Here you go. Positive mention of Rambus in Barron's.
Q: Great. Tell us how to invest in bandwidth.
McNamee: The problem is, the total market cap associated with
bandwidth is a small fraction of the market cap of Intel. That includes
Cisco and every other direct play. The problem is scarcity. As a result,
almost every pure play on bandwidth, whether Rambus inside the
computer, or Cisco, or @ Home, have stratospheric price-to-sales
multiples. But there's no rush. The early market leaders are seldom the
folks standing when the game ends. Think about PCs. The cycle started in
1978. Microsoft came public in 1986. It was a sound investment decision
to wait eight years to put your first dollar into the PC cycle.
Q: Dell didn't come public until 1988.
Wick: Some of the current options for investing in consumer broad-band
are really tiny companies. You can buy cable modem companies like
Terayon Communications, or Com21, or chip companies like Broadcom,
which has an enormous valuation and almost no float. Roger's right. It's
difficult. One thing we've done is place a big bet on Nokia, which has the
best wireless handset lineup in the world by a long shot. It's selling at
about the same P/E as Motorola and Ericsson, but with much better
growth and momentum.
McNamee: There are still direct plays that make sense. We're big fans of
PMC-Sierra, which is a stock that's been ignored by many investors
because they're located in British Columbia. They absolutely dominate
many of the components central to high bandwidth solutions in the market
now and going forward.
Q: Who are their customers?
McNamee: Cisco is their largest customer, but they sell to everybody in
the high bandwidth business. They sell the physical-layer-interface chips
that go into most ATM and frame-relay systems. And then they sell a lot of
other components that go into very-high-speed data communications
applications. The stock isn't being given away. It's trading at about 30
times estimated 1999 earnings. But the growth rate is much higher than
that.
Q: Has the stock come down?
Wick: Actually, it's within spitting distance of its all-time high.
McNamee: There's a small but fanatical ownership base.
Landis: It's our biggest holding, for instance.
McNamee: It's a reasonably priced stock, and a direct play on what we've
been talking about. Cisco is still a great play. Their execution has been
fabulous. Again, relative to other things in its category, Cisco is quite
expensive. Based on calendar 1999 earnings, it has a P/E in the low 30s.
But they have an exceptional management team, and the rising water level
in their space helps them enormously.
Q: Anyone else?
McNamee: Rambus is an exceptionally expensive stock, but as the PC
industry moves to a greater focus on bandwidth, Rambus benefits
enormously. And they have a business model where they get a royalty
from the adoption of their technology inside personal computers.
Q: They are not actually making anything.
McNamee: Correct. They have a technology that increases the
bandwidth between microprocessor and memory.
As the speed of microprocessors increases, it's important to have a fatter
and fatter pipe to feed the bits from memory. Intel has used a very
complex, Rube Goldberg solution to fill the hole. Now they've made a
commitment to Rambus, which is a big deal.
Q: But isn't the stock a tad expensive?
McNamee: Too expensive for us, but maybe not for somebody else. We
just happen to think it's one of the really special companies. We own it, but
haven't bought it lately.
Landis: The problem we all have is finding an Internet play that has an
attractive enough valuation. If there were a stock out there called Internet
Traffic, we would be lining up to buy it. We'd bid that stock to the sky.
Unfortunately, there's no stock called Internet Traffic. |
