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You win some, you lose some. That's life for Rambus (Nasdaq: RMBS ) this week -- at least on the surface. When you think about the supposed good news a bit deeper, though, even that silver lining looks tarnished. That's why I'm making a bearish CAPScall on the stock.
First, the obvious bad news: Rambus' strategy of profit by litigation took yet another hard knock on Friday. An administrative law judge for the International Trade Commission issued a ruling on one of the company's biggest remaining lawsuits, saying that a trio of chip designers didn't violate any of the contested Rambus patents and can continue to sell their chips in America.
With dirges playing at Rambus headquarters, champagne corks were heard popping at Taiwanese chip designer MediaTek, Californian peer LSI (NYSE: LSI ) , and Swiss competitor STMicroelectronics (NYSE: STM ) . All three are nearly off the hook in this case now.
That's not exactly the end of the line for Rambus, which can appeal the decision or petition the full ITC panel for a deeper review. But it's a setback, and a big one. If this decision holds up to further protests, Rambus also loses the look-through cases against the system-builder clients of the three chip designers.
Okay, so what about the so-called good news? Over the weekend, Rambus announced that MediaTek has signed a five-year patent license agreement and settled all claims between the two companies.
That's cool, but only until you realize that Rambus signed this deal from a weak bargaining position. MediaTek had no motivation to pay big bucks to make this issue go away, given that the company was only days removed from the latest legal decision in its favor.
Indeed, Rambus didn't disclose financial terms for this agreement, making me wonder if it was worth anything at all. Before you scoff at MediaTek and write it off as another no-name Asian outfit that doesn't matter to American investors, consider that the company reported sales of $2.9 billion in the last four quarters, and boasted a 16% profit margin. MediaTek sports a $12 billion market cap on the Taiwanese exchange. Rambus would sell its mother for any one of these numbers.
This is pretty close to how I expected this lawsuit to play out when it was first announced: Rambus settles a few claims, loses the rest, and goes home somewhat richer but none the nobler. The prospects for another successful lawsuit are fading fast, which is why I'm starting a bearish CAPScall on Rambus even at these five-year lows (if you ignore occasional even-deeper plunges along the way). It's still a long way to the bottom.
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