jhg, here are few responses you can give, if the technology hold, then we are talking a minimum of 7 years (SDRAM life time from 1995 to 2002?). The total volume of DRAM, will be much larger than $25 billions, some estimates are as high as $60 billions in three years, I have about $40 B in three years. RMBS keeps 100% of the revenues, they do not have "gross margins" and their fixed costs will not increase with revenues that much. They get 1.7% on drams, but higher percentage on other devices such as DSP, ASIC etc. There is still a little controversy I was not able to clarify and that is the pronouncement of Tate that PC will be just 35% of their revenues, but I am not sure how much non PC revenues are DRAM revenues (like RIMMs, ASIC, controllers in HDTV, chipsets controlling drams etc.).
Finally, I believe they are already working on next generation system post the first 7 to 10 years we discussed.
Last, this market is no longer valuing companies based on discounted future cash flow, at best on a PE of future earnings, so, if you take sometime in the next four years, shipments of $30 Billions of RDRAM on which RMBS gets about $500 pretax and $300 MM after taxes, you get some $12/share earning without the non dram royalties. You make some assumptions on the rest (like double it) and apply to that a "then market multiple" and you'll see that $500/share is not so outrageous after all.
Zeev |
