Zacks_Analysts' Blog : Rambus Loses, MU Gets Clean Chit - Analyst Blog

Finally, the verdict is out. Technology licensing company Rambus Inc. (RMBS) received an untoward ruling by a California jury on the long-drawn (almost 7 years) antitrust battle with Micron Technology Inc. (MU) and Hynix Semiconductor Inc.

A long time back, Rambus dragged Micron and Hynix to court on antitrust charges including conspiracy to fix DRAM prices and prevent its RDRAM memory technology from gaining traction in the market. The company had sought damages from Micron and Hynix totaling approximately $3.9 billion.

After considering the case for two months post trial, the jury negated the claims and cleared the defendants of all liabilities.

Chip manufacturer Micron is in a favorable position with the verdict on its side. The shares are showing an upward trend. But we remain concerned about near-term risks to its estimates due to excess capacity and high inventories because of lackluster PC sales.

We are bit surprised about the outcome as Rambus has won a similar case against Samsung and Nvidia Corp. (NVDA), earlier this year. Following the verdict passed by the U.S. International Trade Commission (ITC), Samsung agreed to pay roughly $700 million in licensing payments over five years and make a $200 million investment in the Rambus stock. Rambus also received a sizable one-time compensation ($95.9 million) from Samsung. Nvidia however has challenged the ITC ruling.

Rambus generates revenue by licensing its patents to original equipment manufacturers (OEMs). The company’s success at signing up new customers has enabled it to run its business effectively while offsetting the rising legal costs.

We find the company’s growth story quite encouraging. Rambus reported an interesting third quarter, easily surpassing the Zacks Consensus Estimates. The company also provided a positive guidance, although seemingly weak (because of seasonality). We believe that the guidance reflects the uncertainty regarding legal outcomes.

The shares of Rambus lost significant value on the news of losing the case as the negative outcome blew investor sentiment. The stock is trading 53.3% lower than the $18.04 level last Tuesday, when the decision was given.

Currently, both Rambus and Micron retain a Zacks #3 Rank, indicating a short-term Hold recommendation.