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No. of Recommendations: 20
I am taking this Rule-Breaker seminar, so I thought I would run Rambus through the gauntlet. Just for fun.

I actually didn't even consider this stuff in my decision to buy it. I think it fits the RB profile nicely, though. Anyway, here it is, for your reading enjoyment.

The company should be a top dog and a first mover in an important, emerging field. In other words, being top dog in the left-handed scissors industry isn't enough. The left-handed scissors industry just isn't really "emerging" -- ya know? It's pretty mature -- and it ain't going anywhere in the near or distant future. Electronic commerce, though, now there's something that's emerging, and is the top dog and first mover in that category. Similarly, in direct retailing of computers, Dell Computer was a Rule Breaker. Starbucks has been the first-mover and top dog in the gourmet coffee field for a while.

Silicon has been around for a while. The thing that makes this both "important" and "emerging" is the speed. Only the processor makers have been working on things that go above 1GHz. The memory makers and peripheral makers have kept the speeds lower. They haven't really needed to go extremely fast until now. The benefits are fewer chips and fewer signals, but the down side is tougher standards in board layout and signal levels. Rambus has solved most of the problems that provide a barrier to entry into the microwave realm, and they took the trouble to patent as well.

Top dog? Rambus is the only dog. First mover? How does 1990 sound? They have been planning to profit from this era of technology for 10 years.

Right now, the DRAM thing is first and foremost on everyone's minds. The real technology here, though, is the part that lets you send data from chip-to-chip at speeds well in excess of 1Gb/S on each signal line. They are at 800MHz now, and they are working on quadrupling that.

The kicker is that any future design for high-speed transfer of digital data between chips will almost certainly involve one or more of the Rambus patents. And since they have shown that they will take you to court if you infringe, people are likely to pay 1% or 2% to use their technology.

Let me help you with the pronounciation: it's gor-IH-lah. Say it slow. gor-IH-lah.

The company needs to demonstrate sustainable advantage gained through business momentum, patent protection, visionary leadership, or inept competitors. Examples of these include Wal-Mart (with business momentum that featured net income gains of 25% during much of the 1980s), Amgen (enjoying patent protection of its drug formulas for many years), and Microsoft (with visionary leadership that benefited from Apple Computer's regrettable decision not to license its technology).

Just starting the business momentum, but it's looking good. They have patents (almost 100, over 100 more in the queue). Is there anything that is not visionary about this company? Inept competitors - it takes two hands to count them. Why didn't the companies manufacturing RAM chips figure out that one day they would need to completely change their architecture and invent it themselves? They make really good chips, all of them. But visionaries they are not.

Recently, their sustainable advantage became more concrete when they decided to sue Hitachi for patent infringement. The suit covers every competing high-speed DRAM technology on the market. If they win in a big way, they rule the DRAM research roost. Even if they lose, they may still come out pretty good (unless they lose big, which no one thinks will happen at this point).

The market should have recognized a Rule Breaker's promise by rewarding it with strong price appreciation. A good indication of this is a relative strength rating of 90 or above. (You can check up on company relative strength ratings in the Investor's Business Daily newspaper.)

If it isn't above 90, it is darned close. I am not even going to bother checking up on this one.

Look for good management and strong backing. Like the steel company Nucor (yes, steel!), led by Ken Iverson, which became a world-class powerhouse by revolutionizing steel production processes. Or Scott Cook, whose singular focus on serving customers drove the success of personal finance software giant Intuit. Also consider the "backing," or supporters of a company. eBay was backed by Starbucks and Sun Microsystems executives.

Backed by Intel and Dell. Backed by Sony and Nintendo. Almost all of the DRAM manufacturers as well.

AMD is holding out, but I suspect this is really because they don't want to tip us off that they are scrambling to bring RDRAM controller chips to market. They don't want to admit that Intel beat them to the punch. And don't try to tell me that Athalon would not get a speed boost from RDRAM!

Their management seems to be pretty good. You don't get a good technology to succeed without management and marketing, and they seem to have both in addition to a really cool technology.

Also important is having a strong consumer brand. Again consider Starbucks, and how its name recognition is so much stronger than competitors such as um, like (get the point?).

Not much until now. Rambus is getting a lot of free advertising from the PC makers who offer it. This is good for the general perceptions of consumers, who will soon equate RDRAM with "SPEED".

Maybe more important right now is that the chipmakers and PC makers understand what it is. They do. They do.

We also consider it a good sign when the financial media, not seeing the big picture, calls a company overvalued. (Perhaps the greatest single contrary indicator is Barron's lead editorialist. When Barron's is asking about America Online: "Short on Value?" Good. When Barron's leads with "Sell now!" -- excellent.)

It was overpriced at $70, remember? The short-sellers do (may God rest their portfolios). We have had a few Wise folk take a tentative interest, but thankfully they still don't have a clue. There are only 5 analysts covering this company even though it has been blessed by Intel for a very long time!

Besides, we don't need the Wise to say it is overvalued. Just look at that P/E! Look at that PSR! It is obviously overvalued. Duh!

<RANT>The wise will probably take more of an interest when the stock hits $400 or $500. Maybe $800, and certainly $1000. $2000? If they haven't figured it out by now, the situation for them may be hopeless. After all, they totally missed the buying opportunity at $66.

When all the wise are recommending, then it is time to sell! :-) </RANT>
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