Rambus Dips on New Look at Settlement

A second look by investors at Rambus'(RMBS) long-awaited settlement with Infineon(IFX) resulted in a sharp pullback in the stock Tuesday. Shares recently fell 8% to $15.59.

While the stock is now respectably up 19% from Friday's close of $13.12, it's a fairly paltry gain considering the expectations of what a nine-figure settlement might do for the company's stock.

Investors plowed into the stock on Monday after Rambus said it would get up to $150 million from Infineon to settle all patent litigation. The case had been dragging for years and was seen as the linchpin in several cases Rambus is waging against the likes of Micron Technology(MU) and Hynix Semiconductor.

Rambus said on Monday that the terms that Infineon got would likely be more favorable than any terms that Hynix or Micron might be compelled to pay. That bravado aside, the fact that Rambus emerged with the Infineon settlement first means that others will be compelled to work from those terms.

Analyst Erach Desai with American Technology Research told clients Tuesday that Rambus gave Infineon too good a deal -- one that will have ramifications going forward. Amtech doesn't do investment banking.

"While Rambus may be unwilling to offer a similar bargain to Micron or Hynix, the reality is that the Infineon settlement will serve as a blueprint for any court to determine what a 'fair' royalty rate Rambus can charge," Desai says.

More disturbing for Desai is what this settlement could mean to Rambus' relationship with Samsung, the world's second-largest chip player and the dominant memory producer with DRAM memory-chip market share approaching 30%. Samsung is one of Rambus' three largest customers and an early licensee of Rambus' technology, the same technology that's at issue in its other court cases.

Rambus' licensing agreement with Samsung expires later this year and Desai said the company's standing as an existing Rambus customer and its market strength lead him to believe Samsung will "demand at least as good a deal as Infineon." Desai calculated that Infineon is paying a royalty rate of 0.55%, well shy of the 3.5% that optimistic observers predicted could result from litigation.