The gang:
There is more here than meets the eye. I would appreciate it if thread contributors would peruse these thoughts, keep them in mind over the next few weeks and add to the thinking.
I am not a patent expert, but I have taken the time to dig into the RMBS patent as well as the timing of same (see earlier posts). I have also skimmed many other patents that appear similar. No doubt I may have missed some extremely important items, but it makes no sense for the memory industry to knuckle under when at a minimum, it could have strung this whole thing out for years. In a fast moving technology, two years is an age and the RMBS patent could easily have become irrelevant in that period. The point to note here is that most industry participants understand this!
Now let's add the fact that the memory industry (as is the case in other high tech sectors) employs "cross licensing" a great deal. Every one of the big memory producers hold patents on certain key elements of the technology. (some of the big memory producers in fact hold hundreds of memory-related patents). To obtain and make use of the elements of the technology covered by the patents of other producers, each provides access to those elements covered by its own patents. The fact that the majors have caved in without a fight is nothing short of stunning because it sets a remarkable and rather frightening precedent. Before today, a memory producer's patents provided a degree of protection from rapacious competitors bent on patent-based extortion. But now, it appears that it is infinitely wiser to get out of the producing game (with its myriad of worries and costs), in favour of just extracting royalties from those foolish enough to be producers. By not being a producer, you don't need anybody's patents, hence no vulnerability to the need to cross license. This allows one to force a producer to cough up a royalty. If one extrapolates this situation, a very complicated future is suggested (and to think that I "encouraged" my kids away from the legal profession and towards engineering). (g)
By way of example, note British Telecom's announcement yesterday that it holds a patent on "hyperlink" and is considering hitting ISPs for royalties. Wow! And how many more will now leap from the IP bushes?
I had better quickly become an analyst of IP content as I can see a big future in this niche. (g)
What amazes me is the fact that this very big victory for RMBS has the potential to disrupt the cross-licensing process, which is the glue that holds the memory (and other) technology game together. Goodness knows what happens now. Personally, I haven't got a clue.
Now, let's add in another emerging factor. What does a successful technology company do if it sees problems ahead in its major business line? Emulate Intel. Get an "investment division" up and running pronto. Once this has been established, nasty competitors with better technology, saturated end markets, a testy SEC (no more messing with those nice put options, no more creative accounting, etc.), falling operating profits, worrisome margins, heavy and continuous R&D expenditures, marketing costs, etc., etc., all just fade into the background. So long as the "investments" make money (and in a mania, how can this not happen), one's stock will rise, as the market doesn't care how the profit is made. It didn't take Dell long to see the writing on the wall, and of course CPQ announced its "investment division" yesterday and Hitachi today (can't help but wonder if Hitachi's new investment portfolio gets off to a rousing start as a result of having acquired some inexpensive RMBS options). I know others that are well progressed on this front (one even invited me to consider joining such an enterprise). Mother Nature hates a vacuum. Julian Robertson, Soros, etc. move out of the hedge fund game, even as others move in. (g)
Now let's add one additional curiosity. Why are certain very large funds supporting certain massively over-valued stocks through manic buying,..... especially when there are obvious problems. Micron comes to mind. Fidelity and Capital (to name a few) have bought truly staggering amounts of this stock, over the last several months (at last look, these two funds owned close to a quarter of the issued stock), even though it was well known that a ton of MU stock would come to market this year. Fund managers are not paid to be dumb. In spite of the nonsense emanating from Wall Street, even my goat can see that the memory industry is heading into a terrible glut (PC sales are fading, corporations not buying, resellers failing, integrators wailing, fabs springing up even as yields rise, etc.). Even if the fund managers were as dumb as a bag of prunes and didn't think the industry faced future problems, it would have made more sense to wait and buy a huge position at the much lower prices that millions of shares coming to market would have ensured. Instead, Fidelity and Capital (among others) have systematically bought millions of dollars worth of this stock every day over the last several months, their own buying driving the stock price. It doesn't make sense, unless,......
Now if you as a fund manager held a huge position in Intel, and if you thought that Intel might make a ton of dough selling its MU stock at incredible prices (which would allow Intel to report a huge "investment gain" in spite of its well documented production problems and board "clangers" of the last few months) might it all make sense? Perhaps, especially if one held the belief that everybody involved could see the value of such an arrangement.
Finally, a bit of irony (or more). Amazing that RMBS stock has vaulted on the basis that memory companies will pay it royalties on Sdram and DDR, the very technologies that Rambus' own memory technology was supposed to vanquish. Note that Intel's latest announced motherboards appear to provide negligible support to Rdram. Note also that Intel's statements yesterday did not appear to be terribly encouraging about the future of Rdram. Note that CPQ has made it clear that Rdram didn't figure prominently in its future plans and AMD has long since decided to follow the DDR route. Dell, the only box builder to seriously attempt to sell RMBS PCs, has seen fit to dramatically reduce prices on same. The big board and chip set producers have also been rather slow to become RDram advocates. Was it only a week or two ago that Rambus' future rested on Rdram?
Has an industry-wide, behind-the-scenes deal been struck? A deal in which everybody wins? (a great deal of potential loss can be offset through ownership of fast rising warrants, and with minimal business risk). Time will tell. For me, Samsung's clumsy and exaggerated announcement of this morning sure suggested that most of the players have found a profitable way to bury a contentious current hatchet. But has a genie been let out of the bottle? Time will tell, especially if a plethora of patent-based IP situations blossom.
Thought the dot-com scene last year was manic? Ha! Here is the emerging new market fashion and we can get in on the ground floor!
As I see it, the events of this past few days as they relate to RMBS are stunning and point to major movements beneath the surface of the market. Your comments, criticisms , questions, etc. are encouraged.
Best, Earlie
P.S. Wouldn't it be useful to have some sense as to just how big (or small) those royalties actually are?
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