Positive article from WSJ
interactive.wsj.com
January 18, 1999
Rambus Sees Flat Quarters,
But Analysts Say No Big Deal
By NICK WINGFIELD
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- Investors seized on a cautionary earnings outlook
from Rambus, driving the semiconductor maker's stock down 8.7%
Friday. But Wall Street analysts were largely unphased by the news.
Shares of the Mountain View, Calif., company lost 8 1/2 Friday to close at
89 1/2 on heavy volume on the Nasdaq Stock Market. Meanwhile, the
Nasdaq Composite Index added 71.38, or 3.1%, to 2348.20 and Morgan
Stanley's high-tech 35 index gained 37.77, or 4.1%, to 969.15.
All U.S. financial markets were closed Monday in observance of the
Martin Luther King Jr. holiday.
Late Thursday, Rambus reported net income of $2.1 million, or eight
cents a diluted share, for its fiscal first quarter ended Dec. 31, compared
with $1.6 million, or six cents a share, in the year-earlier period -- matching
analysts' expectations.
But the company also told investors not to expect any financial marvels in
the next two to three quarters, which will be "no better than flat compared
to first-quarter results," it said in a statement. Rambus said growth would
stall because of an expected seasonal decline in royalties from shipments of
its technology for use in Nintendo 64 video games and the discontinuation
of development on Rambus-based controllers for PC multimedia
applications by two firms: Cirrus Logic and Chromatic Research.
While some investors jumped ship at the cautionary news, analysts greeted
it with a virtual yawn. "I never cared one way or another what they earned
this year," said Drew Peck, an analyst at SG Cowen & Co. "It's
irrelevant."
The reason for Wall Street's nonchalance is familiar to long-time Rambus
followers.
Rambus makes a communications technology that channels data between
two crucial components of personal computers -- microprocessors and
memory. Without it, the next generation of microprocessors could face
paralyzing performance bottlenecks trying to shuttle data to memory.
What's more, Rambus's technology has received the vital endorsement of
Intel, which hopes to use its dominance in the microprocessor market to
make Rambus a standard ingredient in the memory chips of PCs.
But most analysts believe the bounty from such business isn't expected to
arrive until 2000 -- which is why most aren't too concerned about
near-term profits. Intel is expected to roll out a new line of
microprocessors, code-named Camino, that support Rambus's technology
by this summer. But chips that use Rambus' technology won't start shipping
in huge volumes till later than that. "People buying [Rambus stock] today
should be buying for its hockey-stick performance," say Mr. Peck --
meaning he sees a sharp upswing in sales and profit towards the end of
2000.
Mark Edelstone, an analyst at Morgan Stanley Dean Witter, concurred
with that view, saying "the long term story is very much intact." For 2000,
Mr. Edelstone expects earnings to hit $1 a share. Still, Mr. Edelstone
pulled his horns a bit on the stock on Tuesday after it hit his price target of
$110, downgrading his investment rating to "neutral" from "outperform."
If analysts are less focused on Rambus's near-term earnings, there's one
thing they scrutinize like jewelers searching for flaws in a diamond: the
company's relationship with Intel. Any fissures between the two companies
could spell doom for Rambus. Mr. Peck, for one, believes Intel's support
for the smaller company appears to be "unwavering." He found a recent
sign of encouragement in Rambus's quarterly filing to the Securities
Exchange Commission: a nugget buried in the document said Rambus and
Intel had amended their development contract to include a promise from
Intel of more vocal marketing, public relations and engineering support for
Rambus's technology. The support is scheduled to continue through Dec.
31, 2002, the document said.
Mr. Edelstone, too, spends much of his time analyzing the Intel relationship
-- and he sees no cause for worry. "This a done deal," he said.
-Woodside |
