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

To: unclewest who wrote (20674)	5/24/1999 8:51:00 AM
From: Ian Anderson	Read Replies (1) \| Respond to of 93625

Did everybody get spam mail from Individual Investor? Ian

To: unclewest who wrote (20674)	5/24/1999 9:32:00 AM
From: REH	Read Replies (1) \| Respond to of 93625

Rambus: Living in Royalty The semiconductor industry has evolved from its modest beginnings in the 1960s to its current $125 billion size. And along the way, the major players have changed their way of doing business. In the 1960s, major outfits handled everything from design to manufacturing to sales. Today's chip makers, however, increasingly outsource one or more of these operations to third party interests, concentrating instead on the areas in which they believe they have a competitive advantage. The reason for this shift in strategy is simple. Aside from a few very well financed corporations such as Intel (NASDAQ: INTC - Quotes, News, Boards) and Texas Instruments (NYSE: TXN - Quotes, News, Boards), the increasing complexity of chips, coupled with steep competitive pricing, has made it financially ruinous to try and control the entire process. For example, a top of the line manufacturing fabrication plant (fab) costs about $1.4 billion to build, effectively barring all but the largest companies from entry. From contract manufacturers such as Taiwan Semiconductor (NYSE: TSM - Quotes, News, Boards) to capital equipment suppliers like Applied Materials (NASDAQ: AMAT - Quotes, News, Boards) to fabless (i.e. they design and market the chips but don't manufacture them) companies like Altera (NASDAQ: ALTR - Quotes, News, Boards), specialization is the name of the game. The most recent trend is the advent of 'chipless' companies, which develop new chips that are then licensed out to chip manufacturers or other interested parties in exchange for royalties. These pre-designed, reusable circuits (known as cores) are increasingly important thanks to the growing demand for complex integrated circuits (ICs). The development of these cores not only allows chipmakers to design and deliver custom-made chips to their customers quickly (as is increasingly required), but also helps alleviate some of the expensive testing that is required of new designs, simply because the designs being used have already been tested. The market for these chips is estimated to grow 750%, from $2 billion in 1996 to around $17 billion in 2000. Move Over Rambo -- Here Comes Rambo An exciting 'chipless' play is Rambus (NASDAQ: RMBS - Quotes, News, Boards), a leading designer of Dynamic Random Access Memory (DRAM) cores. Rambus has developed a high-speed DRAM design which is heavily supported by industry gorilla Intel (NASDAQ: INTC - Quotes, News, Boards) and has been licensed out to virtually all the major DRAM firms (accounting for over 95% of the DRAM market). Intel has actually worked with Rambus in developing specifications for the Direct Rambus DRAM and will support Rambus memory with its 'Camino' chipsets. The 'Camino' chipsets essentially mark the entrance of Rambus memory into the PC market and Rambus' royalties should soon skyrocket. According to Dataquest, the DRAM market will be $52 billion in 2001. Consulting firm In-Stat estimates that Rambus designs will find their way into 60% of all DRAMs. Also consider the fact that with its 'chip-less' model (no fabs, inventory, production costs or distribution), Rambus has tremendous earnings leverage as it simply cashes its royalty checks. Most analysts estimate that Rambus' operating margin will reach 50% in 2000 and potentially be as high as 80% by 2001. Let's assume that both the Dataquest and In-Stat estimates are too aggressive. Instead we'll assume that the DRAM market in $45 billion in 2001 and that Rambus holds only a 40% market share. Using a conservative royalty rate of 1.5% and excluding logic royalties and interest income, this means that Rambus will garner $270 in royalties, or $4.70 per share. Bottom Line: The key driver for Rambus is strong backing from Intel. While the stock may appear expensive at 96.5 times 2000 estimates of $0.88 a share, Rambus looks poised for explosive earnings growth in the years to come. link: iionline.com reh