-answer session. I would now like to turn the conference back over to Luc Seraphin.

Luc Seraphin — President & Chief Executive Officer

Thank you everyone who has joined us today and for your continued interest and time. We look forward to speaking to you again soon. Have a great day. Thank you.

Operator

[Operator Closing Remarks]