Rambus (RMBS)

[calbiker]

Re. Downside drivers

I believe you missed the main down driver. Hynix just entered an interlocutory appeal of spoliation and unclean hands. This could have serious effect on rmbs. There's a good chance no one settles until this appeal is addressed. Why should anyone settle now if this appeal is found to be valid?

I was playing around placing probabilities to each scenario, and then getting a mathematical equation to determine sell pressure.

1. Whyte does not grant appeal, continues with 2nd phase of trial. Probability is P1 = 40%. This has zero selling pressure (S1=0). I'm using a selling pressure scale from zero (no sell) to 1 max sell (100% sell) .

2. Whyte grants appeal. P2 = 60%. If the appeal is granted, the second trial will be delayed until the outcome of the appeal is known. Depending on CAFC decision this branch has 2 possibilities.

2.1. CAFC denies appeal. P2.1 = 80%. This decision may take 4 months, and will delay the trial 4 months. During this wait, there's moderate selling pressure. S2.1 = .4

2.2. CAFC grants appeal. P2.2 = 20%. Now we're talking up to 2 years delay. There's huge selling pressure. S2.2 = .8.

Selling pressure = P1*S1 + P2*(P2.1*S2.1 + P2.2*S2.2)
Selling pressure = 0.4*0 + 0.6*(0.8*0.4 + 0.2*0.8)
Selling pressure = 0.288

Given these scenarios, there is selling pressure to sell 29% of your rmbs. Or, rmbs will drop 29% to about $25.


Cal didn't sell yet. As they say, the trend is your friend. But after options are covered we may see a little down trend. It will drop 29% if Whyte grants appeal and trial is delayed. It will drop a lot more if CAFC takes the case.