There should be no doubt in anybody's mind anymore that data storage and handling will play a large part in the next few years of the IT sector's history. In particular, memory-based storage systems are poised to revolutionize several industries at once.
So how come memory technologist Rambus (Nasdaq: RMBS) isn't making out like a bandit and rewarding its shareholders with similar gains? The stock has returned just 2.8% over the past year, losing out to the S&P 500 index in a long series of jumps and falls.
One way to get an inkling of what's going on is to look at earnings reports, such as the third-quarter results Rambus published last night. Revenue was down 18% sequentially but up 14% year-over-year to $31.7 million, the differences fueled by unpredictable patent licensing negotiations that work for the company in some cases and against in others.
Right now, for example, Rambus had hoped to close deals with customers including Toshiba, Renesas, and Elpida before the end of the quarter, but the negotiations are dragging on. That results in slow sales this time around, but those contracts should eventually get their John Hancocks and trigger catch-up payments to make up for the missed revenues. That lumpy and unpredictable operating model, whereby Rambus generates the vast majority of its revenue, is one reason for the company's jumpy performance history.
For another, Rambus spends a lot of time in the courtroom, to the extent that the earnings call often sounds like an episode of L.A. Law or something. Last quarter, Rambus won a major case against graphics chip designer NVIDIA (Nasdaq: NVDA), triggering substantial fees and a mandatory license agreement shuttling between 1% and 2% of its memory controller sales directly to Rambus. That didn't help results yet, though, because NVIDIA has yet to make its first payment under these terms (the company expects the first payment in November).
Some analysts expected that outcome to act as leverage when Rambus renegotiates royalty rates with the other major graphics expert, Advanced Micro Devices (NYSE: AMD), but AMD recently renewed that deal under an automatic renewal clause of the old contract. Other patent lawsuits and antitrust proceedings against Micron Technology (NYSE: MU), Hynix, and others are awaiting trials or settlements, sometimes hung up by clogged judicial processes and in one case delayed until at least next January by an unrelated case involving Mattel and a rival doll designer.
So you see how this works: Rambus relies on a series of unpredictable systems working out in its favor, from lawsuits to favorable contract negotiations. When all goes to plan, the stock goes up; if not, there's a big drop. Either way, the timing of all this is impossible to predict. Serious investors may be happier elsewhere, leaving Rambus to the gamblers and the armchair lawyers.
