OT:Cirrus June 22, 2000 RMBS-OT great read.
That Rocket Called Rambus
By Monica Rivituso
SOMETIMES A COMPANY attracts such a following that
people on Wall Street discuss it with the same fervor they
might afford politics or religion. Mix in some harrowing
price volatility and those musings get even more solemn.
Rambus (RMBS) is one such company.
The most vitriolic debate in semiconductor circles these
days is whether this tiny outfit ? with just $43.4 million in
1999 sales and $8.7 million in earnings ? is sitting on
the next standard for dynamic random access memory
(DRAM) chips. Some say yes, others say no, but
passions run equally high on both sides of the question.
That may explain why Rambus is one of the more volatile
stocks on the Nasdaq these days.
Consider that from January to mid-March, Rambus
shares soared 660% into the split-adjusted $100 range,
only to fall 66% to $38 a month later. Then the rocket
took off again, driving the price 155% to $97.13, including
a 5% spurt on Thursday after news circulated that Korean
DRAM-maker Samsung was defending the technology.
Then, miraculously, the shares added another 40% in after-hours trading on Thursday after Rambus
announced after the close a long-sought (and litigated) licensing pact with Hitachi (HIT). If the nosebleed
ascent to $140 holds on Friday, the stock will be 475% ahead of where it was 12 months ago ? and
fetching a stunning 875 times 2000 earnings estimates.
All of that makes Rambus a day trader's dream. Just check out the message board scene. "Welcome to
the stock of the decade!!!!!!!" crowed one Raging Bull poster Thursday evening. "I think I will buy me a
bottle of champagne and celebrate with my laptop!" gushed another. After the CEO Geoff Tate, made an
appearance on CNBC Tuesday, chat boards crackled with minute-to-minute commentary that ranged
from a critique of Tate's shirt to an in-depth parsing of a sound bite. "Fuel this Bus and turn it loose,"
gushed one poster on Raging Bull's message board Wednesday morning. "We are going to travel. All
aboard."
But behind the Rambus longs and shorts is the question of whether the company's technology will
indeed end up being the next generation architecture for memory chips. Only 1% or 2% of memory chips
today use the technology. In the plus column is a big endorsement from Intel (INTC), which got behind
Rambus DRAM in 1996 and has been helping develop what it hopes will be a new standard. The big
negative, however, is that other chip makers have been slow to adopt the technology ? including
Micron Technology (MU), the biggest DRAM maker in the U.S. And that has left investors guessing as
to whether it will ever really catch on.
Chipless in Mountain View
Rambus, based in Mountain View, Calif., is referred to as a "chipless" semiconductor company. That's
because it doesn't actually manufacture any chips. Rather, it holds 95 patents on chip technology and
derives revenue from licensing its intellectual property. Rambus technology beefs up memory chips. As
processors have gotten speedier, memory chips haven't quite kept pace, creating a lag in the rate that
data moves between these chips. Rambus's technology allows chips to talk to each other at much faster
speeds or data rates.
The problem is, the industry has hardly rushed to embrace RDRAM, as Rambus' technology is known.
The chips are larger than the current standard, synchronous DRAM (or SDRAM), and therefore more
costly to produce. (SDRAM currently comprises about 80% of all DRAM sales). The parts are more
costly to test and DRAM makers so far have been reluctant to pay the licensing fee that Rambus
charges.
"I have a tongue-in-cheek saying," says Dataquest memory analyst Jim Handy. "When you build a
Rambus DRAM, your die size gets larger so your costs go up. Your production yield goes down, so your
costs go up some more. And it's a more expensive part to test. For the luxury of all this, you get to pay
the Rambus company a royalty."
As evidence that the technology has yet to attract much of a following, Sherry Garber, senior vice
president at semiconductor research firm Semico, notes that there seems to be excess inventory of
RDRAM in the PC market at a time when SDRAM is on allocation. Such meager acceptance, critics
say, hardly justifies the kind of stock appreciation Rambus has enjoyed "To make a long story short, I
think Rambus is a bubble, a momentum stock," says Danny Lam, an analyst at FHI Research.com. "I
think there are better buys in South Seas tulips."
Toshiba, Hitachi Sign On
But its hard to overlook support from Intel, the industry's 800-pound gorilla. And what lit the stock's fuse
after the close was news that a new market for Rambus technology may be developing. A week ago,
Toshiba signed a licensing agreement to use Rambus technology with its more mainstream memories.
Toshiba already pays for its use of RDRAM technology, so that's not new. But now Toshiba is going to
pay for using portions of Rambus technology in its regular DRAM and double-data rate (DDR) chips.
Until this week, the company had been suing Hitachi over just that issue ? using fragments of its
technology in chips but not paying Rambus. But on Thursday evening, Rambus announced that Hitachi
had caved and signed a licensing agreement similar to Toshiba's.
Dickson and other Rambus optimists view this new type of licensing relationship as a major step forward
for the company. And as Rambus makes the rounds to memory companies asking for similar
agreements ? patent portfolio in hand ? Dickson expects more of these non-RDRAM license deals to
follow. He pegs NEC (NIPNY) as the next chip maker that will sign such a deal.
Morgan Stanley Dean Witter's Mark Edelstone ? another big
believer in Rambus ? labeled the Toshiba agreement the
"deal of a century" in a note that helped drive the stock's
recent rally. "We believe that Toshiba's license agreement
represents a landmark development for Rambus's intellectual
property business model, and it should have a huge impact
on the company's long-term earnings power," Edelstone
wrote.
Still, some say they don't consider the Toshiba deal to be that major. First, Toshiba is said to have a bit
of a reputation for caving on legal issues, so there are some questions about how many others will
follow. Rambus skeptics contend that larger memory companies like Micron or Samsung won't fall to
their knees as quickly. What's more, they say financial details were vague. But perhaps most intriguing
is how some industry watchers view the timing of Toshiba announcement.
"It's interesting that every time there is no good news on Rambus, we have an announcement like this
that spins you away from the issues that are out there," says Semico's Garber.
Rambus bulls aren't deterred, though ? they're confident RDRAM will eventually become the next
standard for memory. Intel, they believe is the trump card. "If Intel wants it?it's going to get accepted,"
says Dataquest's Handy."
Of course, the wild stock swings tell you there's plenty of unease about Rambus and its valuation. "It's
got all the fervor of a religious war," says Semico's Garber. "It's just incredible. It has all the pieces."
Before you become a convert, though, you might consider whether you can afford to get caught in the
crossfire. Rambus is certainly packing promise, but now that the momentum guys have taken over, its
ripe with risk as well.
Source Hotwheel on RMBS thread.
DRDRAM losing Air.. RMBS finds oxygen in DDR.
Milo |
