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Rambus drops on Intel's Pentium 4 decision

Shares of the semiconductor designer tumble following Intel's announcement that the company's controversial memory won't be the only option for Pentium 4 desktop PCs.

Shares of semiconductor designer Rambus tumbled today following Intel's announcement that the controversial memory based around Rambus' designs won't be the only option for Pentium 4 desktop PCs.

Rambus, one of the more volatile and polarizing technology stocks, sunk more than 11 percent today to close at $75.50. In the past 52 weeks, the company's stock has swung from a low of $14.62 to a high of $135, and that's accounting for a 4-for-1 split.

The slide stems from Intel's announcement yesterday that it will release a chipset, which serves as an intermediary between the processor and the rest of the computer components, next year that will allow PC makers to use standard, relatively inexpensive computer memory and Pentium 4 desktops. Intel also is investigating how to adopt the chipset to an enhanced version of standard memory called DDR DRAM that more directly competes with Rambus memory.

Until the announcement, Intel's product road map officially contained only Pentium 4 chipsets for desktops that would work with Rambus, although it hinted earlier that a shift was coming. Intel had said it planned to use standard memory on its server chipsets.

The decision carries enormous implications for the computer industry and the battles for market share between Intel and its rivals.

Rambus memory, also called RDRAM, has been at the center of a bitter controversy in the PC market that has gone on for years. Proponents have said that RDRAM can enhance PC performance because it is much faster and more efficient than standard PC memory, called SDRAM.

When the Pentium 4 computers begin to come out, "we should be able to demonstrate that the Pentium 4 dual channel Rambus chipset will outperform any solution," said Rambus vice president Avo Kanadjian.

Critics say the performance gains will be negligible, however. They point to recent benchmarks posted by Intel that show Pentium III computers actually perform better with SDRAM than they do RDRAM.

Rambus memory also costs much more. PC makers and analysts have said it costs nearly three times as much or more than SDRAM. Kanadjian even said that RDRAM costs about 50 to 70 percent more.

Inevitably, analysts say, Intel will adopt DDR DRAM too because it will at least equal RDRAM in performance, but at a lower price.

Short supplies, manufacturing problems, delays to Rambus chipsets and other problems have also frustrated memory manufacturers and PC makers. Combined, these problems led PC makers to link Via Technologies, which makes non-Rambus chipsets, and Advanced Micro Devices, which gears its Athlon processor to work with standard memory.

Intel's new chipset "is a real admission of how big the problems are with Rambus in the marketplace," said Linley Gwennap, an analyst with The Linley Group. "Not necessarily with the technology, but with the shortage of supply and the resistance of major manufacturers...It forced Intel to rethink a major part of their P4 road map."

Although critical of Intel's Rambus strategy, Gwennap is a moderate when it comes to Rambus. The company ignites strong passions among many in the semiconductor industry. Stock traders often take barbs at each other in chat rooms. Strange as it sounds, a Rambus debate can hit the same level of emotional intensity as a Macworld debate over Microsoft's contribution to graphical computing.

But is the development of Intel's new chipset the end of the controversy? Not by a long shot, analysts say. Intel's new chipset won't come out until the second half of 2001, according to Dean McCarron, principal at Mercury Research. Rambus, therefore, will have close to a year to demonstrate its argument.

The Pentium 4, added Kanadjian, will also be able to take more advantage of the memory because it has faster data buses. The Pentium 4 will be able to gobble data at 3.2 gigabytes per second. Intel's Rambus chipset will be able to forward data from memory at the same rate. Chipsets matched with standard memory won't work that fast.

Rambus also says its patents cover SDRAM and DDR DRAM. Memory makers will have to pay royalties to the company. So far, Toshiba and Hitachi have agreed to pay royalties to Rambus on their standard memory. Thus, even if the industry shifts away from Rambus memory, the company will see some sort of income stream.