Should Investors Bet on the Rambus Revolution?
VARNEY: And turning now to our special Friday feature, "The Bottom Line" on a company commanding headlines. And tonight, it's Rambus. The company that helps computer chips move faster has worked the same magic on its stock. After three years of trading sideways, Rambus shares suddenly took off last month. But that moon-shot has created big challenges for Rambus and even bigger expectations. Bruce Francis has the story.</s>BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): No matter how much horsepower you have, it won't do you too much good here. But add a few lanes and you're cruising. That's the idea behind Rambus Technology. Rambus-powered chips help put the "play" in Sony's hot selling PlayStation 2 video game. And Rambus compatible memory, or DRAM chips, are beginning to be sold in PCs from Dell, Compaq and others. Inside your PC, the information flows from your DRAM memory to the microprocessor. But with today's faster Pentium 3 microprocessors, standard DRAMs can't supply the data fast enough. Rambus-enabled DRAMs, though, speed up the information to the processor, thus turbo charging the</s>PC. GEOFF TATE, CEO, RAMBUS: The fundamental issue is that people need higher performance. They need high-performance game and PC systems, and they're not going to get that high performance from the older generation DRAMs.</s>FRANCIS: Research firm Dataquest believes that as DRAM sales soar, Rambus-compatible chips will gain greater acceptance, from 3 percent of the market last year to a projected 67 percent by 2002. Rambus doesn't make the chips but licenses the technology to companies like Samsung, which now makes 80 to 90 percent of Rambus- compatible chips. Rambus gets 1 to 2 percent of the revenue from each chip, right now about $50 each for the most common type.</s>BOB EMINIAN, SAMSUNG: We're today up to about three million per month. And as we get into the second part of the year, we'll be reaching about ten million per month.</s>FRANCIS: It's a business model that Wall Street likes.</s>ARNAP CHANDRA, ANALYST, ROBERTSON STEPHENS: This business model is very exciting for investors because it reduces the risk of manufacturing inventory and, of course, have higher margins.</s>FRANCIS: Because of that model, Rambus has been profitable since 1997, with analysts expecting a record 2000. But it took a long time for investors to get excited. DRAM prices plummeted during the Asian financial crisis, so manufacturers were less eager to invest in the expensive new technology from Rambus. And support from Intel, crucial to win consumers in the PC business, seemed to waver amid technical glitches.</s>TATE: We had problems in 1999, we and Intel together. And I think that led to people wondering.</s>FRANCIS: So did Samsung.</s>EMINIAN: In December, late November of last year, we actually suspended production on Rambus.</s>FRANCIS: As a result, Rambus stock barely budged from its 1997 IPO through the end of this year. And short interest, bets by investors that Rambus stock would go down, grew steadily from September. But when Intel publicly affirmed its support for Rambus in February, the stock went through the roof. That drove the short sellers to buy a rapidly rising stock to cover their commitments, a classic short squeeze.</s>NICK MOORE, JURIKA & VOYLES: It definitely began with a short squeeze, but this turned, I think, into a price momentum, sort of a hot money play.</s>FRANCIS: For Rambus, the challenge will be to move beyond PCs and video games.</s>TATE: Our long-term market potential is just as big in things like communications and consumer products.</s>FRANCIS: Rambus shares peeked at a stunning $471 apiece on Tuesday. They have since fallen 15 percent on profit taking. But only the Johnnie-come-latelies have complaining rights here. Rambus is still up more than 460 percent this year -- yes, that is year to date, Stuart and Willow.</s>VARNEY: Bruce, does Rambus have a real lock on its market? In other words, is its success assured at this point?</s>FRANCIS: No, it certainly isn't. There are other formats for speeding up the movement of this data and different kind of DRAM plans. So it's not definitely assured that this is the one that's going to take off, although a lot of people are betting on it.</s>VARNEY: They certainly are. Look at that stock price. That chart was extraordinary.</s>BAY: Four hundred and sixty-four...</s>FRANCIS: Percent so far this year on a stock that was dead money for quite a long time.</s>VARNEY: It's a good story, and, Bruce Francis, thanks very much.</s>FRANCIS: Thanks.</s>BAY: Up next, "Ahead of the Curve," some of what you need to know tonight before the markets open tomorrow.</s>VARNEY: Yes, you're watching MONEYLINE.