Does Intel Still Love Rambus?
By MONICA RIVITUSO
NEW YORK -- Is Rambus (RMBS) entering another one of its patented free-falls? Sure looked like it on Wednesday.
After Intel (INTC), the chip-technology company's biggest booster, announced that it would support a non-Rambus memory standard for its upcoming Pentium 4 chip, Rambus's shares dropped 11% to $75.50 in heavy Nasdaq trading. That completed a 40% slide since late June and raised a barrel of new questions about the so-called "chipless-chip company."
As we detailed in our June 23 story, Rambus has been fighting to install as the industry standard its patented technology for speeding up dynamic random access memory (DRAM) chips. Intel has been a big supporter of the effort. But on Wednesday the chip giant said its next-generation P4 chip will work with another standard.
According to Intel spokesman Michael Sullivan, when Intel launches the P4 later this year, its chipsets will initially only support RDRAM, the Rambus technology. But after talking to customers who want the P4 to support lower-priced memories, Intel decided to introduce another chipset next year that supports SDRAM and possibly double data rate (DDR) memory - technologies that compete with RDRAM.
Sullivan denies the move means the company is pulling back from its support of Rambus and its technology. "We're very committed to Rambus DRAM, and it has a place on our road map," he says.
But you'd think Rambus was road kill on Wednesday.
To understand this company and its wild stock fluctuations, you first have to grasp the spirited debate surrounding its prospects. Rambus technology shows promise, but at the moment, only 1% or 2% of memory chips today use the technology, according to industry estimates. Intel got behind it in 1996, largely because Rambus technology beefs up memory chips. As processors like Intel's have gotten speedier, memory chips haven't quite kept pace, creating a lag in the rate that data move between these chips. Rambus's technology allows chips to talk to each other at much faster speeds or data rates.
The problem? The chips are larger than the current standard - synchronous DRAM, or SDRAM - and therefore more costly to produce. (SDRAM currently comprises about 80% of all DRAM sales.) The parts also cost more to test, and DRAM makers so far have been reluctant to pay the licensing fee that Rambus charges. RDRAM does have a slight performance advantage, but the debate centers on whether it's worth the extra cost. Wednesday's events seem to confirm that there are many in the industry who are voting that it isn't.
Intel's support of SDRAM in its new Pentium 4 chip means it's backing off from the longstanding claim that the P4 would only support RDRAM. Some, including Sherry Garber, senior vice president at semiconductor market research firm Semico, say the setback wasn't unexpected.
"We've known for a long time that they're [Rambus] not going to be the next memory for the PC market," she insists.
One of Rambus's problems is that there's not enough DRAM to go around. With memory in such short supply, there's no motivation for DRAM manufacturers such as Micron Technology (MU) to incur the expense of cranking out RDRAM just because that's the standard Intel is throwing its weight behind. Memory makers get better production yields with other types of memory, and those technologies happen to be less costly to manufacture. That's why SDRAM is a popular choice.
"SDRAM is going to be the major DRAM out there because it yields the best volumes," says Garber.
With Advanced Micro Devices (AMD) breathing down Intel's neck with its successful Athlon chip, Intel wants to assert itself in the high end of the market with the P4. So analysts think it has to go with the memory standard that's most widely accepted and available.
Still, Rambus bulls are a tenacious bunch. And even though the doubters seemed to have their day Wednesday, the stock has plenty of support in influential corners of Wall Street. It's worth noting that despite the recent slide, Rambus shares are still up 340% since the beginning of the year.
Morgan Stanley Dean Witter analyst Mark Edelstone issued a reassuring note to clients this morning, saying he viewed any weakness in Rambus as a buying opportunity. The key to this company, he says, is its ability to license its technology to other memory and logic suppliers - it inked two key pacts recently with Hitachi (HIT) and Toyota Motor (TM), deals which drove the stock through the stratosphere in June. Additional licensing agreements should be announced before the end of the year, Edelstone insists.
"We believe Intel still views Rambus DRAMs as the best long-term memory solution for the PC market," Edelstone said. Talk about a difference of opinion.
Online message boards tend to be well populated by Rambus fans and foes. Wednesday was no different, although bearish voices seemed to dominate. The Rambus board on Raging Bull was one of the most active, packed with minute-by-minute commentary. Longs comforted each other, while shorts, well, openly gloated.
"RMBS is GOING DOWN DOWN DOWN," boasted one short Wednesday morning. But the stock's history should help allay the bulls. While Rambus may be caught in another big downdraft, it's known for wild swings. Who knows where next week's news may take this stock?
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