Rambus Faces Fundamental Threat

Rambus often acts like a court case in the guise of a company. Earlier this week, shares skyrocketed when a judge recommended that the Federal Trade Commission drop its antitrust suit. A week earlier, shares slumped when European regulators revoked one of the company's patents.

But investors might want to take a peek at the company's actual business for a change. Overshadowed by the FTC ruling was an announcement from chip giant Intel in the past week that could conceivably undermine Rambus' core business of licensing intellectual property for memory chips.

In a white paper presented Tuesday at the International Solid State Circuits Conference in San Francisco, Intel gave details of a new interface standard for memory. Using test chips from memory-makers Samsung and Infineon, the standard appears to rely on a technology different that that offered by Rambus. If that's the case, the new standard could further marginalize Rambus, which has already alienated most of its potential memory maker customers after years of assiduous litigating.

Some say that's Rambus' reward for trying to browbeat the industry into paying expensive royalties for its intellectual property.

"It's too onerous; it's very costly," Fred Ramberg of M.S. Howells & Co., an independent research and brokerage firm, said of Rambus' royalties. "Under the current conditions, they've boxed themselves into a corner, and people have tried to design around them for some time. Now they've shown they've done it."

Rambus' proprietary architecture was "conspicuously absent" from Intel's technology road map at the giant chipmaker's developers conference earlier this week, he noted.

"This [Intel announcement] virtually devalues Rambus intellectual property as it relates to Intel processors moving forward," Ramberg predicted in a research note earlier this week. "Rambus will have a legacy market and smaller niche markets to support, but if Intel moves this new interface standard, a large part of the marketplace will have passed them by." (M.S. Howells doesn't have any investment banking relationship with Rambus.)

While it's not 100% clear that Intel's new standard will ultimately exclude Rambus technology, it's notable that Rambus declined to comment on whether any forthcoming memory interface from Intel would incorporate its technology. "It's a test chip, so I can't speculate on a potential product or what it would or would not incorporate," said Laura Stark, vice president of the company's memory interface division.