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I believe you owe him an apology.
Yikes...
I'm somewhere in the middle (or try to be) when it comes to the bashers and the pumpers - both annoy me equally. I don't want to call people out because both bashers and pumpers can offer up useful information and I don't want to alienate anyone else. Croaker's points are valid and do echo my own sentiment, but my problem with Croaker is that he is a lightning rod for off-topic discussions. There have been countless threads devoted concerning Croaker about his personal life and his investment decisions and other garbage I don't care to peruse here. People hate him and when he posts, it tends to start an avalanche of name calling, bickering, and useless dialogue. I don't give a crap if he's divorced, worships judge Payne, is from VA, went to law school for a semester, or fornicates with donkeys.
So much for the squeeze - the bus just turned red. And so much for the supposed news coming out of Texas this morning. As my handle suggests, I tend to be a doubting Thomas anyway.
Cal - took your advice and took a more thorough look at the Hynix motion. My odds of 90% were geared at the prospect of Whyte denying Hynix a new trial. Hynix presented their case - in fact their motion regurgitates their position at the trial. Whyte's not going to give them a new trial just because they don't like the outcome of the first one. Nothing has changed since then. As for the chance Whyte denies the IA - hmmm - need to lower my odds here - maybe 75% chance. Hynix will have plenty of time to appeal the whole damn thing once the infringement portion is done. I think Whyte will see it the same way. He realizes how long Rambus has been at this and how much money has been wasted on those infernal lawyers already. If he does grant an IA - I do think he continues with the infringement portion in tandem.
I'm holding shares now - no options - I can wait for the CAFC to say buzz off if that's what it comes to.
I think the exuberance may have gotten somewhat irrational in Rambus-Land with predictions of 5% royalty rates, but there is real cause for excitement here - there could finally be a jury verdict of infringement and a real AT trial.
I think my favorite part of the Hynix brief was on page 3 when Hynix compared themselves to victims who were unwittingly adminstered LSD by the CIA... "in fact, like the DRAM manufacturers in this case, the victims of the experiments were blissfully unaware of the government's conduct." I would say that Hynix must be smoking something if they expect Whyte to feel bad for them!
2. Whyte grants appeal. P2 = 60%
Why would Whyte grant this appeal? Hynix is not presenting new information or pointing out flaws in Whyte's interpretation of the law - they are whining that Payne's view is different. What reasonable judge would agree to an appeal after having have allowed months of discovery, hearings, motions, and bullcrap in their court and then issuing a strong, well-reasoned opinion? Payne did none of the above. Whyte was well aware of Payne's opinon of Rambus before he issued his ruling - why should Hynix's hail mary change his opinon now?
Whyte had an opportunity to bow out and let Payne take over - before he did all this work. Why would he waste all that time only to change his mind now? I think the more reasonable probability is a 90% chance Whyte does not grant IA.
Payne didn't allow discovery into JRA, didn't allow new witnesses, didn't allow the DOJ evidence, only allowed Timony's biased FTC opinions. The biggest piece is that there was no written ruling from Payne. Hynix's IA holds no merit and has little chance of getting granted.
Things that struck me from the CC:
As Cal mentioned - the deal at the EPO sounds positive and it's nice to hear about a reversal in thinking over there.
The Japan patents being granted are similar to the ones being granted here (my interpretation) which further bolsters the validity of said patents.
75% of 2005 royalties are already under contract for 2006 (couldn't understand whether that included Intel or not)
Tax rate of 39 or 40% for next quarter - this is what we had been assuming in our "what-if" scenarios on profitability and apparently that was correct.
Stock option expensing will start in Q1 06 - not surprised at all that Bob didn't want to say the potential expense on the CC - from the footnotes, we are talking BIG numbers - to the tune of their entire profitability (.08 a share) - Wonder how investors and the street will react when they realize that Rambus isn't making any money at all when you factor in the cost of paying Bob and Geoff and Harold and John Danforth and Laura Starks and the rest in the executive suite.
110 million shares fully diluted next quarter (HOLY MOTHER F***ER) Capital IQ data says there are 100 million shares outstanding now. 10% dilution? Holy shit and this is after the million shares they just bought back. The gravy train is DAMN expensive.
SG&A expenses are still out of control.
And the bomb of course was the disclosure that the AT suit might not even go to trial this year. We are waiting on appeals - Hynie and Sammie still looking to compel arbitration - those f**kers would like that.
The good news as others have mentioned - it sounds like Nintendo is the mystery contract that they can't disclose - wonder how much incremental revenue we're talking?
The Hynix trial may not need to include a phase III and the damages should be known some time in April.
February might yield some good news in the form of DOJ doc diclosure to the public.
All in all - not good not bad - unfortunately given the run-up, people were looking for big news.
Estimate .08
The estimate you list is Hambrecht's - the only one who puts out an estimate.
I used their model as a starting point and came up with my own estimate. The big unknowns are the effects of expensing options (Hambrecht assumes a 0 here) and the amount of other income (which was 21 million last quarter due mostly to the buyback of the convertible).
I'm assuming that the effect of options expensing will be to the tune of 8 million (or about .08 per share). With that assumption, I get a slightly negative number for profits from continuing operations, but then I use Hambrecht's assumption of 7 mill for other income and I come out with 4 cents a share. I'm also assuming a slightly higher revenue number (I think he's got it pegged at 40 million - I'm going nuts and assuming it will be about 41 million. I'm also making slight tweaks in the SG&A and Reserach categories and upping the litigation estimate to 10.5 mill from 10.0 mill.
Anyway - if the options expensing takes effect this quarter and is to the tune of 8 mill - I'm looking for 4 cents a share.
Rambus is like a biotech right now - no one really cares about the profitability - they are looking 5 years out to what Rambus COULD make.
I was hoping for an early morning announcement - but nothing yet.
Cal - OT
Do you have any opinion on ACTL?
TIA
Pressure from major private and institutional shareholders? Probable.
Maybe our friend Mr. Steele called him out?
Care to comment Mr. Steele?
So I think Tate was simply complying with executive compensation regulations.
This is news to me - they have regulations concerning compensation? I thought it was a free-for-all!
:>
I'd like to think my bitching had some small part to do with this - but either way - thank you, Mr. Tate.
That is why I believe settlements will be reached in 2006, before the AT trial begins, if not earlier.
I hope you're right. I appreciate the hard work and research you've done - thanks.
Skeptic,
I love your posts and I respect your integrity and intelligence, but I'm sure glad you're not on the Rambus negotiating team.
The feeling is mutual Pruf (the first part). Unfortunately for you and some others, my sense is that those on the negotiating team are of a mind similar to mine. I've had some success with negotiations in the past, but I have never had to deal with parties as nefarious as those Rambus must work with. I'm sure I'd make a better mediator than negotiator.
QCOM is collecting more than 5% on its patent portfolio.
Interesting - maybe I'm selling the bus short of its potential. JM - could you point me in the right direction for determining what QCOM gets off its patents?
For me, it comes down to the whole bird in the hand thing being better than two on the wing. I don't need the whole pie in the sky - a slice of apple on my plate works for me. There are still too many unknowns - Rambus has gained an advantage - now is the time to negotiate. But if we corner these guys, they are going to fight. It's pretty much a given that the infringement trial should go well, but let's take a look at what-ifs from that point...
What if a jury doesn't think Rambus' patent portfolio is worth as much as the rest of us?
What if Hynix does find prior art or latches or impropriety at the patent office?
What if our government (not just the FTC) decides to pursue IP blackmailers (not my view) such as Rambus and place strict limitations on how much they can collect. Maybe the whole thing with the RIMM and NTP comes to a head and the politicians lose their crackberries and decide to go after IP companies. There was a great article on this point in Business Week a few issues ago talking about how the threshold for obtaining patents is too low and how the whole suject of obviousness needs to be revisited. What if Hynix were to pursue this argument with a sympathetic government or judge - the result would be the same as we have seen in Europe.
What if we lose the Intel revenue, what if Elpida and Hitachi stay on small fixed payments, what if we don't meet the clause for the extra money from Infineon, PCI continues to bring very little revenue, the PS3 bombs (I read an article from a software developer who said the PS3 has not been worth the wait), XDR never goes anywhere but the PS3...
You get the picture - there are still a lot of risks - let's not give away the farm, but let's not be unreasonable. Justice is not reality - justice is rarely served here or anywhere.
Finally, think about the incentives of Rambus mgmt - you can be sure they would rather take the sure millions in 2006 than the potential 10s of millions 5 years from now.
JM2Cents.
Rambus mgmt will go for the low-lying fruit. This saga has been going on for way too long. This is about making money - for those on this board, for Rambus, and for Rambus' customers. It's business. It's bad business to keep dragging this thing out. I suggest you look to the most successful IP company (QCOM) and see how they got where they are today. It was not by attempting to bankrupt their customers. I, for one, am sick of waiting till the end of time for Rambus to receive justice. They never will. They've won a battle - not the war. Even in a war, you don't keep fighting until even your enemies' citizens are dead. You hurt 'em bad and then let them capitulate.
Maybe the line in the sand is the rates that Rambus would have received had the MMs signed on board to begin with. But, like TJ pointed out, Rambus is going for fixed payments - they've told us as much. I'm hoping these fixed payments are on a magnitude larger than the IFX fixed payments. I don't want to see Rambus collecting a billion dollars in past royalties - I want to see Samsung paying 200 million a year for the next 10 years.
Regardless, there is no settlement without compromise, and there is no end without settlement. Let's all move on - I can tell by the passion in the posts that we have all spent way too much emotional capital on Rambus - it's a stock - there's thousands of them out there and tens and hundreds of them that outperform Rambus every year. Perhaps some of you are like me - a little apprehensive at the prospect of not having the Rambus drama to follow. Don't worry - they'll always be drama even with global settlements.
One last thought - I try to be as diplomatic as possible - in line with the tenor on this board - and I would suggest that there is nothing wrong with being polite. TJ may not be without reproach, but he is damn near close to it. There are few people as well-balanced, sagacious, and mature as TJ. These qualities alone make his opinions carry more weight in my book.
You have the advantage of having been there (I believe) and therefore I defer to you. Regardless, my original point was mostly that this is far from over if we do not see settlements soon. Rambus needs to work with these guys in the future so they need to strike a balance. People are shouting for the MMs' heads - 5% royalties on everything - let's all be realistic - that's not going to happen. Let's settle at 3 or 3.5 and call it a day and try to strenghten relations with our customers.
I'm also concerned about the time value of money and the propensity of mgmt to overindulge themselves in free stock. Let's settle this now with all parties at 3 to 3.5%, watch the stock go to 60-80, and then cash out some and put it to work elsewhere.
This is when JW went ballistic, at least as ballistic as I think he'll ever get. He directly asked, "Is there any company, after all this is resolved, that will have any money left? This is nuts!"
Stone answered, "Yes, they will have a lot of money left."
JW continues, "It just boggles my mind! This litigation continues and costs more and more. It's time for someone to make some good business judgements. You're certainly going to have appeals here, in Virginia, in Delaware. It's crazy! I normally stay out of these things, but this one just jumps out as needing to be resolved.
Obviously, Rambus won the unclean hands case, but they have some real issues on claim construction that they could lose on appeal."
Stone then tells JW, "Rambus certainly agrees with you on this. In fact, we think that by adding Micron to this case here, will help get the mediation process going. This will put them into the same position as the other parties, who are proceeding down that path."
JW just shook his head and mumbled something.
Holy Crap - what do you make of that exchange especially the remarks on there being real issues on claim construction that they could lose on appeal?
My sincere hope is that Rambus is NOT holding out for outrageous numbers - I would be more than happy if they settled the whole thing at 3.0% on DDR and its progeny. JW has been good to Rambus but even he ackowledges that if Rambus is going for the jugular, everyone could lose.
Let's settle this quickly. JMO.
JMONTIM - nice to see you hear - it seems that the best elements of Yahoo are relocating over here - (msaba, mtsugawa, and next999next of the names I recognize). I've always appreciated your posts on Yahoo so it's nice to see you here. I gave up months ago trying to wade through the muck over there. I would like to make a request of Threejack/docrew0 now - should the Frog ever show up here, please censor him - TIA!
The stock's been weak all day and now looks like it will close positive. I must admit that if did not know the story (like Cramer) and looked at it purely on valuation, I would say that Rambus is overvalued. But ironically, Cramer likes to hump CRM and GOOG who's valuations seem even more outrageous. The guy is an entertainer - not a stock picker.
I picked up some more shares today which is very atypical for me - to buy a stock after it's already had a huge run. I'm close to giddy on Rambus' prospects however I would note the following potential pitfalls:
Payne does what most probably expect - he issues some sort of written ruling on spoliation in direct conflict with Whyte's forcing Rambus to the CAFC and more importantly, forcing more DELAY and UNCERTAINTY - two of the Street's worst fears.
It may turn out the Alberta suit actually has merit and, if nothing else, it muddies the waters and steels Samsung's resolve. More Delay.
Hynix finds some piece of Whyte's ruling on which to file for an interoculary appeal from the CAFC - more delay.
I don't believe any of the above or any other potential scenario will stop Rambus now, but I'd much rather see global settlements in 2006 than in 2009. Once we get this DRAM crap settled, we can go after graphics companies and controller companies and PCI companies and then maybe it's the Flash companies.
We shall see.
These guys use these quant models to come up with these conclusions as to valuation and they don't take into account any particulars of the stock - I'm sure the same model was saying to sell Google at 200 a share.
Here's another model in TSC article...
Rambus (RMBS:Nasdaq - commentary - research - Cramer's Take) is rated a sell by ValuEngine. This stock is 229.2% overvalued with fair value at $8.60. The weekly chart profile is overbought with the five-week MMA at $19.26.
What's your target, TJ? At what point do you consider valuation? I would prefer to hold my new shares for a year or more to get LT cap gains, but I have some shares in my IRA as well. The best part for me (well other than the money) is being able to finally tell people: "I told you so". I've been touting this stock for many years to many people and have looked quite a fool until the past two weeks.
I'm glad all this mental anguish has finally paid off! Congrats to all longs!
Haven't seen these prices since McGuire threw us a bone. Is anyone else kicking themselves for not backing up the truck after Whyte's order came out? I'm not even contemplating selling until we hit 40 and probably won't then either.
It's probably safe to say that earnings will be reported next week, but there hasn't been any official word from the company on the exact day as far as I can tell.
Right now, I am dubious that they will see 3.5% from a jury;
What might we see from a jury? 3%? 2.5%?
I keep coming back to estimating what royalties COULD look like if Rambus is able to settle with Samsung, Hynix, and Micron. According to various sources, the size of the DRAM market in 2006 is expected to be ~24 billion. I'm not sure what the breakdowns are, but my WAG is that RDRAM is 8%, SDRAM is 20%, and the DDR flavors comprises the remaining 72%. I believe we know RDRAM to be at 2.5% royalty rate, SDRAM we can assume is at 0.75%, and let's see what 2.5% would look like for the rest of the market.
I come up with a blended royalty rate of 2.15% and total revenue of 516 million. Now I adjust for the fact that Infineon which has 15% of the market is only paying about 23 million a year and I also assume that another 5% of the market is uncollectable by Rambus.
My math gives me revenue of 435.8 million based on the above assumptions. I give Rambus 40% net profits (on par with QCOM which is best of breed), apply a 30x P/E and come up with a fair value of 52.3. Now - if Rambus could get 3.0% for the DDR flavors, the fair value moves to almost 61 a share. Even with a more conservative net profit margin of 35% and the more conservative 2.5% on DDR flavors, I still get a fair value of almost 46 a share. The best part is that I'm ascribing ZERO value to any other part of the business and ZERO value to cash.
I'm saving a little reserves but contemplating getting piggy.
Don't forget the lawyers
Stuart Steele
How could I forget the lawyers. Stone and the rest at Munger have been worth their weight in gold - I'm not sure how much credit Danforth deserves. As it turns out, the lawyers are also being well compensated. The two pillars of an IP-only company like Rambus are the technology (engineers) and the enforcement of IP (lawyers). Rambus' culture will always be about innovation and litigation.
Will, think back to the convert deal over the past year and stop bitching about Bob.
I prefer to think of my bitching as shareholder activism. Do you really think Bob was the brains behind the convert? Wasn't Hughes a finance guy from his days at Intel? I admit I'm a little hard on Bob, but a guy making that kind of money (this goes for the whole executive mgmt team) should be under the microscope. Apathy is certainly not going to help you.
TJ - what's sjsjs1111 doing on that list of valuable contributors? He still hasn't offered me a ride on his jet. You know what I like about Stuart though - it doesn't take long to read his messages. And, he also doesn't feel it's important to tell people how many shares and options he has even though he's up about 84 million in the last couple of weeks (I'm assuming he's still long 7 million shares).
Stuart - if I have your attention - could I ask for one favor? Could you please address or look into the rampant cronyism at Rambus? I know it's easy to forgive and forget the excessive compensation and lavish stock option grants when the stock is up, but I just noticed that Bumbling Bob sold another 45,000 options and net himself almost a cool million just yesterday. Not only does he not deserve the money, he's diluting your stake and mine. I'm glad Tate has decided to close the spigot on the gravy train since September, but I want to see these clowns earn their money. Please don't forget who the invaluable employees are at this company - it's the founders and it's the engineers. The executive mgmt team could easily be replaced without skipping a beat.
I was hoping for a little pullback, but I am putting my money where my mouth is and adding here - I'm saving some reserves should Payne try something funny. I think the MM house of cards is being refabricated into a house of pain. Cabo might be an option afterall or maybe I just throw the family in the minivan and we hit McDonald's to celebrate.
Well - on the subject of options - it is very difficult to read the tea leaves through option activity. There are a variety of reasons for purchasing or writing options. Institutions typically use them for hedging (short the stock long the call or long the stock long the put). You will also see a lot of covered positions with options - short the stock short the put and long the stock short the call. It's entirely possible that today's activity was short sellers covering their arse (by going long calls) instead of trampling each other on their way to the fire escape. Typically, it's the retail speculators that go long calls for investment's sake and when you have a huge volume day, you tend to see a lot of activity in the at-the-money options. This stock/company is such an enigma and crap shoot that I doubt any hedge fund has enough of a bead on it to waste premium buying calls. That said, wish I was still long some calls.
I think the stock will form a new bottom here after Whyte's strongly favorable decision. I would welcome another cockamamy (sp?) ruling from Payne as a buying opportunity. This is the first time since the FTC ID from McGuire (two years ago - is that right?) that I've been this optimistic and the first time since dancing with this devil that I will feel comfortable buying on dips. Any crap from Payne or the FTC will have me opening my wallet and I have a feeling I'm not alone hence the call on the stock basing here.
It's a matter of when - not if - now.
The only doubt I have now is Cal's sudden exuberance. I can see him now - dancing a jig in his palatial "hut" on Maui. His stock price estimate just quadrupled overnight. I'd say someone was up all night drinking the Koolaid reading Whyte's work of art.
3.3% blended royalty rates? No operating expenses? A P/E of 35 for a cyclical commodity business? That's California dreaming for ya! I'll bet you Bobby Eulau would be dancing a jig to that tune as well - once he got done salivating over the millions of options his buddies on the compensation committee would grant him.
One more...
3
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No evidence suggested that
material, non-cumulative prior art exists that Rambus has not produced. Thus, it does not appear that
Hynix has been deprived of material, non-privileged, and non-cumulative documents.
I'll be anxious to hear da Greek's angle.
25
26
Thus, Rambus's adoption and implementation of its content
neutral Document Retention Policy in mid-1998 was a permissible business decision. The destruction of
documents on the 1998 and 1999 Shred Days pursuant to the policy did not constitute unlawful spoliation.
Sorry - I'm excited here...
Considering this is a seminal piece, I will post some select passages...
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Here, by contrast, the path to litigation was neither clear nor immediate. Although Rambus began
to plan a litigation strategy as part of its licensing strategy as early as February 1998, the institution of
litigation could not be said to be reasonably probable because several contingencies had to occur before
Rambus would engage in litigation: (1) the direct RDRAM ramp had to be sufficiently developed so as not
to jeopardize RDRAM production; (2) Rambus's patents covering non-RDRAM technology had to issue;
(3) product samples from potentially infringing DRAM manufacturers had to be available in the market; (4)
the non-compatible products had to be reverse engineered and claim charts made showing coverage of the
actual products; (5) Rambus's board had to approve commencement of negotiations with a DRAM
manufacturer; and (6) the targeted DRAM manufacturer had to reject Rambus's licensing terms.
I'm anxious to see Payne's reaction to this.
It couldn't have gone any better than this for Rambus (IMO)
discovered by greekwarrior at TMF
http://www.cand.uscourts.gov/cand/judges.nsf/bc83a5777591b96f88256d480060b73c/088811d5565ed0eb882570...
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FINDINGS OF FACT AND CONCLUSIONS OF LAW
C-00-20905 RMW
40
E. No Basis for Dismissal
Default and dismissal are proper sanctions for willful destruction of documents and records that
deprive the opposing party of the opportunity to present critical evidence on its key claims to the jury.
1
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See, e.g., Professional Seminar Consultants, Inc. v. Sino American Technology Exchange Council,
Inc., 727 F.2d 1470, 1474 (9th Cir. 1984). "Although a particularly severe sanction, outright dismissal of
a lawsuit is within the court's discretion." Aptix Corp. v. Quickturn Design Sys., 269 F.3d 1369, 1378
(Fed. Cir. 2001) (citing Chambers, 501 U.S. at 44 ). However, the Supreme Court has cautioned that
"inherent powers must be exercised with restraint and discretion." Chambers, 501 U.S. at 44. Dismissal
is a harsh penalty and should be imposed only in extreme circumstances. See Ferdik v. Bonzelet, 963
F.2d 1258, 1260 (9th Cir.1992).
Here, the court does not find dismissal to be an appropriate sanction because it does not find the
application of the unclean hands doctrine to be warranted. Further, the evidence presented does not bear
out Hynix's allegations that Rambus adopted its Document Retention Policy in bad faith. The evidence
also does not demonstrate that Rambus targeted any specific document or category of relevant documents
with the intent to prevent production in a lawsuit such as the one initiated by Hynix. The evidence here
does not show that Rambus destroyed specific, material documents prejudicial to Hynix's ability to defend
against Rambus's patent claims. Therefore, Hynix's unclean hands defense fails.
DATED: 1/4/06 /s/ Ronald M. Whyte
RONALD M. WHYTE
United States District Judge
Nope, Cal's just repeating what's listed on the slide. It says Financial Leverage
Ok - so it's Bumbling Bob that doesn't know the difference.
No hard feelings Cal! I know your skin is thicker than that. I hope you're kidding about cutting me off! I'll be the first to admit that I'm far from perfect and I learn the most when there is disagreement.
$400MM - $185MM x. 40 tax rate = $86MM/100MM x 25 = $21.50
Threejack - you're right on with your analysis. It is naive to think that operating costs won't continue to spiral out of control with Bumbling Bob as your CFO and a management team that is in bed with the compensation committee. Agree - let's take the 30 million of option expenses (which is roughly the 8 cents a share per quarter that Nuke suggested) and hire the best and brightest engineers so Rambus will have a patent portfolio that stays cutting edge.
I think your calculations are a good reality check for those who think the stock should be at 100 bucks. Revenue now stands at roughly 155 million per annum - subtract Intel and add Infineon and it's ~138 million per annum - to justify the current stock price with a 25 multiple (I'm using the pre-market price of 18), you need 0.72 cents per share which at the current net profit margin of 22% means you need 327 million in revenue. Even if you assume Rambus can attain a 30% profit margin, you still need revenue of 240 million to justify the current price which is almost DOUBLE current revenue. The 15 million a year that AMD is going to add aint going to cut it.
NICE!!!
Rambus Signs Patent License Agreement with AMD
Tuesday January 3, 8:00 am ET
Agreement for $75M over Five Years Covers All Chips Except Memory
LOS ALTOS, Calif.--(BUSINESS WIRE)--Jan. 3, 2006--Rambus Inc. (Nasdaq:RMBS - News), one of the world's premier technology licensing companies today announced the signing of a five-year patent license agreement with Advanced Micro Devices, Inc. (NYSE:AMD - News) which grants AMD a license to Rambus patents. The license includes Rambus patents used in the design of DDR2, DDR3, FB-DIMM, PCI Express(1) and XDR(TM) controllers as well as other current and future high-speed memory and logic controller interfaces.
ADVERTISEMENT
The five-year term of the agreement carries the possibility of renewal or extension. Specific terms of the agreement are confidential.
"The license of our patent portfolio with AMD's demonstrated innovation in the microprocessor market is highly compelling," said Harold Hughes, chief executive officer at Rambus. "We are very pleased to start the new year with an agreement that reflects a new approach for pricing our controller licenses and to continue to provide the market with innovative high-speed chip interface technologies."
Since its founding in 1990, Rambus has focused on advancing electronic system performance through innovations in logic and memory interfaces, controller architectures, and system design. The result is a broad portfolio of innovations and patents that enables semiconductor manufacturers and system designers to achieve ever-increasing levels of functionality and performance, to lower system costs, to mitigate risk with silicon-proven designs, and to reduce time to market. For more information on Rambus' patent portfolio, please visit www.rambus.com/products/innovationslicensing/.
About Rambus Inc.
Rambus is one of the world's premier technology licensing companies specializing in the invention and design of high-speed chip interfaces. Since its founding in 1990, the company's innovations, breakthrough technologies and integration expertise have helped industry-leading chip and system companies solve their most challenging and complex I/O problems and bring their products to market. Rambus' interface solutions can be found in numerous computing, consumer, and communications products and applications. Rambus is headquartered in Los Altos, California, with regional offices in Chapel Hill, North Carolina; Bangalore, India; Taipei, Taiwan; and Tokyo, Japan. Additional information is available at www.rambus.com.
XDR is a trademark and Rambus is a registered trademark of Rambus Inc. Other trademarks that may be mentioned in this release are the intellectual property of their respective owners.
(1) PCI Express is a trademark of the PCI Express Special Interest Group (PCI-SIG). AMD is a licensed trademark of Advanced Micro Devices, Inc.
This release contains forward-looking statements under the Private Securities Litigation Reform Act of 1995, such as the statement related to the possible effect that this licensing agreement will have positive material impact on Rambus' revenues and as to the beneficial nature of the extended agreement. Such forward-looking statements are based on current expectations, management's beliefs, and certain assumptions made by the Company's management. Actual results may differ materially. Among the reasons that could cause actual results to differ materially are: AMD's sales, strength of the memory controller market and other factors that are described more fully in our SEC filings including our 10-K and 10-Qs.
Contact:
Rambus Public Relations
Linda Ashmore, 650-947-5411
lashmore@rambus.com
--------------------------------------------------------------------------------
Source: Rambus Inc.
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I suppose it's a little early to start thinking about Q4's income statement, but here goes anyway
Revenue 42 million (Infineon starts paying 5.85 per quarter and last quarter's revenue was ~36 - I'm assuming contract revenue stays put
COGS - has been around 12% so 5 million here so
gross profits of 37 million
R&D - up about 3% and SG&A up about 5% so total operating expenses at ~28.8 million (11 mill R&D, 17.8 SG&A)
Operating profits of 8.16 mill
Other income (this is from long term investments I believe) of 7 mill - I'm getting this number from Hambrecht - historically it's been around 3.3 but he's got a higher number for the upcoming quarter so it was probably addressed in the last cc
Option Expenses of 8.5 million - Nuke said between 8-9 cents a share so I took the midpoint
EBT stands at ~6.6 million so we get net profits (after 40% tax) of ~4 million or 4 cents a share. I have a nagging feeling that my numbers are TOO rosy.
Anyway, using the same income statement in excel, I took a look at Rambus without Intel revenue of 10 mill a quarter. I come up with a loss of 6.8 million a quarter (I changed the other income back to the historical 3.3 mill and left COGS at 5 mill because there is cost associated with obtaining Intel revenue)
SO, IF the MMs are able to continue to delay and things continue to drag out, once Intel stops paying, Rambus will burn about 7 mill a quarter or 28 mill a year. What multiple do you apply to that???
One other point - can't remember if this was discussed already, but the change in royalties between Q2 and Q3 of 2005 was 6.6 million and during that quarter Samsung stopped paying Rambus - that should give us a sense of what Sammie was actually paying.
I know it's pointless for me to try and get the last word in with you, but I thrive on futility - that's why I ride the bus.
2. Rambus existing expenses = $60M
Straight from the income statement for the last 4 quarters, operating expenses (R&D and SG&A) were 110 million.
Take the far-fetched hypothetical revenue of 400 million subtract operating expenses of 110 million (CURRENT CONDITIONS) - you get operating profits - apply taxes - you get about 1.57 a share. You can apply whatever p/e you like, but I happen to agree that it probably doesn't deserve more than a 25x multiple.
Now - I acknowledge your point that there are other sources of revenue besides RAM. If, we assume that DRAM revenue swells to 400 mill, then the rest of the revenue probably accounts for just 10% of total. Remember that the Intel revenue is going away. Contract revenue is probably about 30 mill a year, no RASER revenue per Bob - what else is there???
Finally, I think you're confusing operating leverage with financial leverage.
financial leverage
Definition
The degree to which an investor or business is utilizing borrowed money.
However Rambus does have a lot of operating leverage so that incremental revenue will flow directly (after Uncle Sam of course) to the bottom line.
Anyway, Nuke chimed in that expensing will amount to about 8-9 cents a share per quarter or 32-36 million a year so now "expenses" are a lot closer to 145 million a year.
Based on what we know of current expenses, Rambus needs about 250 million a year (or ~60% more than current) in revenue to justify the CURRENT stock price using Cal's 25x blended multiple.
The simplest way to approach this is to look at the firm as a whole. In your scenario Cal, you are saying that operating profits will be huge for DRAM because there are minimal costs associated with that segment. Unfortunately, that's the only segment that generates any revenue and therefore you HAVE to allocate R&D and more importantly SG&A to that business. You can't have 350 million of 400 million (hypothetical) in revenue come from one business segment and not allocate a substantial portion of the 110 million in operating expenses that we see now. SG&A is more than double R&D - unfortunately Bumbling Bob's salary counts as an operating expense.
So, as in my previous example, assume total revenue is ~400 mill, operating expenses stay at ~110-120 million, multiply by 0.6 to get net profits and if we apply your conservative multiple of 25X then you get a fair value of ~42 bucks a share. But like you said, capturing 70% of the DRAM market is probably unrealistic - as unrealistic as thinking that SG&A won't swell when revenue ramps up.
Great charts Threejack!
I guess even with conservative estimates, we can get to 40 a share pretty easily.
Half the DRAM market at 2% royalty - about 300 mill rev. Let's take profit margins of 30% (I think the best they could hope for is QCOM type margins - but they would have to get to QCOM type revenue to get their margins). On your chart, we get earnings of 90 million or 90 cents a share. Let's apply a 40x P/E multiple and we get a stock price of 36 based on fairly conservative estimates.
I'd enjoy a ride from 16 to 36!
Your error is using 30% operating margins to calculate DRAM profits.
You should be right in that operating margins should be enormous but consider that for the last 4 quarters ending 9/30/05, Rambus has spent almost 110 million on R&D and SG&A. Also consider that COGS for the same period was ~ 20 million so revisiting the exercise, we have 392 million of revenue, 20 million of COGS, and 110 million of operating expenses. That leaves operating profits of 262 million - apply 40% tax rate and you end up with EPS of 1.57 * 25 gives you a stock price of 39. Add Raser and controller revenue and contract revenue, cash per share and other income and you might be able to justify 45 a share. However, this is a best case scenario in that you assume that COGS and SG&A and R&D won't increase. I hate to break it to those that think that litigation expense is going away - that will always be a significant line item on the income statement. It may reduce, but it is not going away. And wait until Rambus is required to expense options...
I'd say that hoping for QCOM type operating margins is probably more accurate. Their operating margins are actually closer to 60% versus the 67% used in the best case scenario. So - maybe 40 a share is reasonable if Rambus captures 70% of the DRAM market and collects a 2% blended rate.
After seven frustrating years, down with me, perhaps. Appreciate the pep talk : )
Who took away TJ's Koolaid? Wait till the shakes set in - Koolaid withdrawal is the worst. ;>