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Morgan Stanley's vote for a $500 Rambus

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Staff at The Register have now had a chance to view a Morgan Stanley Dean Witter report on Rambus which it issued on the 23rd of March last and which caused shares in the memtech company to rocket on Wall Street. The report is interesting in many ways, not least because it says that its target share price for Rambus is $500 with a market capitalisation of $8.5 billion. It also appears to think that the i820 chipset, despite the trouble the whole industry has seen with it, is a solid and sound platform for Rambus' future. Taiwanese manufacturers, as we have reported previously, are not of this view. The report says: "We rate RMBS Outperform. We believe that Rambus has one of the most attractive intellectual-property (IP) franchises in the semiconductor industry and that it will become the de facto standard for PC main memory during the next three to five years." The pre-split target of $500 (RMBS splits its shares 4:1 in May/June), is based on what Morgan Stanley describes as "the average IP company" with 2.5 times growth on C2001 earnings. Further, the investment broker believes investors who can tolerate price volatility should buy into it. Why? The report says that Rambus is similar to a software company, earning high gross margins because it just licenses its technology to semi firms, but it has the benefit of extremely low sales and marketing costs. It cites the Intel Developer Forum as showing that Chipzilla (our word) delivered straightforward support for Rambus. Of course, this does not take into account the highly ambiguous statements Intel also made about Willamette's big server brother Foster at IDF. Morgan Stanley thinks Rambus RIMMs will represent 50 per cent of the memory market in 2003. And the i820 debacle, or Caminogate as we describe it? The firm believes that the i820 chipset will bring "other bandwidth enhancing technologies to the PC platform". Rambus, as we reported from IDF, and since, is cutting costs and tweaking the platform to deliver volume production, says MS. Morgan Stanley admits it's biased. The small print on the analysis is interesting, because as a matter of course Morgan Stanley & Co, Dean Witter Reynolds and/or affiliates have managed or co-managed a public offering of Rambus stocks. And, more small print adds, such firms and their employees have or could have long or short positions on these stocks. Plus, the same outfit, in the words of the report: "make a market in the securities of Rambus and Intel". One independent analyst commenting on the report, says that the rationale for the $500 forecast is likely to deliver a target price of $422, based on 2.5 times growth being equivalent to the target pe. Three year growth amounts to 130 per cent, and 2001 earnings, which should be used as the $500 is a 12 to 18 month target, gives 2.5 x 130 x $1.30, which equals $422. Rambus (ticker RMBS) closed at $332.3125 at close of trading last Friday evening. ®

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