Rambus shares fall as analyst questions results
By Eric Auchard
NEW YORK, Oct 15 (Reuters) - The shares of volatile Rambus Inc. fell in erratic trading on Friday, ending the day more than $2 lower despite better-than-expected fourth quarter results after an analyst questioned the company's accounting.
BancBoston Robertson Stephens financial analyst Daniel Niles said he was concerned that $3.3 million, or more than a quarter of the $12.3 million in fourth-quarter revenues stemmed from Rambus speeding up its schedule for recognizing key contract revenues to a shorter 4-year timeframe instead of a 5-year span.
But Rambus Chief Financial Officer Gary Harmon said his company was just recognizing revenue from contracts that were largely complete. He said that demonstrating the viability of Rambus technology at five of the world's six top memory chip makers had taken less than the five years originally forecast.
Rambus shares dropped as much 4-1/4 early Friday morning, then rallied back into positive territory on the Nasdaq stock market, only to retreat to 70-9/16 at the close, down 2-3/16 on the day.
"We have a number of DRAM makers who have validated Direct Rambus parts," Harmon said of technology Rambus sells to memory chip makers to speed personal computer performance. "So we can see the support period ending ... There's no more than 4 quarters left of support for those DRAM contracts."
Other financial analysts rallied to the company's defense.
"I thought the earnings were solid," said Morgan Stanley Dean Witter analyst Mark Edelstone. "The change in accounting just points out their historically conservative accounting."
Edelstone tells clients Rambus stock will outperform the market, despite some current uncertainty over just when Intel Corp. will introduce Rambus-based products, which he and other analysts consider the stock's next big driver.
"I think its a waste of time to focus on these changes in these accounting principles," agreed Warburg Dillon Read analyst Seth Dixon.
"It happens they were too conservative with their contracts, which were based on completion of certain milestones," Dixon said. "They had deferred revenue and they have completed those contracts already."
In response to his concerns, Niles said he downgraded his stock rating on Rambus to market performer from long-term attractive and slashed his earnings estimate for fiscal 2000.
He cut his estimate for the fiscal year ending September, 2000 to 47 cents per share from 75 cents per share.
Thursday, Rambus reported net income of $2.7 million, or 10 cents per diluted share, on revenues of $12.3 million, compared with $2.0 million, or 8 cents per share, on revenue of $10.6 million in the fourth quarter ended Sept. 1998.
At the same time, Rambus has had to weather major delays in the introduction of its memory-enhancing technology into a much-delayed new chipset from Intel Corp. , the world's top chip maker, he noted.
Rambus also recently cut its research and development (R&D) spending by almost half, helping the company to boost its bottom line. R&D spending totaled $2.5 million in the last two quarters, down from $4.7 million in the year-ago period.
For the full fiscal year, R&D expenditures fell to $8.1 million, down 16 percent from $9.6 million in fiscal 1998.
"I think the accounting is pretty aggressive," Niles said. "It just seems very odd that you have trouble in getting this technology to market, but you are shortening the time period over which you are recognizing the contracts."
Niles said Intel's publicly announced delay of its Rambus- based 820 chipset in September would stretch into next year. The product had been due to ship last spring, then rescheduled for last month, he noted.
"If 820 doesn't make it to market, that's it for Rambus. Because that's the reason people own the stock," he said.
Other analysts were less fearful. Edelstone of Morgan Stanley said Intel may ship the Rambus-based chipset later this year, but even if it waits until early next year, there will be little long-term difference in Rambus' big returns.
Though infrequent, questions over a company's accounting can shake investor confidence, leading them to dump shares of a company first and ask questions later.
For example, shares of Tyco International Inc. tumbled 15 percent earlier this week after an accounting expert raised questions about the way the industrial conglomerate had questioned its accounting practices. |
