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Rambus shares slump
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October 31, 2000: 1:39 p.m. ET
Memory supplier falls on news that Intel will phase out use of its technology
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NEW YORK (CNNfn) - Shares of Rambus Inc. fell sharply after reports surfaced Tuesday that Intel Corp., the world's biggest supplier of PC microprocessors, plans to phase out Rambus-based memory systems for all but its high-end products in 2001.
Some semiconductor industry experts said the news is nothing new, citing Intel remarks made as far back as two months ago indicating its position.
Investors, however, appeared to be caught off-guard and sold off shares of Rambus (RMBS: Research, Estimates), which were down $6.50, or 12.2 percent, at $46.94 in early afternoon Nasdaq trade. They had fallen more than 27 percent earlier in the day.
The sell-off was prompted by a report in an electronics industry trade paper, which said it had obtained a copy of Intel's confidential roadmap, or future plans, showing that the company planned to scale back its use of Rambus' technology.
Rambus derives its revenue primarily by licensing a technology, called RDRAM, used to speed up computer memory systems. Intel is its largest customer.
 The article, published in the Electronic Buyers' News, said the documents reveal Intel's intentions to phase out Rambus-based memory systems "from every computing platform but high-end workstations by mid-2001."
"Intel will phase out the slow-selling Direct RDRAM-enabled 820 chipset in the first quarter of next year, while the yet-to-be-introduced Intel 850 chipset will be dropped in the middle of the third quarter," the article said.
"At that time, Intel's sole remaining Rambus chipset will be an enhanced 850 device code-named Tehama-E, which the company is rolling out for workstations and PCs costing more than $2,000," the article stated.
Intel spokesman Tom Beermann said he could not confirm or deny the Electronic Buyers' News story, but did tell CNNfn that Intel's position regarding Rambus "has not changed."
"It [Rambus] remains the preferred solution for high-end desk top computing, and that has not changed," Beermann said. "We do not comment on roadmaps, but we had indicated in the past that to serve customer needs we would explore DDR memory and we are already working on chipsets for other memory alternatives. So this is nothing new."
What news?
Rambus' Chief Financial Officer Gary Harmon said Tuesday's selling was overdone.
"We don't see anything new in this announcement," Harmon told CNNfn. "People have overreacted."
Harmon said the information revealed in the news report does not reflect any changes in what Rambus had understood Intel's plans for 2001 to be.
Previous comments made by Intel's management support that argument.
Click here for more on the rift between Rambus and Intel
In late August, Intel President and CEO Craig Barrett signaled that the company was not pleased with the high price of memory chips made using Rambus' technology. The companies have worked together under a licensing agreement since 1996.
In late September, Intel listed the high-price of Rambus-based memory systems among the reasons it decided to scrap plans to develop its low-cost "Timna" processor.
Barrett has vowed that Intel will not become "hamstrung" by a memory technology whose price-performance ratio doesn't decline over time, and that industry economics, rather than Intel, will determine whether Rambus' technology succeeds.
Morgan Stanley semiconductor analyst Mark Edelstone told CNNfn that it appears investors don't seem to understand that the report not only is not new, but that even if Intel backs away from Rambus the memory supplier stands to meet or even beat future earnings estimates.
"In a word, this report is irrelevant for Rambus' stock," Edelstone said.
"What it basically suggests is that Intel is reducing its commitment for using the technology going forward, which is absolutely true; however, irrelevant for the stock in that what matters today is Rambus' intellectual property claims on SDRAM and DDR DRAM [Double Data Rate], which is where the lion's share of the market is today and probably will be going forward," Edelstone said.
Edelstone also said that the story does not change his "strong buy" recommendation on Rambus stock and he is keeping his price target of $200 a share.
"The key issues to watch from here would be the negotiations and litigations with other DRAM suppliers," Edelstone said. "If Rambus is successful in signing up new licensees for SDRAM and DDR, you'll actually see a significant increase in earnings estimates over the next couple of quarters.
Intel (INTC: Research, Estimates) shares rose $1.31, or nearly 3 percent, to $46.31 shortly before noon. 
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