January 15, 1999 **** Hambrecht & Quist **** Hambrecht & Quist ****
Company: Rambus Incorporated
Price: 98
Recommendation: BUY
Notes: a, b,f
Firm: Hambrecht & Quist
Department: Technology
Industry: Semiconductors
Date: 1/15/99
Q1 Q2 Q3 Q4 FY
1999E 0.08 0.08 0.08 0.09 0.33
1999 PREV 0.08 0.09 0.09 0.12 0.39
2000E 0.15 0.24 0.31 0.40 1.11
2000 PREV 0.16 0.21 0.28 0.37 1.03
52-Week Range 36-110 ** Market Cap 2,438
Shares Out 24.9 ** Book Value $1.88
Net Cash/Share $2.03 ** -- --
-- -- ** FY Revs 42.6
CY EPS 0.40 ** CY P/E 245
Rambus Reports In-Line; Increasing Spending to Support Customer Ramp
Rambus reported $0.08 on $10.6 million, in line with our estimate of $0.08 on
$10 million. The adoption of Rambus technology gained momentum in the quarter
as a broad range of suppliers are working toward the introduction of products to
support the ramp of Direct RDRAM. We believe that the stock will be weak at the
open due to the reduction in FY99 estimates. In our opinion, the Rambus ramp is
real and we continue to believe investors will benefit from the rapid
acceleration in earnings, which is expected to begin at the end of CY99. We
maintain our Buy.
Rambus reported an in-line quarter of $0.08 on $10.6 million in-line with our
estimates of $0.08 on $10 million. The 6% upside in revenues and a 400 bps
upside in gross margins were offset by higher R&D spending. The company is
ramping R&D spending to enable the ramp of Rambus ICs into the PC main memory
market.
The adoption of Rambus technology gained momentum in the quarter. Announced
design wins in the quarter include AMD's next generation PC solution, Compaq's
Alpha server processor and Cyrix's next generation M3 core. At the fall Comdex
conference, Hyundai, LG Semicon, Mitsubishi, NEC, Samsumg and Siemens exhibited
Direct RDRAMs and RIMM memory modules. Nine third party memory module makers
exhibited RIMM modules and FIC showed and PC motherboard with 3 RIMM slots. A
broad range of suppliers are working toward the introduction of products to
support the ramp of the Direct RDRAM standard at the end of the year. There has
been a significant increase in customer and infrastructure (connectors,
packaging, testers, handlers etc.) activity to support the introduction of the
Rambus standard. In our view, this increased activity reflects the imminent
introduction of Direct RDRAM.
Rambus is having to step up spending to support development of the
infrastructure required for the broad adoption of the standard. This, in
conjunction with the seasonal decline of RDRAM demand for Nintendo 64 games as
well as the discounted development of PC multimedia applications by Chromatic
Research and Cirrus Logic will cause earnings to be flat for the next two
quarters. We had already modeled the impact of Nintendo, Chromatic Research and
Cirrus Logic, but we are increasing our R&D spending over the next 3 quarters.
We are cutting our estimates for Rambus for Q2:FY99 (Sep) to $0.08 on $10
million, down from $0.09 on $10 million. For FY1999, we expect $0.33 on $42.6
million, down from $0.39 on $42 million. However, we are increasing estimates
for FY00 from $1.11 and $96 million, up from $1.03 and $88 million.
We believe that the stock will be weak at the open due to the reduction in FY99
estimates. We believe that this will be an excellent buying opportunity. In
our opinion, the Rambus ramp is real and we continue to believe investors will
benefit from the rapid acceleration in earnings, which is expected to begin at
the end of CY99. We maintain our buy rating on Rambus.
1998 Copyright Hambrecht & Quist LLC. All rights reserved. The information
contained herein is based on sources believed to be reliable but is neither
all-inclusive nor guaranteed by our firm. Opinions reflect our judgment at this
time and are subject to change. We do not undertake to advise you of changes in
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