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Rambus shares slide as questions multiply

Shares in the memory firm drop from last week's historic peak amid wrangling in the chip industry over the future of the company's technology.

Rambus shares are dropping rapidly from last week's historic peak amid continued wrangling in the semiconductor industry over the future of the company's technology.

Shares of Rambus, which designs high-speed memory for computers, were at $266.58 at the close of regular trading today, down $50.44 for the day and more than $200 below the all-time high of $471 hit earlier this month. The stock traded at volume of approximately 7.5 million shares, more than triple the average 2.2 million.

The swift decline seems destined to back critics of the company who have said for some time that memory based on Rambus' design will occupy a niche in the marketplace.

Rambus supporters see a different story, however. The stock is still well above the 52-week low of $51.50 and the $80 to $90 range inhabited in December. The recent gyrations are largely the result of trading activity as opposed to changing fundamentals in the company's future, they maintain.

"Clearly we had a big run-up in the stock and saw some profit taking," said Mark Edelstone, an analyst at Morgan Stanley Dean Witter. "Stocks don't go from $80 to $480 that often in that short of a time span." Edelstone called the stock "attractive." His target price is under review.

The turmoil is the latest event in one of the semiconductor market's more polarized companies. Although chips based on its designs can deliver higher PC performance, several product snafus in 1999 delayed the introduction of Rambus-based PCs.

The delays even contributed to lower-than-expected revenues at the end of last year for Dell, according to several Wall Street analysts. Besides the delays, several memory makers and PC companies complained about the high cost of Rambus memory.

The stock slid as a result. Meanwhile, several vociferous critics of Rambus have stated that a different, cheaper type of memory--called Double Data Rate (DDR) DRAM (dynamic RAM)--would supplant Rambus as the dominant form of high-speed memory in the future. IBM released the first memory modules containing DDR DRAM today, although they are currently only available for IBM servers.

at a glance

HQ: Mountain View, CA  
CEO: Geoff Tate  
Employees: 166  
Annual sales: $43.37 million  
Annual income: $8.72 million  
Date of IPO: May 1997  
Ticker: RMBS  
Exchange: Nasdaq

Rambus quotes
Rambus news

Source: Bloomberg 3/21/2000

In February, Rambus began to rally on a spate of positive news. Sony reiterated that it would use Rambus memory in its PlayStation2 game console, which was released March 4 in Japan. For its part, Intel said it would create chipsets for using Rambus memory with its forthcoming Willamette processor for desktops. Intel also said it would invest $250 million in Infineon to manufacture Rambus memory.

Oddly, none of the news could be described as new at the time. Sony's decision had been expected for over a year, and Intel's announcement also was widely anticipated. In addition, other companies were working on non-Rambus chipsets for Willamette, and Intel said that several servers using its chips, including its first 64-bit Itanium processors, would use regular memory and even DDR DRAM instead of Rambus.

Research firm International Data Corp. in February estimated that Rambus will account for 11 percent of memory shipped this year, while DDR DRAM will constitute 10 percent.

By contrast, Jim Handy at Dataquest earlier said that Rambus would account for 16 percent of the total memory shipped in 2000 and 53 percent by 2002.

Other analysts attributed the surge partly to speculative trading of the shares. Over the long term, Rambus' fortunes don't look great, they said.

"No one is working on Rambus (PC) designs," said Bert McComas, principal analyst at InQuest Market Research, who has been critical of the company.