From WR Hambrecht:
Coverage: Research
Rambus, Inc. (rmbs)
07.18.06
rmbs: JUDGE REDUCES DAMAGES TO RAMBUS; TIME TO SIT BACK AND WAIT - DOWNGRADING RATING TO HOLD FROM BUY
Yesterday, the judge in the Hynix trial cut the damage award to Rambus from $306M to $133M. The original $306M in award damages was given to Rambus following a three week trial in April in which the jury found Hynix infringed on eight of Rambus' patents. Overall, we find this ruling surprising and very negative for the following reasons: 1) Judge Whyte has been very positive to Rambus and the fact that he has reduced the award damages so significantly signals to us that he believes the royalty rate should be much lower; and 2) Judge Whyte has decided to continue with phase 3 of the trial in which Hynix claims that Rambus, as part of attending the JEDEC panel, discussed standards that it later turned into patents. This will likely lead to a further delay in settlement talks. Our major thesis in the past few months since the Hynix win is that Rambus will likely be able to collect potential damages north of $1.1B basing it on $306M in damages from Hynix, and now with yesterday's ruling which opens the door for a longer process for appeal, we now believe it is unlikely that Rambus will be able to collect such an amount in the near future. In addition, with the timeline of phase 3 of the trial and opening the door for an appeal, it is unlikely we are to see a resolution on the patent cases with the DRAM makers before we reach the price fixing case, which will be in San Francisco in H1:07. While the company's business continues to track well, we believe that the combination of the options issue the company is facing, the lack of positive potential catalysts in the near future and the potential delay, in our opinion, of any settlement with the DRAM companies leaves us less bullish on the stock at this time. Therefore, we are downgrading our rating on RMBS shares from a Buy to a Hold and recommend investors to wait for better visibility into the price fixing case in H1:07. Full Report - PDF
