Well Mixed
Imagine you're at your favorite bar enjoying a whiskey sour with friends. When you take a sip, hopefully, you think "that's smooooth!" and carry on chatting.
Hopefully, you don't think "Damn, that lemon juice is tart! That whiskey is harsh. And what is that scrambled egg doing in my drink!" You don't taste any of the ingredients individually. When they're all put together, they become something different: a cocktail you can enjoy, even if whiskey isn't your thing.
Shaken
Some businesses go like this too. Meta has achieved great results pairing Instagram with Facebook. Nvidia did well mixing Mellanox into its pursuit of data centers. Plenty of businesses succeed as bundles of things that are available elsewhere. Some go together better than others. One, Rambus, has mixed a particularly well-balanced set of ingredients. But it took some trial and error.
For a long time, Rambus' business activities went something like this:
Research a bunch of different things related to computer memory (RAM),
Go to the big memory companies.
Politely ask "would you like to license our technology?"
Receive an equally polite "get lost"
Sue
Court fights followed. RMBS won some of these. It earned some royalties on its patent portfolio.
No one really liked this situation. More than a few folks in Silicon Valley accused it of being a patent troll. RMBS struggled to win over investors because of the rough tactics and uncertainty that accompanies legal tussles. Turns out this wasn't a great business.
Then, about ten years ago, it changed its recipe.
It began making things.
It made components that help memory work faster and use less power. It sold these things to companies making memory for data centers.
It didn't just make things, it also sold digital solutions that customers could plug into their own chips to make them work faster and more securely.
It took a few years, but these things eventually began to make money.
In 2017, these two lines of business--physical things and digital things--chipped-in just eight percent of the company's profit. By 2023, three parts of RMBS' profit came from these new activities and just two from its legacy business.
But none of these efforts would work as well on their own. They rely on the work and relationships the firm accumulated to support its royalty business. Just like you can't take the whiskey or the lemon or the egg out of a whiskey sour without changing the drink, these different corners of RMBS' business work better together.
Mixology
A talented cocktail slinger can elevate a whiskey sour. There's reason to think RMBS has something extra to add too.
It's been winning more market share in the newest memory standard, DDR5, compared to the previous one, DDR4. The new gear is more complex and delivers more value. This ought to translate to more profit for each unit in addition to a more generous pour of the market for RMBS.
Customers are only just beginning the transition. RMBS began shipping the new kit last year.
The transition has also opened up new areas for RMBS' to explore. It's dabbling in solutions that help customers manage power and temperature. Investors have only recently wised-up to the challenges of power and heat in the latest data centers. The previous generation of memory chips didn't support these capabilities, so this is a whole new market for the company to layer into its product business.
Another round
The best business recipes deliver solutions customers want. This changes as time goes on and RMBS has added and subtracted ingredients to adjust. It's proved over that time that it could hone the recipe and deliver value to both customers and shareholders. Customers have preferred the company's latest offering even more than the previous menu. It still has a few special ingredients left to add in. The combination looks likely to deliver refreshing service to shareholders.
Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.