TO: Small Online Investors, Stock Owners, and Consumers
FROM: Dmitry Podkuiko
DATE: November 21, 2000
SUBJECT: DDR-SDRAM vs. Rambus RDRAM______________________________
Introduction
The purpose of this report is to provide small online investors, stock owners, and consumers with information on stocks investment into memory manufacturers and processor manufacturers. Computer industry is moving away from old SDRAM memory standard and is looking for a new industry standard. Changing a memory standard can change the stock and consumer market significantly.
PROBLEM
It is very crucial to know which industry standard will be accepted by the industry and consumers. Current situation doesn’t allow for a relatively sure investment into the stocks of the companies involved.
Two standards are competing heavily for the market and industry support. Currently Rambus has support from manufacturers that previously signed the contracts with them and DDR-SDRAM is an open industry standard supported by a coalition of companies.
FINDINGS:
Rambus RDRAM vs. DDR-SDRAM
RDRAM is a memory standard developed by Rambus Inc. It is heavily backed by Intel Corporation as a standard despite memory manufacturer’s and consumer opposition to the standard. Manufacturing of RDRAM requires special processes and manufacturing facilities that have to be built from the ground up. This places a high price tag on RDRAM for consumers. Rambus signed a few contracts with a powerful processor manufacturer Intel Corporation back in 1995 that oblige Intel to support the standard.
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DDR-SDRAM is collectively developed by such companies as Advanced Micro Devices, Micron, Infineon and Siemens. DDR-SDRAM is simply an extension to SDRAM technology. In comparison to RDRAM, DDR-SDRAM can be manufactured at only 5% premium over regular SDRAM. This means that manufacturers will be able to use most of their equipment in their current facilities with a relatively low cost modernization.
Prices and Supply of regular SDRAM
Mainstream SDRAM prices plummeted to their lowest point ever amid concern that the holidays won’t generate enough PC sales to dry up inventory that has flooded the spot market for months.
While that may be good news for OEMs, for memory makers it’s meant a return to the days of selling chips at or below production cost. Yet DRAM producers took the price plunge in stride, saying the excess has been flushed out and first-quarter orders look strong. This basically means that OEM PC manufacturers chose to buy more RAM to keep enough RAM in their supplies for possible future shortages.
However, RDRAM was the only one to be left out from the price drops. RDRAM is much more expensive due to the high cost of manufacturing process and OEMs do
Release of Pentium 4
Just a few days ago Intel corporation released their new processor architecture – Pentium 4. Currently Pentium 4 is supported only by RDRAM. RAMBUS future sales heavily depend on sales of Pentium 4. So far Pentium 4 was getting less than average reviews in the tech press. System integrators are not too exited about upgrading to Pentium 4 due to the fact that it will require to replace regular components with more expensive ones.
As history shows, Intel’s stock price rose when new processors were introduced, but with the introduction of Pentium 4 the stock price dropped. Investors seem to be discouraged by the fact that Pentium 4 is costly and didn’t make major breakthroughs in technology.
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Intel lost its ground to AMD in processor market over the past 2 years. One of the main reasons was slow sales of Rambus supporting chipsets. AMD was able to gain a hefty percentage of the market share by backing DDR-SDRAM.
Industry Support
Some of the manufacturers took a position not to pay royalties to Rambus and support DDR SDRAM instead of RDRAM. Rambus filed lawsuits against Hyndai, Micron and other manufacturers. Rambus is viewed negatively by the rest of the industry due to all the lawsuits that were filed.
In its turn, Infineon – a member of DDR group- filed an antitrust suit against Rambus Inc.
Release of New Software
When Windows 95 was released memory makers experienced a high demand for their products. Memory prices were at their highest prices. Since then Microsoft Corporation released several versions of Windows. Their recent release of Windows 2000, which had higher memory requirements, launched the RAM prices for their rise again, but the rise didn’t last very long.
Gateway and Dell were hurt with component shortages. That created a situation when there was enough ram, but not enough components like processor to keep up with production of complete systems.
Legal Aspects
Rambus Inc. owns several patents on SDRAM. Rambus Inc now wants every manufacturer to pay royalties on any device that interfaces with an SDRAM, DDR or direct Rambus DRAM (RDRAM) chip. Several manufacturers like Toshiba and Samsung already signed agreements with Rambus to pay royalties on SDRAM, DDR SDRAM and RDRAM.
If Rambus patents hold, they are going to have a reason to collect royalties not only from anybody who manufactures SDRAM, DDR or RDRAM, but also anybody who makes a chipsets that interfaces with any of those RAM types. An entire industry would have to become licensees of Rambus.
Conclusions
RDRAM may not be the future of the PC platform now that DDR SDRAM has taken some substantial hold in the industry, and even Intel may not be able to force the RDRAM standard on the industry. In fact, Intel only follows Rambus because they are bound by contracts signed in 1995. But Intel is sure big enough to keep RDRAM from holding back Pentium 4 until a suitable DDR Pentium 4 platform is available.
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Intel may give a license to another company to manufacture a chipset for Pentium 4 that would support DDR-SDRAM and hold their own chipset that supports RDRAM until the contracts with Rambus are renegotiated or expired. However, it should be noted that Rambus is very willing to litigate in order to insure success of their technology.
If the DDR group of manufacturers wins against Rambus Inc. in court, RDRAM can be considered doomed and will only be supported by Intel until the contracts expire.
Intel earnings for the first quarter of 2001 may not meet expectations due to possible weak sales of Pentium 4. It will take some time for manufacturers to prepare their products for Pentium 4 and roll them out on the market. Intel didn’t meet the earnings for the previous quarter either. The stock price of the company may continue falling in the first quarter of 2001.
DDR-SDRAM manufacturers are not really vulnerable in their current position. Even if Rambus will win in court, they would still be able to manufacture DDR-SDRAM. They will be required only to pay royalties to Rambus for their products.
Recommendations
Basing on conclusions, it’s not recommended to purchase stocks of the companies that are solely supporting Rambus technology. Particularly, Rambus stock(RMBS) itself is a gamble investment. Rambus does not manufacture memory chips, but this company does research and development and profits from royalties on their intellectual properties. Rambus earnings heavily depend on agreements with manufacturers to pay royalties.
Intel is a very versatile company that manufacturers multiple products that do not relate to Rambus. Even if Pentium 4 will fail to capture the market with the Rambus technology, Intel will quickly recover from stock price losses by supporting a different standard through third party manufacturers.
Purchasing stock of the companies like Micron, Infineon, and Siemens is a relatively safe investment. If Rambus will win in court, expected earnings will be slightly lower because they will have to pay royalties. If Rambus loses their legal cases, DDR group of manufacturers will be a big winner. Consumer market for DDR-SDRAM looks very prospective in the first quarter of 2001.
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References
Tomas Pabst, The Rambus Zombie Versus the Wounded Chipzilla www.tomshardware.com, July 19, 2000
Tomas Pabst, Rambus Requiem -RDRAM Fails Bandwidth Tests, www.tomshardware.com, May 29, 2000
TERMINOLOGY
SDRAM – Synchronous Dynamic Random Access Memory
DDR-SDRAM — Double Data Rate SDRAM
RDRAM- Rambus Dynamic Random Access Memory, designed by Rambus, Inc in collaboration with Intel Corporation. Commonly referred as Rambus.Website:
OEM – Companies like Dell and Gateway that purchase computer components in bulk from manufacturers at great discounts.
