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Rambus Thrives Despite Its Many Ongoing Legal Issues
Friday March 21, 10:40 am ET
By James Detar
Memory chip designer Rambus Inc. (NasdaqNM:RMBS - News) is fighting four separate legal battles at once.
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It's won a few rounds in courts and lost a few. But through it all, it's stayed profitable. And its stock has soared.
The company's position is tenuous, though. Analysts say if the tech slump lingers, earnings growth could slow this year. And one negative court ruling could turn its stock sour.
For today at least, Rambus is surviving - thriving even - thanks to strong sales of its speedy memory chip designs.
"Rambus is still the fastest memory technology," said analyst Dan Hutcheson, president of VLSI Research Inc. in San Jose, Calif. And speed is a big selling point in most popular electronic devices.
Over the past nine months, Rambus stock has risen more than 300%. After trading near 3 in mid-2002, shares now go for around 13.
The stock carries a relative strength rating of 99. That means it's outperformed all but 1% of stocks the last 12 months. And as other tech firms lay off workers, Rambus continues to hire.
How has Rambus prospered in the face of the worst tech downturn ever - and a raft of legal woes? It abandoned an old strategic direction, and charted a new one.
Rambus makes chip interfaces. An interface is a set of circuits in a chip that lets it talk to other chips in the computer.
Intel, Samsung Are Customers
Rambus licenses its chip interface designs to chipmakers, and they put them into their memories. Korea's Samsung Group, the world's top memory maker, is a big Rambus licensee. So is Intel Corp., the world's biggest chipmaker.
At one time, Rambus touted its interfaces as the next big thing in personal computer memories. Rambus gained fame in tech circles overnight when Intel singled it out in the late 1990s for stardom.
Intel told PC makers it wanted them to use only Rambus-type dynamic random access memories, or DRAMs, with Intel microprocessors. Microprocessors are the brains of computers, and DRAMs are the most popular type of PC memory.
Intel knew its chips would get faster. So it wanted the fastest memories to go with them. And Rambus memories are the speed leaders.
Rambus' latest interface, called Yellowstone, can transfer data at a blazing 3.2 gigahertz per second. A rival memory interface called double data rate, or DDR, transfers data at about 1 gigahertz.
There was a fly in the ointment, though. Rambus planned to collect royalties from memory companies like Micron Corp. and Samsung.
Some memory makers balked. They didn't want to pay any fees. And they didn't want Intel to tell them what to do. Most of them instead chose to use DDR memories.
DDR devices aren't as fast as Rambus memories. But they have a couple of big advantages. First, memory companies don't have to pay anyone a licensing fee to make them. Second, they cost less to make than Rambus type memories.
Apparently bowing to memory makers, Intel backed off. It said PC makers could use either DDR or Rambus memories.
So Rambus abandoned its goal to be the next standard in PC memories. It set a new course.
Initially, Rambus interfaces moved data between memory chips and other processors. Today Rambus is rolling out interfaces for nonmemory chips. It's marketing its memory interfaces for a range of devices, rather than focusing on PCs.
The idea is to use the company's strengths to branch out into new areas, says Chief Executive Geoff Tate. "What we're really good at is moving data at high speeds between chips and systems," Tate said.
Instead of trying to get its memory designs into average PCs, Rambus now targets the highest speed devices. That includes networking gear and video game machines, which require lots of speed. Advanced video machines today have features that enable players to hook up to the Internet and play in teams.
Games As Supercomputers
"They are big in video games, and that market is booming," Hutcheson said. "Video games are becoming the supercomputer of the home."
Rambus is rolling out a bunch of new products. Among them is Yellowstone, which is intended mainly for devices other than PCs.
Rambus took the wraps off Yellowstone last October. Toshiba Corp. was first to license it for its consumer electronic devices.
On Jan. 6, Sony Corp. became the second company to license it. Sony plans to put Yellowstone memory chips into its next-generation PlayStation game consoles.
Meanwhile, the legal saga continues to unfold. In June 2002, the Federal Trade Commission sued Rambus. It claimed Rambus illegally put into its designs information that it obtained in closed standard setting meetings in the early 1990s.
Earlier this month, on March 5, the judge presiding over that suit dismissed a bid by the FTC for a summary judgment against Rambus. That was good news for Rambus, though it still has to go to trial. That trial is set to start on April 30.
Rambus is also slugging it out in court with three memory makers. Two are foreign - Germany's Infineon Technologies AG and Korea's Hynix Semiconductor Inc. A third, Micron, is No. 1 in the U.S.
The Infineon case is the key one. Rambus sued Infineon for not paying royalties. Then Infineon countersued, claiming Rambus is guilty of fraud for using designs it stole from the standards group. Infineon won that case in 2001.
On Jan. 29 of this year, an appeals court in Washington, D.C., overturned that verdict. Rambus' stock shot up from 7.17 on Jan. 27 to 15.5 on Jan. 31 as a result of that decision. The appeals are still pending.
The courts stayed the suits by Micron and Hynix against Rambus pending the outcome of the Infineon case.
If Infineon wins, and Micron and Hynix also win, Rambus stands to lose tens of millions of dollars a year in royalties, analysts say. Rambus' total 2002 revenue was $97 million. |
