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Bruce-

I have followed your excellent finacial analysis of companies who have made it to the Gorilla status. I have done my DD on Rambus and I want to get in but the lawsuit filed recently against some of the companies using DRAM technology has caused me to wait.

Do you think the lawsuits will be settled quickly or are we in for a protracted litigation? I have been watching Rambus since last October and I feel left out of the runup. You insight on what next for RMBS will be greatly appreciated.

Kojo
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You want me - the guy who bought way, way, way, way, way too early, chewed my nails for about six months or more to the nub - to share insight on what next for Rambus?

I guess I could sit here and say the wait was worth it based on the recent price activity. However, that would overlook the uncomfortable H....E....double tooth pick I went through with that decision. No way I'm going to say that too much is different. However, the much delayed step of Intel and Rambus being together and units shipping has happened. That's one target market. Also the fiber channel switch market Brocade is involved in uses Rambus. Then there is the play game toy market. So, some pieces are and have lined up.

Do I think Rambus is out of the woods yet? No.

We learn in The Gorilla Game book that buying this type of company in the tornado is the 'proper' time to do it. Then one of the book's author's talks about how this price to vision which leads to price to sales which leads to the eventual price to earnings ration is causing technology stocks involved in their respective games to happen earlier and earlier.

Is the current wild ride to the top really all from the short squeeze (a ton and a half of shares of Rambus were shorted) - or is it something else? Investors wanting in early? Day Traders juiced with java?

I don't know. Don't put this tired old, head cold inflicted boy through any Rambus pains at the moment. Hop over to the Rambus board and see what their take on it is. I'm still in pain and shock and happy to have passed the break even point (for the moment) - bought shares between the 68 and all the way up to $115 last fall before the Intel flop/delay/disappointment/realization that I didn't play by the 'rules'. Then I dumped about half of that for a loss while I held on to my 'speculation' shares with my tail between my legs.

Tinker is pretty up to snuff on Rambus. I still consider it high, high risk and only hold it with a small portion of money ear market 'speculation - keep fingers away from spinning blades'.

Some money manager was on CNBC this week who said he liked Rambus, but to wait and buy it this summer for whatever reason.

I haven't answered your question and I'm rambling/falling asleep.

BB

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Bruce-

I have followed your excellent finacial analysis of companies who have made it to the Gorilla status. I have done my DD on Rambus and I want to get in but the lawsuit filed recently against some of the companies using DRAM technology has caused me to wait.

Do you think the lawsuits will be settled quickly or are we in for a protracted litigation? I have been watching Rambus since last October and I feel left out of the runup. You insight on what next for RMBS will be greatly appreciated.


I realize Bruce already responded, but I will throw in my two cents.

The lawsuit is discussed extensively on the RMBS board, but most posters there viewed the lawsuit as good news. I agree to the extent the lawsuit communicated the message that Hitachi cannot compete with RMBS without violating RMBS patents. To the extent we already knew that, the lawsuit is bad news because it indicates that Hitachi thought it could get away with infringing, either because it thought RMBS would not sue, or because it thought RMBS would not win. That being said, the lawsuit appears to be a "bet your business" case: if RMBS wins, they get damages from Hitachi and deter the rest of the industry from infringing; if RMBS loses, everybody will stop paying royalties and go the way of Hitachi.

When I first graduated from law school, I worked for a firm that had recently represented Motorola in a patent infringement case against Hitachi. My understanding is that Motorola won technically by obtaining a ruling that Hitachi infringed, but lost in reality since that ruling was limited to obsolete technology (i.e., the court ruled that the new technology did not infringe). Lawsuits are often decided on issues other than the merits. Not only do I not know the merits of the RMBS-Hitachi lawsuit, but I don't know anything about the lawyers, the judge, etc. The bottom line is that any lawsuit involves a lot of risk. In the Motorola case, the firm I worked for had a reputation as aggressive litigators, so I would guess that Hitachi is not easily intimidated.

Lawsuits of this type are also very expensive. Although RMBS may be able to recover its attorneys' fees if it wins, there will be a bunch of costs between now and then. One of the funny stories I heard about the Motorola lawsuit related to the fact that all of the documents produced by Hitachi were in Japanese. In most big commercial cases, each side tries to run up the other side's costs by producing mountains of documents. Both sides lawyers like this because they get to bill lots of hours reading the stuff. Anyway, my old firm had to hire translators to translate all of the documents from Japanese to English. I heard a problem arose when the lawyers began working from the translations and separated them from the originals; at trial, there was no way to "prove up" the translations by linking them back to the orginals. Oops.

I am long on RMBS and loving the recent run. Unlike Bruce, I got in after the fiasco last fall, so I have nothing buy happy RMBS memories. Nevertheless, the lawsuit does involve some risk.
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Bruce,

Thanks. Drink your fluids and get a good night sleep. I'll just have to "get me feet wet" with my speculative funds. I can't wait any longer. With Toshiba and the other Asian manufacturers signing agreements with Rambus possibly the others may decide to settle the lawsuit. If this happens the royalty stream will be out-of-sight. What is your take on this Tinker?

Thank you very much.

Kojo
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I have been watching Rambus since last October and I feel left out of the runup.


I won't expound beyond Bruce's comments. I agree with him. Right now Rambus is riskier than your typical Gorilla. A lot of puzzle pieces are falling into place
but this is no Intel in terms of power...yet.

Let's get beyond all of this and try to get at the crux of your real question. You have done your DD and believe RMBS is a young gorilla (am I correct here?).
In the meantime the stock (much to my elation) has run
from the 70s to over 200. Wow!

But what is the future market value of this company IF they indeed are a gorilla? Do you believe this is a 20 or 30 billion dollar market cap company a few years down the road? How do you feel they should be valued in comparison of market cap versus other gorillas. How much is their power worth?

Right now the market cap despite this very recent explosion is still only $5 billion. Do you think there is room to grow?

Not suggesting anyone buy RMBS as this happy camper did. Do your own DD...ahh heck, you gg'ers are too smart to have to be told this kind of stuff. :)

Dan
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I want to get in but the lawsuit filed recently against some of the companies using DRAM technology has caused me to wait.

I'm still reading the book and I'm not too sure about what RMBS is making, but I'm researching to figure it out. But based on the above, I have a question on this.

I am just going through Chapter 3 of the revised edition, 'Understanding Gorilla Power', and ran across figure 3.1 Power in Hypergrowth Markets. This figure (on page 55) shows the 4-grid square of proprietary achitecture opposed to High switching costs, with the gorilla candidates coming out of the yes-yes box in the upper right. Listed there are microprocessors, operating systems and routers as examples. The lower left box is what concerns me, the no-no box (not prop. arch nor high switching costs). The first example listed there is DRAMs.

These questions may have already been answered, but I didn't notice them when back tracking on all the messages.... but... What is it about RMBS that makes it a gorilla candidate? Is it NOT in the DRAM business?

Any clarification here would be appreciated. There must be a proprietary architecture here that I don't recognize, and it must be leading to high switching costs, or it doesn't seem to fit with what I've read so far.

<disclaimer> I've been lurking on the Fool for a couple of years, made a small profit on MSTR (painful story), hold SAP and lost out to i2 as I'm long Manugistics...

Thanks for your thoughts.

Greg
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I'm still reading the book and I'm not too sure about what RMBS is making, but I'm researching to figure it out. But based on the above, I have a question on this.

I am just going through Chapter 3 of the revised edition, 'Understanding Gorilla Power', and ran across figure 3.1 Power in Hypergrowth Markets. This figure (on page 55) shows the 4-grid square of proprietary achitecture opposed to High switching costs, with the gorilla candidates coming out of the yes-yes box in the upper right. Listed there are microprocessors, operating systems and routers as examples. The lower left box is what concerns me, the no-no box (not prop. arch nor high switching costs). The first example listed there is DRAMs.

These questions may have already been answered, but I didn't notice them when back tracking on all the messages.... but... What is it about RMBS that makes it a gorilla candidate? Is it NOT in the DRAM business?


I worried about this too when I read it. Check out the following quote from page 185 if you want to feel better: "In 1988, for example, a company called Rambus took on a gorilla position in the emerging market for next generation memories."

Now, the reason why: DRAM is a commodity whereas RDRAM is proprietary by virtue of RMBS's patents (assuming nothing terrible happens in the Hitachi lawsuit). RDRAM is more expensive than alternatives, but as processing speeds get faster and faster, RDRAM becomes necessary for users to benefit from the faster processing speeds (there is a big debate about the extent to which RMBS actually achieves this result). Also, the theory is that costs will come down as more companies gear up to produce RDRAM.
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OOPS -- quote appears at page 135, not 185, and it should be 1998, not 1988.
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RMBS is in the DRAM business but they do not make any.

In english as best as I can without technical details:

RMBS is a gorilla candidate because they have patent protection on a method that will speed up access to memory and data such that memory and data access is run at chip speeds of up to 1.6gz.

Currently SDRAM operates at 100mz or 133mz. A huge bottleneck. Alternatives to RDRAM include DDRAM which can also run faster than RDRAM but DDRAM supposedly is not scalable. Do not want to debate this point.

Micron and other DRAM manufacturors have been currently promoting the use of DDRAM because they want an open architecture and do not want to pay royalties.

Even a loss in the lawsuit against Hitachi would PROBABLY not invalidate RDRAM patents that go back 10 years but were just granted last year. The lawsuit stipulates that DDRAM and possibly SDRAM is in violation of Rambus's patents.

In this theory, even if DDRAM won out in the bowling alley, Rambus could still be the winner if they could prove that DDRAM violated RDRAM patents.

Rambus seems to be winning the bowling alley as more and more DRAM supplies are gearing up for RDRAM production. This is possibly because of four things:
1) They may have to pay royalties anyway on DDRAM
2) Intel's strong support of RDRAM
3) Announcements from Motorola, LU, LSI and others of support for RDRAM memory
4) A recent announcemant from Intel that certain Intel boards unexpectedly will only work with RDRAM not SDRAM.

The above seems like great news for Rambus backers and indeed it is. That combined with a short squeeze drove up the price. Yesterday, Hyundai, a fierce opponent of RDRAM announced that it will seek to become the largest producer of RDRAM by the end of next year.

Is it a sure thing?
NO!!!
We are still in the bowling alley, not in a tornado.
Those willing to assume risks must do so on their own accord.

For full disclosure I admit I am way long on Rambus and thus may be biased. I believe, however, that I have stated the facts accurately.
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I worried about this too when I read it. Check out the following quote from page 135 if you want to feel better: "In 1998, for example, a company called Rambus took on a gorilla position in the emerging market for next generation memories."

Now, the reason why:...(snip of the reason)..."


SlyAce:

Thank you, very much. That is exactly what I was looking for. And the quote too. I've started browsing on the RMBS board, but with 4K + messages, it's tough to know where to look.

Thanks. And now back to Chapter 3... Who needs sleep, anyway?

Greg

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mishedlo:

Thank you, too. That made a lot of sense, even when taken with the grain of salt you recommended in your disclosure.

I'll keep reading now, and will bring up other questions as they creep up so the rest of you can help me knock them back down.

Cheers!

Greg
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I worried about this too when I read it. Check out the following quote from page 135 if you want to feel better: "In 1998, for example, a company called Rambus took on a gorilla position in the emerging market for next generation memories.">>>>

I noticed that quotation the first time I read the manual too, as I was considering RMBS at the time. However, it didn't make me feel confident to the point of buying, and it still doesn't. Certainly the last couple of weeks have been impressive for RMBS and congrats to all those who held. While I somewhat lament passing up on those shares at $60 back in October, I still sleep better knowing I don't hold RMBS. This thing has blown up before, Intel seems to alternate between pulling the rug out from under RMBS, then trying to drag them into the party again. I certainly don't hope the worst, but something about this thing gives me bad vibes, not much for all ya'll to base your investment decisions on, but I have to trust them, still no telling how much of that run was short covering, there was a butt load of shares shorted. But I digress, the point was, be cautious with this beast, don't let the last couple weeks lull you into a false sense of security, cause she's turned tail and run before. Good luck to the longs though, I wish you the best.

bourne
"Empowering the internet generation"

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Great thread! I hope you guys don't mind me putting in my 2 cents. This is my first post to your board, but I might be able to clarify some things.

***WARNING: LONG POST (but it contains just about everything I know about Rambus)***

Rambus has spent the last 10 years developing a proprietary technology that allows chips to communicate with one another at very high speeds. The first, and most obvious, application of this technology is to RAM. Specifically, they have a technology that lets you get data from the RAM chip to the processor at very high speeds. The technology is scalable in both width and depth (more bits/channels, or more memory). It is also scalable to much higher clocking rates. Currently, there are plans for memory that can transfer at 6.4 GB per second, though current technology is limited to 1.6 GB per second.

Rambus holds a lot of patents and has a lot of lawyers. They are an IP-only company; they live and die by their intellectual property. I would assume that they have done a better job to protect it than most corporations would. Because they have to give everything they know to manufacturers, everything they deem important must be protected by patents. They have a lot of patents, and many more on the way.

What is an IP-only company? Rambus does not manufacture anything. Instead, they sell the rights to manufacture or use their IP in other products. The going rate is currently up to 2.5% of revenues on RAM chips and 3% to 5% on controller chips. "Preferred" customers get discounts, so we generally assume about 1.5% on the RAM chips. Since Rambus doesn't make anything, they just research and develop (with their partners) and cash the checks. This is an untested model, but many people have noticed similarities in Rambus and Qualcomm, especially since Qualcomm dropped their handset manufacturing.

Why the jump in price now? Up until a month ago, RDRAM could only be found in game machines. Intel was late with its control chips, and it looked like there were viable alternatives to RDRAM about to come onto the market (DDR and DDR2). Well, Intel got its act in gear, the first RDRAM modules are being shipped, and DDR appears to infringe on up to 4 patents held by Rambus. And Rambus took a very long time to develop its case against Hitachi before announcing the suit, and they are talking tough and not backing down.

Rambus believes it will account for 10% of DRAM sales this year, 30% next year, and 60% the following year. These are huge numbers. This puts them in the $1B revenue range in 3 years. According to the Fool, they had $43M in revenue in 1999. That is a 20-fold increase in 3 years. Rambus is also currently engaged in adapting its technologies to solve problems in communications. That is potentially a huge market.

Rambus again has the blessing of Intel (though I am not sure they ever really lost it). In fact, Intel has bent over backwards to bring DRAM manufacturers on board. Intel has invested a lot of its time and its money, and I think they have a sizable stake in Rambus, both directly and indirectly through the supply chain.

Rambus technology will scale to higher frequencies as fabs get smaller. This is terrifically important. The current "open" memory architectures are reaching the end of their usefulness. It is becoming more and more difficult to scale them up to ever faster and wider processors. By tweaking the designs, the manufacturers may be able to go one or maybe two more generations, but it is getting more and more expensive all the time.

What does this mean? Well, it means an architecture change is inevitable, no matter what the chip manufacturers would like. They cannot stick with the same architecture or minor variations of it for much longer. Since RDRAM is now on the market, those who go through the expense of upgrading now will see rewards down the road.

What about the high price of RDRAM? Rambus claims that the cost to manufacture RDRAM is 40% higher than for other RAM types. This is supposed to drop to about 10% by sometime next year. How does this justify a 4 to 10 times cost differential that we are currently seeing? Most likely it is just the RAM manufacturers trying to line their pockets. They can't make the stuff fast enough right now to meet the demand.

So why the heck is Rambus stock so darn expensive? Is it a short squeeze, speculation, or what?

That is the really big question. Let's do the math.

Rambus earned 34 cents in 1999, is expected to earn 62 cents in 2000 and $1.84 in 2001. Taken as percentages, (I will be approximate here) that is 100% and 200% growth for the next two years. 2002 will likely be another 100% year, for about $3.60 a share in earnings. That gives us a more reasonable 55 P/E looking 3 years out.

Revenues will likely grow even faster than earnings. For that, you take the estimated market share, multiply by the size of the market, and factor in the assumed 1.5% royalties (could average to as much as 2%). 60% * 100B * 1.5% = 900M. That is something like 20 times what they made in revenues in 1999.

All this is assuming that only the RDRAM market is a factor. This is likely to be wrong. There are other markets for the chip-to-chip communication technology, and some of them don't involve RAM at all. And they are very big, but also very speculative at this point. Still, 5 years out, the picture still looks very good for Rambus.

So is Rambus worth its current valuation? Yep. Maybe even more. It looks high until you factor in the incredible growth that this company is about to see. Even after the run-up, I believe there is at least a 10-bagger in this company, and it could be a 25 bagger given a little more time.

What are the risks? We expect extreme growth, and without it, the stock will tank. RDRAM prices must come down to within 10% of other alternatives before any competing technologies have time to penetrate the market. Rambus must settle with Hitachi or win the case, and the outcome must favor Rambus in a big way. In the long-term view, Rambus must continue to expand its horizons with R&D. If it is a one-trick-pony, the stock will eventually fall hard.

On the bright side, things are looking very good right now on all fronts. I thought the Rambus/Hitachi suit was a good thing and took the drop in price as additional buying opportunity.

So what about the "short squeeze" that people keep referring to? We don't know yet if that is what happened. I suspect that there was a lot of short churn. As the stock rose, the old shorts got out and new shorts got in. Some people look at P/E and forget to do the math and the research on the company!

A lot of shorts lost their shirts in a very short time. Say that three times fast. But the stock is at an all time high, and it looks very expensive to anyone who does not look long and hard at the fundamentals. Taking a look at the volumes from the 15th on, it looks like there may have been a short squeeze on the 15th, but the volume declined sharply after that. Yet the stock price continued to rise dramatically.

Bottom line: the big squeeze may not have occurred yet. The stock could be driven, artificially, to $400 or more - soon - if the short positions in Rambus are still high.

If it goes to $400, I will probably hold on to my shares. I am expecting $1400 to $2000 a share by 2005.

If you read this all the way through, feel free to pick at my assumptions. But please be constructive and civil. I am here to learn, not to flame.

JasonX


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The big difference as I see it is:

This time RMBS is clearly across the Chasm, with a proven product. Many had multiple bad experiences on this baby since 1997, by investing too early.

Many on the Rambus board started accumulating shares AFTER the Jan 6 announcement of "Finally". There was certainly a lot of FUD about yields after that point, as well as Intel's committemnt.

Looking back, it seems that Intel had no real choice but to stay with RMBS. Recent problems with INTC chips that will only run with RMBS confirm this point.

IMO there is no stopping this baby now, short of some (heaven forbit RDRAM memory problem). A tornado appears on the horizon as the value chain is weighing in.

Again I point out I am long on Rambus and probably quite biased.
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My previous reply was intened for the RMBS board after someone posted a link here.

Maybe someone here will appreciate these comments as well.
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This time RMBS is clearly across the Chasm, with a proven product

Across the chasm? Please explain your reasoning. They hold a miniscule market share, and dubious technical advantages. Source after source quotes that DDRAM will be the way of the future. If you are betting on the litigation to gain your revenues, you have quite a bit of confidence in the legal system (might I remind you of the OJ trial).

You might want to read the following article.

http://www.theregister.co.uk/000228-000005.html

Holding onto RMBS right now is akin to playing a hard eight.

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Across the chasm? Please explain your reasoning. They hold a miniscule market share, and dubious technical advantages. Source after source quotes that DDRAM will be the way of the future. If you are betting on the litigation to gain your revenues, you have quite a bit of confidence in the legal system (might I remind you of the OJ trial).

Yes, SDRAM can be made to be as fast as RDRAM. It is true. We expect that for the next couple of years SDRAM will dominate the server scene. RDRAM is more expensive to produce right now, and although it should come down, it will be some time before it is as cheap as SDRAM.

The thing is, how do they make SDRAM as fast as RDRAM? It's not rocket science. They just go parallel instead of serial. More signals running at a lower overall speed equals fewer signals running at a higher overall speed.

For servers, this makes a lot of sense. You need huge amounts of memory.

For other applications, where you need large amounts of memory but want lower signal count, Rambus makes sense. It takes (and I may be a little off here) 33 signals to add a new RDRAM channel. It takes 132 to add a new SDRAM channel.

RDRAM works works extremely well in applications where you want to be able to reduce chip-count as well as the number of signal paths. Sony is using it in the PlayStation II, and I don't think they would even consider it unless it actually saved them money to use it. The folks at Sony are not chumps.

Are these dubious technical advantages? I don't think so, but you are free to disagree with me. In fact, why don't you take up a short position in the stock? The price is really high right now, and if the long-term situation for the company is that bad, it is going to drop big time sooner or later. You could make a lot of money. Let me buy you a beer!

The Register is known to be openly biased against Rambus, and has been for some time. Even with the Fayad review, they took the statement out of context. Fayad, in the same review, says some really good things about Rambus, the company. He believes that the recent run-up is due to a short squeeze, and recommends getting out - for the short term. How he knows that it will not go up further remains a mystery, especially given the fact that he believes the long term outlook for the company is good.

If Fayad is wrong (about the long-term outlook), then I am wrong too. I think this company has just started its run-up. It will likely be a bumpy ride, but you pays your money and takes your chances. If it were a clear-cut no-brainer, the stock would already be priced at either $10 or $1000 a share.

I do not believe that we are "across the chasm" yet, but I do see that we have made significant headway in that direction over the past month. Stock price aside, the situation is clearing up, and in a few more months we will have a much clearer understanding of the whole situation. By then, though, it may be too late to buy. On the other hand, it is never too late to short!
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The National Enquirer (excuse me, The Register, or is there a difference)? This is not meant to be sarcastic, but one must look at the credibility of the source. If you want more FUD go no farther than Tom's Hardware (whose articles suggest the same thing).

Actually I give great thanks to the National Enquirer (excuse me again, I mean The Register) for their potential input into this whole shorting affair.

How big does it appear PSII will be? PSII alone indicates (IMO) that RMBS is across the chasm. Did you see the cover of Newsweek? Check it out.

Listen to the news conference from the CEO of RMBS.
Do a little DD on RMBS, you will be surprised at what you find. Check out www.rambusite.com. Check out www.rambus.com.

Hyundai, one of the biggest RDRAM bashers recently announced it WILL be the biggest producer of RDRAM next year. Look at what Hyundai was saying two weeks ago. Look for recent posts from Hyundai.

LU, Motorolla, LSI hop on bandwagon. INTC recomfirms support for RDRAM. Look at the value chain developing around this product.

WOW! You do not think they have crossed the chasm. I belive the tornado is about to start (if it hasn't already).
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