Marcy's latest. I'm out at 61 in the premarket. Really, I wish all of you on this board the best of luck and hope it rebounds very quickly for you.
Rambus' Camino Real(ly) Late
By Marcy Burstiner
Staff Reporter
9/28/99 7:00 AM ET
SAN FRANCISCO -- This was supposed to be the moment for which memory-chip designer Rambus (RMBS:Nasdaq) had waited. This week, its prime patron, Intel (INTC:Nasdaq), had scheduled a spectacular launch of its long-awaited Rambus-based Camino chipset.
But an announced delay in Camino sent Rambus' stock down to 59 1/16 at Monday's close from 87 1/2 Thursday, tearing off a third of the company's market value in two trading days. Many now wonder whether Rambus' stock will ever recover, a prospect that may send some investors to the exit gates. And the shock waves will be felt elsewhere in coming weeks, from Intel to PC makers using Rambus chips in their products.
Rambus' stock has been propped up for months by Intel's insistence that Camino would launch during the third quarter. The stock rose even as Rambus' chip designs grew more controversial. Intel's adoption of the chip standard had meant that memory chipmakers had little choice but to pay royalties and make costly changes to the way memory chips were made.
Investors had flocked to Rambus' potential earnings: Some $13 billion in memory chips were sold last year, a number that is expected to grow to $45.5 billion in four years, according to Cahners In-Stat Group. In-Stat last year predicted that Rambus could earn $400 million a year in annual royalty fees by 2002, more than 10 times Rambus' revenue in the company's last fiscal year. That figure assumed Rambus would take a 50% share of the memory market -- and that Intel would maintain its support.
The delay shook staunch Rambus supporter Mark Edelstone, an analyst at Morgan Stanley Dean Witter, which was the lead underwriter on Rambus' 1997 IPO. Edelstone downgraded Rambus Monday to outperform from strong buy and lowered his 12-month price target on the stock to 110, a level that's still nearly double Rambus' closing price Monday, from 150. Edelstone wrote that Intel's move "catches us by a great deal of surprise" -- a surprise that comes "despite our efforts to conduct extensive primary research and continually check in with our various sources."
While Edelstone says the delay could last another six months, he's confident Rambus' stock will recover as Intel works to overcome technical problems. "This is extremely important for Intel," Edelstone says. "They will get it to work. Rambus will definitely recover. [The rival] PC-133 [chipset] is not an alternative, and there is nothing else."
That optimism is shared by some major Rambus investors. Roger McNamee, a portfolio manager with Integral Capital Partners, which helped take Rambus public in 1997, says he won't soon be selling the stock. Despite the delay, McNamee says, there is no strong alternative to Rambus for memory chipmakers.
"PC architecture needs a lot more bandwidth, and Rambus is the only viable solution," McNamee says. This is a huge architectural shift, and I suspect the current transitional issues will soon be forgotten."
Despite the continued support of underwriters and some investors, Rambus has more skeptics than ever. SG Cowen analyst Drew Peck, who downgraded Rambus Monday to neutral from outperform, takes a less sanguine view than Edelstone. Intel's backing gave Peck his confidence in Rambus, with one caveat. "What has worried me the most was any potential delay," he says. "And what we have is major delay."
The most troubling aspect, Peck says, is that Intel discovered the problem so late in the game. "It's a little shocking," he says. "There are boxes packed with foam and ready to be shipped with the Rambus DRAM inside." Cowen has no underwriting relationship with Rambus.
So far, it's tough to tell how difficult the problem with Intel's chipsets will be to fix. The glitch involves one of three sockets -- the place where a chip is plugged into a computer system. Should the problem prove a big obstacle, it could have a severe effect on Rambus, says analyst Nathan Brookwood of technology research firm Insight 64.
And not just Rambus. Motherboards may have to be scrapped, and that would leave in the lurch computer makers like Dell (DELL:Nasdaq) and Gateway (GTW:NYSE) which had planned their high-performance lines exclusively on Rambus-based platforms.
"This certainly has given the people sitting on the fence on Rambus reason to re-evaluate and jump off," Brookwood says. "There were an awful lot of fence-sitters."
Rambus' critics are forecasting even more gloom. Bob Fusco, manager of DRAM marketing for memory chipmaker Hitachi (HIT:NYSE), one of the most vocal Rambus opponents, expects to see a lot of existing Rambus-based computers on the market soon at fire-sale prices. And he now expects to see alternative systems using the PC-133 chipset from Via Technologies and possibly next-generation, double-data-rate DRAM systems at trade shows this fall.
And then there's the impact on Intel. Customers have trusted that, if they build systems according to Intel's specifications, Intel will produce the necessary components on schedule. "The data came from Intel," Fusco says. "Customers will be more skeptical in the future about building products based on a design Intel has before it has the silicon."
But clearly Rambus will pay the highest price. "They have the most to lose here if [Camino] is delayed," Fusco says. "Intel won't go out of business, but it could have that effect on Rambus."
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