The Wall Street Journal Interactive Edition -- October 16, 1998
Rambus Gets Another Vote
Of Confidence From Intel
By NICK WINGFIELD
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- If there were any lingering doubts about whether Rambus will be a key player in the personal-computer business, Intel's $500 million investment in memory maker Micron Technology on Friday laid them to rest.
Shares of Mountain View, Calif.-based Rambus surged as high as 66 5/8 in the morning, but closed the day unchanged at 61 1/2 on the Nasdaq Stock Market. Meanwhile, the Nasdaq Composite Index rose 9.94 to 1620.95, while Morgan Stanley's high-tech 35 index edged down 1.11 to 560.70.
Early Friday, Intel said it would invest $500 million in Micron to buy about 6% of the company's common shares. Intel was explicit about what it hopes to get out of the investment: assurance of a steady supply of memory chips that employ Direct RDRAM, a technology developed by Rambus that improves the performance of PCs by speeding up communications between its core components.
Last year, Intel virtually anointed Rambus the preferred technology provider behind its next generation chips when it entered into a development alliance with the company. Rambus communications technology channels data between two crucial components of computers: microprocessors and memory. The technology is vital to the next generation of speedy microprocessors: without it, the latest chips would face paralyzing performance bottlenecks trying to shuttle data to memory.
But, in spite of Intel's blessing, the willingness of memory chip makers like Micron to actually manufacture Direct RDRAM chips was far from assured, according to analysts. Although the technology is among the zippiest in the industry, Sutro & Co. analyst C.B. Lee said Direct RDRAM costs memory makers more to manufacture, a factor that has made many reluctant to endorse the technology wholeheartedly.
One of the reasons it costs them more is that Rambus receives royalties on each of the Direct RDRAM chip they make. "It eats into [chip makers'] margins," said Mr. Lee.
Other companies are pushing competitive chip communications technology, but Intel's investment in Micron is partly a move to make sure a single technology standard emerges, analysts said. "Rambus doesn't have the only answer to the world's problems," said David Wu, an analyst at ABN Amro Inc. "But its rich uncle, Intel, made sure it is the only answer."
Indeed, Bruce Bonner, an analyst at Dataquest, said the investment could push other memory makers to adopt Rambus's technology. Among PC makers, Dell Computer and Compaq Computer have already vowed to use Direct RDRAM in their machines. "The DRAM market is very much consensus driven," Mr. Bonner said. "They tend to look at what the other three guys are doing before they do anything radical."
Shares of Intel slipped 13/16 to 83 3/4 on Nasdaq and Micron Tech added 1/4 to 32 in composite trading on the New York Stock Exchange. Micron expects to have Direct RDRAM products ready to ship by the third quarter of 1999.
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