Intel's new Pentium 4 is currently designed to work with Rambus' RDRAM (Rambus dynamic random access memory), and Samsung is the world's largest producer of RDRAM. Samsung announced that Intel has invested an undisclosed amount in Samsung's manufacturing facilities. This will ensure adequate and steadily cheaper supply for a growing RDRAM market Samsung estimates to exceed 600 million units in 2002. Intel also promises further RDRAM penetration in lower-priced systems.

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By Tom Jacobs (TMF Tom9)
February 27, 2001

In a move to ensure supply of key Rambus (Nasdaq: RMBS) technology for the Pentium 4 microprocessor, South Korea's Samsung Electronics Co. announced that chipzilla Intel Corp. (Nasdaq: INTC) would invest an undisclosed amount in Samsung facilities that manufacture Rambus dynamic random access memory (RDRAM). Intel is the world's number-one maker of chipsets, and Samsung is the world's biggest producer of DRAM. Rambus closed yesterday at $42.75, within a 52-week range of $18.13 and $135, while Intel finished at $29.50, between a $28.44 52-week low and $75.81 high.

Why the production push?
A computer's motherboard is designed around a chipset, which dictates crucial elements of the computer such as memory type (such as RDRAM) and CPU (central processing unit) type (including Intel's new Pentium 4). Intel produces the 850 chipset, which is currently designed for Intel's Pentium 4 microprocessor and Rambus' RDRAM. Intel adopted RDRAM because the Rambus patented technology speeds communication -- increases the data transfer rate -- between a computer's CPU and its memory.

Currently more expensive than the current standard, SDRAM (synchronous dynamic random access memory), RDRAM's performance benefits show up in higher-end memory-intensive applications. These include the graphics demands of video games, which led Sony (NYSE: SNE) to design RDRAM into its PlayStation 2 video game console and Dell (Nasdaq: DELL) to sell advanced workstations containing RDRAM.

Prices falling for RDRAM systems
The Intel-Samsung news fuels sparring over if and when RDRAM would work its way down the line from high-performance computer workstations to budget systems -- those costing under $1000. As with any computing component, RDRAM's cost determines in what product lines it will appear. While only months ago Dell marketed an RDRAM workstation for $1,699, that system now sells for $1,499 and for the first time appears in trademark Dell newspaper ads that highlight three systems. Spot prices for RDRAM have declined to record lows and Samsung announced manufacturing breakthroughs in January to bring down RDRAM's manufacturing cost another 20%.

Coming: Low-end P4s with Rambus
Now Intel reportedly says that lower-priced RDRAM systems are coming. According to The Register, Intel's Louis Burns, vice president and general manager of  the Desktop Product Group, predicted at the Intel Developer Forum in San Jose, Calif., that under-$1000 Rambus-based Pentium 4 systems would be shipping by the end of 2001. Burns reportedly stated that Intel would be pushing "hard, hard, hard" to drive the P4 into the mainstream. And the lower the price for RDRAM systems, the harder it will be for RDRAM's competitor, DDR SDRAM (reportedly chosen for Microsoft's (Nasdaq: MSFT) Xbox video game console), to establish itself in the marketplace.

All three companies win. Samsung gets a financial boost to increase production profitable RDRAM products over less profitable SDRAM, Intel ensures greater supply of progressively cheaper RDRAM to boost Pentium 4 adoption by OEMs (original equipment manufacturers), and Rambus earns a 2-2.5% royalty on what Samsung estimates to be a 600 million unit RDRAM market in 2002. That's good news for Rambus, for whom declining SDRAM prices have meant both lower Rambus royalties and reduced near-term earnings projections. 

Of course, somewhere out there, there is probably a successor to DRAM in the works. But for now, Intel pushes the Pentium 4 into the marketplace, and all those in its value chain, including Samsung and Rambus, will benefit.

Tom Jacobs (TMF Tom9) needs higher speeds between his memory and CPU. At press time, he owned shares in Rambus. To see his stock holdings (and run screaming), view his profile, and check out The Motley Fool's disclosure policy.

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