Rambus and Toshiba: The Sky Is NOT Falling

As I had mentioned in my earlier piece on Rambus, Rambus is essentially suing one of the major memory manufacturers, claiming that they essentially have the patent rights
upon which all modern memory, whether it be SDRAM, DDR or RDRAM, is based. They want royalties.

What we heard yesterday was that Toshiba acknowledged the validity of these patents, and agreed to pay royalties to Rambus for manufacturing SDRAM and DDR also.

Please note:

• This is just an agreement between two companies. No court has decided anything. No one else is subject to this agreement.
• Obviously, Toshiba’s legal department thinks Rambus has a decent case, but then Toshiba has had the habit lately of rolling over and playing dead. Remember their settlement over floppy drive controllers last October? These guys clearly don’t like legal challenges hanging over their heads; and they are de emphasizing RAM production, anyway.

• We have no idea what the specific terms of the agreement were, outside of what I’ve already said, that the SDRAM royalty would be less than the RDRAM royalty, and the DDR royalty would be higher than the RDRAM royalty. Rambus could have given Toshiba a sweetheart deal and “forgiven” them the non-payment of all prior SDRAM production. They might have even said that payment of royalties on SDRAM and DDR would be contingent on Rambus winning in court.

So What Happens Now?

Two things can happen:

1. Everyone else rolls over and plays dead.
2. Everyone else doesn’t roll over and play dead.

Will They Roll Over?

Believe it or not, it’s not an economic decision; it’s a political one for the memory manufacturers.

The royalties don’t add up to all that much from the perspective of the memory manufacturers and buyers (though it certainly does for Rambus and its shareholders).

It’s not enough to create a roadblock against or force them to make RDRAM. It’s not enough to force the memory manufacturers to settle. It’s not enough to make DDR uneconomic against RDRAM.

All the memory manufacturers have to do to hike up prices enough to cover any possible judgment somewhere down the road. RAM is getting scarce, and will stay that way for a while. Prices are going to go up anyway.

So they informally agree among themselves to add around 5% or so to their costs (maybe a little less for SDRAM, a little more for DDR) and put it aside. That should keep the shareholders satisfied. If they lose in court, they got the money. If they win, they have a nice windfall profit.

Patent cases can drag out for years. This one is even more complicated than most; there are even anti-trust ramifications. This makes it a crapshoot in the American courts. In the meantime, the other memory manufacturers can still strangle RDRAM from the desktop and possibly try to develop a new memory standard that has nothing to do with any Rambus patents.

Do They All Hate Rambus Enough?

This is a matter of what is more important: power or money. If they roll over, Rambus becomes the Microsoft of memory. Can the heads of the memory manufacturing companies stand that? Can or will the shareholders of those companies tolerate the tactics I’ve just described? Can Rambus play “divide and conquer” with anyone else besides Toshiba?

I think, no matter what, we’re going to see some extra price hikes. Beyond that, I don’t know. It is a gut check, for sure. Can the major manufacturers hold together and present a united front? We’ll see.

Outside Factors

It’s tough making DDR if you don’t have a place to put it. The reporting from Computex was disquieting; the prospect of seeing DDR motherboards shortly seems to be fading away. If one estimate I saw was correct, and Via won’t have DDR motherboards out until near the end of the year, that could be a bigger factor than the royalty rate in any decisions.

Or it may not be; folks may just keep on making SDRAM until DDR is ready.

So it’s probably a good time to buy SDRAM, and for the rest, it’s wait-and-see.

Email Ed