Rambus, Market Decline
  04/13/2001 4:35:14 PM MDT Albuquerque, Nm
  By Dustin D. Brand; Owner AMO

RAMBUS the memory maker faces intense competition.   FALLING PRICES AND shipments of DRAM chips and ongoing legal battles hit memory technology developer Rambus hard in the first quarter of this year, the company announced Thursday.

  Los Altos, Calif.-based Rambus, which generates the majority of its revenue from royalties paid by memory chip makers for use of its technology in SDRAM (synchronous DRAM) and RDRAM (Rambus DRAM), said revenue in the first quarter was $31.2 million, down 10 percent on the previous quarter, while revenue from royalties was $23.6 million, down 12 percent.

  The royalties would have been even lower if it were not for the inclusion, for the first time, of payments from Japan's Matsushita Electric Industrial, which began paying for SDRAM and DDR (double data rate) memory controller chips during the quarter, said Gary Harmon, CFO of Rambus, in a conference call.

  In comparison, other Memory modules have drastically dropped in price where 256 MB SDRAM cost $215 in September of 2000, now costs $80 in 2001.

  Worse still for Rambus, revenues reported during the first quarter, the period from January to March this year, reflect royalties on chip sales made during the October to December period last year, so the company expects that the worst is still to come because the average selling price of chips continued to drop in the first three months of this year.

  "We expect the royalty trends we have seen this quarter to continue and in fact accelerate in the next quarter," Harmon said. "Not only have SDRAM average selling prices declined in the latest quarter by an estimated 50 percent sequentially but it is possible that SDRAM unit volumes may also have decreased, therefore we are anticipating another decline in SDRAM compatible royalties to be recorded in the second quarter."

  "Since royalties will account for at least 85 percent of total revenues and the majority of revenues are still from SDRAM compatible ICs, we anticipate a total decline of 20 percent, plus or minus several points," Harmon said.

  Royalty revenues from the company's proprietary RDRAM chips rose during the quarter thanks to the launch of Intel's Pentium 4 chip in November. Intel currently only supports RDRAM with the new microprocessor and so Rambus earns royalties on every Pentium 4 system sold.

  Another issue weighing on profitability at the company are its ongoing legal battles with South Korea's Hyundai Electronics Industries , Munich-based Infineon Technologies, and Micron Technology, in Boise, Idaho. The three companies refused to pay royalties to Rambus on SDRAM chips, which until the company demanded payment had been made available royalty free, and Rambus is currently pursuing them in court. Delays in the litigation added to costs and hit $7.3 million during the quarter, up from $4.3 million in the previous three months.

  All of this led to lower-than-expected earnings. Operating income fell 44.3 percent to $11.1 million while pro-forma net income was 37.9 percent lower at $8.2 million. Earnings per share was 8 cents, down from 13 cents in the previous quarter and below the 11 cents estimate from FirstCall/Thomson Financial.

  Besides the results and the forecast of more bad financial news to come, the DRAM marker, the company also announced it is suspending the hiring of new staff until a turnaround is seen.

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