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Rambus stock takes a dip

Following a spate of bad news and competitive threats from rival products, shares of the high-speed memory maker drop as much as 32 percent before recovering.

Shares of chip designer Rambus pitched tempestuously Tuesday, the latest episode in one of Silicon Valley's favorite soap operas.

Rambus
Stock price from October 1999 to present.  
Source: Prophet Finance
Rambus shares plunged 32 percent Tuesday morning in early trading. The drop follows concerns that Intel is drifting away from promoting Rambus' memory technology and will begin to rapidly pair Intel processors next year with a competing and less expensive memory technology called double data rate (DDR) DRAM.

The stock recovered a bit later in the day. In late afternoon trading, shares were down $8.38, or 16 percent, at $45.06. Rambus stock has been sliding since the beginning of the month. On Oct. 2, it closed at $83.

Wild fluctuations in price, though, are nothing new for Rambus. The company's stock has swung from a 52-week high of $135 to a low of $15.14 and has undergone a 4-for-1 split.

The Mountain View, Calif.-based company designs high-speed memory for computers. Rather than make memory, it collects royalties and licensing fees, either voluntarily or involuntary through lawsuits from companies that incorporate its technology into chips.

Because of the vast size of the memory market and the charged disagreements surrounding the eventual deployment of Rambus' technology, opinions about the company's future vary significantly. Either the company, with its fewer than 200 workers, will earn a billion dollars a year, or it will fade away.

A little over a year ago, many believed that memory based on the company's technology would be found in the majority of higher-end desktop computers in the future. But that prospect has been tarnished by a number of factors.

Most importantly, DDR has grown in popularity.

Advanced Micro Devices has paired its Athlon processor with DDR DRAM. Intel, Rambus' biggest supporter, has also strongly veered from the Rambus path. Earlier this month, Intel CEO Craig Barrett told the Financial Times that the company's exclusive focus on Rambus for higher-end PCs was a "mistake."

During the same week, Paul Otellini, general manager of the Intel Architecture Group, told analysts that the company was looking at DDR for Pentium 4-based desktops, a departure from the strong statements promoting Rambus with Pentium 4. Intel has already said it will promote DDR and standard memory, rather than Rambus, for servers.

Rambus' stock dipped on these earlier pronouncements from Intel's executives, but the bad news was tempered by a positive earnings report on Oct. 18. Rambus beat expectations on a fourfold growth in profits. Rambus is also the memory used inside Sony's PlayStation 2.

In August, analyst firm Inquest released a road map showing that Intel would move to DDR for PCs in the middle of 2001. The report was reiterated Monday in Electronic Buyer's News.

The road map cited in the EBN report "shows that by the third quarter of next year Rambus is only in PCs and workstations that are above $2,000, which at this point is a pretty small market," said Mark Grossman, an analyst at SG Cowen. "The real question is if Rambus is going to become the dominant memory, and if Intel's support starts waning that's less likely to happen."

In another blow to the company, it appears that Micron Technology, Infineon and Hyundai will continue to press litigation against Rambus over DDR. Rambus has successfully settled legal negotiations with Toshiba and others, claiming that these companies must provide Rambus with royalties for making DDR DRAM. Rambus alleges that DDR DRAM infringes on the company's patents.

However, despite the settlements, Rambus has yet to reach an accord with the biggest memory producers--a list that includes Micron and Hyundai--over its patent claims. Royalties from these lawsuits have become a major potential income stream for Rambus.

An Intel spokesman downplayed any rift between Rambus and Intel and questioned the reaction to the EBN article.

"These are announcements that have been made months ago and are consistent with what we said in the past, so there's no news. I don't know why people get excited about a restatement of information that's already been made," Intel spokesman Howard High said Tuesday.

"Today Intel remains commited to (Rambus) DRAM for high-end PCs and workstations, and the Pentium 4 will get introduced with (Rambus) DRAM. In the future, as the Pentium 4 moves into the more mainstream market, Intel has already committed that it will offer support for other memories that are on the marketplace."