Publish date:

So Much for the Rambus Short Squeeze

Why the bears are rearing their heads. Also, a last word on Iridiocy.

Mun-Dayne:

Rambus

(RMBS) - Get Report

had been one of

the

Nasdaq

stocks to short until very recently. Short-sellers borrow stocks then sell the borrowed shares. There were so many shares sold short that the only way shorts could borrow shares was to pay a premium over the stock's price. Usually, it's just the other way around -- shorts

receive

interest on the stocks they short. The situation involving Rambus set the stock up for the mother of all short squeezes -- or at least a short panic. A short squeeze occurs when the owners of a stock demand that short-sellers return the borrowed stock. Short-sellers are then forced to buy the stock. That causes a rush of buying, which in turn causes prices to rise rapidly,

a la

Rambus. A panic is, well, just a panic.

Whatever you want to call it, Rambus' stock shot up to 471 from 69 in just 10 weeks. But, as this column often points out, when the shorts are squeezed out, so are the natural buyers as a stock then falls -- and falling is just what Rambus has been doing in recent days. On Friday, it closed at 393 5/8. What's more, my short-selling sources report, the stock is once again borrowable to the point that a small amount of interest is even being paid. ("It's still not normal," one Rambus short says, "but it's vastly different than it was.")

The squeeze itself was triggered by several positive events:

Intel's

(INTC) - Get Report

statement at the Intel Developers Forum that it's next generation processor, Willamette, would use only Rambus memory; positive statements from several memory manufacturers; excitement over the release of the

Sony

(SNE) - Get Report

PlayStation, which uses Rambus memory and, finally, (a drumroll, please) the announcement of a 4-for-1 stock split.

However, according to our short-selling source, "each of these boosters appears to be fading."

His points:

"A little more than a week ago,

Microsoft

(MSFT) - Get Report

announced the X-Box, its competitor to the Playstation. The X-Box will use an Intel processor. But on a conference call, Microsoft said the X-Box would use double-data-rate (DDR) SDRAM

the fast memory chip standard that is the major upcoming competitor to Rambus. Coincidentally, the day of the X-Box announcement was the day Rambus chose to announce the stock split. Then again, perhaps it wasn't just a coincidence.

"The X-Box announcement suggests Intel will support DDR SDRAM in 2001. Remember also that at the Intel Developers Forum, when Intel made the Rambus/Willamette announcement, Intel also announced that Foster (the Server version of Willamette) would support DDR SDRAM. " (Also, according to a March 18 article on the Web site

TecWeb,

Nintendo says it will use DDR SDRAM in its next-generation Dolphin game player.)

"The support of memory manufacturers may not be as solid as some would hope: On Friday, Joe Osha,

Merrill Lynch's

TST Recommends

semiconductor analyst, questioned the rapid acceptance of Rambus technology. He wrote: 'Several days with DRAM manufacturers also left us with little understanding of the current optimism surrounding Rambus.' Osha also wrote, 'We would be surprised to see RDRAM (Rambus DRAM) exceed 10% of the total market in the latter half of 2000.'

"More importantly, consumer's themselves appear not to be excited about RDRAM.

The Commercial Times

in Taiwan on Friday wrote, 'Sales of

Intel's 820 motherboard (based on the i820 chipset) have been dismal, and show no signs of picking up.' The 820 is the primary platform used with Rambus memory.

The Times

went on to write: 'In addition, they

motherboard manufacturers noted that the failure of Intel's Rambus memory (a feature of the DRAM used in its 820 motherboards) to gain a foothold in the market has also dampened prospective interest in the 820 motherboard.'

"Finally, there is the stock split (which is supposed to be effective around June 14). Usually a positive, right? Perhaps not in this case. Because of its huge run-up, Rambus has become almost 20% of the

Philadelphia Semiconductor Index

, the SOX, which is a price-weighted index. But on June 14, anyone who mimics the SOX will have to sell three-fourths of their Rambus shares."

In other words, folks, don't count the shorts out yet, as the Rambus Rumble enters Round Two!

Short Positions

Iridiocy R.I.P.

All I can say about

Iridium's

decision to shut down its system and let its satellites fall to earth is this: Splash! (I don't mean to rub it in to all of the folks who lost money on what seemed like a great idea; this is just one final tribute to the Iridiots -- those Iridium investors

who pelted me with electronic stones when I dared question their darling company. As I like to say, too much hubris can be horribly humbling.)

MGM Redux:

If you missed the

other

side to last week's

MGM Grand

(MGG)

deal to buy

Mirage Resorts

(MIR)

, make sure you read my

weekend rewrite of my original MGM column.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.