CAN RAMBUS GAIN CRITICAL MASS WITHOUT INTEL?

August 4, 2000

COMMERCIAL NEWS

New York, N.Y. — Donna Fuscadlo reports that Rambus Inc.’s stock has been under pressure since Intel Corp., its biggest cheerleader, announced that it would support a non-Rambus memory standard for its upcoming Pentium 4 chip. And although Rambus doesn’t view Intel’s announcement as a major concern, at least one analyst is questioning the company’s future.

Rambus’ outlook has basically been a function of Intel’s support, said Drew Peck an analyst at SG Cowen. If Intel is backing off it raises red flags. “Nobody is willing to buy Rambus at a huge premium unless another company, like Intel, influences (the market) with its support,” said Peck.

Not even Rambus’ Chief Financial Officer Gary Harmon will argue about the price difference between its technology and standard dynamic random access memory (SDRAM) technology, but that’s about all Harmon will agree with Peck on.

In an interview with Dow Jones, Harmon said that currently its technology that speeds up dynamic random access memory chips costs 50% higher than SDRAM. The price difference will come down 15% to 20% by late next year and by that time “Rambus will be much more competitive” and will be more widely used, he said.

Rambus’ technology costs more than the current technology for SDRAM therefore it is used in the high-end of the market, said Harmon. As more and more DRAM manufactures make Rambus, like any technology, costs will come down and price will come down, he said.

All Rambus does is license the design so it is not up to them to reduce prices, said Peck. In order for Rambus to keep prices down the volume will have to increase, the SG Cowen analyst said. Currently, noted Peck, the technology is used in small quantities.

The success factor for Rambus was that the world’s largest chip maker supported its technology, Peck said. “If Intel supports other technology than Rambus may never hit critical mass.”

Harmon, on the other hand, disagrees. “The bottom line is I don’t see any change in plans for Rambus to become the standard DRAM technology,” said Harmon.

Rambus’ chief financial officer is betting that when its product price comes down, in time for the roll out of Intel’s Pentium 4, Intel will choose to go with Rambus’ technology.

Rambus’ technology will provide 30% improvement over SDRAM, he said. “Intel is in a fight with Advanced Micro Devices Inc. Athlon processors and to show off how good (the Pentium 4 is) Intel will need Rambus.”

Intel’s announcement Wednesday, said Harmon, is a sound back up plan for the chip maker, but no one to cause concern.

Using s SRDAM is not a back up plan, said Michael Sullivan a spokesman with Intel. “We are introducing a Pentium 4 processor later this year with a chip set that only uses Rambus memory and in addition Intel has plans to develop another chip set that supports SDRAM,” he said.

Intel moved to offer the SDRAM chip set because its customers believe that SDRAM will be helpful in meeting the lower system price points, he said.

“Rambus RDRAM memory is well suited to getting the maximum performance potential out of the Pentium 4,” said Sullivan. “If RDRAM moves down in cost over time that is a positive in terms of being able to enable lower price systems also using RDRAM.” Sullivan said Intel is looking forward to that happening in the future.

As reported, Intel, Santa Clara., said the first release of its Pentium 4 microprocessor and the related 850 chipset, expected later this year, will still work only with high-speed Rambus memory chips.

The chip maker, however, added that at the request of personal-computer makers, it has decided to manufacture a Pentium 4 chipset that will support lower-cost, non-Rambus chips as well.

So is the end on the horizon for Rambus if it looses Intel’s support? “If you asked me that question a month ago I would have said absolutely,” said SG Cowen’s Peck. “But the fact that Toshiba Corp. and Hitachi Ltd. agreed to pay Rambus royalties for conventional memory has caused the debate to shift. All of a sudden it wasn’t whether Rambus designed DRAM is going to be the primary memory technology, but if every memory maker will have to pay Rambus royalties.”

Back in June, Toshiba said it would pay Rambus a license fee and royalties for patents for the fundamental aspects of high-speed memory interfaces that Rambus invented. In analysts eyes, the Toshiba agreement strengthens Rambus’ pending patent infringement case against Japan’s Hitachi. Rambus filed two suits against Hitachi earlier this year to prohibit Hitachi’s sale of certain memory and microprocessors.

The royalties fees, said Peck, will save Rambus. “If the courts rule in Rambus’ favor and force conventional memory manufactures to pay the company royalties, Rambus will survive but in a different way than management anticipated. If the courts rule against (Rambus) the outlook is questionable,” Peck said.

“The landscape has changed,” said Harmon. The story was how much of the total market can Rambus get and now its how much can it collect in royalties from the other half of the market, said Harmon.

Although Harmon doesn’t know how much revenue the company will get from royalties, he did note it could be as much as Rambus makes with its technology. Either way Harmon is convinced that come time for Intel to roll out its Pentium 4 chip, Rambus’ DRAM will be there.

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