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

To: Estephen who wrote (44844)	6/18/2000 2:30:00 AM
From: Barry Grossman	Read Replies (1) \| Respond to of 93625

June 16, 2000 Rambus Shares Surge on Deal With Toshiba, Analyst Upgrade By DANIELLE SESSA WSJ.COM NEW YORK -- Shares of Rambus Inc. surged 45% Friday as the memory-chip technology developer reached a royalty agreement with Toshiba Corp., leading a Morgan Stanley Dean Witter analyst to upgrade the stock. Rambus jumped $25.50 to $82.1875 on the Nasdaq Stock Market, on volume of more than 64 million shares, making it the most heavily traded issue Friday. Rambus, Mountain View, Calif., developed a patented technology that increases the speed of data transmissions from logic chips to memory chips inside computers. Rambus receives royalties from companies that pay for a license to manufacture and sell products based on Rambus technology to the personal-computer market. Toshiba reached an agreement late Thursday to pay royalties and licensing fees to Rambus not only for its chips, but also for other chips that use the fundamentals of Rambus's technology. Only a small percentage of the dynamic random access memory, or DRAM, chips are Rambus chips, but roughly 80% of the chips on the market use some portion of the patented Rambus technology, said Seth Dickson, semiconductor analyst at UBS Warburg. The Toshiba agreement "opens up an extremely large royalty opportunity for Rambus if the rest of the market follows," Mr. Dickson said. Rambus sued another electronics maker, Hitachi, in January, seeking royalties for its chips and for chips that are based on its technology. Toshiba's decision to compensate Rambus for both types of chips could set an important precedent for other licensees and be a financial boon for Rambus. "I don't think Toshiba would have done it if there wasn't fundamental Rambus elements used in the chips," Mr. Dickson added. "Other partners, like Samsung, I suspect, will enter a similar arrangement ... and if the Hitachi lawsuit is settled that would be a clear indication that the rest of the industry will fall in line." In a Morgan Stanley morning-meeting note, semiconductor analyst Mark Edelstone said the pact with Toshiba should create earning power in the longer term with less risk, and legitimizes Rambus's intellectual property. He raised his rating on the stock to "strong buy" from "outperform." Rambus was stuck in a split-adjusted trading range of $15 to $30 in 1999 amid doubts about the technology. (A 4-for-1 stock split took effect Thursday.) Intel Corp., a major backer of Rambus technology, found it was more difficult than initially thought to manufacture and implement the technology. "A lot of people thought Intel would drop Rambus," said UBS Warburg's Mr. Dickson, who has a "strong buy" rating on the stock and a $88 price target. The speculation fueled short interest in the stock. Many investors were betting that Intel would drop Rambus technology and the stock would head south. Last December, investors shorted 8.9 million shares of Rambus, roughly one third of its shares outstanding. Shorts sellers borrow stock, then sell the shares, betting the stock will fall -- at which point the short seller buys back the stock at a lower price to return to the lender. Short sellers make money by pocketing the difference between the two prices. But short sellers got burned when Intel stated at a semiannual conference earlier this year that it had no intention of wavering from its commitment to Rambus technology. This fueled buying in the stock, which drove the stock higher and created a short squeeze. A short squeeze occurs when rising prices force short sellers to cover their positions by purchases shares at higher levels than where they originally sold the shares. "There was a huge short covering, and momentum guys came into the stock," Mr. Dickson said. "The stock got to nosebleed levels." The stock jumped to a split-adjusted high of $118 in March, but soon fell back to earth. Investors took profits, shorts covered their positions and a wave of negative sentiment engulfed the overall technology sector, sending the stock down 70% to bottom out at about $33 in April. Write to Danielle Sessa at danielle.sessa@wsj.com