Good piece...Rambus Captures Samsung
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Rambus took another step toward validating its business model when it signed Samsung to a licensing agreement. Rambus might be on the outs with Intel, but it has the potential to benefit so much from all DRAM sales that an RDRAM chipset from Intel may not be necessary.
By Brian Lund (TMF Tardior)
November 1, 2000
Today brought significant news to Rambus (Nasdaq: RMBS) shareholders. The number one worldwide manufacturer of dynamic random access memory (DRAM), Samsung Electronics, agreed to pay Rambus license fees for its SDRAM and double-data rate (DDR) SDRAM and the controllers that interface with them.
Playing ball with Rambus
Samsung joins Toshiba, Oki, NEC (Nasdaq: NIPNY) and Hitachi (NYSE: HIT) as companies that have reached patent licensing agreements with Rambus. Those agreements came after Hitachi capitulated in a lawsuit filed by Rambus asserting its patent rights.
Samsung's addition to that list is huge. It is the world's leading DRAM supplier, with revenues of $4.8 billion and 20.7% market share in 1999. How much money does that mean for Rambus? The companies did not reveal precise terms of the deal, but Rambus typically seeks to collect about 1% of SDRAM revenue and 3% of DDR SDRAM.
Rambus' profit potential
Sales of SDRAM are currently much greater than DDR, so let's say for argument's sake that Rambus will be getting 1.5% of Samsung's total DRAM revenue. In 2000, assuming a fairly conservative growth rate of 20% (Samsung increased its DRAM sales 45% in 1999), Rambus' share of Samsung's revenue would be $86 million.
If that doesn't sound like much, remember that Rambus doesn't have to do anything to make this money. It's virtually free. Yesterday it wasn't a revenue stream. Today it is. And almost every last dime of it will drop straight to the bottom line.
Salve for the Intel wounds
It couldn't have come at a better time, either. Just yesterday, the stock took a whipping after Electronic Buyers' News reported that Intel (Nasdaq: INTC), a long-time supporter and partner of Rambus, would phase out its use Rambus' proprietary Rambus DRAM (RDRAM) technology. Intel denied the report, but it's clear that the company's support for Rambus is not what it once was.
After a turbulent year that included the delayed rollout and eventual recall of its RDRAM-based chipset, the Financial Times reported last week that Intel was nearing the end of its rope. "We made a big bet on Rambus and it did not work out," Craig Barrett, Intel's CEO, said. "In retrospect, it was a mistake to be dependent on a third party for a technology that gates your performance...We hoped we were partners with a company that would concentrate on technology innovation rather than seeking to collect a toll from other companies."
Ouch. Those are harsh words. But, hey, this toll collecting thing is working out pretty well for Rambus. It typically earned 2.0-2.5% in licensing revenues from RDRAM sales. If DDR SDRAM becomes the next-generation technology of choice, it will collect around 3%. Win, or win. Can't blame Rambus for pursuing that opportunity.
Not out of the woods
Rambus does not have a lock on that revenue stream, however. Micron Technology (NYSE: MU), the only U.S. company among the top-10 DRAM manufacturers, has resisted a licensing agreement. Instead, Micron filed a complaint against Rambus in late August, accusing Rambus of anticompetitive monopolistic practices and fraud in obtaining patents. Hyundai, the number-two manufacturer of DRAM, also has filed suit. Meanwhile, Rambus has sued Infineon for patent infringement in an effort to force it to pay license fees.
Here's the current scorecard, updated from Tom Jacobs' story in September (Note: percentages indicate the percentage of sales among the top-10 manufacturers, not total market sales):
Global DRAM Sales RDRAM, SDRAM
1999 ranked by % and DDR deal
1. Samsung 24% deal
2. Hyundai 20% no deal, lawsuits
3. Micron 17% no deal, lawsuits
4. NEC 10% deal
5. Infineon 8% no deal, lawsuit
6. Toshiba 8% deal
7. Mitsubishi 4% no deal, no lawsuit
8. Fujitsu 3% no deal, no lawsuit
9. Hitachi 3% deal
10. Oki 2% deal
TOTAL 100%
Rambus now has license agreements for 47% of the sales among the top-10 DRAM makers. As Tom noted in his story on the Micron suit, companies that don't come to an agreement with Rambus run a grave risk: They could lose their ability to manufacture DRAM at all. With more manufacturers signing up and the downside so great, Hyundai, Micron and others are ever more compelled to play ball. |
