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

To: Dan3 who wrote (63819)	1/6/2001 2:38:02 PM
From: Zeev Hed	Respond to of 93625

I presume you are referring to the $43 MM in tax adjustment, nothing you can do about it, just like the $171 MM in "losses" due to revaluation of options granted employees. As for why the Bu$$ is a value stock, it is because at these levels it is selling at approximately 10 times what is a highly visible $3/share earnings sometimes in the next three years. Now, you should ask, why pay 10 times some future earnings, when you can pay 5 times (GM) last years' earning, the reason is quite simple, when GM reduces production by 10%, it barely brings anything to the bottom line (their fixed costs are quite high), since Chrysler is cutting production by 25% due to excess inventories, is GM far behind? So before you can say "Value" the earnings disappear. RMBS' fixed costs, on the other hand are now about 50% of revenues and that percentage is coming down rapidly. Furthermore, they have signed up between 40% to 45% of the DRAM industry (and that is on SDRAM and DDR, not just RDRAM), but the last quarter revenues of $26 MM or so, is showing very little of that potential (RMBS recognizes revenues only in the quarter after its licensees actually ship its products). We will not see the full impact of this even in this quarter, but by next quarter, they should have Royalties on about $4 to $5 Billions of sales and growing (since I expect the rest of the market to fall "in line"). The Royalties rate is not known, so if you assume even the minimum of 1% (and we know that some products bear royalties of 1.5% and non DRAM products up to 5%), you get $.4 to $.5 per share per quarter, not only is that close to 100% growth rate relative to the prior quarter (and lets agree not to count taxes since i took the lowest royalties rate), but it is going to grow from here, thus visibility of $.75/share/quarter is pretty good, for which we are "rapidly" approaching a 10 PE. That is a very nice combination of value and growth. Should you buy and hold right here, I say not yet, see if we indeed hold above the recent lows, since if we do not, this bear market may create even greater "values". By the way, I still think that the "fair" bull market value of RMBS is around $165/share or so, and if we get a roaring bull, we could easily go to over valuation, particularly as the bears start to short again at $60 to $100 area. Zeev