thread,
I don't know how I found this surfing around but here's something I came across today.
Even though she is incorrect about some things like Rambus being a manufacturer instead of a licenser, she seems to have the general idea about what's coming down the pike. She appears to have some sort of audience too.
By the way, I have absolutely no idea who this person is.
So, FWIW...I offer this as an example of what some people are saying other than on this thread.
Barry
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fabmktbabe.com
The Fabulous Market Babe
Stock of the Day
7/17/98
Rambus Inc./RMBS
Yes, I am late on this one.
But in light of the volatility in the stock, both historical and inevitable, I thought it would
be helpful to highlight RMBS's core technology, why it is an integral part of the PC, and
consequently, why there is still a lot left in this stock.
First, a bit of history.
You might remember last year that RMBS was one of those incredible stocks.
Incredible in the sense that it enjoyed a period of being up anywhere from 5 - 20 points
per day.
But as events would have it, eventually and perhaps inevitably, the stock one day just
started diving. At the time, an assortment of reasons were given, ranging from
questions regarding the validation of the technology by RMBS's most influential
customer INTC, to the fact that alternative solutions and technologies were beginning to
emerge.
To address these issues, let's fast forward to the present and review what exactly
RMBS does, where its strongholds are, and, most importantly, why it is here to stay.
To start with, the company's name is a good indicator of RMBS's business.
That is, RMBS manufactures "buses", or highways that pieces of information travel on
once the microprocessor (the brain of the computer) takes a command and directs the
information to the appropriate area for completion. As a side note, a majority of the
information requested comes from RAM, or random access memory.
For instance, when you are playing Doom and are attempting to kill the chainsaw
wielding maniacs, all of the images involved are stored in RAM. Consequently, if you
can get faster access to RAM (i.e. with a faster bus) that's fabulous, since you would be
able to kill more of the hated images much quicker.
Now let's look at the specifics.
RMBS manufacturers a100MHz bus, the standard that the industry is shifting to. And
certainly, as we can all relate, in a industry where speed is everything, definitely an
advantage over the previous standards of 50MHz and 66MHz.
As an example, just imagine having to travel over a 6 lane highway (100MHz bus) vs. a
2 lane highway (66MHz), during rush hour.
That should do it.
Plus a key validation of this shift was the recent announcement by INTC that it had
licensed RMBS's 100MHz technology.
Which will lead to a domino effect throughout the industry.
More on that later.
But, just to drift back in time a bit, and to explain the sharp decline in the stock last year,
this type of ringing endorsement was not always the case.
That is, when the stock started plummeting, the "accepted" reasons had become that
INTC was scaling back its commitment to the new standard. Incidentally, this fear
occurred almost simultaneously with increased concerns of a sudden onslaught of new
competing solutions and technologies.
All of which would naturally destroy RMBS.
Let's explore these reasons, and why, despite the Street's stamp of approval, they
have lacked long-term viability.
The first is INTC's decision last year to delay its acceptance of RMBS's technology.
Not surprisingly, the Street's reaction was to naturally infer that INTC did not agree with
this new standard.
However, what they failed to recognize was at the time the market had an oversupply of
66MHz buses that needed to be cleared out before the100MHz bus became accepted.
Not because INTC disagreed with the technology.
Which is the difference between revenues being completely erased and revenues
being shifted, due to poor industry conditions, to future quarters.
Quite a sizable difference.
Now on to the competing solutions to RMBS's technology.
As always, let's use an example to illustrate these alternative solutions.
Imagine, just for the fun of it, that you had a pen full of cattle and you wanted to find a
way to deliver the animals in and out of the pen faster. As a reference point, the pen
represents RAM, the pathway to the gate represents the bus and the cattle represent
pieces of information.
In order to accomplish this goal, you would have two options. Option #1 would be to
widen the roadway to the gate and option #2 would to be to increase the size of the
gate.
Imagine RMBS's technology as widening the roadway to the gate. A competing
solution, such as faster memory, would be to increase the size of the gate.
And, in addition to all of this, I would be remiss if I neglected to mention that the optimal
solution to this problem would be to a combination of the two.
But there is one small problem with this.
Cost.
Enough said.
Now let's shift our focus and examine what the Street failed to recognize in its back of
the envelope analysis last year.
First of all, it is always easier to build a bigger gate than build a bigger highway. Not to
mention a bit cheaper.
Which lead to the Street's initial endorsement of faster memory over a 100MHz bus.
What happened though, was the classic failure to proceed to step 2. That is, building a
bigger gate is only a temporary solution. As you increase the amount of cattle going in
and out of the pen (or increasing the amount of information that is being accessed in
RAM), you are going to need to build a bigger highway to accommodate it.
Thus, the quick solution of buying 32Mb of faster memory for $60 - 80, in lieu of buying
a new motherboard (complete with a new 100MHz bus) for $300 - 400, eventually ends
up being more expensive than just buying the motherboard, as the quick fix of
purchasing faster memory will eventually require a new motherboard purchase, as the
amount of information processed, grows.
And those on the Street should have know better. If only due to a lifestyle
wholeheartedly dictating that cheaper is not always better.
Now let's touch on the competing technologies to the100mhz bus, consisting primarily
of SyncLink. Simply put, this can be compared to making the gate, as outlined above,
bigger.
Very briefly, SyncLink has turned out not to be a valid competitor to the100MHz bus, as
originally feared. The reason being that the SyncLink interface is roughly « as fast as
the RMBS interface and more suited to servers, not PC's.
Surprise, surprise.
So as the above has illustrated, the RMBS100MHz bus has not only survived, but as
described below, has put itself in a position to dominate its niche.
And equally important, the cycle is just beginning.
Let's examine these points.
First, with INTC's license, RMBS has essentially gained 80% of the marketplace.
Which immediately translates to the fact that 100MHz bus competitors don't stand a
chance.
Something about RMBS grabbing almost all available market share.
Secondly, the industry is shifting to Pentium II's. This is a good thing for RMBS.
That is, buying a Pentium II requires buying a new motherboard (complete with the
100MHz bus). Which means a significant amount of business for RMBS from this
industry shift, plus increased business from the stragglers that took the quick fix, as
outlined earlier, and bought faster memory, instead of a new motherboard, now
needing a new motherboard to accommodate the shift in technology.
Not to mention the positive effects from INTC's renewed emphasis on new products
geared towards the higher end.
Finally, one must also note that INTC's endorsement of this technology will lead others,
such as CPQ, MU and IBM, to name a few, to commit to the technology as well.
Otherwise known as the domino effect.
Plus, it is very important to note that Nintendo, which currently licenses RMBS's
technology in its popular 64 bit game systems, will add additional licenses for its new
line of 128-bit systems, due out later this year.
Which will certainly be a hit when Christmas rolls around. Not to mention, provide
another leg of the recurring revenue stream for RMBS.
If not another validation that the cycle inherent to RMBS's100MHZ bus, is far from over.
Which bodes quite well for the stock price.
Enjoy a Fabulous weekend of fun in the sun!
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