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Rambus legal bill soars

Expensive delays

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Lawyers have their price, and in Rambus, the litigious DRAM IP company, the price in Q2 is $7.3 million - up from $4.3 million in Q1, and a huge jump on the $660k recorded in the same Q last year.

Part of the jump is "due to delays in our litigation in Europe against Hyundai and Micron, and in the US against Infineon". But, Ramboost points out, royalties from the eight DRAM makers which have fallen into SDRAM licensing step with the firm "far exceeds the cost of litigation against the three companies who have chosen to go to court rather than to conduct good-faith negotiations".

We led in our report on the Rambus results with its update on litigation costs (even though this soaks up a relatively small part of its wealth) because success in the courts is what will determine the ultimate success of Rambus as a company.

Curate's Egg

Rambus results in Q2 were a Curate's Egg ("good in parts") with enough messages to satisfy both the company's army of retail investors and its many detractors.

Revenues were $31.2 million, up 99 per cent on Q2 last year, but 10 per cent down on Q1. This shouldn't matter, right? After all computer sales are seasonal, and the run-up to Christmas is always busier than in Q1 (except in the UK corporate sector incidentally). Problem is, Pentium 4 was launched in Rambus Q1, and Sony Playstation 2 which uses Rambus memory, is in massive ramp-up, so how come the sequential drop in revenues?

It's clear that P4 sales have simply failed to climb fast enough for Rambus to overcome the massive drop in SDRAM ASPs (average selling prices), reported by Rambus to be 50 per cent in the latest quarter. Intel's planned P4 price cuts should be a massive kicker for Rambus in Q3. But what about SDRAM revenues?

"Since the majority of our royalties," the company says, "are still from SDRAM-compatible ICs, we anticipate an overall decline in our total revenues from current licensees next quarter by 20 per cent sequentially, plus or minus several points."

Of course this could change, as Rambus points out, if more licencees come on board. The company is expecting some court decisions next quarter, which, if they are in its favour, will probably come too soon for it to record income until Q4. But what if the judgments swing the other way? The eight big SDRAM licencees may then consider taking up the legal cudgels to break contracts that leave them at a price disadvantage with rivals outside the Rambus ring. Rambus currently has $154m cash in hand, so there's ample money to defend any would-be legal actions.

You can pore through Rambus' Q2 comments and income statement here. One final small point. Bizarrely, for an IP company with big revenues, Rambust blames a rent rise and other operating costs for its new building for higher expenses in Q2. ®

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