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Rambus royalties higher than expected

Company executives disclose the royalty rates the memory designer is seeking from manufacturers, and the numbers are higher than expected.

Rambus executives disclosed the royalty rates it is seeking from memory manufacturers, and the numbers are higher than expected.

Testifying on Wednesday in the company's patent infringement trial against German chipmaker Infineon Technologies, Rambus executives disclosed that the company charges memory chipmakers a 3.5 percent royalty on the manufacture of DDR DRAM, a high-speed memory design that competes with chips based on Rambus' RDRAM, according to reports on Electronic Buyer's News.

A Rambus official confirmed that it is charging the licensees approximately 3.5 percent on DDR DRAM and .75 percent on SDRAM. Rambus levies a 0.75 percent royalty on output of SDRAM, the most common type of memory used in PCs today, according to testimony.

The royalty rates also illustrate why Infineon, as well as Micron and Hyundai, have landed in court. In the intensely competitive memory market, every cent counts. Some companies recently have had to sell SDRAM for less than cost, so royalties are especially painful.

Rambus has signed royalty agreements with a number of memory makers, including market leader Samsung. These companies have agreed to pay royalties on the production of DDR DRAM and SDRAM. Royalties will shrink drastically, however, if a court rules the patents can't be enforced.

To date, Rambus has said that the royalty rate on DDR is higher than on RDRAM and that the SDRAM rate was lower, but it has not provided specific figures.

The rates also highlight the sort of majestic returns that Rambus stands to reap if the patents are upheld. Under current memory prices, Rambus would likely earn close to $2 from the sale of a PC containing 128MB of DDR DRAM from one of its licensees. A similar PC with 128MB of SDRAM would end up earning around 17 to 20 cents for Rambus.

The royalty rates are "very high by traditional standards for semiconductor licenses, which tend to be below 1 percent," said Insight 64 analyst Nathan Brookwood.

Although the PC market has slowed recently, the agreements would still bring in millions. About 130 million PCs are expected to be sold worldwide this year. Nearly 90 percent will contain SDRAM, while the remainder will contain DDR DRAM or RDRAM. Rambus' licensees account for about 50 percent of the world's memory output.

Rambus charges a royalty of 1 to 2 percent on RDRAM, said Dan Scovel, an analyst at Needham & Co.

"I am surprised that DDR is that far above RDRAM," he added.

RDRAM costs more than DDR, however, so the return is about the same for Rambus.