Rambus bounces back after analyst upgrade

Mark Edelstone, an analyst at Morgan Stanley Dean Witter, raised his target price for the stock from $110 to $500 today. Whether or not related to the Edelstone's statement, Rambus stock climbed today, erasing yesterday's perilous drop of more than $50.

At the end of regular trading today, Rambus had risen $83.86, more than 31 percent, to close at $350.38. The stock closed yesterday at $266.

The stock hit an all time high of $471 earlier this month. In December, Rambus slumped to the $80-$90 range because of earlier delays and the high cost of Rambus memory.

Rambus, which designs high-speed memory for computers, has emerged as one of the more controversial and polarizing companies in the semiconductor market.

Supporters, including Edelstone, believe memory based on the company's designs will account for a substantial portion of the multibillion-dollar market for computer memory in the next few years. Rambus does not make memory but instead collects royalties from manufacturers that employ its designs.

"As royalty revenues increase during the next several years, we believe that Rambus' net margins should be able to exceed 50 percent, and they will probably end up becoming one of the highest profit margins ever enjoyed by a semiconductor-based company," Edelstone wrote in this morning's report. He estimated earnings per share for the current fiscal year at $1.30, up from 60 cents last fiscal year. Morgan Stanley was one of the underwriters for the stock and is a market maker.

Detractors state that the company's technology will be relegated to niche areas of the overall memory market, due to the high cost of making Rambus memory. Instead of Rambus, the memory market, especially the market for memory-intensive products like servers, will be defined by a cheaper design called Double Data Rate (DDR) DRAM.

IBM yesterday announced that it is beginning to include DDR DRAM in some of its servers.

The main difficulty in examining the company right now, however, is the level of static. "There are too many opinions out there," said Peter Glaskowsky, an analyst at MicroDesign Resources.

The picture may begin to clear up in a few months when Intel releases the Willamette processor, the first chip that will allow PCs to substantially exploit the potential of Rambus. Paired with Rambus memory, Willamette will set a new standard for PC performance, he predicted. "It will be like there are two classes of machines," he said, "There will be no comparison. Prices on Rambus memory will get cheaper toward the end of the year."

But can Willamette justify the spike in the stock price? Probably not, he said. While the memory will start to get more popular, Rambus will largely be used in the performance PC and the workstation markets. Budget PCs and servers will likely depend on non-Rambus memory through 2001.