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Technology Stocks : Rambus (RMBS) - Eagle or Penguin -- Ignore unavailable to you. Want to Upgrade?

To: Gary105 who wrote (26132)	8/1/1999 11:52:00 AM
From: MileHigh	Read Replies (1) \| Respond to of 93625

Gary, Super post! So, my point is, what if RMBS does not scale to $6.00 EPS in '01, then what is current fair value? See what I'm getting at? It seems to be "priced for perfection" already... Regards, MileHigh

To: Gary105 who wrote (26132)	8/1/1999 2:45:00 PM
From: unclewest	Read Replies (2) \| Respond to of 93625

if eps are $6/share in 2001-02 timeframe (ie 3 yrs from now) assigning a p/e of 50 x earnings gives $300/share 3 years from now. discounting by 50% annual appreciation or a factor of 3.38 (ie 1.5^3) gives $88/share as fair value. gary, i see where you are coming from with this calculation. i also realize that you are basing it on the assumptions you made in your immediate previous post. let's go back and work with that for a moment. my wag at top end of 2001- 2002 estimate assumes 1.7% royalty x 50% market penetration x $45B dram market = $383 M. assume expenses associated with the above are $100M leaving $283M. Assume 35% tax rate leaving $183M. Assume 30 M shares outstanding by then, gives EPS of 183/30 = $6 per share. Until convinced otherwise, I think earnings on other items will be small compared to dram applications (which include both pc and other). therefore i submit an upper estimate of $6 per share in 2001 - 02 timeframe just a few points regarding your wags. according to your calculations you deem rmbs fairly priced at this point. now i would like to show why i believe there is considerable upside to the original numbers you used in your calculations. 50% market penetration... we have recent estimates that show a potential penetration of 73% within the same time frame. assume expenses associated with the above are $100M ... i accept that there will be some increase in expenses. i can't imagine that expenses will go up by this sum just to collect royalty payments. just for the sake of discussion, i am going to cut this by 2/3. this will still double rmbs current expense outlay which is paid from current income stream. Assume 35% tax rate this expense i think will be higher. i think this will be closer to 43% including fed and state. (not including the tax rate cut clinton wants to deny us). Assume 30 M shares outstanding by then i explained in a previous post today that current shares plus all warrants, plus all approved but unisssued employee bonus shares(800,000) total 25.5 million. i am going to use 26 million for a 2001 planning figure. using these figures and your formula i get... 1.7% royalty x 73% market penetration x $45B dram market = $558 M. assume expenses associated with the above are $33M leaving $525M. Assume 43% tax rate leaving $300M. Assume 26M shares outstanding by then, gives EPS of 300/26 = $11.54 per share. finally using your pe of 50..this produces a share price in the $575.00 range for 2001-2002. using your formula for discounting share price, and my numbers above i calculate a present fair value of $170.00. this is much closer to morgan stanley's estimate of fair value of $150.00 and a european analyst's $165.00 than your $88.00 I think earnings on other items will be small... rambus has been 100% straightforward and conservative in their statements to us. i am uncomfortable totally disregarding their statements regarding income from other sources. surely there is some add on income feature here. unclewest