MIPS Technologies' contract revenue gains make up for declining royalties in fiscal Q3

MIPS Technologies' contract revenue gains make up for declining royalties in fiscal Q3
By Semiconductor Business News
April 13, 2000 (6:34 p.m. EST)
URL: http://www.eetimes.com/story/OEG20000413S0045

MOUNTAIN VIEW, Calif. -- Declining royalties from Nintendo 64 video games were offset by rising contract revenues in the third fiscal quarter at MIPS Technologies Inc., which licenses intellectual property to chip makers.

The result was an increase in revenue of just 1%, to $27.0 million, compared with the same quarter a year ago -- yet that was enough to set a company record, according to Casey Eichler, chief financial officer.

Royalties for its 32- and 64-bit microprocessor cores declined 22% while contract revenues soared 159% in the third quarter of fiscal 2000, the company said here today.

Net income for the quarter, ended March 31, also stayed flat, at $10.4 million compared to $10.7 million in 1999. Diluted net income per share was 26 cents compared to 27 cents for the same quarter a year ago.

Royalties declined to $18.1 million, which was 58% of total revenue for the third quarter, compared to 81% for the same period last year , said Eichler. Contract revenue increased to $8.8 million, as the result of technology license fees from new and existing agreements. This was the seventh consecutive quarter in which contract revenue has increased, according to Eichler. "We are continuing to see strong contract growth," said the CFO.

Revenue from Nintendo 64 will still trickle in for another year or two, he said, "but it will decline at a more rapid rate than we had earlier forecast." Nintendo 64 is an aging video game platform with slowing sales. Royalties from the Sony Playstation2 "are beginning to ramp," Eicher said.

But MIPS is trying to diversify its sources of revenue. It recently formed a strategic alliance with foundry giant Taiwan Semiconductor Manufacturing Co. that enables MIPS to market and sell TSMC process-optimized hard versions of its popular 32- and 64-bit processors. These new "drop-in" cores simplify the development of system-on-chip (SoCs) and are the first hardened cores that MIPS Technologies will sell direct ly.

MIPS Technologies has set a long-term goal of achieving 65% of revenue from contracts and 35% in royalties. Currently, the company stands at about 50-50 contracts versus royalties, which is about where it expected to be at this point, Eichler said.