Intel's Eye Wanders Away From Rambus

The chip giant sent Rambus shares tumbling when it said it would evaluate an alternative to Rambus' memory-chip designs.
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SAN FRANCISCO -- The lesson from Rambus (RMBS) - Get Report this month: Don't invest if you have a weak heart.

Just when investors were starting to

breathe easy after months of speculation that

Intel

(INTC) - Get Report

might back away from Rambus' revolutionary memory design, Intel officials pop up to say they'll evaluate the PC-133 technology set up as an alternative to Rambus chip designs.

That's the very technology that Intel has repeatedly said it had no intention of adopting.

The result? Rambus shares dropped 12.7% to close at 98 5/8 Monday, when the

Nasdaq Composite

index dropped just 1.2%. "There is a lot of pure brutal trading around this stock one way or another," says

Hambrecht & Quist

analyst David Wehner, who upgraded Rambus to buy from outperform last Thursday. "I wouldn't be surprised if at some point Intel supports PC-133." H&Q has an underwriting relationship with Rambus.

Intel spokesman Mike Sullivan told

TheStreet.com

Monday that Intel, on the request of makers of computers and memory chips, will evaluate a PC-133 synchronous DRAM chipset as a stopgap alternative to more expensive Rambus-based chipsets. Intel's chipsets -- devices that connect a computer's memory to the microprocessor -- are important because of its iron grip on the chip market. The OEMs fear there will not be enough Rambus-based chipsets on the market, Sullivan said.

On Friday, Rambus hit an all-time high of 117 1/2 after surging 30% in two days, powered by strong third-quarter earnings and news that Rambus' planned rollout this quarter was on schedule. The news also coincided with introduction of a PC-133 chipset from Intel competitor

Via Technologies

of Taiwan.

Intel executives have been asked repeatedly at investment and technology conferences if the company would support PC-133, but until now have denied the company would do so. "We have been saying that PC-133 doesn't really make sense," Sullivan said.

PC-133 is seen by some in the industry as a stopgap measure until faster, non-Rambus memory chips can be developed. The memory industry has balked at adopting Rambus-based standards because companies licensing the technology must pay Rambus royalties that average 1.5% of the price of each chip sold.

Sullivan said more definitive news will likely be released at Intel's three-day Developer's Forum in Palm Springs, slated to begin Aug. 31.

Wehner downplayed the significance of the news. Many Rambus investors, he says, have expected to see PC-133 enter the market and Intel's possible adoption of it won't necessarily hurt any Rambus rollout. "I'm pretty comfortable with my numbers for Rambus," he says. "I think Rambus can chug along quite fine."

At the same time, he says, investor reaction is difficult to predict on this stock. "It's hard to say what the individual investors are thinking," he says. "I don't know what the stock will do tomorrow."