Rambus Gets More Headwinds - TheStreet

Rambus' (RMBS) - Get Report 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


, 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) - Get Report


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."

However, Rambus CEO Harold Hughes said he is "fine" with the settlement terms, and he expects other settlements won't be as generous for its licensing partners as the one announced Monday. "I don't expect those conditions to be the same as we go forward with other licensees," he said.

Hughes also noted Monday's deal didn't necessarily change the company's arrangement with


, the world's largest memory-chip manufacturer and a significant Rambus customer, but Hughes acknowledged that all licensing deals are related.

"These are all interactive and have great hierarchy," he said. "Anytime we sign a major participant, it universally increases the pressure on all other licensees and on the potential renewal of licenses."

In other words, Rambus has gained back nearly one-third of its market cap with a deal that it considers a generous one for the opposing side. The real payoff for Rambus investors remains a key goal for the future.