June 23, 2000 12:20 PM PDT
Rambus win may mean $1 billion in revenue
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Morgan Stanley Dean Witter analyst Mark Edelstone, a longtime Rambus proponent, said that by 2003, Rambus could be collecting 1 to 2 percent on nearly all memory chips, as well as the memory controllers that allow processors and memory chips to share data.
"Effectively, five years from now, Rambus is collecting royalties on virtually the entire memory market," Edelstone said.
Until now, Rambus' primary business has been licensing a technology for its own next-generation PC memory standard, known as RDRAM. However, Rambus sued Hitachi in January, claiming that its patents also entitle Rambus to royalties on a competing memory technology, known as Double Data Rate (DDR) memory, as well as on today's standard synchronous dynamic random access memory (SDRAM).
Late yesterday, Hitachi said it had settled its dispute with Rambus and agreed to pay royalties on SDRAM and a royalty rate on DDR chips that is even higher than the rate it pays for Rambus' RDRAM technology. The move follows a similar agreement from Toshiba, announced last week.
Shares of Rambus have surged since the Toshiba deal. Rambus stock was trading at $113.75 at midday today, up $16.63, or more than 17 percent. The shares had traded below $38 as recently as May 23, after reaching an all-time closing high of $111.27 on March 13.
Rambus executives stopped short of confirming that they believe the entire industry owes them royalties but noted that the company's patents cover the basic technology used in most high-speed memory. Rambus said it has already had talks with some memory-chip companies and plans to review the positions of others that might be infringing on their patents.
"These patents are for fundamental aspects of high-speed memory interfaces," Rambus vice president Avo Kanadjian said in an interview. "The likelihood of (any memory company) having incorporated (the patented) features is high."
Industry analysts say some companies are likely to fight the move, with leading U.S. memory chipmaker Micron Technology among those most likely to resist paying Rambus for DDR and SDRAM. A Micron representative was not immediately available for comment.
The Hitachi and Toshiba deals make for an uphill battle for anyone that tries to fight in court, Edelstone said.
In the semiconductor industry, chipmakers typically end up signing cross-licensing deals in which they share their patented technology with rivals to gain access to their competitors' protected techniques. Because Rambus doesn't actually make chips, it has no need to license most other technologies and can therefore go after one-way deals such as those inked with Hitachi and Toshiba.
Edelstone predicted that several more companies will announce similar deals during the next three to four months.
Kanadjian said the company still hopes that licensing for non-RDRAM products becomes a smaller share of the company's business by 2002, a time when Rambus hopes its technology will come to dominate the market. The adoption of Rambus memory has been hindered by a variety of technological hurdles to making the memory cost-effective.
Both critics and proponents of Rambus' RDRAM technology say the licensing deals on non-Rambus technology probably won't change the rate at which Rambus designs are adopted.
"The things that have been showstoppers for Rambus have not gone away," said Bert McComas, founder of InQuest Market Research and a critic of the company's memory technology. While the royalties may have been irritating to memory makers, McComas said that the cost of producing the memory and difficulty yielding enough working chips have been the primary obstacles. Edelstone concurred.
"I actually never believed the Rambus royalty rate had any effect on the transition," Edelstone said, adding that he still believes the industry will transition to RDRAM because it offers the best high-speed memory.
The licensing deals could slow the rate of investors who are betting against Rambus by selling the stock short. With the stock's rapid run-up there have been many willing to play the risky game of short-selling, gambling that Rambus-based memory won't take hold in the marketplace.
However, there may be fewer people willing to bet that the company can't wring license fees for standard memory.
"The story has changed," Edelstone said. "Whereas there has always been a good degree of risk associated with the transition to Rambus-based memory, that's now a moot point. It's hard for me to believe anyone in their right mind would be short on the stock."