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Cryptography expert joins licensing giant Rambus for $342.5 million

When your stock in trade is to create subtle countermeasures to exceptionally sophisticated encryption hacks, it’s tough to work out your financial ex


Published: 19 May, 2011


When your stock in trade is to create subtle countermeasures to exceptionally sophisticated encryption hacks, it’s tough to work out your financial exit route. License chip companies and keep the cash cow until your patents run out, is one way. Cryptography research, who we last spoke to back in 2004, has found another – selling out to a specialist licensing operation - for a cool $342.5 million to Rambus.

When we first came across Cryptography Research (CRI) it had just managed to sign its first licenses to its Differential Power Analysis (DPA) countermeasures.

DPA involves monitoring the fluctuating electrical power consumption of smart cards and other secure cryptographic devices, to give clues to how the cryptographic engine works and to find cryptographic keys. This is usually defeated by creating a set of dummy power surges that are designed to confuse DPA hacking attempts and by using electrical noise. The CRI DPA Countermeasure Licensing Program, which provides access to all of its DPA patents, is CRI’s biggest revenue engine and today the system is featured on 5 billion chipsets, used to protect smart cards in financial, pay TV, mass transit, secure ID, handset and other industries.

We remember that CRI also worked closely with the Blu-ray Disc players 20th Twentieth Century Fox, Sony, and Panasonic on specifications for BD+ with a system that if called self-protecting digital content. As we remember it this was not adopted, though something like it was, and this unit was sold off in 2007 to Macrovision for $45 million.

Buyer Rambus is, as the name suggests a company that made its name in RAM memory, but it has now become a patent holder in memory technology and is currently still suing Hynix and Micron for patent infringements in this area. So CRI’s intellectual property, will now become a cash cow for an established litigation oriented business. Some of the CRI IP assets relate to video steam protection for pay TV. This product line is called CryptoFirewall core, and is an on-chip security block where cryptographic keys can be kept from attack, something of an extension to its DPA work.

Rambus will pay $167.5 million and 6.4 million Rambus shares up front and then pay a further $50 million to CRI employees in cash or stock evenly spread over three years.

Rambus revenues are hard to predict, as it relies on license renewals as well as new bulky chinks of business, and although it has $511 million in cash, the deal price is more than Rambus’ entire last year revenue of $320 million. The previous year (2009) was just $108 million and so far this year Rambus has done $62 million in the first quarter, against $162 million this time last year.

The implication is that its early patents are exhausting slowly, or being resisted, leading to longer and tougher legal battles and the company needed to cut a deal of this type to convert its cash into future royalty streams. Rambus estimates that this acquisition will be accretive on a pro forma basis in 2013.

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