Hynix, Micron Gain on 'Surprise' Rambus Verdict
By Joel Rosenblatt and Ian King – Nov 16, 2011 11:37 PM ET
Micron Technology Inc. (MU) and Hynix Semiconductor Inc. (000660)rose after a jury rejected Rambus Inc.’s allegations that they conspired to prevent its memory chips from becoming an industry standard.
The verdict, which analyst Daniel Amir of Lazard Capital Markets called a “surprise,” sent Rambus shares down yesterday as much as 78 percent, the biggest one-day loss since the company went public in 1997. Micron rose as much as 25 percent, the most since its initial public offering in 1984. Hynix rose 2.2 percent to 22850 won at 1:30 p.m. today in Seoul trading.
Rambus said it may appeal the verdict by a state court jury in San Francisco, which voted 9-3 to rejected the company’s claims that Boise, Idaho-based Micron and Hynix, based in Ichon, South Korea, are liable for colluding to manipulate prices of dynamic random access memory, or DRAM, chips in violation of California antitrust law.
Jurors found by the same vote, after deliberating since Sept. 22, that the two companies didn’t plot to interfere with Rambus’s business relationship with Intel Corp. (INTC) and drive the world’s largest chipmaker away from its collaboration on RDRAM, or Rambus-designed memory, that began in the 1990s.
“The end outcome is not what most people really anticipated,” Amir said in an interview. “They’ve continuously highlighted that this case was the case where everyone wants a front seat, this is the case where they were going to really collect.”
Rambus’s defeat yesterday was its biggest setback in an attempt over more than a decade to assert it owns technology that is fundamental to the $39 billion computer memory chip industry and get producers of the semiconductors to pay for it.
Rambus said it would have made $3.95 billion in royalties without the alleged conspiracy. Under California law, a jury finding of antitrust damages in that amount would have been automatically tripled to $11.9 billion.
“We are disappointed with this verdict as we believe strongly in our case,” Harold Hughes, president and chief executive officer of Sunnyvale, California-based Rambus, said in an e-mailed statement. “We do not agree with several rulings that affected how this case was presented to the jury and we are reviewing our options for appeal.”
Rambus General Counsel Thomas Lavelle said during a conference call with investors that he isn’t “in a position to say what, if any, grounds we’re going to appeal” the verdict.
In response to questions, he said Rambus may raise on appeal the trial judge’s refusal to let the jury be told about Samsung Electronics Co.’s admission of guilt in a criminal DRAM price-fixing case brought by the U.S. Department of Justice.
Samsung, the world’s largest memory-chip maker, agreed to pay $300 million in 2005 to settle the Justice Department’s claims, and last year paid $900 million in a settlement that removed it from the Rambus case. Rambus argued that Suwon, South Korea-based Samsung’s guilty plea could help it prove the conspiracy alleged in its case against Hynix and Micron.
Trading in Rambus and Micron was halted in New York yesterday after it was announced that the jury had reached a verdict. After trading resumed, Rambus closed at $7.11, a 61 percent drop, while Micron closed at $6.74, up 23 percent.
The five-man, seven-woman jury left the courtroom after the verdict without taking questions from the press.
Hynix Chief Executive Officer O.C. Kwon said in an e-mailed statement the company is grateful for the jury’s verdict, “which rejected Rambus’s meritless claim that Hynix was to blame for the failure of Rambus’s proprietary RDRAM technology to become the standard for computer main memory.”
Steve Appleton, Micron’s chairman and CEO, said in an e-mailed statement that the verdict “validates our assertion that Micron acted in accordance with the law and consistent with its values of innovation and fair competition in the marketplace.”
Daniel Berenbaum, an analyst with MKM Partner LP who rates Micron as neutral and doesn’t own shares, called the verdict “an extreme outcome” and said it was a surprise for investors.
“We’d been talking about what would happen if there was a $500 million or $1 billion award,” Berenbaum said in an interview. “I believe that a number of investors were waiting for this overhang to clear before they decided what to do with the stock.”
Jeffrey Schreiner, an analyst at Capstone Investments Inc. in Menlo Park, California, said in an interview the case “was certainly a cornerstone of the investment thesis I had on Rambus.” Schreiner has had a “buy” rating and $50 price target on Rambus shares.
“With this court decision, it becomes a lot harder to achieve that goal,” he said, adding that he will drop coverage of the stock.
In the trial, which began in June, Rambus claimed that Micron and Hynix acted as a cartel to derail Intel’s 1996 decision to collaborate on RDRAM as a solution to a computer- memory bottleneck.
Micron and Hynix were accused of abusing agreements made in the 1990s to manufacture RDRAM by inflating its price and suppressing availability, eventually leading Intel to turn away from adopting and promoting Rambus memory as an industry standard.
Hynix and Micron built their case on claims that the Rambus-Intel relationship was undone by Rambus’s hubris.
An Intel manager testified that Rambus refused to waive a contractual provision allowing it to block shipments of Intel processors that relied on the chip designer’s technology if certain conditions requiring Intel to promote RDRAM weren’t met. That refusal, and not collusion among the chip manufacturers, doomed Intel’s vital support of Rambus, lawyers for Hynix and Micron told jurors.
Infineon Technologies AG, Europe’s second-largest maker of semiconductors, was removed from the antitrust case when the Neubiberg, Germany-based company agreed in 2005 to pay as much as $150 million to settle all legal claims with Rambus.
The case is Rambus Inc. (RMBS) v. Micron Technology Inc., 04-0431105, California Superior Court (San Francisco).