A few weeks ago, California-based memory chip developer Rambus (Nasdaq:RMBS) was making lots of headlines and was the subject of many a water cooler conversations. The reason: many think that Samsung Electronics might buy out or attempt to buy out the company. So is this talk true? A Reuters article quoted a company spokesperson as saying: "Samsung Electronics has no intention to purchase Rambus." Still, it's worth investigating whether or not Rambus would be a good acquisition target.
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Acquisition Pros
Rambus does have a few things going for it that could be attractive to a potential suitor. For instance, the company's got a well-known and respected name and a good management team in place. RMBS has also been around since 1990, which is a long time in the world of technology. The company is also entrenched in the world of computing and electronics, which are spaces that have the potential to show strong growth in the years to come.
But even beyond that, it's important to note that the shares have advanced sharply since the springtime, and management may want to go out on a high note. In other words, management might be a bit more eager to sell now than say back in March when the stock was in and around the single digits.
Acquisition Cons
There are some things that I don't like about Rambus. The first thing is the fairly hefty EPS losses it's expected to generate this year and in 2010. I think that a suitor might want to wait until meaningful profits were just around the corner.
In addition, it appears that over the last couple of months or so the estimates have actually declined. For example, 60 days ago the estimate for this year was a loss of 87 cents, whereas now it's a loss of 96 cents. That's not a trend I'd like to see if I were in hot pursuit of this company.
Also, as I mentioned above, the stock has had a substantial run up since earlier in the year. Why shouldn't a potential suitor wait for a pullback or some profit taking? Or maybe wait for a market correction?
An Alternative?
My gut tells me that because Rambus stock has come so far so fast and has become a bit overextended that a buyout or buyout offer in the near-term may not be in the cards. There are also some more attractive plays in the wonderful world of technology. For instance, I would much rather get involved with chipmaker Intel (Nasdaq:INTC), given its market position, and the fact that it's expecting a fairly large profit in 2010. I also like Texas Instruments (NYSE:TXN) as a long-haul play. The Dallas-based semiconductor company is expected to earn 91 cents a share this year and $1.41 next year. In addition, the estimates for each year have apparently been on the rise over the last two months.
I also have a spot in my heart for Dell (Nasdaq:DELL), which I think has big promise. I'm also enthused by the almost 19% EPS growth that's expected from this year to next.
Bottom Line
Although it's possible that a suitor could emerge and scoop up Rambus, I don't think it's likely. I think the stock is overextended, and I would much rather get involved in other big names in technology including Intel, Texas Instruments, and Dell. (For another view, see Analyst Forecasts Spell Disaster For Some Stocks.)
