Rambus doesn't make chips; its clever angle is to focus on making memory-enhancing chip designs and selling them to chipmakers, avoiding costly manufacturing overhead. But the reliance on chipmakers adds an uncertainty to Rambus' outlook that can be unsettling to investors.
will push back its rollout of its Rambus-based Camino chipset sent Rambus stock plunging 17% last Wednesday and Thursday. Since then, the stock has rebounded on reports from
Morgan Stanley Dean Witter
chip analyst Mark Edelstone and
BancBoston Robertson Stephens
analyst Dan Niles. Rambus closed added 13% Monday to close at 80 9/16, though it was off 1 13/16 Tuesday morning.
Edelstone said a pushback from Intel would only temporarily delay the flood of revenue that Rambus shareholders can expect once Rambus technology becomes standard in the memory industry. And Niles said Rambus stock would stabilize once Intel details its schedule.
As early as today, there may be some word on when the chips will go to market. Rambus CFO Gary Harmon is
speaking at the
BancBoston Robertson Stephens Technology '99 Conference
Tuesday morning. It's far more likely, though, that news will come from Intel later today, should the chip giant choose to disclose the information at the
Intel Developer Forum
in Palm Springs, Calif.
Rambus was one of the hottest stocks in the semiconductor sector last year. Market research firms have estimated that once Rambus chips hit the market, the company is looking at a growth in annual royalty fees from $9 million in 1998 to $400 million in four years.
Intel isn't the only obstacle standing between Rambus and revenue. To produce Rambus chips, memory companies such as
need new testing equipment, and that equipment won't be ready until this summer, says Mario Morales, a chip analyst with
International Data Corp.
"They haven't even rolled out the real product yet," he says. Even then, it will be months before the equipment is customized for each company and the chips can be produced in volume.
"You can test Rambus right now," says Ron Leckie, CEO of
, a research firm that monitors the equipment sector. "But there are a lot of practical problems that won't be solved. It is not a trivial set of changes that need to be made. It will take a little bit of time."
says the first handful of its Rambus testers won't be ready until June, and volume shipments won't begin before September. "They need a fair amount of customization," says Dan McCord, a spokesman for the equipment maker. "We are by far the first to have anything that's affordable, that sell below $1 million apiece."
Another possible delay: PC makers may hold back on orders of Rambus chips for at least six months because of concerns over the year 2000 date change. "Intel had a meeting in the second week of January with PC makers," says Gus Richard, a former chip analyst for Rambus underwriter
Hambrecht & Quist
, now a buy-side analyst with
Emerging Growth Management
"They told Intel that
customers said, 'You can't change the platform on us; we need to start testing for Y2K,'" Richard says. "Customers want a stabile platform.
Rambus changes the specifications and affects the software."
For Rambus to catch on fast, it also has to prove itself worth its cost. Memory makers like Micron and Samsung have to pay license fees to Rambus that average 1.5% of the chip's sales price, and they have to invest millions in the special manufacturing and testing equipment needed to produce it. Those costs are passed along to the PC makers.
These companies --
, for example -- are faced with pressure from consumers to drop their prices. They will pay the Rambus surcharge only if Rambus can produce substantial memory enhancements. Although Rambus promises enhancements of up to eight times the speed of conventional DRAM, that actual performance hasn't yet been demonstrated, says one analyst who asked not to be identified.
Even with the best of news coming from Intel, some analysts question just how high Rambus can go. In December, when the stock was trading at 94,
Credit Suisse First Boston
analyst Scott Nirenberski calculated that it was already fully valued four years out, based on the company capturing 100% of the memory market. Needless to say, that's not something investors can count on.
In the end, Rambus stock may need more than a firm timetable from Intel to push the stock back up.