Rethinking Rambus
Investors flat-out overreacted to news that Intel (Nasdaq: INTC) is delaying its 820 chip set, which uses a memory-enhancing technology from Rambus (Nasdaq: RMBS).
Wall Street punished Rambus, pummeling its stock down 36 percent over a two-day period. The bleeding stopped Tuesday as the stock inched $5 back up to $64.06, but that's still $53.44 lower than its July high of $117.50.
"Today the absence of Rambus is a non-issue," says Martin Reynolds, a research fellow at Dataquest. Mr. Reynolds says that if the technology wasn't ready for another year -- as opposed to a couple of months -- the situation would be more urgent.The bottom line: Rambus is still positioned to make a fortune. Without getting into bits and bytes, the speed of processors has climbed at a faster rate than the speed of memory, says Mike Feibus, principal analyst at Mercury Research. The push behind Rambus, Mr. Feibus says, is to solve that problem by enabling semiconductor memory devices to keep up with fast processors. Because of Rambus's technology and its support from Intel, Morgan Stanley Dean Witter (NYSE: MWD) analyst Mark Edelstone has said Rambus's RDRAMs will likely become the "de facto standard for PC main memory during the next three to five years."
As a chip designer, Rambus makes its money from royalties based on a percentage of the Rambus-based chip sets sold. That will be a very large figure, says Jim Handy, director of Dataquest's semiconductor group. RDRAM revenues will grow from 20 percent of the $27 billion in DRAM sales next year to a full half of the $42 billion in DRAMs sold in 2001, the (admittedly bullish) Mr. Handy says.
WHY DID INVESTORS FREAK?
The delay in the Rambus chip set means "we'll have to wait a little bit longer to see a return [on investment], but there is no doubt as to whether those returns will come," says Dave Mooring, senior vice president at Rambus. Intel, Dell Computer (Nasdaq: DELL), and Toshiba reaffirmed their support for Rambus's DRAM in a statement issued Monday.
So why were investors upset? They are probably uneasy because neither Rambus nor Intel gave any indication as to how long the problems encountered with the 820 chip set will take to resolve. And it didn't help that Wall Street analysts were caught off-guard by the news. Morgan Stanley Dean Witter and SG Cowen downgraded Rambus's stock on Monday following last week's downgrade by BancBoston Robertson Stephens analyst Dan Niles.
"In our view, the slow growth of the high-end PC market and the spiking DRAM picture is also negative for Rambus," Mr. Niles said in a statement. "Especially with the Taiwan earthquake problems and already high DRAM prices, it is unlikely that PC OEMs would pay even more for Rambus product."
OTHER ANALYSTS ARGUE
Other analysts say Rambus is still well-positioned for the long haul. "There should be enough slack in the schedule to take care of the problem," Mr. Reynolds says. Ashok Kumar, an analyst with U.S. Bancorp Piper Jaffray, notes that makers of many of the alternative chip-set technologies that PC manufacturers would consider are still reeling from damage done to Taiwanese manufacturing firms in the recent earthquake.
Though there are alternative chip sets available for powerful desktop computers -- such as the Intel-compatible chip set made by Taiwan-based Via Technologies -- analysts agree that Rambus's technology is still better able to keep up with Intel's higher-speed processors.
Even Intel's 810E chip set, which Intel announced Monday, is "not going to satisfy a performance-hungry graphics user," says industry analyst Michael Slater, executive editor of the Microprocessor Report. Mr. Slater also says the 820 delay creates "a significant short-term problem that will only get worse if it can't be resolved in a couple of months." |
