Rambus (RMBS)

[calbiker]

Re. The WSJ article

That's another way to look at earnings. Looks like someone wanted to push the button of the longs at Yahoo. Ha. It must have been like disturbing an ant hill. All hell breaks loose.

The article has an interesting point of view. The component of the share price associated to DRAM royalty revenues is calculated using a P/E = 5. We've been using somewhere in the range of 20 - 50. PE 5 can really deflate that trip to Cabo. Ha.

There are reasons for using PE=5. This revenue will only last until 2010. It's uncertain what will happen afterwards. In addition, they are using a PE = 1 for the one time pay-out for back royalties and fines.

This is an extremely conservative 'win' calculation, but still valuable. What they fail to mention is that Rambus will be buying other companies with that cash. They already stated so. In essence, Rambus will be taking over the PE of the company it is buying. Therefore the PE of the pay-out revenue could jump from 1 to 30. Likewise, the royalty revenue can be wisely invested to increase the PE above 5.