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

To: Bull RidaH who wrote (59481)	11/1/2000 12:44:55 PM
From: Bilow	Read Replies (2) \| Respond to of 93625

Hi Bull Ridah; For Rambus to be worth $400 per share on DDR royalties you have to get the following things to happen: (1) The courts have to conclude that SDRAM is covered by Rambus patents. (2) The courts have to conclude that Rambus' actions with JEDEC, as well as their late announcement that SDRAM is covered by their patents, does not limit their ability to collect royalties on that IP. (3) The courts have to conclude that the amount of royalties that Rambus may collect on DDR is 50% higher than the royalties they already charge on RDRAM. I don't think that the probability of all these things happening is anywhere close to 25%. And like someone else posted, when you estimate probabilities like this, you have to give yourself a healthy risk premium. The reason is that your probability estimates are inevitably incorrect, and if you blindly bid all the good deals up to your calculated net present value, you will lose money on average due to the errors in your probability estimates. This principle is the same as the one that says that stuff bought at auction tends to be bought at prices that are too high, especially when there are lots of bidders. They say that the surest way to make money in a bar is to auction off a glass jar filled with change. Everybody in the bar will make an estimate of how much money is in the jar, and bid accordingly. Even though no one bids higher than his estimate, there is likely to be someone who misestimates the jar's contents enough to end up losing money on it. -- Carl P.S. TA and Jesus are both at least partly a matter of faith. I wonder which takes more...