Politics of Rambus Affair inspire
87-year old Spud King rules Micron roost
Bitter and open war between intellectual property firm Rambus and memory companies Hyundai, Micron and Infineon conceal desperate negotiations and other intriguing shenanigans which reveal just how high the stakes are in the PC industry, and perhaps more importantly, in the money markets.
But the big question occupying many investors as they watch the Rambus carousel turn, is whether an 87 year old potato tycoon caused the Micron worm to turn and bite the Mountain View company last week, or whether Steve Appleton, CEO of the firm, called in m'learned friends.
Last week, Hyundai and Micron took legal action against Rambus in US courts. The former filed an antitrust suit against the company, based in Mountain View, California, while the latter's law suit seeks to prove that Rambus has no right to claim it owns patents to synchronous DRAM or to double data rate (DDR) DRAM, an extension to this technology. Rambus, a few weeks earlier, filed an action against Infineon, a former division of Siemens, which was spun off earlier this year.
There are other big players in the dispute which, so far, are keeping their cards close to their corporate treasure chests.
The company with the highest profile is Intel, which has found itself at the centre of the Rambus Affair over the last few years. Intel, as the world's biggest manufacturer of x86 microprocessors, often takes the role of a firm which sets the standards for PCs. Intel has consistently attempted to promote Rambus memory technology as a standard for PCs using technology and patents developed by the intellectual property firm since its inception.
Rambus does not manufacture memory, but instead designs technology which then has to be licensed by companies which themselves have large factories ("fabs"). These fabs involve large capital investments and use state-of-the-art technology to produce memory chips, largely seen as commodity items, a bit like pork bellies. Manufacturing these chips to Rambus specifications requires additional investment by the memory companies and also involves the payment of royalties.
The chips eventually find their way into memory modules, and as many PC buyers know, the more memory you have, the better the operating system and application software work. While Intel and AMD promote raw megahertz clock speed as the measure of how "fast" a PC runs, other factors, including the type of graphics card used, the speed of the hard drive, and the amount of memory available, all have an almost equally large part to play in overall performance.
PC companies vote with their feet
Rambus memory also requires more effort from PC companies when they are designing their machines. Because the technology specifications of Rambus modules (RIMMs) are exacting, it is, generally speaking, more difficult for builders of PCs to design systems that use this type of memory.
Two years ago, many Taiwanese companies, who manufacture motherboards for PCs, resisted Intel's attempts to get them to move wholesale to using Rambus, and instead decided to use a type of synchronous memory called PC-133 in their designs.
Throughout 1998, Intel had said that it did not think PC-133 was a suitable memory standard for future PC platforms, and instead promoted Rambus and its RIMMs as the up-and-coming standard.
Unfortunately for both Intel and Rambus, the Taiwanese companies and Taiwan represent the offshore factory for the PC industry, supplying large PC vendors including Compaq, Hewlett Packard, and IBM with much of the technology that ends up in their branded PCs.
So Intel was forced, later on in the year, to back down on the PC-133 SDRAM issue, and acknowledge that industry demand meant it would back this cheaper, and apparently Rambus-free, technology.
Rambus changes the goalposts
Towards the end of 1999 and during the first half of this year, it became apparent that despite Intel backing the Rambus memory technology, high prices and insufficient supply of chips, compounded by poor motherboard support, meant that few machines apart from workstations were shipping with RIMM technology.
Even Intel, which is locked into serious contractual obligations with Rambus, appeared to show signs of backing away from its former commitment to this type of memory.
The industry talk all seemed to be about SDRAM and DDR memory, and the legal battle kicked off in January this year, when Rambus took legal action against a large Japanese memory manufacturer, Hitachi -- claiming it had violated patents it held on this technology. (See Rambus sues Hitachi).
These patents were nothing whatever to do with Rambus RIMM technology. Hitachi filed a countersuit against Rambus alleging the company had breached tough US anti-monopoly laws. In the middle of this year, Hitachi dropped this case against Rambus and licensed its technology. This was largely seen by the industry as a realistic move, given that it intends to transfer its memory division to another large Japanese firm NEC, towards the end of this year.
The most recent litigation is also concerned with patents Rambus claims it owns on SDRAM and DDR, and this, apart from performance, is the most hotly contested issue, which will affect other big players in the industry.
Toshiba, a big memory player, and Oki, a much smaller player, have both agreed to license these technologies from Mountain View.
The undeclared parties
Samsung is one of the world's biggest suppliers of memory technology. It has enjoyed a mostly cosy relationship with Rambus, although behind the scenes, there are indications that the Korean firm is not wearing rose coloured spectacles. At last week's Intel Developer Forum, Samsung appeared to be giving equal billing to both DDR and Rambus RIMM technology. So far, it has not licensed SDRAM and DDR patents from Rambus.
NEC has an even cosier relationship with Rambus but it has not declared its hand either. It was involved in the earliest discussions with Rambus, when the company was formed. So far, it has not declared how it views licensing the alternative, DDR and SDRAM technology.
Intel is affected by this issue because Rambus patents extend not only to the SDRAM and DDR technology themselves, but to so-called memory controllers which are incorporated into motherboards.
Investors kick up a fuss
There is big money at stake here, in the shape of investors in Rambus technology. Many are US based, and express their opinions about these developments in vociferous terms on bulletin boards such as Silicon Investor, Raging Bull, and Yahoo.
The Rambus share price has fluctuated wildly over the last two years, as the issue has developed, at one time edging very close to the $500 mark.
Some of the comments on these bulletin boards make entertaining as well as enlightening reading. Those "long" on Rambus technology have faith that its technology, as well as its more recent claims on SDRAM and DDR technology, will eventually see them reap a good return on their investments.
This one, posted on Yahoo, discusses how the most recent cases will affect Via, an up-and-coming Taiwanese chipset manufacturer.
Barry Watzman, who appears to be "long" on Rambus, says that there is no evidence that SDR and DDR patents are in the public domain. See his remarks here. JEDEC, which is a memory standards body, and which numbers many industry players (but not Rambus), is promoting DDR and SDRAM memory as open standards.
The denizens of these boards often refer to The Reg, not always in flattering terms (cough) here's, one. Thanks guys, but would you mind just referring to the URL, rather than reprinting the whole of our articles in full? We need the dosh for ciggies and beer, y'know, and to continue to irritate you...
In the last 10 days or so, Micron (ticker Mu) lost billions of dollars in market capitalization while Rambus seems to have broken even. Micron has something like 560 million shares of common stock. Rambus only has 100 million shares up for grabs.
Micron's share price closed on Friday at $78.25, making its market cap around $44 billion, so losing around $8 bill market cap in one week. Simplot's company owns 22 per cent of Micron, that's around $1.75 billion market cap in a week. Still it's a swings and roundabout thing.
One pro-Rambus wag comments that this would have covered royalty payments from Micron to Rambus for around 250 years or so.
Finally, and for the time being, there's the story of so-called potato baron J.R. Simplot, who owns 22 per cent of US memory company Micron, an 87 year old tycoon who made most of his money from chips of the edible variety, and who appears to call most of the shots at the firm and apparently helped fire shots at CEO Steve Appleton. Check out this Business Week piece. Appleton, this piece says, is a gun-toting geezer who is a little paranoid about Boise, Idaho, HQ of the firm. Appleton is alleged to have almost come to blows with Rambus CFO Gary Harmon last year and may be the initiator of the firm's aggressive action against Mountain View last week.
Here, we enter the realms of money and leave the technology or any question of monopolies aside almost completely. Micron stock is held by major institutions and, according to one insider, it takes quite a lot of net selling to make its share price move. Earlier this year, Intel and Texas Instruments sold large numbers of shares they had in Micron, and this barely dented its stock price. This insider adds: "This law suit is costing the potato baron a fortune. When Micron decides to settle, the decision will be made by the Spud King." ®