Rambus Gains as Analyst
Ups Price Target on Stock
By LISA BRANSTEN
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- A vote of confidence from a Wall
Street analyst helped boost shares in Rambus, a
specialized-semiconductor company.
In Nasdaq Stock Market trading, shares of Rambus
jumped 5, or 6.9%, to close at 77 7/8 on news that Mark
Edelstone of Morgan Stanley Dean Witter raised his
rating on the company to "strong buy" from "outperform."
Mr. Edelstone also raised his price target on the stock to
$150 from $110.
Meanwhile, the Nasdaq Composite
Index gained 45.87 to 2524.21,
while Morgan Stanley's high-tech
35 index added 18.87 to 1068.62.
The Dow Jones Internet Index,
meanwhile, gained 13.04 to
230.33.
The Mountain View, Calif.,
company has been at the center of
controversy about whether its
technology for improving
microprocessor performance will
be ready on time and will be
widely adopted.
Rambus has a communications technology that channels
data between two crucial parts of a personal computer:
the microprocessor and the dynamic random access
memory chip, referred to as the DRAM. It's core
technology, Rambus DRAM, will compete against
another technology called synchronous DRAM that also
speeds up communication between the microprocessor
and the DRAM.
Semiconductor giant Intel backed Rambus' technology
and is incorporating the company's technology into a new
line of chips code-named Camino expected to be
introduced by September, about three months later than
they were originally expected. The combination of the
delay and worries that SDRAM might slow the adoption
of Rambus' technology had driven shares in the company
down 50% below their 52-week high of 109 15/16.
But Mr. Edelstone said he believes that the introduction
of the Camino chip in September should go a long way to
easing fears about delays in the technology. A longtime
Rambus bull, Mr. Edelstone conceded that lower
DRAM prices could lead to a slower transition to
Rambus's technology if PC manufacturers initially
choose a cheaper technology. But he added that while
adoption might initially be slightly slower than expected,
it will be strong by 2001.
Because of the potential for slower adoption in 2000, he
lowered his estimate of earnings for fiscal 2000 -- which
ends in September -- to 80 cents a share from $1 a share.
Although he hasn't released an estimate for fiscal 2001,
he said he believes earnings could grow by at least three
times 2000 levels. By 2002 or 2003, he added, earnings
could hit $6 to $8 a share.
In general, the analyst community agrees with Mr.
Edelstone's view. Of the five analysts that cover the
company, two have it rated "strong buy," two have it
rated "buy" and one analyst has a "hold" rating on the
shares, according to a survey by First Call.
Seth Dickson, an analyst at Warburg Dillon Read, said
he agrees with Mr. Edelstone that worries about
SDRAMs replacing Rambus DRAMs are misplaced. He
also has the stock rated "strong buy" and has a 12-month
price target of $150. One of the main reasons that
SDRAMs came to the fore at all was because of the
delay in Rambus DRAMs, he said. While the SDRAMs
may be a decent intermediate solution, he said, they
aren't as simple, or ultimately as fast, as the Rambus
technology.
The Rambus-based chips will cost more than SDRAMs
in the early days, he added, but he estimates that the costs
will fall quickly so that by 2001 it is the same as for the
SDRAMs. Still, he said, until that happens and there is
widespread adoption of the Rambus technology, trading
in the shares could be volatile. "The stock's going to be a
little bit rocky, but it should do pretty well," he said.
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