Top Financial News
10/31 16:22
Rambus Falls After Magazine Says Intel to Drop Chips (Update6)
By John Stebbins
Mountain View, California, Oct. 31 (Bloomberg) -- Shares of Rambus Inc., which licenses patented designs for computer memory chips, fell 16 percent after a trade magazine said Intel Corp. will stop using Rambus's technology in most of its chips.
Rambus dropped $8.50 to $44.94 after falling as low as $36.50. The shares have declined 65 percent since trading at a record $127 in June. The stock has been volatile since Rambus went public in May 1997, and it has declined 10 percent or more on 21 days in the past two years.
Electronic Buyers' News said No. 1 computer-chip maker Intel will drop Rambus's technology for speeding up personal computers, which costs more than rival designs, from chips for every PC type except high-end workstations by mid 2001. Intel said in July it would support other types of memory and has said it will promote Rambus only for desktop machines costing more than $2,000.
``It's been apparent for some time that Intel and Rambus were drawing apart,'' said Mark Edelstone, an analyst at Morgan Stanley Dean Witter. ``The market has not understood this.'' Edelstone reiterated his ``strong buy'' rating on Rambus shares.
Today's slide pared $821.4 million from Rambus's market value, which is now $4.34 billion.
Intel Connection
Memory chips store data in a computer. Intel has supported Mountain View, California-based Rambus's design to boost sales of its own chips, saying that Rambus technology is best for running video and audio files.
``There is no change to our strategy of using Rambus memory'' in more powerful computers, Intel spokesman Tom Beermann said.
Computer and memory-chip makers, battling to cut costs as PC prices decline, have balked at Intel's support of Rambus. Memory chips that use Rambus's proprietary design cost more than either a competing mainstream variety or a new one that provides twice the capacity.
``I am surprised at the reaction. There is absolutely nothing new (in the report),'' said Gary Harmon, Rambus chief financial officer. ``It used to be that if Intel sneezed, we would get blown up. That should no longer be the case.''
Intel rival Advanced Micro Devices Inc. has been quick to capitalize on Intel's use of Rambus designs, by making fast processors using less costly memory, analysts said.
PC maker Micron Electronics Inc. said yesterday it would use Advanced Micro chips in a new line of high-end machines, instead of more expensive Intel chips using Rambus memory. Advanced Micro's Athlon chips use double-data rate, or DDR, memory.
Advanced Micro shares rose $2.38, or 12 percent, to $22.63. They've climbed 56 percent this year. Santa Clara, California- based Intel was unchanged at $45. Its stock has gained 9 percent this year.
Chip Patents
Rambus gets revenue from engineering work and collecting royalties on its patented chip designs. Its speedy memory is used in Sony Corp.'s popular PlayStation video-game consoles, including the new PlayStation 2.
Rambus contends that it holds patents on a variety of computer-memory designs, not just that of its own specialized chips, and stands to get royalties from almost every type of memory chip sold.
The company has said its patents cover chipset designs that support those memory designs. Chipsets act as intermediaries for a computer's components, such as the processor and memory devices.
Rambus is negotiating with Intel on licensing issues that are ``broad and complicated'' and include chipsets, Harmon said.
Other chipset makers, including Advanced Micro and Taiwan's Via Technologies Inc., also are subject to Rambus's patents, Harmon said.
Rambus has reached licensing agreements with NEC Corp., Japan's largest chipmaker; Hitachi Ltd., Japan's No. 1 electronics maker; Oki Electric Industry Co.; and Toshiba Corp.
Other companies are contesting Rambus's patents. Micron Technology Inc., Infineon Technologies AG and Hyundai Electronics Industries Co. are suing Rambus or are being sued by Rambus -- or both -- over legal rights to computer-chip technology.
Market Potential
Morgan Stanley's Edelstone said the stakes are enormous. The worldwide memory-chip market could be valued at about $40 billion next year, he said.
If Rambus's patents hold up in court, it would be a windfall for the company, Edelstone said. He estimates that Rambus could earn $3 to $5 a share in fiscal 2003, compared with the 20 cents a share it earned in fiscal 2000.
Rambus garnered Intel's support in November 1996 as the chip giant sought a technology to eliminate bottlenecks in computers and allow faster chips. For Intel's support, Rambus gave the company warrants for 4 million of its shares.
Intel can't convert those warrants until two consecutive quarters pass in which 20 percent of the chipsets it sells support Rambus's memory-chip design, Harmon said. He expects that to occur next year through Intel's new Pentium 4 processor, which will use Rambus-based chipsets initially, he said.
Volatile Price
With Rambus so closely tied to Intel, any indication of a change in the relationship has caused volatile reactions in Rambus's share price.
On Feb. 22, 1999, Rambus rose 13 percent on expectations that Intel would use its technology later that year. On July 19, 1999, Rambus shares fell 13 percent after Intel said it would evaluate a competing memory technology.
On Sept. 24, 1999, a Friday, and on the next Monday, Rambus fell a total of 33 percent after Intel delayed its Camino chipset that supported Rambus's memory design. Last Feb. 14 and 15, Rambus rose a total of 72 percent on expectations that Intel would reaffirm its support. |
