For One Fund Manager, Rambus Gamble Is a Bet Worth Making

SAN FRANCISCO -- If and when memory-boosting chips based on Rambus' (RMBS) designs come out, they will be like no other memory chips. And Rambus' stock, meanwhile, is behaving like no other chip stock.

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That's because most semiconductor stocks are cyclical in nature. Just check out the Philadelphia Semiconductor Index: Beginning in August '94 chip stocks went up steadily until August '95, when they went down, until August '96 when they went up, until August '97, when they went down, until August '98 when they went up. Like clockwork. The key to making money, savvy chip investors say, is in the timing.

Rambus' fortunes rest on a more precarious ledge. If its memory-boosting designs are adopted, it will profit handsomely, to the tune of hundreds of millions of dollars a year. If the industry rejects the designs, it fails. Or so say many chip investors.

"Investing in Rambus is like playing blackjack," says a buy-side analyst with a large New York technology fund, who asked not to be identified. Rambus is an all-or-nothing stock, he says: It will either be a market dominator or fizzle out. For that reason, he's staying clear.

And although the short interest this month, at 3.8 million shares, is a 51% increase over last month, some active shorts also consider Rambus too risky to touch. "How do you know what it will do?" says one San Francisco short-seller who has kept out of Rambus. He asked that his name not be used because if the stock does crash, he doesn't want people to know he missed out. "One day it can collapse, but then it will go up 50 points."

The high risk associated with Rambus hasn't scared off Michael Watner, a portfolio manager with Lane Capital Management. Yet Rambus is not the typical Lane investment, says Watner, who typically selects established technology leaders such as Cisco (CSCO), Sun Microsystems (SUNW) and Qualcomm (QCOM).

A year ago, Watner launched a small fund that would invest in small, high-risk technology companies that produce something so startlingly new that the market is compelled to buy it. "Rambus will change the face of at least a part of the semiconductor business," he says. "There is a tremendous investment opportunity to it."

Watner does not expect the majority of the stocks in this fund to succeed, but the idea is that those that do will be so hugely successful that they will make up for the losses of others. "Our normal customers will have trouble holding a stock like that," he says. "But when we put it together in a small portfolio with other similar companies, it tends to soften the risk."

Watner puts his faith in Intel's (INTC) support of Rambus, an act he believes removes a lot of the risk. Should Intel withdraw its support, he'd reconsider the fund's investment. For now, he's staying put. "Intel is doing everything in the world to show support for Rambus," he says. "We're not really worried about the buzz on the Street. The only way I'd believe Intel is pulling out is if Intel itself made the announcement."

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Which Rambus outcome do you see as most likely? Rambus chipset ships on time, stock takes off, Morgan Stanley bullish Rambus released 2000 (1 yr. late), stock weak, Morgan Stanley bullish Rambus misses ship date, stock falls, Morgan Stanley bullish Rambus tosses out design, hires Gil Amilo as strategic visionary, stock crashes, Morgan Stanley bullish New IBM/Intel/Disney invention makes Rambus obsolete, Morgan Stanley "neutral"

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