Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 1
This is my first post here on the GG board. Currently, by portfolio is mostly Rule Maker companies (Including some Gorillas/Kings INTC, CSCO, MSFT, JDSU.) I'm reasonably comfortable with those holdings. I've been lurking here for a few weeks as I have been reading the book. I appreciate the many intellegent posters and well written posts I have found.

I finished reading the Gorilla Game last week and was beginning to scan some articles to begin to learn/practice the principles taught in the book. My objective is to learn about GG and to add new Gorilla or King candidates entering the bowling alley/tornado to my portfolio as I am able.

My hope is that someone would help me with my first steps in understanding/applying the Gorilla Game principles to real news events/companies. I feel that even my questions are a bit stumbling and poorly stated.

http://www.forbes.com/tool/html/00/Jul/0707/mu1.htm

In scanning, I found this article about DRAM. In summary the article discusses Intel and its relationship with Rambus, and the potential of Via entering the picture to provide DDR chips to fill Intels/PC makers needs for DRAM. VIA Technologies is developing Double Data Rate DRAM (DDR) which is a competitive technology to Rambus RDRAM.

In Gorilla Game Terminology:
1. Older DRAM technologies are pretty much commodities, I think? Is this new DRAM market a discontinuous technology that in the bowling alley or tornado? I understand that Rambus has patents on proprietary standards for new DRAM's technology and that their stock has risen rapidly of late, but am not sure how to judge the phase of market development?
2. Is Rambus the confirmed Gorilla of this market, or are there other Gorilla candidates?
3. Is Via just a Chimp working with another Chimp (AMD), and hoping to develop a relationship with Intel, or are they also a Gorilla candidate?

Thanks in advance for the help,
sdmeier
Print the post Back To Top
No. of Recommendations: 1
Good first post. Go visit the RMBS board and you will find the answers to your questions. The short answer is that RMBS is a gorilla (see the second edition of the book at page 135 where Moore et al. writes about RMBS having a "gorilla position"). Others will argue about whether the tornado actually has started, but all of this is discussed in great detail at the RMBS board. I suggest reading all of the highly recommended posts over the last 30 to 60 days.
Print the post Back To Top
No. of Recommendations: 0
Thanks SlyAce for the info and recommendation of the Rambus board. All the new GG terms/concepts have'nt sunk in yet, and applying them on top of that is difficult. Appreciate your help.

My GG copy is the first edition I picked up in a used book store. It doesn't include the Rambus info. Quite dated in terms of technology timescale I suppose.

sdmeier
Print the post Back To Top
No. of Recommendations: 17
1. Older DRAM technologies are pretty much commodities, I think? Is this new DRAM market a discontinuous technology that in the bowling alley or tornado? I understand that Rambus has patents on proprietary standards for new DRAM's technology and that their stock has risen rapidly of late, but am not sure how to judge the phase of market development?

RDRAM is something of a continuous discontinuous-innovation. It looks continuous because all the same software works on the new box. It is actually discontinuous because (A) it uses microwave transmission-line type technology to transfer data faster than traditional lumped digital circuits can, and (B) because the underlying memory architecture requires a fundamental redesign to work this way. Don't let the "discontinuous innovation" rule throw you too much - this technology will be necessary for the next generation of Intel's microprocessors.

As I understand the definition of tornado, Rambus is not fully into that stage yet, but it appears to be approaching rapidly. Rambus has stated that it expects 100 million RDRAM chips to ship this year, and production only really started ramping in the last quarter. Nonetheless, they appear to be well on the way to meeting the goal.

2. Is Rambus the confirmed Gorilla of this market, or are there other Gorilla candidates?

Rambus owns the patents. Hitachi tried to challenge but then backed down when all other manufacturers declined to join them in the lawsuit. All DDR and SDRAM appear to be covered by Rambus patents as well. Intel (a well established gorilla/king) appears to be betting its future on this technology, investing its own cash into memory makers to help them ramp up, and designing some of its future products to use RDRAM exclusively. There is still some doubt in the market (or the stock would have hit $200 by now), but the baby gorilla appears to be maturing rapidly.

3. Is Via just a Chimp working with another Chimp (AMD), and hoping to develop a relationship with Intel, or are they also a Gorilla candidate?

Not to upset the AMD fans, but in GG terms, AMD and VIA are chimps. It could change, but not the way things have been going lately.

VIA has yet to prove it can deliver a superior product at a lower cost than Intel (or even a superior product at any price). AMD has a good product as far as I can tell, but they have chosen their partnerships poorly, and they don't seem to have the long-term vision that the gorilla Intel can afford. They have bet their future on DDR, a product that is good for one generation of processors at most before being completely obsolete, a product which is still not on the market despite the "fact" that it is simpler and cheaper to produce (according to the press releases - we can't buy a DDR PC yet), and a product that we now know Rambus will collect even higher royalties on than it collects on RDRAM.

AMD obviously has some top notch engineers, but their management could use a good swift kick in the butt. They had a chance to really one-up Intel before the P4 debut, but with every new day they miss another chance, and pretty soon it won't matter.

No, VIA isn't a gorilla. They don't appear to be in danger of becoming one any time soon.

-JasonX




Print the post Back To Top
No. of Recommendations: 0
Thanks jasonxsmith for the additional insights on Rambus and RDRAM.

sdmeier
Print the post Back To Top
No. of Recommendations: 0
Hello all RMBS fans,

I understand the advantage that RMBS has, but what I would like to uncover is what the potential market is for RMBS?

Since Gorillas tend to be given a higher valuation, the only question remaining for me is: What is a fair valuation for RMBS? What kind of earnings can be expected?

If anyone has a source, or site, that they use to find out info about market potentials, I would appreciate it if you could share them...

I have always wondered who comes up with the figures for the BRCD $30 billion potential market, the $20 billion MAN market, the $2 billion SMS market, etc...

I would also assume being able to identify these markets early, would allow for GGers to start baskets that much earlier...

Thanks for any replies,

Dreamer
Print the post Back To Top
No. of Recommendations: 0
The exact link for Bloomberg's interview of Dr. Jacobs is as follows: http://www.bloomberg.com/money/bloomberg4468815.ram I urge you to visit the following link which shows 32 top picks (many of which are gorillas): http://investorplace.com/topstocks/ Stvfox
Print the post Back To Top
No. of Recommendations: 1
I understand the advantage that RMBS has, but what I would like to uncover is what the potential market is for RMBS?

Dreamer, Patrick Newell weighs in with his opinion in a article posted on Rambusite.

www.rambusite.com/Newell06282000.htm

Its one possible future...Pete/Goaltender95

Print the post Back To Top
No. of Recommendations: 0
goaltender95,

Thanks for the link, BUT...it scrolls down halfway, and right when he gets to the valuation part, the screen does not scroll down further...

Any ideas? Am I doing something wrong?

Thanks,

Dreamer
Print the post Back To Top
No. of Recommendations: 4
Here is the text, I believe this is everything...Pete/Goaltender95

PS: The Rambusite has a wealth of info about all things Dram, also the RMBS board has many links to documents from Samsung, Toshiba etc.
-------------------------------------------------------

My Thoughts On Valuing Rambus

More On The Great Memory War Of 2000

By Patrick T. Newell

June 28, 2000

The DRAM sector is a quite cyclical. Strong ups and downs modulate powerful underlying growth and contraction.

DataQuest, which has the best track record for forecasting in the industry, predicted in late 1999 that the DRAM market would be $29 billion in 2000 and $70 billion by 2002. Rambus Inc. RDRAM was predicted to have a 10% share in 2000 and a 50% share by 2002.

Actual DRAM sales are exceeding predictions. The most recent projections are for a $36 billion market in 2000 . That would translate to $3.6 billion RDRAM using the DataQuest 10% projection. The world's largest memory maker and biggest producer of Rambus Inc. products, Samsung, now predicts a $38 billion market for Rambus Inc.'s RDRAM by 2002.

DRAM market $36 billion in 2000 (6/15/00)

http://www.ebnews.com/digest/story/OEG20000617S0002

Samsung estimates Rambus Inc. production, June 22, 2000

http://www.koreaherald.co.kr/news/2000/06/__10/20000623_1029.htm

The recent settlements by Toshiba and Hitachi suggest that Rambus Inc. will be able to charge royalty on all synchronous DRAM, whether RDRAM (Rambus DRAM) or not.

Valuing Rambus Inc.:

By 2001, Rambus Inc. will trade on 2002 earnings. According to indications in the press, the royalty Rambus Inc. collects is about 1.5% on RDRAM, 1.25% on SDRAM and higher on DDR. In addition, Rambus Inc. collects higher royalties on the DRAM controllers (3-5%, although these are cheaper). As a result, Rambus Inc. earns about 3% on DRAM sales, half from controllers. The latter half is often conveniently ignored by Rambus Inc. skeptics. Since the DRAM market is currently running 20% ahead of projections, I will up the 1999 projection of $70 billion in 2002 by 20%.


The Calculations
3% of $84 billion times 60% (40% tax rate) = $1.51 billion. Divide by 100 million shares and estimated 2002 earnings are $15.10/share after taxes. Contract fees from licenses adds perhaps $0.50/share. Total: $15.60/share in 2002.

If the legal victories hold up, Rambus Inc. will have a monopoly more widespread and more complete than Microsoft or Intel. What should a company earning $15.60/share after taxes in 2002 be worth in 2001? With high margins, high barriers to competition, and rapid growth, perhaps 40 times forward earnings, or $624 share.

Key variables:
(1) Growth rate of the DRAM market is notoriously hard to estimate.

(2) Non-RDRAM products like serializer/deserializer sold by PMC-Sierra are not counted in the above. These are currently small but fast growing markets.

(3) Recent legal victories might take months or even years to encompass entire industry. It is possible that established precedents could be overturned.

(4) The future market share of RDRAM is still controversial. Note that Samsung, the world's most successful memory manufacturer, and DataQuest have more credibility to me than any other analyst.

A useful price estimate for Rambus Inc. requires estimating three factors:

(1) The probability that RMBS will take a large and growing percentage of the DRAM market – or else win the legal rights to the existing market (or both).

(2) The size of the DRAM market

(3) How fast the DRAM market is growing.

Simply because Rambus Inc. earnings grow 100 fold or more in a year does not make Rambus Inc. stock worth a forward P/E of 100 or 200 if that implies a price target higher than if Rambus Inc. owned the whole market. Suppose that the DRAM market was fixed at 1999's $20 billion. Then the most RMBS could get from royalties would be 1.5% x $20 billion /100 million shares x 2 (for controllers) times 60% (taxes) = $3.60/share. Since earnings would be stagnant, forward P/E should be 10, so a price of about 10 x $3.60 or $36 would be appropriate (well below present value). Even if Rambus Inc. stock growth went from 0.5% to 50% (100 fold growth), no price higher than about $36 would be reasonable. The market always looks forward (or eventually does anyway) to see the future stagnation.

But in fact the DRAM market is growing fast; indeed faster than the most optimistic estimates. When a 1999 DataQuest estimate put the current year 2000 DRAM market at $29 billion and the 2002 market at $70 billion, many PC-centric observers couldn't believe it. The PC industry is by far the largest user of DRAM, and it is growing only about 10-20% a year. DataQuest must be wrong many speculated.

Yet as of June 2000, it is clear DataQuest actually underestimated the strength of the growth So did the DRAM companies. Year 2000 DRAM Sales now looks to be $36 billion. In June Samsung estimated that the 2002 market will be about $76 billion, half RDRAM.

This dramatic upswing has a powerful effect on the worth of Rambus Inc.. If the DRAM industry were growing by the 15% growth rate of the PC industry, then a fair valuation of Rambus Inc. would use a forward P/E of about 15-30. If the market is growing at better than a 25% pace as appears to be the case, then a forward P/E of 25-50 is quite reasonable.

NOTE: Since Rambus Inc. collects royalties without doing the manufacturing, all these estimates assume Rambus Inc. employees do nothing except sit around making bonfires out of the cash that pours in. Others have commented on this. Rambus Inc. may find a better plan.

The key point is too understand why the DRAM market is growing so fast, and whether it is likely to continue.

The PC market has the biggest share of DRAM sales, but is probably the slowest growing segment. Here are some others.

(1) DSPs/small process control processors. Originally DSPs (Digital Signal Processors) were used for audio and video signals, and to perform certain mathematical algorithms fast. They still are, but there is an increasing trend for DSPs to show up everywhere. Think of them as a pint-sized CPU or chipset. An example of how they are spreading is Analog Devices recently convincing Whirlpool to use a DSP in blenders to save energy controlling the motors. The market is already large, and is growing by better than 30% a year. InStat and others have estimated that in the next 5-10 years this will be a bigger business for memory than the PC market. Tiny processors might appear in a hundred places – or a thousand – in your home controlling almost everything electronic. Sun Microsystems is hoping to break into this market with its new MAJC which uses Rambus Inc. technology. Note, however, that Sun Microsystems is not currently a major player in this market. TI, Motorola, Analog Devices and DSP (the company) are the major players. All currently use plain SDRAM. This is the biggest potential long term gold mine out there. If it continues to grow as predicted, and if Rambus Inc. wins royalties either through legal means or by the adoption of RDRAM, the win will be big.

(2) Internet consoles/game players/DVD. Rambus already is in PlayStation 2, predicted to dominate the market. Enough said.

(3) Fiber optic storage area networks. Brocade dominates this market, currently a few billion, but the market is expected to grow to tens of billions of dollars in the next few years (according to Briefing.com). Brocade's Silkworm uses RDRAM.

(4) Network connectors. Specifically, the next generation of OC-192 may have to use Rambus, although IBM is hoping to make 200 MHz DDR work. This is a large, fast growing, but currently fragmented market. Rambus Inc. already has a small stake through companies like Vitesse, SwitchCore and PixelFusion. Other companies are still using made to order SRAM (static RAM) parts which cost 10 times what RDRAM does. Rambus Inc. is also hoping to make an impact through its new QRSL (Quad Rambus Signal Logic).

Short term, the biggest driver of Rambus Inc. profits will be the Willamette and/or settlements with SDRAM producers. But PC sales alone could never make Rambus Inc. the next Cisco or Microsoft. For Rambus Inc. to be the stock of the decade, instead of just a stock that was undervalued at the start of 2000, DRAM usage will have to continue to spread far beyond the PC. Fortunately for the company and its shareholders, that appears to be happening at a pace faster than the most optimistic estimates.
Until next time,

Patrick T. Newell

Print the post Back To Top
No. of Recommendations: 2
Oh, that last post was a little too bullish. Let me tell you some of my concerns about Rambus.

Rambus has the DRAM market sewn up. They own it now. There is still a lot of investor doubt, but I think the worst of that whole DDR thing is behind us. We will see more deals, and soon. RDRAM will ramp up to full production and prices will drop to within hollerin' distance of PC133 just in time for P4.

But when you have just been called and you lay down a royal flush, what do you do for an encore? PC DRAM isn't the only game in town, and Rambus needs to prove it can apply its technology elsewhere. It also needs to prove that is can continue to innovate, as with its recent announcement of QRSL (is that the right acronym)?

I'd like to see Rambus technology in Cisco routers. Will this happen? Not if the RAM does not meet Cisco's needs. Some of Cisco's competitiors are using RDRAM, and possibly some chip-to-chip technology, but I don't have any details. Will Rambus release a version of its DRAM that is designed to work better with routers?

What about chip-to-chip communications? Rambus has one white paper on its web site that explains this major future direction in 6 pages (even marketing should be able to do better than 6 pages). Rambus has stated that they believe only 33% of their revenues will eventually come from DRAM royalties, with the other 67% coming from other applications of the technology (6 whole pages?). This NEEDS to happen for the company to grow into a true gorilla. If they can't grow beyond DRAM, the stock price will not be able to grow much beyond what it is at today (assuming quickly slowing growth, after the spurt of the next two years). Six lousy, stinkin' pages? Give me something I can sink my brain into!

Telecommunications? We can hope and pray. That would be something.

Rambus is very good at keeping secrets. They make good deals, but they make them behind closed doors and tend to understate their importance to the media - until they can do so with a BANG!

While I believe this is good for the company, resulting in better deals overall, I want to know who they have partnered with for other applications of the technology (besides RDRAM), and what this could mean for the bottom line. I also want to know if there are more breakthroughs in the pipeline.

If Rambus cannot continue to innovate, pushing the state of the art beyond its current form, it may not be worth even today's market price. And that assumes that the DRAM market is a lock.

Anyway, those are some of my concerns.

In Rambus's defense, they have been very accurate, historically, in their "forward looking statements." When they said something was going to happen, it has happened. There have been a few delays here and there, but everything they have said would come true, so far, has come true. I actually have developed something of a trust for the management of this company. They say they are making big deals outside of DRAM. They say they are on track to ship 100M RDRAM chips this year. They say they have deals with telecom something or others. I'm inclined to believe them, but I am not inclined to have blind faith.

-JasonX

Print the post Back To Top
No. of Recommendations: 0
Six lousy, stinkin' pages? Give me something I can sink my brain into!

Telecommunications? We can hope and pray. That would be something.

Rambus is very good at keeping secrets. They make good deals, but they make them
behind closed doors and tend to understate their importance to the media -
until they can do so with a BANG!


Perhaps this latter statement explains the Six lousy, stinkin' pages? It
doesn't make much sense to give a detailed technical roadmap of where you are going
and when you hope to be there. That can give competitors a remarkable advantage.
Especially since what we are talking about is intellectual property that is
not yet developed. First one there gets the pot of gold in royalties.

I work for Intel and Intel is tenacious about keeping IP secret. We don't even
give hints about what technology we are developing until the time is right.
Things leak, but you are not going to get it from an official source.

PG

(Opinions and statements are mine, and are in no way endorsed by or represent Intel
Corp.)

Disclaimer: I have not RMBS holdings, but I'm thinking about it...



Print the post Back To Top