The last career I had before retiring three years ago was as a portfolio manager / financial advisor, and my primary client was one of the founders of Rambus, a company that has locked up most of the intellectual property (IP) needed to produce very high speed serial interfaces, notably for DRAM. A few years ahead of everyone else, they locked up patents for most of the features of today's DDR/DDR2/etc interfaces, as well as their own RDRAM and XDRAM (soon to be released in the Playstation III.) I won't go into the background and story in detail, but it was fascinating to watch how PR paid for by the memory manufacturers poisoned Rambus' public image to the point where geeks around the world "knew" Rambus had joined the JEDEC standards committee to steal ideas, then turned around and patented them to extort royalties from the poor, helpless, multibillion-dollar industry. When those who were there at the time knew the facts were the reverse!

A big chunk of my retirement stake was earned by speculating in RMBS stock. When it was completely trashed at $5, I bought a lot, then sold most of it in the 20s and 30s. I'm still sitting on a big chunk, and it looks like this is a favorable time to buy in for relatively short-term gains. The prize being sought is royalties on the basic patents for almost all memory interfaces in use today, and six years of legal wrangling to enforce the patents have gone by. Preliminary findings of infringement have already been made, and the last defenses of the DRAM makers are falling. Rambus filed an antitrust suit alleging they had conspired to prevent RDRAM from penetrating the marketplace, and the treble damages possible if they prevail are a major club encouraging settlement. If the DRAM makers agree to pay for use of the patents, the stock price would likely hit 40 (from the current 16) in short order, and over time rise further to above 60.

This story shows why the stock is perking up; the DRAM makers have admitted to price-fixing and been heavily fined, and the pleas include Rambus memory, greatly easing Rambus' burden of proving conspiracy. Only the small community of analysts who follow it closely are aware of how big a deal this is, and now appears to be one of those times when the risk/reward ratio is highly favorable. Since I am no longer an SEC-registered investment advisor, I am free to say this (people registered with the SEC in theory can be jailed for speaking their minds about any investment outside of an approved written forum -- we all know how well that's enforced, but still...) As usual, only people who have highly-diversified investments, are familiar with all aspects of stock trading, and can afford to lose money should consider such a speculative purchase, and while I think probabilities now favor a rise in stock price from here, there are no guarantees.

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drscott

November 2013

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