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Rambus rides earnings fallout

Stock in the up-and-coming company jumps but then retreats after announcing that it met analysts' expectations for its fourth-quarter income.

Shares of Rambus, developer of an up-and-coming computer memory technology, jumped in early trading but then retreated after the company announced fourth-quarter earnings yesterday that were in line with Wall Street expectations.

Rambus reported fourth-quarter net income of $1.75 million, or 7 cents per diluted share, compared with net income of $1.06 million, or 4 cents per share, for the same quarter a year ago.

Those earnings met analysts' expectations of 7 cents share, according to First Call.

Rambus stock jumped 4.07 percent to 64 at the opening bell, but then lost ground to trade at 60.875, down 0.625 of just over 1 percent, by late afternoon. The company's shares have traded as high as 71.88 and as low as 35.5 during the past 52 weeks.

The company is likely to get a further boost after Intel announced it had invested $500 million in Micron Technology. Intel said that it hopes to help drive personal computer industry growth by accelerating the adoption of Direct RDRAM, a high-speed memory interface technology developed by Rambus. Micron licenses technology from Rambus.

For the quarter ended September 30, the company had revenues of $9.66 million, an increase of 24 percent over the same period in 1997, and an increase of 5 percent over the previous quarter. Rambus reported revenues of $7.82 million during the fourth quarter last year.

Rambus has developed a high-speed connection between computer processors and memory, a bottleneck that's become increasingly significant as processors run at faster and faster speeds.

Rambus has achieved success licensing its next-generation memory technology to major computer companies, most notably Intel, but also IBM, Compaq, and others.

Rambus had net income of $6.88 million for its 1998 fiscal year. For fiscal year 1997, Rambus had net income of $1.98 million. The company had total revenues of $37.9 million for its 1998 fiscal year compared with revenues of $26 million last fiscal year.

Brian Matas, vice president of market research at IC Insights, said Rambus's growth probably was put on hold for a quarter or two by the weak global memory market.

Fundamentally, though, Rambus has a strong technology, he said.

"Investors know it's a decent technology, and know it's going to go up. Once it takes off, it'll probably [grow] pretty rapidly," Matas said.

Intel's reasonably good performance and AMD's strong chip shipments is good news for Rambus. As requirements for a faster connection between memory and the processor increase, "we'll probably see Rambus's revenue and net income grow a little bit more," Matas said.

A more serious long-term issue is the significant royalty that licensees pay to Rambus. Computer manufacturers see the royalty they pay to Rambus as a thorn in their sides, and they'll be happy to switch if they find a technology that's as good as Rambus, "and that does not have the premium associated with it," Matas said.