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Rambus rebounds with Samsung licensing deal

The controversial designer of high-speed memory announces a deal with Samsung that allows it to collect royalties on virtually all computer memory produced by the market leader.

Rambus, the controversial designer of high-speed memory, saw its fortunes rise again Wednesday when it announced a major deal with Samsung that will allow Rambus to collect royalties on virtually all the computer memory produced by the market leader.

Under the deal, Samsung has agreed to pay Rambus licensing fees and royalties on its output of synchronous dynamic random access memory (SDRAM), the most common form of memory today, as well as double data-rate (DDR) DRAM, a high-speed form of memory that competes with Rambus' RDRAM. Because Samsung already pays Rambus royalties on its RDRAM output, today's deal means that the Korean giant will pay fees to Rambus on the vast majority of memory chips it produces.

After dropping around 10 percent Tuesday on fears that Rambus and Intel were feuding, Rambus' stock rose Wednesday. It ended regular trading up $3.69, about 8 percent, to $48.63.

While Rambus has struck similar deals with other memory manufacturers, Samsung is a critical addition, as it is the largest memory manufacturer in the world, commanding an estimated 20.7 percent of the market. In total, the manufacturers that have signed comprehensive settlements with Rambus collectively control 40 percent of the market, Rambus CEO Geoff Tate said in an interview.

"We think it would be difficult, if not impossible, to develop a competing technology to RDRAM and not infringe on our patents," he said. "We are extremely confident in our legal position."

Overall, these agreements could lead to Rambus making $1 off every desktop, laptop or server sold, according to some analysts' estimates, a figure that "is in the ballpark," Tate said. Samsung, like the other companies, will pay a higher royalty in terms of percentage on DDR DRAM output than it will pay on RDRAM output, he added.

Controversial
Though it was a relatively obscure company two years ago, Mountain View, Calif.-based Rambus has become one of the most controversial semiconductor companies in the market today.

In 1990, the company filed a series of patents for a new type of high-speed computer memory. A few manufacturers had adopted its technology early in the decade, but the company really came to prominence in 1996 when Intel announced it would pair future microprocessors with memory based on Rambus' designs.

Controversy followed a few years later. Rambus memory turned out to be expensive and complex to make. Memory manufacturers recoiled at having to pay the company royalties.

Although many began to turn to DDR as an inexpensive alternative, Rambus began asserting in 1999 that its patents also gave it rights for royalties over that type of memory. Recently, no less of an ally than Intel CEO Craig Barrett complained about the royalty structure, calling at least some of the company's focus on Rambus "a mistake."

Mistake or not, legal actions from Rambus will likely become a fixture in the semiconductor world. The DDR lawsuits and settlements involve nine patents, Tate said. The company, however, has close to 100 memory patents on file. Intel and a series of memory companies have already formed a new coalition to devise a future memory standard for 2003 and beyond. Tate called the group "competitors."

Contributing to the controversy is how patent offices operate. Companies file patent applications in secret. Claims based on these filings, however, often only come to light years later.

"We have claimed a lot of inventions from that 1990 filing," Tate said.

Overheated expectations
Rambus has also suffered from overheated expectations. "People view our market penetration (with RDRAM) as a failure, but only because expectations became so unrealistic a year ago," he said.

With Samsung settling, the only major memory companies that remain at legal odds over the issue are Hyundai, Micron and Infineon. All three are locked in lawsuits with Rambus.

In the end, Tate said the industry will gravitate toward RDRAM over DDR DRAM because of price and performance. Rambus memory is still expensive, but it is coming down in price. The higher royalty rate on DDR will also make that memory less attractive.

"DDR is perhaps a better solution than SDRAM, but it is not better than Rambus," Tate said. "DDR will cost more and sell for higher prices when it hits volume."

While Rambus has ruffled feathers in the industry, Tate said the company is not out to run memory companies into the ground. Instead, it is just filling a need.

"We're not trying to put anyone out of business," he said. "(Memory) is a critical issue. It's no use putting a fast engine in a car if you don't have any tires."