Rambus Gets More Headwinds

Rambus'(RMBS Quote) settlement of its most contentious legal case sparked its shares 30% higher Monday, but the stock has merely returned to its trading level at the beginning of the month.

While the resolution removes a significant headwind, some investors had hoped for more from the settlement with Infineon Technologies(IFX Quote), which will result in quarterly payments to Rambus of $5.85 million over two years and the possibility of up to $100 million in additional payments.

"Infineon got a steal of a deal," said Michael Cohen, director of research at Pacific American Securities. "Rambus let them off extremely cheap."

That opinion is important because Rambus is still waging a multiyear, multifront legal battle with billions of dollars at stake. It also has legal cases pending against Micron Technology(MU Quote) and Hynix Semiconductor alleging patent infringement, as well as a collusion case that will start soon in San Francisco Superior Court.

In what could be interpreted as the first sign of capitulation, Rambus ends up with only a guaranteed $48 million spread over two years in exchange for dropping all legal claims vs. Infineon. In addition, Infineon also gets a global license to current and future Rambus patents.

The agreement also designates Infineon to be treated as a "most-favored customer" of Rambus and includes an option for Infineon to acquire certain other Rambus licenses. The $100 million in additional payments will only be triggered if Rambus enters into other licensing agreements with specific makers of DRAM memory chips. Rambus said the odds of getting this additional $100 million were "pretty reasonable."

Cohen, who owns Rambus shares, acknowledges that the cash will double Rambus' net income, making "what was a high P/E look more justifiable," but it doesn't change his view that the company caved. "I just believe they should've gotten a better deal and the stock should be even higher."