A New Day for High-End Memory (RMBS)
August 19, 2009 by Brandon Clay
Filed under Commentary, Pick of the Week, Stocks
Timing is everything for traders. Whether you buy the break or leg into a position during an uptrend, a proper entry is critical for a successful trade. This holds true for most investments but is absolutely essential for a technology play. Tech stocks are notorious for their drastic moves after earnings misses or contract-related news. “Intellectual property” litigation can also move stocks in a flash.
That is the current story with Los Altos, California-based technology firm Rambus Incorporated (RMBS). Founded in 1990, Rambus made its name in high-end random access memory (RAM). RAM is where programs and data reside when running your computer – it’s not storage as in hard drives. Rambus developed next-generation RDRAM and now XDR RAM. Rambus memory designs may even power your computer. This special technology is the reason the company is battling the establishment.
Rambus has accused semiconductor firms Micron, Hynix Semiconductors, and Samsung Electronics of price fixing in RDRAM chips. The 5-year old case moved forward last Thursday when a California Appellate Court denied the fifth and last “writ of mandate” from the defendants. This blow to the defense effectively cleared the way for a September 28 trial date in San Francisco.
The importance of this trial can’t be understated for Rambus, which believes itself to be the victim of a cartel bent on illegally manipulating memory prices. Rambus stands to gain as much as $12 billion in damages if it prevails.
Rambus is in a very good position no matter what happens. Either they win in plaintiff-friendly California or they get a generous settlement before they enter the courtroom. Why? Because they have a strong case against the cartel. Two companies in the group (Samsung and Hynix) already signed plea agreements admitting they fixed prices – both companies have had executives go to jail over the issue. Micron turned against the other companies in exchange for amnesty. Both Business Week and Bloomberg have covered the conspiracy in the past. Now it’s time for a California jury to hear the details.
As the old saying goes, the wheels of justice turn slowly but grind exceedingly fine. Rambus is finally getting its day in court. RMBS shares have been trending up since late February. From a $6.31 low, the stock steadily climbed to $19.65. The June gap up turned out to be a temporary false alarm, but we don’t think you can silence this one forever.
RMBS is one of the bright spots in this challenging market. Granted, some of the positive expectations are already reflected in the $18.65 price. Still, we think a settlement, trial win, and other potential deals could catapult these shares significantly higher. To play a new day in high-end memory, go with RMBS.
All the best.
Disclosure: Long Rambus (RMBS) shares.
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