Thursday, May 27, 2010

Nice write-up by 3rd party on RMBS

One of the "flyers" we have mentioned has been in the news recently. Here is a good write-up from a 3rd party:

Legal Delays Hit Rambus

Shares of memory chip maker Rambus (Nasdaq: RMBS) are off -8% today on word that the International Trade Commission (ITC) will delay a decision on whether Nvidia (Nasdaq: NVDA) and others violated Rambus’ patents. Rambus, along with Qualcomm (Nasdaq: QCOM), has made its name as a collector of royalties for the massive base of intellectual property it has developed. Before the delay, shares of Rambus had been near a multi-year high on expectations of an imminent positive resolution to the matter. Yet this is more of a delay then a real setback, as the ITC simply wants all parties to weigh in on how a royalty deal between Samsung and Rambus will affect the rest of the industry.

Rambus has always been a difficult stock to value. Much of its profits come from royalties, and the timing of agreements creates very lumpy revenue and profit results. The company was especially active in securing new agreements in the middle of the last decade, which pushed shares above $40 in 2006. Royalty revenue slumped in more recent years, and shares now trade closer to $25.

Action to Take --> Over the near-term, shares should rebound and push past the $30 mark, perhaps closer to $35. That’s because the company is expected to imminently win a patent case over memory makers Hynix and Micron Semiconductor (NYSE: MU), which could net the company close to $500 million in an upfront license, and then more revenue from ongoing royalties. After that, perhaps by the end of July, the company is still expected to prevail in the case that was just delayed by the ITC. That could net the company a similar windfall.

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