If You Want Rambus, Now Is the Time

The miss of a few hundred K on earnings is a non-event for a company on the precipice of getting $10/share in earnings in 6-12 months. The convertible note offering, while it does have some dilution, simply solidifies Rambus' (RMBS) position in negotiations with the DRAM Cartel.

As most of the Rambus LTLs know, Rambus has a bond payment coming up in Feb 2010 that is for ~ 150 million. It appears to me that Rambus just rolled that out to 2014 to solidify their cash position. During negotiating sessions, I could easily see the DRAM cartel threatening to drag this out another 4-5 years in the courts.

With a hoard of >350 million in cash in the bank, this simply won't be possible, so Rambus can call the bluff. When the cartel loses the AT case that starts in September, they will be faced with posting a bond on an award that should total ~13 billion dollars (4.32 billion automatically trebled because this was a Cartwright Act violation).

With the recently negotiated rate at the EU, this 10 year saga is coming to an end. If you have any dry powder, this week will likely be the best price you will get on Rambus for some time. I think it is possible Rambus gets good news on the licensing front at any time, and the first company I expect to sign is Elpida (ELPDF.PK).

Rambus is close to cash flow neutral right now (actually, they might be losing 3-5 million/quarter of their cash in the bank). However, at the end of this month if Hynix chooses to go through with their appeal, Hynix must start paying 4.25% on US sales into the escrow account. Rambus will eventually get that escrow account just like they got the escrow account the FTC forced them to set up for controller manufacturers. Hynix' escrow payments will range from about 8 - 13 million/quarter going forward (4.25% on Hynix' US sales of ~ 1.3 billion), so, essentially Rambus is cash flow positive on a quarterly basis.

Also, Hynix already owes the escrow account for 5 months, so they will have to put about 23 million into escrow for Rambus at the end of this month (if they don't settle and they want to go through with their appeal to the CAFC). Hynix was also supposed to post a 400 million dollar supersedeas bond, but Judge Whyte has allowed them to post a 250 million dollar bond and sign a lien on a Fab over to Rambus (valued at at least 300 million dollars by a Rambus endorsed appraiser). Rambus will get that $400 million dollars when Hynix loses the appeal.

In my humble opinion, Hynix' US sales will pick up going forward, because some systems companies will want to have licensed DRAM in their systems to avoid potential liability to Rambus if the event their dram supplier goes bankrupt. I could easily see Hynix's US sales going up to 1.6 -1.8 billion/year because they will be the only Rambus licensed DRAM supplier.

This will likely hurt Micron's (MU) sales the most, because the systems companies know Samsung isn't going bankrupt. As I mentioned earlier, I expect Elpida to sign a license shortly after the EU comment period is over.

Disclosure: Long RMBS, Short MU

Comments

[Tanajib:]

Okay...if this is such a hot prospect, are any other analysts providing current comments?

Jun 24 10:40 PM

[mutual:]

nicely stated

Jun 24 11:21 PM

[mutual:]

nicely stated. why did rmbs take such a dive?

Jun 24 11:22 PM

[JGKopp:]

10 years is a long long time and for a company that is working in the Red this all must be getting really really old. I do like everything they are doing and can see they have really thought this through.

It is almost unbelievable this is all finally coming to a head. This stock is my largest holding and I don’t think it is a gamble anymore. I loaded up at $10 and this makes it easy to calculate that I am up 50% and this thing hasn't even started to move yet.

As for why rmbs took such a dive, I guess people will feel better buying it at $28 when it is announced they have a deal with one of these nucleheads. If you look at this from the mountain top they are almost there and the afterburners have already been lit. I am at the mountain top ridge looking over it and guess what? The next one is 10 times higher and I don’t see any problems crossing that one either.

John

Jun 25 12:00 AM

[JGKopp:]

When is the EU comment period is over?

Jun 25 12:04 AM

[secmaven:]

Ten percent of the outstanding stock changed hands on the day after the after hours bad news. Somebody does not agree than Rambus is a good long term investment.

Jun 26 02:34 AM

[vmax:]

Why do you think elpida will settle?

Jun 26 06:39 AM

[JCC:]

Thanks for the tip - I just added Rambus to my portfolio.

Jun 26 02:13 PM

[TrezRek500:]

In at 19, out at 15. Story of my life. I curse you Rambus.

Jun 27 11:24 AM

[FloridaBoy2:]

On Jun 26 02:34 AM secmaven wrote:

> Ten percent of the outstanding stock changed hands on the day after
> the after hours bad news. Somebody does not agree than Rambus is
> a good long term investment.

It was up sharply shortly before the bad news. It appears to be rising again.

Jun 27 06:30 PM

[The Mustang:]

Elpida to receive state aid from Japan & Taiwan. Could this be the precursor to a settlement? Or will they use the cash to fight on?

Jun 30 05:21 AM

[FloridaBoy2:]

Mustang,

I don't think Elpida is in a position to fight.

www.electronicsweekly....

It appears that the DRAM industry is consolidating.

Jun 30 04:57 PM

[The Mustang:]

This could be even better than a settlement - a bid for RMBS.

Jul 01 03:17 AM