'Mornin Cap'n! Deep sea short fishin should be good today <ggg>.
Here's another PTNewell post (we've got to add him to the list):
Rambus 2002 Earnings: $25.20/share
The DRAM field is a "cyclical secular" - it has strong ups and downs on top of a powerful underlying growth. DataQuest, which has the best prediction record, predicted at the start of the year that the DRAM market would be $29 billion in 2000 and $70 billion in 2002. Rambus was predicted to have a 10% share in 2000 and a 50% share by 2002. However actual sales are exceeding predictions. The most recent projections are for a $36 billion market in 2000 ($3.65 billion Rambus). The world?s largest memory maker, and biggest produced of Rambus products, Samsung, now predicts a $36 billion dollar market for Rambus by 2002.
DRAM $36 billion in 2000 (6/15/00)
ebnews.com
Samsung estimates Rambus production, June 22, 2000
bloomberg.com
The recent settlements by Toshiba and Hitachi imply that Rambus will be able to charge royalty on ALL DRAM, whether RDRAM (Rambus DRAM) or not.
Valuing Rambus: By 2001, Rambus will trade on 2002 earnings. The royalty Rambus collects (pure profit) is about 1.5% on RDRAM, 1% on SDRAM and higher on DDR (such as Nvida graphic cards). In addition, Rambus collects higher royalties on the DRAM controllers (about 5%, although these are cheaper). As a result, Rambus earns about 3% on DRAM sales, half from controllers. The latter half is often convienently ignored by shorts. Since the DRAM market is currently running 20% ahead of projections, I will up the 1999 projection of $70 billion in 2002 by 20%.
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3% of $84 billion x (0.6 because 40% go to taxes) = $2.52 billion. Divide by 100 million shares and estimated 2002 earnings are $25.20/share after taxes.
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If the legal victories hold up, Rambus will have a monopoly more widespread and absolute than Microsoft or Intel. What should a company which will earn $25.20/share after taxes in 2002 be worth in 2001? With high margins, high barriers to competition, and a high growth rate, at least 50 times forward earnings, or $1250 share.
Finally, the above is conservative, in overlooking non-DRAM products from Rambus, such as its recently introduced serializer/deserializer, to be marketed by PMC-Sierra. |
