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

To: Don Green who wrote (79518)	11/1/2001 3:44:05 PM
From: Don Green	Read Replies (1) \| Respond to of 93625

Rambus suffers from memory loss By Dan Briody Red Herring November 1, 2001 Only judges, stenographers, and bailiffs spend more time inside courtrooms than the legal team for semiconductor designer Rambus (Nasdaq: RMBS), a company whose existence depends on the aggressive pursuit and defense of its patented intellectual property. But some of those patents are turning out to be indefensible. On August 10, U.S. District Judge Robert Payne upheld an earlier jury verdict that found Rambus guilty of fraud in obtaining patents on synchronous dynamic random access memory (SDRAM), and ordered the company to pay $7 million to German chip maker Infineon Technologies (NYSE: IFX), which has tangled with Rambus over the patents for more than a year. In its fourth quarter (ended September) Rambus only generated $27.9 million in revenue, and 85 percent of that derived from the invalidated patents. Subtract the $7 million judgment and the $6.8 million Rambus spent on litigation, and it's easy to see why the stock was trading at $8.08 as of October 30, 89 percent off its 52-week high. The courtroom defeat will likely cause Rambus to return to its roots. The Los Altos, California, company began as a hotshot intellectual property startup that developed a way to accelerate the transfer of data between a computer's microprocessor and its memory: Rambus dynamic random access memory (RDRAM). The technology had, and still has, a tremendous amount of potential. But the problems started when Rambus got greedy, claiming royalties for intellectual property on competing types of memory developed after RDRAM, including SDRAM and double-data rate DRAM. Many of Rambus's customers, all of which were having enough trouble squeezing profits out of memory without having to pay anyone royalties, balked at the company's claims. And some chose to fight them. LEGAL RAMIFICATIONS Rambus's strategy worked for a while. Its revenue more than doubled, from $44.7 million in 1999 to $95.1 million in 2000, while one memory maker after another agreed to pay the royalties. But Micron Technology (NYSE: MU), Hyundai, and Infineon fought back, and the Infineon case resulted in the devastating court decision. "Rambus went out and asked for the world, and got their head handed to them," says Drew Peck, an analyst at SG Cowen Securities. Many of the manufacturers that had agreed to pay royalties have clauses in their contracts that nullify them in the event the patents are proved indefensible. Perhaps the most crippling blow came from Rambus's sole ally, Intel (Nasdaq: INTC). After strongly supporting Rambus technology for years, Intel began backing off in late 2000. In September, Intel will unveil a chip set called the 845 that supports the cheaper SDRAM in Pentium 4 computers, hurting Rambus in what was left of its revenue base. "We did quite a lot to drive acceptance of RDRAM in the market," says Robert Manetta, an Intel spokesperson. "But we have to pay attention to our customers, and we think we can knock 150 bucks off the price of a computer just by using cheaper memory." Given all of this, one might think Rambus is done for. Amid an overall industry slowdown, company officials saw only a 4 percent sequential jump in revenue in the fourth quarter, and a profit of only 2 cents a share, down from 9 cents a share a year ago. But Rambus's RDRAM product is still valuable, and is now being shipped with high-end graphics-oriented PCs as well as Sony's (NYSE: SNE) PlayStations. That makes the company an attractive acquisition target for Micron or even Infineon -- if Rambus hasn't already burned those bridges. Despite its precipitous drop, Rambus stock is still very expensive, trading at 73.5 times 2002 earnings estimates of 11 cents a share. And constant litigation adds to the risk. That's why investing in Rambus is a gamble that's not worth taking.