fwiw posting it doesn't bother me.
thestreet.com
The Rambus You Didn't Know
By Don Luskin
Special to TheStreet.com
7/5/00 1:50 PM ET
Do only fools fall in love? With stocks, I mean. That's what I'm trying to figure out about Rambus (RMBS:Nasdaq - news - boards).
Rambus has always been a "hot date" -- fun for a quick fling, but not someone you'd marry and settle down with. Until now, that is. I can feel it. I'm falling in love.
I've watched Rambus since its IPO in 1988, at least out of the corner of my eye. It's always been one of those street-of-dreams story stocks, the Big Idea that will change the world -- partnership with Intel (INTC:Nasdaq - news - boards), the whole deal -- but somehow it never quite happens. Always another delay. Always another bug. Always a competitor touting a better technology just around the corner.
When dreams and realities clash, the result is volatility, and Rambus has always been one of the most volatile stocks there is. My fund co-manager, lightspeed trader Maurice Werdegar, calls Rambus a "market exaggerator." When Maurice thinks the market's going to move, he buys or sells Rambus because it usually moves twice as much. Mo' betta beta. That's why as adviser to OpenFund I've always thought of Rambus as nothing but a one-night stand.
We've been lucky lately. We held Rambus in OpenFund on June 16 when it was up 48% in one day. And we held it on June 23 when it was up another 17%. I say we were lucky because we've traded in and out of Rambus so often that there was a good chance we'd have been out when those big moves came.
And those big moves have made me think. ... They probably ought to make me think about selling, but instead they're making me think about holding: Stocks only move like that when something fundamental has changed.
So here I am, beginning to think of Rambus as an investment at over 100, when I called it a mere trade at 60 and below. Am I nuts to think my hot date would make a good mate? Or is the Rambus dream really starting to come true?
Here's the Kool-Aid I've been drinking. Have a sip ...
The Rambus dream has always been to vastly accelerate the speed with which microprocessors access memory on dynamic random-access, or DRAM, chips. That's important because microprocessor speed has risen by more than 60 times over the last two decades, while memory access speed has risen only 10 times. And a system can only go as fast as its slowest component. That makes Rambus a bandwidth play -- like fiber-optics for microcircuits -- an information superhighway between chips in your computer. It's the George Gilder stock that's not a Gilder stock.
Rambus is absolutely fabless: They don't manufacture chips. Instead, they license their patented technologies to chipmakers who pay Rambus a percentage of top-line revenues as royalties. That's a formula for margins you could drive a whole truck stop through.
To establish its Rambus Direct Random-Access Memory, or RDRAM, technology as the new memory standard, Rambus has to contend with double data-rate (or DDR) DRAM technology developed by its would-be customers, a competing (and cheaper) technology. But the recent deals with Hitachi (HIT:NYSE - news - boards) and Toshiba have changed all that. The Hitachi deal is a settlement of a lawsuit based on 10-year-old Rambus patents which cover technology essential to the manufacture of nearly all SDRAM memory devices. This includes most of the existing memory market, as well as the nascent double data-rate technology that threatens to compete with Rambus' next-generation memory solution.
If Rambus can make its broad patents stick, it can manage its royalty schedule to make DDR more expensive, thus putting RDRAM well on the way to industry-wide acceptance as the memory standard. If that happens, Microsoft-style market share dominance is around the next corner.
That's a big deal, considering that the DRAM market could reach $76 billion by 2002, according to technology research firm Dataquest. Rambus could earn royalties of 1% to 2% on that, times its market share -- which could exceed 50%. That works out to, well, a lot of money.
That's the dream. The reality: deals. Because the Hitachi suit was settled out of court, it doesn't establish a legal precedent for Rambus' sweeping patent claims. So to succeed, Rambus needs to sign up virtually the entire DRAM industry, and convince them to convert their manufacturing processes to support the Rambus standard.
Amazingly, it looks like they're doing it. Intel has always been a strategic partner, willing to invest substantially to help DRAM makers adopt the RDRAM standard. Sony (SNE:NYSE - news - boards) signed up a couple months ago for its new PlayStation 2. But it's the new deals with giants Hitachi and Toshiba that have propelled the stock from 60 to over 100 over the last two weeks, and have made Rambus really real.
Am I going to stop trading Rambus? Probably not. We sold some at 140 on June 23 on Instinet during the wacky preopening frenzy. And we've adjusted our position up and down since then, too. But if I'm right about it, Rambus's volatility should start shrinking -- it'll be a lot less fun to trade.
Am I going to keep at least a core position for a while? Probably so. If I'm right, then Rambus is shaping up as the winner of the "gorilla game" in DRAM intellectual property.
The most frequent criticism we get on our discussion boards is that we trade too actively in OpenFund. It seems that most people expect mutual fund managers to pick a few good stocks and mate for life. I'm happy to settle down with Rambus for a little while. But if I see it taking up its old volatile ways -- the same things I loved about it when we were just dating! -- it's splitsville.
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Don Luskin is President and CEO of MetaMarkets.com, and a portfolio manager of OpenFund. At time of publication, OpenFund was long Rambus, although holdings can change at any time. The fund's current holdings, and its prospectus, which contains more complete information including charges and expenses, and which should be read carefully before investing, are available at metamarkets.com. Luskin appreciates your feedback at don@metamarkets.com |
