Rambus CEO interviewed on The Street.com.....
Rambus Chief Talks With TSC as Day of
Reckoning Draws Near
By Marcy Burstiner
Staff Reporter
8/23/99 5:41 PM ET
MOUNTAIN VIEW, Calif. -- Rambus' (RMBS:Nasdaq) stock
has zoomed up and down on perceptions of whether Intel
(INTC:Nasdaq) will support the revolutionary Rambus-based
chip-memory designs.
In the front seat of this roller coaster is Geoffrey Tate,
Rambus' president and chief executive for the past nine years,
a guy who both looks and sounds a bit like NBC anchor Tom
Brokaw and projects the same calm credibility. While a
temperate attitude is expected in an industry as dull as
computer memory, Rambus is at the heart of one of the great
controversies in the chip industry. The company's fortunes
depend on a major industrywide technology change, one the
memory industry doesn't want to make.
Animosity among tiny Rambus and its giant DRAM partners is
so strong that Rambus CFO Gary Harmon and Micron
(MU:NYSE) CEO Steve Appleton almost came to blows in
front of a crowd of investment managers at a party this past
February.
Why such venom? To adopt Rambus' designs, memory
makers have to invest huge amounts of money for new
equipment, give up some control over their manufacturing,
and, for the first time ever, pay royalties to the tune of 1.5% of
the price of every chip sold. Instead, they are trying to push
through an alternative standard called "double-data rate,"
faster than today's memory but not as fast as Rambus'.
Investors have placed a high value on Rambus' stock on the
promise that the standard will dominate the memory market
within the next three years. On July 16, Rambus closed at an
all-time high of 113, giving it a market cap of $2.7 billion, even
though it produced just $2 million in income on $10 million in
total revenue in the previous quarter. The stock has since
dropped 25% because of Intel's July 19 announcement that it
would evaluate PC133 SDRAMs.
Rambus' moment of truth is approaching. At its fall Intel
Developers' Forum, or IDF, which begins Aug. 31 in Palm
Springs, Intel is expected to announce both a long-awaited
September rollout of its Rambus-based Camino chipset and
support of PC133 SDRAMs, seen by some as a stopgap
measure until royalty-free, double-data-rate DRAMS can be
developed. But many people suspect that at the IDF, Intel will
signal a move either toward, or away, from Rambus. For
Rambus, the choice could mean fantastic success or a
much-diminished future.
TSC: Why does Rambus
inspire such emotion?
GT: What we are doing is
pretty audacious and
technically very challenging. In
the early days, people thought
that our technology just
wouldn't work, that we had to
be out of our minds or lying to
them. It was just so
outrageous that we could get
so much more performance.
But it got a lot more emotional
for some people because of
Intel. Intel is one of those
companies that generates
emotion and we get a lot of
emotion by association. If
people are disposed to like or
dislike Intel, it seems to rub off
on us because we are coupled
closely with Intel. But half of all
DRAM bits couple up to Intel
microprocessors or controllers,
so if that is the price we pay
for having Intel as a good
partner we are willing to pay
that price.
TSC: Could you have gotten
where you are without
Intel?
GT: It's a series of stepping
stones. The Nintendo
success is what got us Intel.
Intel was looking for more
memory bandwidth for the
much higher processors and
graphics platforms. But they
wanted to see it proven.
Nintendo gave us that.
TSC: Investors love your
"chipless" model -- you don't make chips but license the
design. This way you have high royalties and low cost, a
formula for a cash cow. But it makes you dependent on
DRAM companies to not just make the product but sell it
as well. Does that make you vulnerable?
GT: Control is a two-edged sword. Selling product has
advantages and disadvantages. You have to put in a lot of
investment in infrastructure to create a worldwide sales force
and logistics channels to carry inventory to sell that product.
And inventory is a risky thing to carry. It loses its value
quickly.
TSC: Did you anticipate the magnitude of the challenge?
GT: No. The technical challenge turned out to be bigger than
we thought. Maybe we have 1% of the share of the DRAM
market today after nine years. And the business challenge
was really hard, getting these partnerships, getting people to
work in the same direction at the same time and
disseminating our know-how to all these companies.
TSC: One memory maker told us the industry resents
that you dictate how to build their products.
GT: A phone or computer that is almost compatible is one
that doesn't work. If people build parts 99% compatible, the
systems companies won't buy them.
TSC: Is that what sets you apart from ARM Holdings
(ARMHY:Nasdaq) and MIPS (MIPS:Nasdaq), two other
chipless models that have been widely accepted in the
semiconductor industry?
GT: There is a big difference. Rambus is a technology for
communicating between chips. The Sony Playstation 2 uses
MIPS, and Sony doesn't have to coordinate with anybody
other than the MIPS semiconductor supplier. There is an extra
degree of company-to-company coordination involved in our
business model. Everyone wants multiple-sourced DRAMs, so
to make DELL (DELL:Nasdaq) happy, you need multiple
suppliers of DRAMs, modules, connectors and clock chips.
That is at least a dozen companies that we have to
orchestrate.
A Tale of Two Stocks
Stock prices of Rambus and ARM Holdings over 12 months
TSC: That's not always necessary, is it?
GT: Nintendo went into production with one semiconductor
licensee, NEC (NIPNY:Nasdaq). It gets complicated with
companies that want multiple sourcing, which is the PC
business.
TSC: At the Intel Developers' Forum people hope to hear
whether Intel is moving closer toward or further away
from Rambus. Are you nervous?
GT: We are used to it. We see two camps going forward.
Camp A thinks the PC is as fast as it needs to be. And camp
B says, "Five years ago I couldn't see what would be different
but all these nifty, whizzy things came out like the Internet. In
five years we will get all sorts of things we can't imagine today
but we can't live without tomorrow." We are in camp B. Not
just because it is self-serving, but because we think it is the
best guess. Performance is going to continue to go up. That's
a really critical assumption.
Rambus will come in first in performance desktops but will,
over time, move to be the main memory of choice in all PCs. It
can take longer or it can take less time. I'll be the first to say
that if someone had a crystal ball to show that we would never
need anything faster than today's software, then the transition
to Rambus would be very slow. If you are a camp A investor,
you might want to go out and short the stock.
TSC: Many have. (In its Aug. 23 issue, Forbes advises
investors to short Rambus.)
GT: Not just our stock. Look at Intel.
TSC: We've heard that double-data-rate DRAMs may be
based in part on Rambus technology. If, under a worst
case scenario, the industry adopts DDR and abandons
Rambus, do you have patent rights on it that hedge your
bets?
GT: We've made no comment on whether DDR infringes our
patents. We frankly have had a hard time getting DDR
samples. Our position is there is insufficient data. But every
Rambus DRAM is basically a double-data-rate part. We
transfer data on both edges of the clock and we were the first
to do so.
TSC: Say Rambus becomes the standard. Do you guys sit
back and count the royalties?
GT: Even we don't think that will happen. We have a lot of
work to do to reduce costs. What does any company do that
achieves goals. We set new goals. We have to find ways to
expand our business. There are lots of ways we think we can
leverage our business model and business relationships. We
have a lot of good ideas but we haven't talked about them
because we don't want people to think we are taking our eyes
off the ball.
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