I'm no substitute for TinkerShaw
Kind of in the vein of, "Hi, I'm Steve Young, I'm no substitute for Joe Montana" or so I like to think;)
who I believe has reduced his portfolio position for Rambus in response to the Market downdraft this year to date.
I reduced my RMBS portfolio mostly for tax reasons. And then I noticed other stocks like JNPR and BEAS and GMST being wiped out. Took profits in regard and have begun rebuilding up my RMBS positions. Funny how with much less money I can buy so many more RMBS shares. I am, shall we say, loaded up on Rambus again at $16 and now holding these ones in a true gorilla sense. I'm ignoring 90% of the news, and from this price ignoring the price of the stock as well. I truly have stepped away from the market and just having patience with RMBS currently.
RMBS is still the rocket ship it always has been. No other stock I know of has such as high a probability of achieving such enormous earnings growth going forward, and yet still sell at such a small premium. In this case some very hard fought litigation and another cyclical slump in semiconductor prices are producing the opportunity.
(1) If RMBS wins in the litigation no one will care how much they spend doing it. The stock price will completely ignore it.
(2) If RMBS loses this litigation, RDRAM is still taking off as the standard and will by 2002 make SDRAM revenues practically irrelevant. Please remember, Rambus gets 4-5x as much money per RDRAM (not even including the required controllers) than they get from SDRAM. When (if) RDRAM does become the next standard and starts taking over 50-60% of the market (and In-Quest or Semico or some group has projected 60% RDRAM share of the market by the end of 2003), even if RDRAM sold for the depression era prices that SDRAM is currently selling for, you have a lot of revenues at 55-65% net margins after taxes. Just for the basic RDRAM alone, not counting controllers, nor the projected (but still way pre-chasm) ser/des revenues.
(3) Perceptually, what is standing in RDRAMs way is DDR. The latest DDR savior from VIA has just been released. Unfortunately for DDR fans, it seems that the chipset performs, at best, 10% better than SDRAM, and that the whole product is so unstable that reviewers have advised not buying the product.
So what DDR is left with is making a Cinderalla like comeback sometime in the middle of 2002 in order to fight for the industry standard. A fight for which it will start some 20-40 million + systems behind.
What does DDR have going for it? Allegedly its cost? Micron even bragged about selling DDR at the price of SDRAM.
Now, can you imagine this, they are bragging about selling a product that costs more to produce than SDRAM, at the same price of SDRAM. To make matters worse, theoretically, since there is not much DDR out there (as confirmed by the RMBS conference call) the supply demand situation should have allowed Micron to sell their DDR for a premium. Yet they sold the "superior" DDR for the same cost as inferior SDRAM.
Or if things could not get any worse, in Micron's press release of their new DDR solution, Micron went on to say that if no chip support is forth coming, Micron would itself produce the chips necessary to support their DDR. And they project xxxxxx in billions of sales for the next 12 months.
Compare this to RDRAM where Samsung has announced they have already sold over $1 billion in RDRAM. Where Samsung talks about the cost to produce RDRAM will come down to within 5-10% of SDRAM by 2002 {Note, doesn't mean it will sell for that little as there is sufficient demand for RDRAM to upset the supply/demand balance, unlike DDR where the markets are basically saying there is no demand no matter how small the supply}.
(4) is the consideration of standards. Can the DRAM industry afford to support more than 1 or 2 standards? And if so, why? Does DDR serve a sufficiently different purpose from RDRAM to survive if RDRAM (as it looks like it is doing) becomes the next mass market standard? Perhaps it does in servers. Then again Via has stated that RDRAM does not work in the desktop but is the perfect solution for the server market (NOTE: VIA's first DDR chipset for the desktop, which utilizes DDR is as close to a failure as one gets with a chip: "unstable" As a Rambus holder I dearly hope VIA's first server chip solution with RDRAM fares much better.}
Well, anyway, some incoherent comments which I hopefully will have the time to put in more coherent order in the future. But by and large, if you follow the money, follow the standards battle, follow the technology, follow the economic law of supply and demand, as well as keep up on the latest benchmarking, where even the old "RDRAM and latency" argument is going down the drain, but surprisingly the mention of "DDR and latency problem" is now surfacing in reviews (and this latency is because of the much larger error rate in DDR, which is why DDR peak bandwidth is so much lower than RDRAM), it does provide one with much ammunition to rebuild their Rambus position and just hold it through the terrible, metaphorical winter that RMBS stock is certain to be in for awhile (assuming no quick settlement in the lawsuits or turnaround in the PC markets).
That is what I've done. I've taken profits from other great stocks that on a valuation basis got beyond "steals" and reinvested it back into gorilla stocks at rock bottom valuations. In the end, it has all arrived back into Rambus as the litigation has kept the stock price down.
But my attentions have drifted beyond the market for the last few weeks. Just catching enough of the 10% of the news that matters. I, frankly, have not caught one bit of Rambus news, that matters, that has been negative over the past few weeks other than the very unexpected strong showing that Infineon is making in court. Infineon's team of lawyers are to be commended, even though they most probably will still lose. They are putting up one heck fo a battle.
So to conclude: Great report Apollo! RDRAM is winning big-time in the field, DDR mainstream systems that are rolling out are all suffering from "instability" problems and still are not ready for prime time, the law of supply and demand shows RDRAM pricing falling but still way above cost, creating a huge premium for manufacturers (which are drawing in more manufacturers as even Infineon and Micron have now been RDRAM certified), Samsung and NEC are doubling production, quarter over quarter, the litigation is meaningful, and still up in the air, but in the end RDRAM is the prize and SDRAM in a few years will be nothing more than EDO is today.
All in all, given the inherent uncertainty in technology markets, from a gorilla perspective, or at least a standards setting perspective, with high-switching costs, as the cost of switching from RDRAM to something else is very high, if you just look and listen at that 10% of information that actually means anything material, Rambus is winning is almost beyond dispute at the moment. It is almost like World War I when by 1916 Germany knew it had lost the war, despite holding its own in the field. The only hope it had left was something remarkable, almost miraculous. This miracle never came, but did prompt the desperate submarine campaign on civilian ships. For RDRAM that out of left field, miraculous defeat from the jaws of victory is DDR. DDR's one secret weapon is price/performance. Currently the best that can be said is it is "cheap" but performance is not in the equation and neither, incidentally, is stability. I am waiting for the DDR submarines in a last desperate effort to move RDRAM out of the field.
Well, sorry for the incoherence of the post. I shall stop rambling. But have bought a lot of RMBS with a very patient perspective. The field of battle in the DRAM industry is telling the tale. I suggest all look at the valuation of Rambus vs. what it will be earning from all the evidence we can see in front of us. Whether best or worse case.
Tinker |
