Good FOOL post
Sometimes our faith is shaken with all the doom and gloom in the markets in general. The following is an update of one of my previous posts. Not to cheerlead, but to show how far Rambus has come in the past one-year. Please, compare this to any other company you know of.
Introduction
It was very difficult, but I tried to strictly remain to the factual side of what we know about Rambus. I made every attempt to avoid any opinions or editorialize about the company that some love and some love to hate.
I will wrap-up with a conclusion that expresses my opinion. This information is not shocking or necessarily new. Sometimes we just need a fundamental reminder of why we own a company, and most importantly, why we wish to continue to own the company.
Facts About Product Availability and Market Penetration
In October of 1999, Rambus only had actual products in two game consoles. They were not in any computers or any other devices. In fact, just one month before, in September, Intel announced the delay of the chipset because of technical problems. Finally, after reducing the memory slots from 3 to 2, the RDRAM supporting chipset was released in November 1999.
Today, approximately one year later, Rambus has some 45 licensees producing over 200 products that you can buy, today, in the store(s), online, or through OEM's. These include, but are not limited to numerous combinations of computers from top tier OEM's such as Dell, Compaq, IBM, Gateway, Intel, and HP. Most of these computers were in the high end just six months ago, but now, numerous systems are available under for $1,500 - $2,000.
Today, Rambus has also captured over 75% of the high-end workstation market.
Rambus is also in the recently released Sony Playstation. Whether a superb marketing ploy by Sony or insatiable demand, the PSII remains in short supply. The unit sold out in Japan and the USA.
Rambus is also in HDTV from major manufacturers like Sony that is mainly used in Japan right now due to the technological advances in broadcasting.
Rambus is also in cable TV set top boxes.
Rambus is in video cards.
Rambus is in EMC servers.
Rambus is in Sun Microsystems servers.
The P4 was released in 4Q2000 to Intel. True to comments, the initial launch is bundled with RDRAM only. Intel still plans P4 to be the fastest ramp-up of any chip, including the PII. While Intel originally supported on RDRAM for the P4, Intel has also announced plans to support other memory technologies in the latter half of 2001, as economics may dictate. Rambus remains, at this time, on Intel's official roadmap at least through 2002, although it is no longer supported exclusively.
Samsung remains the major producer of RDRAM at this point. Still, most estimates put Samsung's production at over 60% of total RDRAM for desktop computers. However, numerous memory makers have been validated and a number are in production of RDRAM. Many have publicly stated they will be ready to ramp-up production when the demand is there.
Agilent (the HP spin-off) and other major players (Vitesse) recently licensed Rambus technology to develop Rambus solutions for telecommunications. Although, I know of no products currently in the market.
Additionally, billions of dollars have been spent by numerous companies to build the infrastructure and convert fabrication plants to support Rambus technology (the Gorilla Game "value chain"). Millions have also been spent on engineering costs. The cost of royalties and license fees to date are nominal relative to the cost of infrastructure support.
Intel has openly supported the conversion with their substantial cash assets to a number of companies. So have other companies such as Kingston with rebates to "White Box" PC manufacturers
Companies have spent millions developing testers, packaging, and validation products for Rambus.
Facts About Lawsuits and Settlements
Rambus is in litigation with several memory makers for SDRAM and DDR-RAM in both the USA and Europe. These are Micron, Infineon, and Hyundai (and affiliates). Scheduled trial dates in Europe are May 2001 for Infineon (after original date of 12/2000 due to promotion of German justice to appeals post) and February 2001. Rambus initiated the European actions due to, as stated by CEO Tate, the speed of the legal processes in Europe is much greater than the US. Also, Rambus has requested a change of venue from courts in California to the east coast. Again, for the stated reason by CEO Tate, to speed up the legal processes.
To date, five large multi-national firms Hitachi, NEC (now Elpida), Samsung, Toshiba, Oki) with a global presence have signed licensing agreements with Rambus for IP on SDRAM and DDR-RAM. Collectively, these firms represent, dpending on whose estimates you accept, between 47-52% of the global DRAM market. They are also 5 of the top 10 memory makers in the world.
To date, Hitachi is the only company to settle an actual lawsuit. It was settled approximately one-month before scheduled trial date. The other, large multi-national memory makers signed licensing agreements with Rambus after examination of Rambus IP.
The outcome of the litigation is unknown at this time. Rambus management, at several recent conference calls, re-iterated that there was nothing new that concerned them in the lawsuits. CEO Tate also stated that the lawsuits were similar to the complaint of Hitachi, which settled out of court.
CEO Tate also stated that the USA patent claims involved some 11 different patents with "hundreds" of individual claims. Mr. Tate made the assumption that it would be extremely difficult to find all the individual claims unenforceable. He reminded us that if several of the claims did involce prior art, there where still many more to overcome.
The European lawsuit only involves one patent but 18 claims.
One may speculate as to the outcome based on known evidence, but many court documents are sealed. The outcome remains unknown at this time.
Facts on Industry Relations
Rambus is not well liked among many of the memory makers. The lawsuits evidence this. Also, Intel's CEO Barrett recently made some disparaging remarks concerning Rambus. However, after the remarks were made, Intel still stated that Rambus remained the memory of choice for the launch of the P4.
Further, Mr. Barrett specifically made subsequent remarks to "de-sensationalize" the original remarks and to note that Intel was disappointed in the market "pricing" of RDRAM.
Facts on Financial Performance
Earnings are accelerating rapidly due to increasing revenues on royalty income. In previous posts, I have gone into this in detail and will not re-hash it here. Further, the balance sheet is strong and leverage is low. I only say to the uneducated in accounting, please do not embarrass yourself and come on here ranting about how Rambus lost money for the year and how much leverage they have.
OK, NOW SOME OPINIONS
Rambus is in the beginning of a tremendous ramp-up for its technology. If the technology was no good or even reflected only marginal improvement over existing or proposed technology (like many say) do you really think some of the largest, most “intelligent” companies in the world have licensed Rambus and many have actually incorporated it into their products, which, you can buy TODAY. (sorry for the run-on sentence)
It really is that simple. And it supported by the facts ----- from only two products available (game consoles) for actual purchase one year ago to over 200 products today.
Is there risk in the lawsuits? Absolutely.
However, I sincerely doubt that all the licensees (both for RDRAM and SDRAM) casually signed the agreements without a considerable amount of due diligence on their part. Yes, yes, I have heard that the Japanese companies just “roll-over” when it comes to lawsuits with American companies. If that is your opinion, fine. It just does not happen to be mine.
So, based on the facts, I have formed my opinion. Based on my opinion, I have chosen to invest in Rambus for the long haul.
Ok, those with dissenting opinions are welcome. Just make sure you separate the facts from the opinions.
Author: Howlonmoon
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Jack |
