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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: TigerPaw who wrote (26426)	6/16/2000 5:49:00 PM
From: tekboy	Read Replies (1) \| Respond to of 54805

<<If Rambus patents cover all DRAMs, an enabling technology with an open interface, dare I say it fits the manual definition of Gorilla.>> Much blood has been spilled on this topic over the last year; suffice to say that if the Rambus bulls are right and the story plays out as they expect--and yesterday's announcement is a crucial step along that path--then Rambus may indeed eventually become a gorilla. Here's what Moore has to say on the subject in his new book: "At the beginning of the 1990s Rambus proposed a discontinuous innovation--a wholly new approach to memory design that makes it operate much, much faster. Rambus decided it would not make nor even sell memory chips but instead simply license existing vendors the rights to their design. The goal was to emulate the way Microsoft licenses the Windows operation system to PC makers and by so doing to skim off as much profit while incurring as little capital outlay as possible. "The memory vendors were not amused and uniformly gave Rambus the cold shoulder.... This is an example of an existing value chain defending its turf.... "To make any headway, Rambus had to find a way to work around the incumbent value chain. Even though it had promised its investors it would go after the PC market, the first major design win for its technology came in fact from a game-playing machine. Nintendo sponsored a large special order of DRAM to Rambus specifications because it had a product leadership strategy that required a breakthrough in graphics-processing performance, one that conventional technology could not provide. Thus Rambus's first order was a technology-based victory. The company had no value chain supporting it, no marketplace power, no proven track record, and arguably no real product. Nonetheless, because its technology offered Nintendoo an opportunity to gain dramatic competitive advantage, Rambus won the deal. The other memory vendors were not so worried, however. This was a special order for a niche product and did not threaten their control over the PC market. "The next event of note was that other manufacturers in the game-machine market subsequently reacted to Nintendo's success by designing Rambus's memory into their products as well. This helped transform a technology-based victory into a market-segment-based victory. The company had won a sustainable position in a niche market.... "The really big world-changing event, on the other hand, came about when Intel realized faster memory was critical to unleashing the potential of its next-generation microprocessor. After surveying its options, Intel chose Rambus to solve this problem, largely because of its technology but also because it had demonstrated itself to be a going concern. Then, by virtue of its own value-chain power, Intel imposed its choice on the rest of the industry by building Rambus into the following year's reference design for the PC. Now the DRAM vendors were stuck, for the Intel reference design forms the mandate for the entire industry. So with much gnashing of teeth, they all signed up to license Rambus's technology. That is how Rambus leveraged the value-chain level of the competitive-advantage hierarchy (albeit using value-chain power 'on loan' from Intel). The impact on the company's stock is that at the turn of the century, with trailing revenues of less than $45 million, the stock was valued at over $6.3 billion, or roughly 140 times revenues!" Living on the Fault Line, pp. 97-8 tekboy/Ares@ofcourseitwentup,causeIbailedinSeptember.com