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

To: Barry Grossman who wrote (36671)	1/19/2000 9:11:00 PM
From: qwave	Read Replies (1) \| Respond to of 93625

Summary from MSDW report Rambus - January 19, 2000 Page 2 MORGAN STANLEY DEAN WITTER Please refer to important disclosures at the end of this report. In-line quarter--Business model momentum building Investment summary and conclusion: Rambus reported fully diluted first quarter fiscal 2000 (December) EPS of $0.10. These results met the consensus estimate of $0.10, and would have met our $0.11 estimate if the company would have been able to pull in a contract cancellation that will occur in the March quarter. With Direct Rambus-based PCs released and shipping and with the March release of Sony Playstation 2 expected in Japan, we believe Direct Rambus shipments and royalties should begin to ramp over the next two quarters. Based on the first-quarter results, we maintain our fiscal 2000 earnings estimate of $0.60, and we are establishing our initial F2001 estimate of $1.30. We believe the long-term story for Rambus is on track, and we reiterate our Outperform rating and $110 stock-price target. Transition to Rambus technology is building momentum We believe that Rambus? momentum in the PC market has continued to build, and royalty revenues should dominate fiscal 2001 results. Direct Rambus-based PCs are currently shipping from four major PC OEMs (Dell, Compaq, HP and IBM). The transition to the 820 chip set is occurring as it would have except for the schedule slip in September, and we believe the gating factor is RDRAM production. Three DRAM vendors are in volume production of Rambus DRAMs (Samsung, NEC and Toshiba) currently, and Rambus expects one additional major memory supplier to enter production in each of the next three quarters. We believe the Sony Playstation 2 is on track for introduction in March in Japan, and royalties recognized by Rambus should increase significantly in the June quarter. Pull-in of contract cancellations should contribute favorably to revenues until royalties ramp We expect recognition of contract revenues to increase sharply during the next several quarters as Rambus terminates the licenses of several DRAM companies that do not intend to supply the mainstream PC market over the long term. We believe one contract cancellation has been completed and the associated deferred revenues should be recognized in the March quarter. We believe that contracts with a couple of Japanese licensees that are not actively developing Rambus technology are likely to be cancelled. In addition, Vanguard International Semiconductor is migrating its DRAM production to foundry, and it is another likely cancellation candidate. Rambus is more aggressively protecting its intellectual property After Hitachi failed to respond to repeated requests by Rambus to conduct further discussions regarding the detailed infringement analysis of Hitachi?s non-RDRAM-compatible products, Rambus filed suit for willful patent infringement. Rambus believes it has invented fundamental aspects of high speed memory interfaces that are currently implemented in SDRAM and DDR SDRAM. The key patent and claims cover a method of a controller working with a synchronous memory device. The suit covers Hitachi?s SDRAM products as well SH embedded microprocessor in the Sega Dreamcast. Although we are concerned about negative sentiment in the DRAM community, Rambus is more aggressively protecting its intellectual property and continues to work with Hitachi in developing RDRAM products. Consortium in early stages of developing advanced DRAM technology for 2003 Hyundai Electronics, Infineon Technologies, Intel, Micron Technology, NEC, and Samsung Electronics, announced they will cooperatively develop high-performance advanced DRAM technology targeted for potential applications in 2003 and beyond. We believe this collaborative process has been forming since late summer. This advanced DRAM technology will be industry developed, and we believe the effort reflects the frustration of industry participants with the slow JEDEC committee process and the challenges and schedule slips that have resulted from the directed Intel/Rambus approach. The goals of the consortium are to develop a next generation memory standard that offers wider bandwidth, lower latency, lower cost, and increased scalability to new memory densities. These goals are similar to Rambus?. Although the partnership does not include Rambus, we believe Rambus? long-term product roadmap is compelling. Intel claims Rambus? technology may be included in the consortium?s efforts. We believe Intel is committed to transitioning the PC market to Direct Rambus DRAMs over the next several years, and the DRAM partnership will not be a high volume opportunity until 2005 or so. Thus, we believe Rambus has 3-5 years to gain market share and drive strong earnings results.