RAMBUS INC - Quarter Report: 2010 September (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-22339

RAMBUS INC.

(Exact name of registrant as specified in its charter)


Delaware		94-3112828
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

4440 El Camino Real, Los Altos, CA 94022
(Address of principal executive offices) (zip code)

Registrant’s telephone number, including area code: (650) 947-5000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the registrant’s Common Stock, par value $.001 per share, was 111,729,266 as of September 30, 2010.

RAMBUS INC.
TABLE OF CONTENTS


	PAGE
Special Note Regarding Forward-Looking Statements		3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009		5
Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009		6
Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009		7
Notes to Unaudited Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		39
Item 3. Quantitative and Qualitative Disclosures about Market Risk		54
Item 4. Controls and Procedures		56
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		56
Item 1A. Risk Factors		56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		70
Item 3. Defaults Upon Senior Securities		71
Item 4. Reserved		71
Item 5. Other Information		71
Item 6. Exhibits		71
Signature		72
Exhibit Index		73
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements. These forward-looking statements include, without limitation, predictions regarding the following aspects of our future:

•

Outcome and effect of current and potential future intellectual property litigation;

•

Litigation expenses;

•

Protection of intellectual property;

•

Amounts owed under licensing agreements;

•

Success in renewing license agreements;

•

Terms of our licenses;

•

Acquisitions, mergers or strategic transactions;

•

Indemnification and technical support obligations;

•

Success in the markets of our or our licensees’ products;

•

Sources of competition;

•

Operating results;

•

Research and development costs and improvements in technology;

•

Sources, amounts and concentration of revenue, including royalties;

•

Effects of changes in the economy and credit market on our industry and business;

•

Deterioration of financial health of commercial counterparties and their ability to meet their obligations to us;

•

Restructuring activities;

•

Growth in our business;

•

Product development;

•

Pricing policies of our licensees;

•

Engineering, marketing and general and administration expenses;

•

Contract revenue;

•

International licenses and operations, including our design facility in Bangalore, India;

•

Issuances of our securities, which could involve restrictive covenants or be dilutive to our existing stockholders;

•

Repurchases of our Common Stock pursuant to share repurchase programs;

•

Effective tax rates;

•

Realization of deferred tax assets/release of deferred tax valuation allowance;

•

Methods, estimates and judgments in accounting policies;

•

Adoption of new accounting pronouncements;

•

Ability to identify, attract, motivate and retain qualified personnel;

•

Trading price of our Common Stock;

•

Corporate governance;

•

Consequences of the lawsuits related to the stock option investigation;

•

The level and terms of our outstanding debt;

•

Resolution of the governmental agency matters involving us;

•

Internal control environment;

•

Interest and other income, net; and

•

Likelihood of paying dividends or repurchasing stock.

You can identify these and other forward-looking statements by the use of words such as “may,” “future,” “shall,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.

Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Item 1A, “Risk Factors.” All forward-looking statements included in this document are based on our assessment of information available to us at this time. We assume no obligation to update any forward-looking statements.

RAMBUS INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30,			December 31,
	2010			2009
	(In thousands, except shares
	and par value)
ASSETS
Current assets:
Cash and cash equivalents	$	218,197		$	289,073
Marketable securities		266,696			171,120
Accounts receivable		155			949
Prepaids and other current assets		12,120			8,700
Deferred taxes		1,141			129

Total current assets		498,309			469,971
Restricted cash		722			639
Deferred taxes		1,120			2,034
Intangible assets, net		27,104			21,660
Property and equipment, net		49,705			38,966
Goodwill		15,554			15,554
Other assets		6,115			7,045

Total assets	$	598,629		$	555,869


LIABILITIES
Current liabilities:
Accounts payable	$	11,844		$	8,972
Accrued salaries and benefits		25,401			6,435
Accrued litigation expenses		3,890			5,147
Income taxes payable		703			486
Other accrued liabilities		6,890			4,020
Non-cash obligation for construction in progress		25,900			25,100
Convertible notes		—			136,032

Total current liabilities		74,628			186,192
Convertible notes		118,824			112,012
Long-term income taxes payable		2,024			1,994
Other long-term liabilities		1,176			344

Total liabilities		196,652			300,542

Commitments and contingencies

Contingently redeemable common stock:
Outstanding: 4,788,125 shares at September 30, 2010 and no shares at December 31, 2009		113,500			—


STOCKHOLDERS’ EQUITY
Convertible preferred stock, $.001 par value:
Authorized: 5,000,000 shares
Issued and outstanding: no shares at September 30, 2010 and December 31, 2009		—			—
Common stock, $.001 par value:
Authorized: 500,000,000 shares
Issued and outstanding: 111,729,266 shares at September 30, 2010 and 105,934,157 shares at December 31, 2009		107			106
Additional paid-in capital		914,194			818,992
Share purchase contract		(90,000	)		—
Accumulated deficit		(535,533	)		(563,858	)
Accumulated other comprehensive income (loss), net		(291	)		87

Total stockholders’ equity		288,477			255,327

Total liabilities, contingently redeemable common stock and stockholders’ equity	$	598,629		$	555,869

See Notes to Unaudited Consolidated Financial Statements

RAMBUS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
				(In thousands, except per share amounts)
Revenue:
Royalties	$	31,179		$	26,898		$	229,913		$	77,826
Contract revenue		564			976			2,556			4,365

Total revenue		31,743			27,874			232,469			82,191

Operating costs and expenses:
Cost of revenue*		1,368			1,858			5,026			5,479
Research and development*		23,002			16,727			67,678			50,277
Marketing, general and administrative*		27,938			29,882			88,873			99,601
Costs (recoveries) of restatement and related legal activities, net		1,229			68			3,393			(14,000	)
Gain from settlement		(10,300	)		—			(116,500	)		—

Total operating costs and expenses		43,237			48,535			48,470			141,357

Operating income (loss)		(11,494	)		(20,661	)		183,999			(59,166	)
Interest income and other income, net		312			891			1,053			3,504
Interest expense		(4,953	)		(7,641	)		(14,709	)		(13,128	)

Interest and other expense, net		(4,641	)		(6,750	)		(13,656	)		(9,624	)

Income (loss) before income taxes		(16,135	)		(27,411	)		170,343			(68,790	)
Provision for income taxes		4,441			85			52,510			103

Net income (loss)	$	(20,576	)	$	(27,496	)	$	117,833		$	(68,893	)

Net income (loss) per share:
Basic	$	(0.18	)	$	(0.26	)	$	1.04		$	(0.66	)

Diluted	$	(0.18	)	$	(0.26	)	$	1.01		$	(0.66	)

Weighted average shares used in per share calculation
Basic		111,866			105,182			112,768			104,761

Diluted		111,866			105,182			116,347			104,761


* Includes stock-based compensation:

Cost of revenue	$	17		$	283		$	146		$	906
Research and development	$	2,470		$	2,332		$	7,742		$	7,286
Marketing, general and administrative	$	4,976		$	5,134		$	15,340		$	15,826

See Notes to Unaudited Consolidated Financial Statements

RAMBUS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
	September 30,
	2010			2009
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	117,833		$	(68,893	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Stock-based compensation		23,228			24,018
Depreciation		7,233			8,039
Amortization of intangible assets		3,587			2,209
Non-cash interest expense and amortization of convertible debt issuance costs		8,241			10,958
Deferred tax benefit		(98	)		(16	)
Loss on sale of marketable security		83			—
Impairment of investment		—			164
Change in operating assets and liabilities:
Accounts receivable		794			749
Prepaids and other assets		1,680			1,784
Accounts payable		(2,445	)		4,878
Accrued salaries and benefits and other accrued liabilities		20,338			(1,243	)
Accrued litigation expenses		(1,257	)		(8,045	)
Income taxes payable		247			(234	)
Increase in restricted cash		(83	)		(16	)

Net cash provided by (used in) operating activities		179,381			(25,648	)

Cash flows from investing activities:
Acquisition of business		(2,000	)		—
Acquisition of intangible assets		(5,500	)		(1,550	)
Purchases of property and equipment		(13,100	)		(2,271	)
Purchases of marketable securities		(319,111	)		(123,396	)
Maturities of marketable securities		218,481			221,434
Proceeds from sale of marketable securities		1,682			—
Investment in non-marketable security		—			(2,000	)

Net cash provided by (used in) investing activities		(119,548	)		92,217

Cash flows from financing activities:
Payments under installment payment arrangement		(1,550	)		—
Proceeds received from issuance of contingently redeemable common stock and common stock pursuant to the settlement agreement with Samsung		192,000			—
Repayment of convertible senior notes		(136,950	)		—
Repurchase of common stock		(105,108	)		—
Prepayment under share purchase contract		(90,000	)		—
Proceeds received from issuance of common stock under employee stock plans		10,899			16,294
Proceeds from issuance of convertible senior notes		—			172,500
Issuance costs related to the issuance of convertible senior notes		—			(4,313	)

Net cash provided by (used in) financing activities		(130,709	)		184,481

Net increase (decrease) in cash and cash equivalents		(70,876	)		251,050
Cash and cash equivalents at beginning of period		289,073			116,241

Cash and cash equivalents at end of period	$	218,197		$	367,291


Non-cash investing and financing activities:
Increase in non-cash obligation for construction in progress	$	800		$	—
Intangible assets acquired under installment payment arrangement	$	331		$	—
Fixed assets acquired under installment payment arrangement in a business acquisition	$	350		$	—

See Notes to Unaudited Consolidated Financial Statements

RAMBUS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Rambus Inc. (“Rambus” or the “Company”) and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the accompanying unaudited consolidated financial statements. Investments in entities with less than 20% ownership or in which the Company does not have the ability to significantly influence the operations of the investee are being accounted for using the cost method and are included in other assets.

In the opinion of management, the unaudited consolidated financial statements include all adjustments (consisting only of normal recurring items) necessary to state fairly the financial position and results of operations for each interim period presented. Interim results are not necessarily indicative of results for a full year.

The unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information. Certain information and Note disclosures included in the financial statements prepared in accordance with generally accepted accounting principles have been omitted in these interim statements pursuant to such SEC rules and regulations. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto in Form 10-K for the year ended December 31, 2009.

During the third quarter of 2010, the Company adjusted its purchases and maturities of marketable securities by approximately $641 million due to the incorrect classification of cash equivalents as marketable securities. Refer to Note 2, “Summary of Significant Accounting Policies”, for additional details.

2. Summary of Significant Accounting Policies

Fair Value of Financial Instruments

The amounts reported for cash equivalents, marketable securities, accounts receivable, accounts payable, and accrued liabilities are considered to approximate fair value based upon comparable market information available at the respective balance sheet dates. The Company adopted the fair value measurement statement (Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”), effective January 1, 2008 for financial assets and liabilities measured on a recurring basis. The statement applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis and requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. For the discussion regarding the impact of the adoption of the statement on the Company’s marketable securities, see Note 15, “Fair Value of Financial Instruments.” Additionally, the Company has adopted the fair value guidance for financial assets and financial liabilities, effective January 1, 2008, which permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. The Company has not elected the fair value option for financial instruments not already carried at fair value.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments with original maturity of three months or less at the date of purchase. The Company maintains its cash balances with high quality financial institutions. The cash equivalent balances are invested in highly-rated and highly-liquid money market securities and certain U.S. government obligations.

In the preparation of the financial statements presented in this quarterly report, the Company noted that it had identified an error of approximately $641 million relating to purchases and maturities of cash equivalents that were included as purchases and maturities of marketable securities (refer to the table below) in cash flows from investing activities in its consolidated statement of cash flows for the six months ended June 30, 2010 previously presented in the report on Form 10-Q for the quarterly period ended June 30, 2010. There was no impact to the previously reported total net cash used in investing activities for the six months ended June 30, 2010. The Company corrected the purchases and maturities of marketable securities within investing activities to properly exclude the $641 million of purchases and maturities of cash equivalents in its consolidated statements of cash flows for the six months ended June 30, 2010. The Company concluded that the correction was not material to the previous or present periods.


	Six Months Ended June 30, 2010
	As Previously
	Filed			Adjustments			As Adjusted
	(In thousands)
Cash flows from investing activities
Acquisition of business	$	(2,000	)	$	—		$	(2,000	)
Acquisition of intangible assets		(2,250	)		—			(2,250	)
Purchases of property and equipment		(2,543	)		—			(2,543	)
Purchases of marketable securities		(830,436	)		640,826			(189,610	)
Maturities of marketable securities		736,632			(640,826	)		95,806
Proceeds from sale of marketable securities		1,518			—			1,518

Net cash used in investing activities	$	(99,079	)	$	—		$	(99,079	)

Marketable Securities

Available-for-sale securities are carried at fair value, based on quoted market prices, with the unrealized gains or losses reported, net of tax, in stockholders’ equity as part of accumulated other comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, both of which are included in interest and other expense, net. Realized gains and losses are recorded on the specific identification method and are included in interest income and other income, net. The Company reviews its investments in marketable securities for possible other than temporary impairments on a regular basis. If any loss on investment is believed to be a credit loss, a charge will be recognized in operations. In evaluating whether a credit loss on a debt security has occurred, the Company considers the following factors: 1) the Company’s intent to sell the security, 2) if the Company intends to hold the security, whether or not it is more likely than not that the Company will be required to sell the security before recovery of the security’s amortized cost basis, and 3) even if the Company intends to hold the security, whether or not the Company expects the security to recover the entire amortized cost basis. Due to the high credit quality and short term nature of the Company’s investments, there has been no credit losses recorded to date. The classification of marketable securities between short-term and long-term is based on whether the securities are available for use in operations or other purposes.

Non-Marketable Securities

The Company has an investment in a non-marketable equity security of a private company which is carried at cost. The Company monitors the investments for other-than-temporary impairment and records appropriate reductions in carrying value when necessary. The non-marketable security is classified as other non-current assets in the consolidated balance sheets.

Recent Accounting Pronouncements

In September 2009, the Emerging Issues Task Force (the “EITF”) reached final consensus under ASU No. 2009-13 on the issue related to revenue arrangements with multiple deliverables. This issue addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how arrangement consideration should be measured and allocated to the separate units of accounting. This issue is effective for the Company’s revenue arrangements entered into or materially modified on or after January 1, 2011. The Company will evaluate the impact of this issue on the Company’s financial statements when reviewing its new or materially modified revenue arrangements with multiple deliverables once this issue becomes effective. The Company does not expect this new standard to significantly impact its consolidated financial statements.

3. Settlement Agreement with Samsung

On January 19, 2010, the Company, Samsung and certain related entities of Samsung entered into a Settlement Agreement (the “Settlement Agreement”) to release all claims against each other with respect to all outstanding litigation between them and certain other potential claims. Under the Settlement Agreement, Samsung has paid the Company $200.0 million in cash in two installments in the first quarter of 2010, and the parties released all claims against each other with respect to all outstanding litigation between them and certain other potential claims. Pursuant to the Settlement Agreement, the Company and Samsung entered into a Semiconductor Patent License Agreement on January 19, 2010 (the “License Agreement”), under which Samsung licenses from the Company non-exclusive rights to certain Rambus patents and has agreed to pay the Company cash amounts equal to $25.0 million per quarter, commencing in the first quarter of 2010, subject to certain adjustments and conditions, over the next five years. In addition, as part of the Settlement Agreement, Samsung purchased approximately 9.6 million shares of common stock of Rambus for cash pursuant to the terms of a Stock Purchase Agreement dated January 19, 2010 (the “Stock Purchase Agreement”), as described in more details below. Finally, pursuant to the Settlement Agreement, the Company and Samsung signed a non-binding memorandum of understanding

relating to discussions around a new generation of memory technologies. On an aggregate basis, Samsung is expected to make payments to the Company totaling approximately $900.0 million (subject to adjustments per the terms of the License Agreement) from these agreements (collectively, “Samsung Settlement”), of which $475.0 million has been paid through September 30, 2010. The remaining $425.0 million is expected to be paid in successive quarterly payments of approximately $25.0 million (subject to adjustments per the terms of the License Agreement) concluding in the three month period ending December 31, 2014.

Under the License Agreement, the Company has granted to Samsung and its subsidiaries (i) a paid-up perpetual patent license for certain identified Samsung DRAM products (these Samsung DRAM products generally include all existing DRAM products aside from the Rambus proprietary products) and (ii) a five-year term patent license to all other semiconductor products. Each license is a non-exclusive, non-transferable, royalty-bearing, worldwide patent license, without the right to sublicense, solely under the applicable patent claims of Rambus for such licensed products, to make (including have made), use, sell, offer for sale and/or import such licensed products until the expiration or termination of the license pursuant to the terms of the License Agreement. The License Agreement requires that Samsung pay the Company cash payments over the next five years of (i) a fixed amount of $25.0 million each quarter during 2010 and the first two quarters of 2011, and (ii) thereafter, $25.0 million adjusted up or down based on certain levels of Samsung revenue for DRAM products licensed under the License Agreement for each quarter after 2010 and subject to a minimum of $10.0 million and a maximum of $40.0 million for each quarter. In addition, additional payments or certain adjustments to the payments by Samsung to the Company under the License Agreement may be due for certain acquisitions of businesses or assets by Samsung involving licensed products. The License Agreement and the licenses granted thereunder may be terminated upon a material breach by a party of its obligations under the agreement, a bankruptcy event involving a party or a change of control of Samsung subject to certain conditions.

Under the Stock Purchase Agreement, on January 19, 2010, Samsung purchased for cash from the Company 9.6 million shares of common stock of the Company (the “Shares”) with certain restrictions and put rights. The number of shares issued was based on a price per share equal to $20.885 (which was the average of the open and close trading price of Rambus common stock on The NASDAQ Global Select Market on January 15, 2010, the last trading day prior to the date of the Stock Purchase Agreement). The Shares represented approximately 8.3% of the total outstanding shares of Rambus common stock at that time after giving effect to the issuance thereof. The issuance of the Shares by the Company to Samsung was made through a private transaction. The Stock Purchase Agreement provides Samsung a one-time put right, beginning 18 months after the date of the Stock Purchase Agreement and extending to 19 months after the date of the Stock Purchase Agreement, to elect to put back to the Company up to 4.8 million of the Shares at the original issue price of $20.885 per share (for an aggregate purchase price of up to $100.0 million).

The Stock Purchase Agreement prohibits the transfer of the Shares by Samsung for 18 months after the date of the Stock Purchase Agreement, subject to certain exceptions. After expiration of the transfer restriction period, the Stock Purchase Agreement provides that Samsung may transfer a limited number of shares on a daily basis, provides Rambus with a right of first offer for proposed transfers above such daily limits, and, if no sale occurs to Rambus under the right of first offer, allows Samsung to transfer the Shares. Under the Stock Purchase Agreement, the Company has also agreed that after the transfer restriction period, Samsung will have certain rights to register the Shares for sale under the securities laws of the United States, subject to customary terms and conditions.

In addition, until 18 months after the date of the Stock Purchase Agreement, subject to customary exceptions, Samsung is subject to a standstill agreement that prohibits Samsung from, among other things, acquiring additional shares of common stock of the Company, commencing or endorsing any tender offer or exchange offer for shares of common stock of the Company, participating in any solicitation of proxies with respect to voting any shares of common stock of the Company, or announcing or submitting any proposal or offer concerning any extraordinary transaction involving the Company. Samsung is also subject to a voting agreement under the Stock Purchase Agreement that provides that Samsung will vote its Shares in favor of routine proposals (related to election of directors, certain compensation matters, authorized share capital increases and approval of the independent auditors) that are recommended by the Board of Directors of the Company at any stockholder meeting. In all other matters, the voting agreement contained in the Stock Purchase Agreement requires that Samsung vote its Shares in the same proportion as the votes that are cast by all other holders of shares of common stock of the Company. The voting agreement under the Stock Purchase Agreement terminates (i) with respect to Shares that Samsung transfers in accordance with the provisions of the Stock Purchase Agreement, (ii) upon a change of control or bankruptcy event involving the Company or (iii) when Samsung owns less than 3% of the outstanding shares of common stock of the Company.

The Samsung Settlement is a multiple element arrangement for accounting purposes. For the multiple element arrangement, the Company identified each element of the arrangement and determined when those elements should be recognized. Using the accounting guidance from multiple element revenue arrangements, the Company allocated the consideration to each element using the estimated fair value of the elements. The Company considered several factors in determining the accounting fair value of the elements

of the Samsung Settlement which included a third party valuation using an income approach, the Black-Scholes option pricing model and a residual approach (collectively the “Fair Value”). The inputs and assumptions used in this valuation were from a market participant perspective and included projected revenue, royalty rates, estimated discount rates, useful lives and income tax rates, among others. The development of a number of these inputs and assumptions in the model requires a significant amount of management judgment and is based upon a number of factors, including the selection of industry comparables, market growth rates and other relevant factors. Changes in any number of these assumptions may have had a substantial impact on the Fair Value as assigned to each element. These inputs and assumptions represent management’s best estimates at the time of the transaction.

Based on the estimated Fair Value, the consideration of $900.0 million was allocated to the following elements:


	Estimated Fair
(in millions)	Value

Settlement Agreement:
Antitrust litigation settlement	$	85.0
Settlement of past infringement		190.0
License Agreement		385.0
Stock Purchase Agreement		192.0
Memorandum of understanding (“MOU”)		—
Residual value		48.0

Total	$	900.0

The consideration of $900.0 million will be recognized in the Company’s financial statements as follows:

•

$575.0 million as revenue which represented the estimated Fair Value of the settlement of past infringement ($190.0 million) from the resolution of the infringement litigation and the patent license agreement ($385.0 million);

•

$133.0 million to gain from settlement which represented the Fair Value of the resolution of the antitrust litigation ($85.0 million) and the residual value of other elements ($48.0 million) where specific fair value could not be determined, which included other claims and counter claims released;

•

$192.0 million related to the Stock Purchase Agreement which included contingently redeemable common stock due to the restrictions and contractual put rights associated with those shares ($113.5 million) and restricted common stock issued to Samsung ($78.5 million).

During the first quarter of 2010, the Company received cash consideration of $425.0 million from Samsung. The amount allocated to the common stock issued to Samsung was allocated to contingently redeemable common stock ($113.5 million) and stockholders’ equity ($78.5 million). The remaining $233.0 million was allocated between revenue ($137.1 million) and gain from settlement ($95.9 million) based on the remaining elements’ estimated Fair Value.

During each of the second and third quarters of 2010, the Company received cash consideration of $25.0 million from Samsung. For both quarters, the amount was allocated between revenue ($14.7 million) and gain from settlement ($10.3 million) based on the estimated Fair Value for the remaining elements.

The remaining $425.0 million is expected to be paid in successive quarterly payments of approximately $25.0 million (subject to adjustments per the terms of the License Agreement), concluding in the last quarter of 2014.

The first nine months of 2010 and the remaining future cash receipts from the agreements with Samsung are expected to be recognized as follows assuming no adjustments to the payments under the terms of the agreements:


	Nine months
	Ended
	September		Remainder										Estimated
(in millions)	30, 2010		of 2010		2011		2012		2013		2014		Fair Value
Revenue	$	166.5	$	14.7	$	93.8	$	100.0	$	100.0	$	100.0	$	575.0
Gain from settlement		116.5		10.3		6.2		—		—		—		133.0
Purchase of Rambus Common Stock		192.0		—		—		—		—		—		192.0

Total	$	475.0	$	25.0	$	100.0	$	100.0	$	100.0	$	100.0	$	900.0

4. Revenue Recognition

Overview

The Company recognizes revenue when persuasive evidence of an arrangement exists, it has delivered the product or performed the service, the fee is fixed or determinable and collection is reasonably assured. If any of these criteria are not met, the Company defers recognizing the revenue until such time as all criteria are met. Determination of whether or not these criteria have been met may require the Company to make judgments, assumptions and estimates based upon current information and historical experience.

The Company’s revenue consists of royalty revenue and contract revenue generated from agreements with semiconductor companies, system companies and certain reseller arrangements. Royalty revenue consists of patent license and technology license royalties. Contract revenue consist of fixed license fees, fixed engineering fees and service fees associated with integration of the Company’s technology solutions into its customers’ products. Contract revenue may also include support or maintenance. Reseller arrangements generally provide for the pass-through of a percentage of the fees paid to the reseller by the reseller’s customer for use of the Company’s patent and technology licenses. The Company does not recognize revenue for these arrangements until it has received notice of revenue earned by and paid to the reseller, accompanied by the pass-through payment from the reseller. The Company does not pay commissions to the reseller for these arrangements.

In addition, the Company may enter into certain settlements of patent infringement disputes. The amount of consideration received upon any settlement (including but not limited to past royalty payments, future royalty payments and punitive damages) is allocated to each element of the settlement based on the estimated fair value of each element. In addition, revenues related to past royalties are recognized upon execution of the agreement by both parties, provided that the amounts are fixed or determinable, there are no significant obligations and collectability is reasonably assured. The Company does not recognize any revenue prior to execution of the agreement since there is no reliable basis on which it can estimate the amounts for royalties related to previous periods or assess collectability. Elements that are related to royalty revenue in nature (including but not limited to past royalty payments and future royalty payments) will be recorded as royalty revenue in the consolidated statements of operations. Elements that are not related to royalty revenue in nature (including but not limited to punitive damage and settlement) will be recorded as gain from settlement which is reflected as a separate line item within the operating expenses section in the consolidated statements of operations.

Many of the Company’s licensees have the right to cancel their licenses. In such arrangements, revenue is only recognized to the extent that is consistent with the cancellation provisions. Cancellation provisions within such contracts generally provide for a prospective cancellation with no refund of fees already remitted by customers for products provided and payment for services rendered prior to the date of cancellation. Unbilled receivables represent enforceable claims and are deemed collectible in connection with the Company’s revenue recognition policy.

Royalty Revenue

The Company recognizes royalty revenue upon notification by its licensees and when deemed collectible. The terms of the royalty agreements generally either require licensees to give the Company notification and to pay the royalties within 60 days of the end of the quarter during which the sales occur or are based on a fixed royalty that is due within 45 days of the end of the quarter. The Company has two types of royalty revenue: (1) patent license royalties and (2) technology license royalties.

Patent licenses. The Company licenses its broad portfolio of patented inventions to semiconductor and systems companies who use these inventions in the development and manufacture of their own products. Such licensing agreements may cover the license of part, or all, of the Company’s patent portfolio. The contractual terms of the agreements generally provide for payments over an extended period of time. For the licensing agreements with fixed royalty payments, the Company generally recognizes revenue from these arrangements as amounts become due. For the licensing agreements with variable royalty payments which can be based on either a percentage of sales or number of units sold, the Company earns royalties at the time that the licensees’ sales occur. The Company’s licensees, however, do not report and pay royalties owed for sales in any given quarter until after the conclusion of that quarter. As the Company is unable to estimate the licensees’ sales in any given quarter to determine the royalties due to the Company, the Company recognizes royalty revenues based on royalties reported by licensees during the quarter and when other revenue recognition criteria are met.

Technology licenses. The Company develops proprietary and industry-standard chip interface products, such as RDRAM^tmand XDR^tm that the Company provides to its customers under technology license agreements. These arrangements include royalties, which can be based on either a percentage of sales or number of units sold. The Company earns royalties on such licensed products sold

worldwide by its licensees at the time that the licensees’ sales occur. The Company’s licensees, however, do not report and pay royalties owed for sales in any given quarter until after the conclusion of that quarter. As the Company is unable to estimate the licensees’ sales in any given quarter to determine the royalties due to the Company, the Company recognizes royalty revenues based on royalties reported by licensees during the quarter and when other revenue recognition criteria are met.

Contract Revenue

The Company generally recognizes revenue using percentage of completion for development contracts related to licenses of its interface solutions, such as XDR^tm and FlexIO^tm that involve significant engineering and integration services. For all license and service agreements accounted for using the percentage-of-completion method, the Company determines progress to completion using input measures based upon contract costs incurred compared to the total costs including the remaining estimated cost to completion. Part of these contract fees may be due upon the achievement of certain milestones, such as provision of certain deliverables by the Company or production of chips by the licensee. The remaining fees may be due on pre-determined dates and include up-front fees.

A provision for estimated losses on fixed price contracts is made, if necessary, in the period in which the loss becomes probable and can be reasonably estimated. If the Company determines that it is necessary to revise the estimates of the total costs required to complete a contract, the total amount of revenue recognized over the life of the contract would not be affected. However, to the extent the new assumptions regarding the total efforts necessary to complete a project are less than the original assumptions, the contract fees would be recognized sooner than originally expected. Conversely, if the newly estimated total efforts necessary to complete a project are longer than the original assumptions, the contract fees will be recognized over a longer period. As of September 30, 2010, the Company has accrued a liability of approximately $0.1 million related to estimated loss contracts.

If application of the percentage-of-completion method results in recognizable revenue prior to an invoicing event under a customer contract, the Company will recognize the revenue and record an unbilled receivable. Amounts invoiced to the Company’s customers in excess of recognizable revenue are recorded as deferred revenue. The timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenue or unbilled receivables in any given period.

The Company also recognizes revenue in accordance with software revenue recognition methods for development contracts related to licenses of its chip interface products that involve non-essential engineering services and post contract support (“PCS”). These software revenue recognition methods apply to all entities that earn revenue on products containing software, where software is not incidental to the product as a whole. Contract fees for the products and services provided under these arrangements are comprised of license fees and engineering service fees which are not essential to the functionality of the product. The Company’s rates for PCS and for engineering services are specific to each development contract and not standardized in terms of rates or length. Because of these characteristics, the Company does not have a sufficient population of contracts from which to derive vendor specific objective evidence for each of the elements.

Therefore, after the Company delivers the product, if the only undelivered element is PCS, the Company will recognize all revenue ratably over either the contractual PCS period or the period during which PCS is expected to be provided. The Company reviews assumptions regarding the PCS periods on a regular basis. If the Company determines that it is necessary to revise the estimates of the support periods, the total amount of revenue to be recognized over the life of the contract would not be affected.

5. Comprehensive Income (Loss)

Rambus’ comprehensive income (loss) consists of its net income (loss) plus other comprehensive income (loss) consisting of unrealized gains and losses on marketable securities, net of taxes.

The components of comprehensive income (loss), net of tax, are as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2010			2009			2010			2009
Net income (loss)	$	(20,576	)	$	(27,496	)	$	117,833		$	(68,893	)
Other comprehensive income (loss):
Unrealized loss on marketable securities, net of tax		(117	)		(327	)		(378	)		(382	)

Total comprehensive income (loss)	$	(20,693	)	$	(27,823	)	$	117,455		$	(69,275	)

6. Equity Incentive Plans and Stock-Based Compensation

Stock Option Plans

As of September 30, 2010, 5,534,727 shares of the 14,900,000 shares approved under the 2006 Plan remain available for grant. The 2006 Plan is now the Company’s only plan for providing stock-based incentive compensation to eligible employees, executive officers, non-employee directors and consultants.

A summary of shares available for grant under the Company’s plans is as follows:


	Shares Available
	for Grant
Shares available as of December 31, 2009		7,462,394
Stock options granted		(1,818,623	)
Stock options forfeited		1,247,796
Stock options expired under former plans		(1,076,790	)
Nonvested equity stock and stock units granted (1)		(361,404	)
Nonvested equity stock and stock units forfeited (1)		81,354

Total available for grant as of September 30, 2010		5,534,727


(1)		For purposes of determining the number of shares available for grant under the 2006 Plan against the maximum number of shares authorized, each restricted stock granted reduces the number of shares available for grant by 1.5 shares and each restricted stock forfeited increases shares available for grant by 1.5 shares.

General Stock Option Information

The following table summarizes stock option activity under the 1997, 1999 and 2006 Plans for the nine months ended September 30, 2010 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of September 30, 2010.


	Options Outstanding
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise Price		Contractual		Intrinsic
	Shares			Per Share		Term(years)		Value
	(Dollars in thousands, except per share amounts)
Outstanding as of December 31, 2009		14,456,110		$	20.95
Options granted		1,818,623			22.60
Options exercised		(684,940	)		12.42
Options forfeited		(1,247,796	)		48.78

Outstanding as of September 30, 2010		14,341,997			19.14		5.60	$	57,566

Vested or expected to vest at September 30, 2010		13,677,305			19.41		5.57		52,263
Options exercisable at September 30, 2010		9,981,255			19.74		4.64		39,944

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at September 30, 2010, based on the $20.84 closing stock price of Rambus’ Common Stock on September 30, 2010 on the NASDAQ Global Select Market, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options outstanding and exercisable as of September 30, 2010 was 9,444,593 and 6,762,044, respectively.

Employee Stock Purchase Plans

Under the 2006 Employee Stock Purchase Plan (“ESPP”), the Company issued 161,293 shares at a price of $13.56 per share during the nine months ended September 30, 2010. The Company issued 254,748 shares at a price of $8.06 per share during the nine months ended September 30, 2009. As of September 30, 2010, 685,563 shares under the 2006 ESPP remained available for issuance.

Stock-Based Compensation

For the nine months ended September 30, 2010 and 2009, the Company maintained stock plans covering a broad range of potential equity grants including stock options, nonvested equity stock and equity stock units and performance based instruments. In addition, the Company sponsors an ESPP, whereby eligible employees are entitled to purchase Common Stock semi-annually, by means of limited payroll deductions, at a 15% discount from the fair market value of the Common Stock as of specific dates.

Stock Options

During the three and nine months ended September 30, 2010, Rambus granted 93,300 and 1,818,623 stock options, respectively, with an estimated total grant-date fair value of $1.0 million and $23.9 million, respectively. During the three and nine months ended September 30, 2010, Rambus recorded stock-based compensation related to stock options of $5.6 million and $17.3 million, respectively.

During the three and nine months ended September 30, 2009, Rambus granted 46,750 and 1,430,363 stock options, respectively, with an estimated total grant-date fair value of $0.6 million and $9.5 million, respectively. During the three and nine months ended September 30, 2009, Rambus recorded stock-based compensation related to stock options of $6.0 million and $18.5 million, respectively.

As of September 30, 2010, there was $39.8 million of total unrecognized compensation cost, net of expected forfeitures, related to non-vested stock-based compensation arrangements granted under the stock option plans. That cost is expected to be recognized over a weighted-average period of 3.2 years. The total fair value of shares vested as of September 30, 2010 was $145.1 million.

The total intrinsic value of options exercised was $1.9 million and $7.1 million for the three and nine months ended September 30, 2010, respectively. The total intrinsic value of options exercised was $1.2 million and $6.2 million for the three and nine months ended September 30, 2009, respectively. Intrinsic value is the total value of exercised shares based on the price of the Company’s common stock at the time of exercise less the cash received from the employees to exercise the options.

During the nine months ended September 30, 2010, net proceeds from employee stock option exercises totaled approximately $8.5 million.

Employee Stock Purchase Plans

For the three and nine months ended September 30, 2010, the Company recorded compensation expense related to the ESPP of $0.4 million and $1.3 million, respectively. For the three and nine months ended September 30, 2009, the Company recorded compensation expense related to the ESPP of $0.5 million and $1.5 million, respectively. As of September 30, 2010, there was $0.1 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under the ESPP. That cost is expected to be recognized over one month.

There were no tax benefits realized as a result of employee stock option exercises, stock purchase plan purchases, and vesting of equity stock and stock units for the three and nine months ended September 30, 2010 and 2009 calculated in accordance with accounting for share-based payments.

Valuation Assumptions

The fair value of stock awards is estimated as of the grant date using the Black-Scholes-Merton (“BSM”) option-pricing model assuming a dividend yield of 0% and the additional weighted-average assumptions as listed in the following tables:


	Stock Option Plans
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Stock Option Plans
Expected stock price volatility		60	%		91	%		60-69	%		91-96	%
Risk free interest rate		2.3	%		2.3	%		2.3-3.2	%		1.8-2.3	%
Expected term (in years)		6.1			6.0			5.9 – 6.1			5.3 – 6.0
Weighted-average fair value of stock options granted	$	10.88		$	12.14			$13.15			$6.63


	Employee Stock Purchase Plan
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010*		2009*		2010			2009
Employee Stock Purchase Plan
Expected stock price volatility		—		—		54	%		92	%
Risk free interest rate		—		—		0.3	%		0.3	%
Expected term (in years)		—		—		0.5			0.5
Weighted-average fair value of purchase rights granted under the purchase plan		—		—	$	7.46		$	4.97


*		No shares were issued under the Employee Stock Purchase Plans during the three months ended September 30, 2010 and 2009, respectively.

Nonvested Equity Stock and Stock Units

For the three and nine months ended September 30, 2010, the Company granted nonvested equity stock units to certain officers and employees totaling 20,000 shares and 240,936 shares under the 2006 Plan, respectively. These awards have a service condition, generally a service period of four years, except in the case of grants to directors, for which the service period is one year. The nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $0.4 million and $5.3 million, respectively. The Company occasionally grants nonvested equity stock units to its employees with vesting subject to the achievement of certain performance conditions. During the three and nine months ended September 30, 2010, the achievement of certain performance conditions for certain performance equity stock units was considered probable, and as a result, the Company recognized an immaterial amount of stock-based compensation expense related to these performance stock units.

For the three and nine months ended September 30, 2010, the Company recorded stock-based compensation expense of approximately $1.5 million and $4.6 million, respectively, related to all outstanding unvested equity stock grants. For the three and nine months ended September 30, 2009, the Company recorded stock-based compensation expense of approximately $1.3 million and $4.0 million, respectively, related to all outstanding unvested equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of estimated forfeitures, was approximately $8.9 million at September 30, 2010. This is expected to be recognized over a weighted average of 2.2 years.

The following table reflects the activity related to nonvested equity stock and stock units for the nine months ended September 30, 2010:


				Weighted-Average
				Grant-Date
	Shares			Fair Value
Nonvested Equity Stock and Stock Units
Nonvested at December 31, 2009		783,976		$	16.24
Granted		240,936			22.13
Vested		(219,477	)		17.54
Forfeited		(54,236	)		15.76

Nonvested at September 30, 2010		751,199			17.78

7. Marketable Securities

Rambus invests its excess cash and cash equivalents primarily in U.S. government agency and treasury notes, commercial paper, corporate notes and bonds, money market funds and municipal notes and bonds that mature within three years.

All cash equivalents and marketable securities are classified as available-for-sale and are summarized as follows:


	September 30, 2010
					Gross		Gross			Weighted
			Amortized		Unrealized		Unrealized			Rate of
(in thousands)	Fair Value		Cost		Gains		Losses			Return
Money Market Funds	$	159,577	$	159,577	$	—	$	—			0.13	%
U.S. Government Bonds and Notes		270,729		270,700		73		(44	)		0.29	%
Corporate Notes, Bonds and Commercial Paper		44,515		44,546		13		(44	)		0.39	%

Total cash equivalents and marketable securities		474,821		474,823		86		(88	)
Cash		10,072		10,072		—		—

Total cash, cash equivalents and marketable securities	$	484,893	$	484,895	$	86	$	(88	)


	December 31, 2009
					Gross		Gross			Weighted
			Amortized		Unrealized		Unrealized			Rate of
(in thousands)	Fair Value		Cost		Gains		Losses			Return
Money Market Funds	$	280,908	$	280,908	$	—	$	—			0.01	%
U.S. Government Bonds and Notes		138,829		138,521		377		(69	)		1.09	%
Corporate Notes, Bonds and Commercial Paper		32,291		32,222		70		(1	)		1.89	%

Total cash equivalents and marketable securities		452,028		451,651		447		(70	)
Cash		8,165		8,165		—		—

Total cash, cash equivalents and marketable securities	$	460,193	$	459,816	$	447	$	(70	)

Available-for-sale securities are reported at fair value on the balance sheets and classified as follows:


	September 30,		December 31,
	2010		2009
	(in thousands)
Cash equivalents	$	208,125	$	280,908
Short term marketable securities		266,696		171,120

Total cash equivalents and marketable securities		474,821		452,028
Cash		10,072		8,165

Total cash, cash equivalents and marketable securities	$	484,893	$	460,193

The Company continues to invest in high quality, highly liquid debt securities that mature within three years. The Company holds all of its marketable securities as available-for-sale, marks them to market, and regularly reviews its portfolio to ensure adherence to its investment policy and to monitor individual investments for risk analysis, proper valuation, and unrealized losses that may be other than temporary. As of September 30, 2010, marketable debt securities with a fair value of $119.1 million, which mature within one year, had insignificant unrealized losses. The Company has no intent to sell, there is no requirement to sell and the Company believes that it can recover the amortized cost of these investments. The Company has found no evidence of impairment due to credit losses in its portfolio. Therefore, these unrealized losses were recorded in other comprehensive income (loss). However, the Company cannot provide any assurance that its portfolio of cash, cash equivalents and marketable securities will not be impacted by adverse conditions in the financial markets, which may require the Company in the future to record an impairment charge for credit losses which could adversely impact its financial results.

The estimated fair value of cash equivalents and marketable securities classified by date of contractual maturity and the associated unrealized gain (loss), net, at September 30, 2010 and December 31, 2009 are as follows:


	As of				Unrealized Gain (Loss), net
	September 30,		December 31,		September 30,			December 31,
	2010		2009		2010			2009
	(in thousands)
Contractual maturity:
Due within one year	$	474,821	$	419,054	$	(2	)	$	250
Due from one year through three years		—		32,974		—			127

	$	474,821	$	452,028	$	(2	)	$	377

The unrealized gain (loss), net, was insignificant in relation to the Company’s total available-for-sale portfolio. The unrealized gain (loss), net, can be primarily attributed to a combination of market conditions as well as the demand for and duration of the Company’s U.S. government bonds and notes. See Note 15, “Fair Value of Financial Instruments,” for fair value discussion regarding the Company’s cash equivalents and marketable securities.

8. Commitments and Contingencies

On December 15, 2009, the Company entered into a definitive triple net space lease agreement with MT SPE, LLC (the “Landlord”) whereby the Company leases approximately 125,000 square feet of office space located at 1050 Enterprise Way in Sunnyvale, California (the “Sunnyvale Lease”). The office space will be used for the Company’s corporate headquarters, as well as engineering, marketing and administrative operations and activities. The Company plans to move to the new premises in the fourth quarter of 2010 following completion of leasehold improvements. The Sunnyvale Lease has a term of 120 months from the commencement date. The initial annual base rent is $3.7 million, subject to a full abatement of rent for the first six months of the

Sunnyvale Lease term. The annual base rent increases each year to certain fixed amounts over the course of the term as set forth in the Sunnyvale Lease and will be $4.8 million in the tenth year. In addition to the base rent, the Company will also pay operating expenses, insurance expenses, real estate taxes and a management fee. The Company has two options to extend the Sunnyvale Lease for a period of 60 months each and a one-time option to terminate the Sunnyvale Lease after 84 months in exchange for an early termination fee.

During the first quarter of 2010, the Company began a build-out of this facility and expects to incur approximately $13.5 million in construction costs of which approximately $8.1 million has been incurred as of September 30, 2010. Under the terms of the Sunnyvale Lease, the landlord has agreed to reimburse the Company approximately $9.1 million of this amount. Because certain improvements to be constructed by the Company are considered structural in nature and the Company is responsible for any cost overruns, for accounting purposes, the Company is treated in substance as the owner of the construction project. Therefore, the Company has capitalized $25.1 million in property and equipment based on the estimated fair value of the portion of the building that it will occupy with a corresponding non-cash obligation for construction in progress. The fair value was determined as of December 15, 2009 using level 3 fair value inputs (See Note 15, “Fair Value of Financial Instruments”) and the cost approach which measures the value of an asset as the cost to reconstruct or replace it with another asset of like utility.

Upon completion of construction, the Company will apply the methodology related to sale-leaseback accounting. At that time, the Company will determine whether the lease will be treated as a capital or operating lease.

On March 8, 2010, the Company entered into a lease agreement with Fogg-Brecksville Development Co. (the “Ohio Landlord”) for 24,814 square feet of space consisting of 7,158 square feet of office area and 17,656 square feet of warehouse area, located in Brecksville, Ohio (the “Ohio Lease”). The Company moved to the new premises in the third quarter of 2010 following completion of leasehold improvements. The warehouse area was converted into office space and manufacturing space. The office space is used for the Lighting and Display Technology (“LDT”) group’s engineering activities while the manufacturing space is used for the manufacturer of prototypes for the LDT group. The Ohio Lease has a term of 60 months from the commencement date which is the earlier of (i) the date upon which the Company first takes occupancy of the premises once the construction work is completed or (ii) the first day of the month following completion and notification by the lessor to the Company of completion of construction of the building. The initial annual base rent is approximately $136,000. In addition to the base rent, the Company will also pay operating expenses, insurance expenses, real estate taxes and a management fee. The Company has an option to extend the Lease for an additional period of 60 months.

During the first quarter of 2010, the Company began a build-out of this facility and expects to incur approximately $1.7 million in construction costs of which substantially all the costs have been incurred as of September 30, 2010. Because certain improvements constructed by the Company are considered structural in nature and the Company is responsible for any cost overruns, for accounting purposes, the Company is treated in substance as the owner of the construction project. Therefore, the Company has capitalized $0.8 million in property and equipment based on the estimated fair value of the portion of the building that it will occupy with a corresponding non-cash obligation for construction in progress. The fair value was determined as of March 8, 2010 using level 3 fair value inputs and the cost approach which measures the value of an asset as the cost to reconstruct or replace it with another asset of like utility. Upon completion of construction in the fourth quarter of 2010, the Company will account for the arrangement as a financing arrangement as sale-leaseback accounting cannot be applied. The building will be reflected as an asset on the Company’s balance sheets throughout the term of the lease. The lease payments will be recorded as interest expense using the effective interest method over the term of the lease and the building will be depreciated on a straight-line basis over a period of 15 years. At the end of the lease term in 2015, the Company has an option to renew the lease for an additional 60 months. As a result of the significant amount of construction costs and leasehold improvements, the Company currently would expect to renew the lease for an additional 60 months so the lease term for accounting purposes will be 10 years. At the end of the lease term, the Company would reverse the net book value of the building and the corresponding financing liability and record the difference, if any, as a gain.

On June 29, 2009, the Company entered into an indenture by and between the Company and U.S. Bank, National Association, as trustee, relating to the issuance by the Company of $150.0 million aggregate principal amount of 5% convertible senior notes due June 15, 2014 (the “2014 Notes”). On July 10, 2009, an additional $22.5 million in aggregate principal amount of 2014 Notes were issued as a result of the underwriters exercising their overallotment option. The aggregate principal amount of the 2014 Notes outstanding as of September 30, 2010 was $172.5 million, offset by unamortized debt discount of $53.7 million in the accompanying consolidated balance sheets. The debt discount is currently being amortized over the remaining 45 months until maturity of the 2014 Notes on June 15, 2014. See Note 16, “Convertible Notes,” for additional details.

As of September 30, 2010, Rambus’ material contractual obligations are:


			Remainder
(in thousands)	Total		of 2010		2011		2012		2013		2014		Thereafter
Contractual obligations(1)
Leases (2)	$	46,602	$	2,156	$	5,104	$	5,140	$	4,469	$	4,580	$	25,153
Convertible notes		172,500		—		—		—		—		172,500		—
Interest payments related to convertible notes		34,120		4,313		8,625		8,625		8,625		3,932		—

Total	$	253,222	$	6,469	$	13,729	$	13,765	$	13,094	$	181,012	$	25,153


(1)		The above table does not reflect possible payments in connection with uncertain tax benefits of approximately $10.9 million, including $9.0 million recorded as a reduction of long-term deferred tax assets and $1.9 million in long-term income taxes payable, as of September 30, 2010. As noted below in Note 10, “Income Taxes,” although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.

(2)		Includes both the Sunnyvale Lease and Ohio Lease.

Rent expense was approximately $1.9 million and $5.5 million for the three and nine months ended September 30, 2010, respectively. Rent expense was approximately $1.5 million and $4.7 million for the three and nine months ended September 30, 2009, respectively.

Deferred rent of $0.9 million as of September 30, 2010 was included primarily in other long-term liabilities. Deferred rent of $0.7 million as of December 31, 2009 was included primarily in current liabilities.

Indemnifications

The Company enters into standard license agreements in the ordinary course of business. Although the Company does not indemnify most of its customers, there are times when an indemnification is a necessary means of doing business. Indemnifications cover customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement claim by any third party with respect to the Company’s products. The maximum amount of indemnification the Company could be required to make under these agreements is generally limited to fees received by the Company.

Several securities fraud class actions, private lawsuits and shareholder derivative actions were filed in state and federal courts against certain of the Company’s current and former officers and directors related to the stock option granting actions. As permitted under Delaware law, the Company has agreements whereby its officers and directors are indemnified for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s term in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has a director and officer insurance policy that reduces the Company’s exposure and enables the Company to recover a portion of future amounts to be paid. As a result of these indemnification agreements, the Company continues to make payments on behalf of current and former officers. As of September 30, 2010, the Company had made payments of approximately $14.9 million on their behalf, including $1.2 million in the quarter ended September 30, 2010. These payments were recorded under costs of restatement and related legal activities in the consolidated statements of operations. The Company received approximately $5.3 million from the former officers related to their settlement agreements with the Company in connection with the derivative and class action lawsuits which was comprised of approximately $4.5 million in cash received in the first quarter of 2009 as well as approximately 163,000 shares of the Company’s stock with a value of approximately $0.8 million in the fourth quarter of 2008. Additionally, during the nine months ended September 30, 2010, the Company received $0.1 million from insurance settlements related to the defense of the Company, its directors and its officers which were recorded under costs (recoveries) of restatement and related legal activities in the consolidated statements of operations.

9. Stockholders’ Equity

Contingently Redeemable Common Stock

On January 19, 2010, pursuant to the terms of the Stock Purchase Agreement, Samsung purchased for cash the Shares with certain restrictions and put rights. The issuance of the Shares by the Company to Samsung was made through a private transaction. The Stock

Purchase Agreement provides Samsung a one-time put right, beginning 18 months after the date of the Stock Purchase Agreement and extending to 19 months after the date of the Stock Purchase Agreement, to elect to put back to the Company up to 4.8 million of the Shares at the original issue price of $20.885 per share (for an aggregate purchase price of up to $100.0 million). The 4.8 million shares have been recorded, at estimated Fair Value, as contingently redeemable common stock on the consolidated balance sheet as of September 30, 2010.

The Stock Purchase Agreement prohibits the transfer of the Shares by Samsung for 18 months after the date of the Stock Purchase Agreement, subject to certain exceptions. After expiration of the transfer restriction period, the Stock Purchase Agreement provides that Samsung may transfer a limited number of shares on a daily basis, provides the Company with a right of first offer for proposed transfers above such daily limits, and, if no sale occurs to the Company under the right of first offer, allows Samsung to transfer the Shares. Under the Stock Purchase Agreement, the Company has also agreed that after the transfer restriction period, Samsung will have certain rights to register the Shares for sale under the securities laws of the United States, subject to customary terms and conditions.

The 9.6 million shares were accounted for as part of a multiple element arrangement where the Fair Value was determined to be $192.0 million as follows:

	•		$113.5 million related to 4.8 million shares treated as contingently redeemable common stock due to the contractual put rights associated with those shares

	•		$78.5 million related to the remaining 4.8 million shares treated as stockholders’ equity

See Note 3, “Settlement Agreement with Samsung,” for further discussion.

Share Repurchase Program

In October 2001, the Company’s Board of Directors (the “Board”) approved a share repurchase program of its Common Stock, principally to reduce the dilutive effect of employee stock options. Under this program, the Board approved the authorization to repurchase up to 19.0 million shares of the Company’s outstanding Common Stock over an undefined period of time. On February 25, 2010, the Board approved a new share repurchase program authorizing the repurchase of up to an additional 12.5 million shares. Share repurchases under the program may be made through open market, established plan or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. There is no expiration date applicable to the program. The new share repurchase program replaces the program authorized in October 2001.

During the three months ended September 30, 2010, the Company repurchased approximately 0.5 million shares of its Common Stock with an aggregate price of approximately $9.8 million. During the nine months ended September 30, 2010, the Company repurchased approximately 4.8 million shares of its Common Stock with an aggregate price of approximately $105.1 million. As of September 30, 2010, the Company had repurchased a cumulative total of approximately 21.6 million shares of its Common Stock with an aggregate price of approximately $338.9 million since the commencement of the program in 2001. As of September 30, 2010, there remained an outstanding authorization to repurchase approximately 10.0 million shares of the Company’s outstanding Common Stock.

The Company records stock repurchases as a reduction to stockholders’ equity. The Company records a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the cost of the shares repurchased exceeds the average original proceeds per share received from the issuance of Common Stock. During the nine months ended September 30, 2010, the cumulative price of the shares repurchased exceeded the proceeds received from the issuance of the same number of shares. The excess of $89.5 million was recorded as an increase to accumulated deficit for the nine months ended September 30, 2010. During the nine months ended September 30, 2009, the Company did not repurchase any Common Stock.

On August 19, 2010, the Company entered into a share repurchase agreement (the “Share Repurchase Agreement”) with J.P. Morgan Securities Inc., as agent for JPMorgan Chase Bank, National Association, London Branch (“JP Morgan”) to repurchase approximately $90.0 million of the Company’s Common Stock, as part of the Company’s share repurchase program.

Under the Share Repurchase Agreement, the Company pre-paid to JP Morgan the $90.0 million purchase price for the Common Stock and JP Morgan will deliver to the Company a number of shares of Common Stock to be determined based on the volume weighted average price of the Common Stock, calculated over a period of between one and four months following the date of the Share Repurchase Agreement (the “Valuation Period”), minus an agreed upon discount between the parties. The shares of Common Stock will be delivered by JP Morgan to the Company on the third business day following the Valuation Period described above.

In addition, under the Share Repurchase Agreement, the Company has the option, in its sole discretion, to terminate the transaction early in the event that the volume weighted average price of the Common Stock exceeds a price agreed upon between the parties at the time the Share Repurchase Agreement was executed.

10. Income Taxes

The effective tax rate for the three and nine months ended September 30, 2010 was (27.5)% and 30.8%, respectively, which is lower than the U.S. statutory tax rate due primarily to foreign withholding taxes and the full valuation allowance on its U.S. net deferred tax assets. The effective tax rate for the three and nine months ended September 30, 2009 was (0.3)% and (0.1)%, respectively, which was lower than the U.S. statutory tax rate applied to the Company’s net loss primarily due to a full valuation allowance on its U.S. net deferred tax assets, foreign income taxes and state income taxes, partially offset by refundable research and development tax credits.

During the three and nine months ended September 30, 2010, the Company paid withholding taxes of $4.1 million and $50.9 million, respectively, to the Korean tax authorities related to the payments received under the Settlement Agreement and License Agreement with Samsung. The Company recorded a provision for income taxes of $4.4 million for the three months ended September 30, 2010, which is primarily comprised of the Korean withholding taxes. The Company recorded a provision for income taxes of $52.5 million for the nine months ended September 30, 2010, which is primarily comprised of the Korean withholding taxes and state alternative minimum taxes. As the Company continues to maintain a valuation allowance against its U.S. deferred tax assets, the Company’s tax provision is based primarily on the Korean withholding taxes and state alternative minimum taxes.

As of September 30, 2010, the Company estimates net deferred tax assets, before valuation allowance, of approximately $90.8 million, which consists of net operating loss carryovers, tax credit carryovers, depreciation and amortization, employee stock-based compensation expenses and certain liabilities, partially reduced by deferred tax liabilities associated with the convertible debt instruments that may be settled in cash upon conversion, including partial cash settlements. As of September 30, 2010, a full valuation allowance has been recorded against the U.S. deferred tax assets. During the nine months ended September 30, 2010, the Company reduced its deferred tax assets from $153.1 million to $90.8 million, and a corresponding reduction of its valuation allowance. This partial release of the valuation allowance is primarily related to the utilization of net operating loss carryforwards offsetting the U.S. tax provision for the nine months ended September 30, 2010. Management periodically evaluates the realizability of the Company’s net deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is solely dependent on the Company’s ability to generate sufficient future taxable income during periods prior to the expiration of tax statutes to fully utilize these assets. The Company intends to maintain the remaining valuation allowance until sufficient positive evidence exists to support reversal of the valuation allowance.

The Company maintains liabilities for uncertain tax positions within its non-current income taxes payable accounts. These liabilities involve judgment and estimation and are monitored by management based on the best information available including changes in tax regulations, the outcome of relevant court cases and other information.

As of September 30, 2010, the Company had approximately $10.9 million of unrecognized tax benefits, including $9.0 million recorded as a reduction of long-term deferred tax assets and including $1.9 million in long-term income taxes payable. If recognized, approximately $0.6 million would be recorded as an income tax benefit. No benefit would be recorded for the remaining unrecognized tax benefits as the recognition would require a corresponding increase in the valuation allowance. As of December 31, 2009, the Company had $10.4 million of unrecognized tax benefits, including $8.4 million recorded as a reduction of long-term deferred tax assets and $2.0 million in long-term income taxes payable.

Although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.

The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision (benefit). At September 30, 2010 and December 31, 2009, an insignificant amount of interest and penalties are included in long-term income taxes payable.

The Company files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The Company is currently under examination by the California Franchise Tax Board for the fiscal year ended March 31, 2003 and the years ended December 31, 2003 and 2004. Although the outcome of any tax audit is uncertain, the Company believes it has adequately provided for any additional taxes that may be required to be paid as a result of such examinations. If the Company determines that no

payment will ultimately be required, the reversal of these tax liabilities may result in tax benefits being recognized in the period when that conclusion is reached. However, if an ultimate tax assessment exceeds the recorded tax liability for that item, an additional tax provision may need to be recorded. The impact of such adjustments in the Company’s tax accounts could have a material impact on the consolidated results of operations in future periods.

The Company is subject to examination by the Internal Revenue Service (“IRS”) for the tax years ended 2007 through 2009. The Company is also subject to examination by the State of California for tax years ended 2006 through 2009. In addition, any R&D credit and net operating loss carryforwards generated in prior years and utilized in these or future years may also be subject to examination by the IRS and the State of California. The Company remains subject to income tax examinations in other tax jurisdictions which are not material to the Company’s operations.

The Company’s future effective tax rates could be adversely affected by earnings being higher than anticipated in countries where the Company has higher statutory rates or lower than anticipated in countries where it has lower statutory rates, by changes in valuation of its deferred tax assets and liabilities, or by changes in tax laws or interpretations of those laws. Subsequent to the quarter ended September 30, 2010, California enacted legislation that includes suspension of net operating loss utilization for 2010 and 2011. This change is not expected to have a material impact to the Company’s financial statements.

11. Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing the earnings (loss) by the weighted average number of common shares and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of incremental common shares issuable upon exercise of stock options, employee stock purchases, restricted stock and restricted stock units, and shares issuable upon the conversion of convertible notes. The dilutive effect of outstanding shares is reflected in diluted earnings per share by application of the treasury stock method. This method includes consideration of the amounts to be paid by the employees, the amount of excess tax benefits that would be recognized in equity if the instrument was exercised and the amount of unrecognized stock-based compensation related to future services. No potential dilutive common shares are included in the computation of any diluted per share amount when a net loss is reported. As discussed in Note 3, “Settlement Agreement with Samsung,” the Company reported approximately 4.8 million shares issued to Samsung as contingently redeemable common stock due to the contractual put rights associated with those shares. As such, the Company uses the two-class method for reporting earnings per share.

The following table sets forth the computation of basic and diluted income (loss) per share:


	Three Months Ended September 30,
	2010						2009
	(In thousands, except per share amounts)
	CRCS*			Other CS**			CRCS*		Other CS**
Basic net loss per share:
Numerator:
Allocation of undistributed earnings	$	(881	)	$	(19,695	)	$	—	$	(27,496	)
Denominator:
Weighted-average common shares outstanding		4,788			107,078			—		105,182

Basic net loss per share	$	(0.18	)	$	(0.18	)	$	—	$	(0.26	)


Diluted net loss per share:
Numerator:
Allocation of undistributed earnings for basic computation	$	(881	)	$	(19,695	)	$	—	$	(27,496	)
Reallocation of undistributed earnings		—			—			—		—

Allocation of undistributed earnings for diluted computation	$	(881	)	$	(19,695	)	$	—	$	(27,496	)

Denominator:
Number of shares used in basic computation		4,788			107,078			—		105,182
Dilutive potential shares from stock options, ESPP, Convertible notes and nonvested equity stock and stock units		—			—			—		—

Number of shares used in diluted computation		4,788			107,078			—		105,182

Diluted net loss per share	$	(0.18	)	$	(0.18	)	$	—	$	(0.26	)


	Nine Months Ended September 30,
	2010					2009
	(In thousands, except per share amounts)
	CRCS*			Other CS**		CRCS*		Other CS**
Basic net income (loss) per share:
Numerator:
Allocation of undistributed earnings	$	4,673		$	113,160	$	—	$	(68,893	)
Denominator:
Weighted-average common shares outstanding		4,472			108,296		—		104,761

Basic net income (loss) per share	$	1.04		$	1.04	$	—	$	(0.66	)


Diluted net income (loss) per share:
Numerator:
Allocation of undistributed earnings for basic computation	$	4,673		$	113,160	$	—	$	(68,893	)
Reallocation of undistributed earnings		(143	)		143		—		—

Allocation of undistributed earnings for diluted computation	$	4,530		$	113,303	$	—	$	(68,893	)

Denominator:
Number of shares used in basic computation		4,472			108,296		—		104,761
Dilutive potential shares from stock options, ESPP, Convertible notes and nonvested equity stock and stock units		—			3,579		—		—

Number of shares used in diluted computation		4,472			111,875		—		104,761

Diluted net income (loss) per share	$	1.01		$	1.01	$	—	$	(0.66	)


*		CRCS — Contingently Redeemable Common Stock

**		Other CS — Common Stock other than CRCS

For the three months ended September 30, 2010 and 2009, options to purchase approximately 7.2 million and 9.3 million shares, respectively, and for the nine months ended September 30, 2010 and 2009, options to purchase approximately 6.5 million and 12.7 million shares, respectively, were excluded from the calculation because they were anti-dilutive after considering proceeds from exercise, taxes and related unrecognized stock-based compensation expense. For the three months ended September 30, 2010 and 2009, an additional 2.4 million and 2.2 million shares, respectively, and for the nine months ended September 30, 2009, an additional 1.3 million shares, including nonvested equity stock and stock units, that would be dilutive have been excluded from the weighted average dilutive shares because there were net losses for the periods.

12. Business Segments, Exports and Major Customers

Rambus has two business groups: the Semiconductor Business Group (“SBG”) which focuses on the design, development and licensing of semiconductor technology and the New Business Group (“NBG”) which focuses on the design, development and licensing of lighting, display and mobile technologies. As of the end of the third quarter of 2010, these two business groups were considered operating segments. However, for reporting purposes, the assets and operating results of the NBG did not meet the annual quantitative thresholds for separate disclosure as of September 30, 2010.

Four customers accounted for 47%, 12%, 11% and 10%, respectively, of revenue in the three months ended September 30, 2010. Five customers accounted for 25%, 15%, 14%, 13% and 12%, respectively, of revenue in the three months ended September 30, 2009. One customer accounted for 72% of revenue in the nine months ended September 30, 2010. Six customers accounted for 25%, 15%, 14%, 12%, 11% and 10%, respectively, of revenue in the nine months ended September 30, 2009. Rambus expects to continue to experience significant revenue concentration for the foreseeable future, and is in active and ongoing discussions with customers that are up for renewal, although Rambus expects that its revenue concentration will decrease over time as Rambus licenses new customers.

Rambus licenses its technologies and patents to customers in multiple geographic regions. Revenue from customers in the following geographic regions was recognized as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2010		2009		2010		2009
Japan	$	11,819	$	22,574	$	49,692	$	66,455
Korea		14,853		359		166,732		730
North America		5,025		4,856		15,801		14,748
Asia-Pacific		35		31		93		115
Europe		11		54		151		143

	$	31,743	$	27,874	$	232,469	$	82,191

At September 30, 2010, of the $49.7 million of total property and equipment, approximately $48.6 million are located in the United States, $1.0 million are located in India and $0.1 million are located in other foreign locations. At December 31, 2009, of the $39.0 million of total property and equipment, approximately $37.1 million were located in the United States, $1.6 million were located in India and $0.3 million were located in other foreign locations.

13. Amortizable Intangible Assets

The components of the Company’s intangible assets as of September 30, 2010 and December 31, 2009 were as follows:


	As of September 30, 2010
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
	(In thousands)
Patents	$	21,473	$	(8,512	)	$	12,961
Customer contracts and contractual relationships		4,050		(3,040	)		1,010
Existing technology		17,550		(4,417	)		13,133
Intellectual property		10,384		(10,384	)		—
Non-competition agreement		100		(100	)		—

Total intangible assets	$	53,557	$	(26,453	)	$	27,104


	As of December 31, 2009
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
	(In thousands)
Patents	$	12,441	$	(6,876	)	$	5,565
Customer contracts and contractual relationships		4,050		(2,717	)		1,333
Existing technology		17,550		(2,788	)		14,762
Intellectual property		10,384		(10,384	)		—
Non-competition agreement		100		(100	)		—

Total intangible assets	$	44,525	$	(22,865	)	$	21,660

Amortization expense for intangible assets for the three and nine months ended September 30, 2010 was $1.3 million and $3.6 million, respectively. Amortization expense for intangible assets for the three and nine months ended September 30, 2009 was $0.7 million and $2.2 million, respectively.

As part of the Company’s ongoing acquisition activities to broaden its technology portfolio, the Company purchased patents for approximately $7.1 million in three asset acquisitions during the nine months ended September 30, 2010. In addition, during the second quarter of 2010, the Company purchased patents for $2.0 million in a business combination.

The estimated future amortization expense of intangible assets as of September 30, 2010 was as follows (amounts in thousands):


Years Ending December 31:	Amount
2010 (remaining 3 months)	$	1,406
2011		5,311
2012		5,038
2013		4,732
2014		3,832
Thereafter		6,785

	$	27,104

14. Litigation and Asserted Claims

Hynix Litigation

U.S District Court of the Northern District of California

On August 29, 2000, Hynix (formerly Hyundai) and various subsidiaries filed suit against Rambus in the U.S. District Court for the Northern District of California. The complaint, as amended and narrowed through motion practice, asserts claims for fraud, violations of federal antitrust laws and deceptive practices in connection with Rambus’ participation in a standards setting organization called JEDEC, and seeks a declaratory judgment that the Rambus patents-in-suit are unenforceable, invalid and not infringed by Hynix, compensatory and punitive damages, and attorneys’ fees. Rambus denied Hynix’s claims and filed counterclaims for patent infringement against Hynix.

The case was divided into three phases. In the first phase, Hynix tried its unclean hands defense beginning on October 17, 2005 and concluding on November 1, 2005. In its January 4, 2006 Findings of Fact and Conclusions of Law, the court held that Hynix’s unclean hands defense failed. Among other things, the court found that Rambus did not adopt its document retention policy in bad faith, did not engage in unlawful spoliation of evidence, and that while Rambus disposed of some relevant documents pursuant to its document retention policy, Hynix was not prejudiced by the destruction of Rambus documents. On January 19, 2009, Hynix filed a motion for reconsideration of the court’s unclean hands order and for summary judgment on the ground that the decision by the Delaware court in the pending Micron-Rambus litigation (described below) should be given preclusive effect. In its motion Hynix requested alternatively that the court’s unclean hands order be certified for appeal and that the remainder of the case be stayed. Rambus filed an opposition to Hynix’s motion on January 26, 2009, and a hearing was held on January 30, 2009. On February 3, 2009, the court denied Hynix’s motions and restated its conclusions that Rambus had not anticipated litigation until late 1999 and that Hynix had not demonstrated any prejudice from any alleged destruction of evidence.

The second phase of the Hynix-Rambus trial — on patent infringement, validity and damages — began on March 15, 2006, and was submitted to the jury on April 13, 2006. On April 24, 2006, the jury returned a verdict in favor of Rambus on all issues and awarded Rambus a total of approximately $307 million in damages, excluding prejudgment interest. Specifically, the jury found that each of the ten selected patent claims was supported by the written description, and was not anticipated or rendered obvious by prior art; therefore, none of the patent claims was invalid. The jury also found that Hynix infringed all eight of the patent claims for which the jury was asked to determine infringement; the court had previously determined on summary judgment that Hynix infringed the other two claims at issue in the trial. On July 14, 2006, the court granted Hynix’s motion for a new trial on the issue of damages unless Rambus agreed to a reduction of the total jury award to approximately $134 million. The court found that the record supported a maximum royalty rate of 1% for SDR SDRAM and 4.25% for DDR SDRAM, which the court applied to the stipulated U.S. sales of infringing Hynix products through December 31, 2005. On July 27, 2006, Rambus elected remittitur of the jury’s award to approximately $134 million. On August 30, 2006, the court awarded Rambus prejudgment interest for the period June 23, 2000 through December 31, 2005. Hynix filed a motion on July 7, 2008 to reduce the amount of remitted damages and any supplemental damages that the court may award, as well as to limit the products that could be affected by any injunction that the court may grant, on the grounds of patent exhaustion. Following a hearing on August 29, 2008, the court denied Hynix’s motion. In separate orders issued December 2, 2008, January 16, 2009, and January 27, 2009, the court denied Hynix’s post-trial motions for judgment as a matter of law and new trial on infringement and validity.

On June 24, 2008, the court heard oral argument on Rambus’ motion to supplement the damages award and for equitable relief related to Hynix’s infringement of Rambus patents. On February 23, 2009, the court issued an order (1) granting Rambus’ motion for supplemental damages and prejudgment interest for the period after December 31, 2005, at the same rates ordered for the prior period; (2) denying Rambus’ motion for an injunction; and (3) ordering the parties to begin negotiations regarding the terms of a compulsory license regarding Hynix’s continued manufacture, use, and sale of infringing devices.

The third phase of the Hynix-Rambus trial involved Hynix’s affirmative JEDEC-related antitrust and fraud allegations against Rambus. On April 24, 2007, the court ordered a coordinated trial of certain common JEDEC-related claims alleged by the manufacturer parties (i.e., Hynix, Micron, Nanya and Samsung) and defenses asserted by Rambus in Hynix v Rambus, Case No. C 00-20905 RMW, and three other cases pending before the same court (Rambus Inc. v. Samsung Electronics Co. Ltd. et al., Case No. 05-02298 RMW, Rambus Inc. v. Hynix Semiconductor Inc., et al., Case No. 05-00334, and Rambus Inc. v. Micron Technology, Inc., et al., Case No. C 06-00244 RMW, each described in further detail below). On December 14, 2007, the court excused Samsung from the coordinated trial based on Samsung’s agreement to certain conditions, including trial of its claims against Rambus by the court within six months following the conclusion of the coordinated trial. The coordinated trial involving Rambus, Hynix, Micron and Nanya began on January 29, 2008, and was submitted to the jury on March 25, 2008. On March 26, 2008, the jury returned a verdict in favor of Rambus and against Hynix, Micron, and Nanya on each of their claims. Specifically, the jury found that Hynix, Micron, and Nanya

failed to meet their burden of proving that: (1) Rambus engaged in anticompetitive conduct; (2) Rambus made important representations that it did not have any intellectual property pertaining to the work of JEDEC and intended or reasonably expected that the representations would be heard by or repeated to others including Hynix, Micron or Nanya; (3) Rambus uttered deceptive half-truths about its intellectual property coverage or potential coverage of products compliant with synchronous DRAM standards then being considered by JEDEC by disclosing some facts but failing to disclose other important facts; or (4) JEDEC members shared a clearly defined expectation that members would disclose relevant knowledge they had about patent applications or the intent to file patent applications on technology being considered for adoption as a JEDEC standard. Hynix, Micron, and Nanya filed motions for a new trial and for judgment on certain of their equitable claims and defenses. A hearing on those motions was held on May 1, 2008. A further hearing on the equitable claims and defenses was held on May 27, 2008. On July 24, 2008, the court issued an order denying Hynix, Micron, and Nanya’s motions for new trial.

On March 3, 2009, the court issued an order rejecting Hynix, Micron, and Nanya’s equitable claims and defenses that had been tried during the coordinated trial. The court concluded (among other things) that (1) Rambus did not have an obligation to disclose pending or anticipated patent applications and had sound reasons for not doing so; (2) the evidence supported the jury’s finding that JEDEC members did not share a clearly defined expectation that members would disclose relevant knowledge they had about patent applications or the intent to file patent applications on technology being considered for adoption as a JEDEC standard; (3) the written JEDEC disclosure policies did not clearly require members to disclose information about patent applications and the intent to file patent applications in the future; (4) there was no clearly understood or legally enforceable agreement of JEDEC members to disclose information about patent applications or the intent to seek patents relevant to standards being discussed at JEDEC; (5) during the time Rambus attended JEDEC meetings, Rambus did not have any patent application pending that covered a JEDEC standard, and none of the patents in suit was applied for until well after Rambus resigned from JEDEC; (6) Rambus’s conduct at JEDEC did not constitute an estoppel or waiver of its rights to enforce its patents; (7) Hynix, Micron, and Nanya failed to carry their burden to prove their asserted waiver and estoppel defenses not directly based on Rambus’s conduct at JEDEC; (8) the evidence did not support a finding of any material misrepresentation, half truths or fraudulent concealment by Rambus related to JEDEC upon which Nanya relied; (9) the manufacturers failed to establish that Rambus violated unfair competition law by its conduct before JEDEC; (10) the evidence related to Rambus’s patent prosecution did not establish that Rambus unduly delayed in prosecuting the claims in suit; (11) Rambus did not unreasonably delay bringing its patent infringement claims; and (12) there is no basis for any unclean hands defense or unenforceability claim arising from Rambus’s conduct.

On March 10, 2009, the court entered final judgment against Hynix in the amount of approximately $397 million as follows: approximately $134 million for infringement through December 31, 2005; approximately $215 million for infringement from January 1, 2006 through January 31, 2009; and approximately $48 million in pre-judgment interest. Post-judgment interest is accruing at the statutory rate. In addition, the judgment orders Hynix to pay Rambus royalties on net sales for U.S. infringement after January 31, 2009 and before April 18, 2010 of 1% for SDR SDRAM and 4.25% for DDR DDR2, DDR3, GDDR, GDDR2 and GDDR3 SDRAM memory devices. On April 9, 2009, Rambus submitted its cost bill in the amount of approximately $0.85 million. On March 24, 2009, Hynix filed a motion under Rule 62 seeking relief from the requirement that it post a supersedeas bond in the full amount of the final judgment in order to stay its execution pending an appeal. Rambus filed a brief opposing Hynix’s motion on April 10, 2009. A hearing on Hynix’s motion was heard on May 8, 2009. On May 14, 2009, the court granted Hynix’s motion in part and ordered that execution of the judgment be stayed on the condition that, within 45 days, Hynix post a supersedeas bond in the amount of $250 million and provide Rambus with documentation establishing a lien in Rambus’s favor on property owned by Hynix in Korea in the amount of the judgment not covered by the supersedeas bond. The court also ordered that Hynix pay the ongoing royalties set forth in the final judgment into an escrow account. Hynix posted the $250 million supersedeas bond on June 26, 2009. On September 17, 2010, the court granted Rambus’s motion for reconsideration of the portion of its order allowing Hynix to establish a lien in lieu of posting a bond for a portion of the judgment; on October 18, 2010, Hynix posted a bond in the full amount of the judgment plus accrued post-judgment interest in the total amount of $401.2 million. Hynix has deposited amounts into the escrow account pursuant to the court’s order regarding ongoing royalties. The escrowed funds will be released only upon agreement of the parties or further court order in accordance with the terms and conditions set forth in the escrow arrangement. On March 8, 2010, the court awarded costs to Rambus in the amount of approximately $0.76 million. That amount plus accrued interest has been deposited by Hynix into the same escrow account into which ongoing royalties have been deposited.

On April 6, 2009, Hynix filed its notice of appeal. On April 17, 2009, Rambus filed its notice of cross appeal. Hynix filed a motion to dismiss Rambus’ cross-appeal on July 1, 2009, and Rambus filed an opposition to Hynix’s motion on July 15, 2009. On July 23, 2009, Rambus and Hynix filed a joint motion to assign this appeal to the same panel hearing the appeal in the Micron Delaware case (discussed below) and to coordinate oral arguments of the two appeals. On August 17, 2009, the United States Court of Appeals for the Federal Circuit issued an order 1) granting the joint motion to coordinate oral arguments of the two appeals; and 2) denying Hynix’s motion to dismiss Rambus’s cross-appeal. On August 31, 2009, Hynix filed its opening brief. On December 7, 2009, Rambus

filed its answering and opening cross-appeal brief. Hynix’s reply and answering brief was filed February 16, 2010, and Rambus’s reply was filed February 23, 2010. Oral argument was held on April 5, 2010. On June 9, 2010, the Federal Circuit issued an order that it would rehear oral argument in the coordinated appeals on the basis of the parties’ original briefs. Oral argument was reheard by an expanded panel of five judges on October 6, 2010. No decision has issued to date.

Micron Litigation

U.S District Court in Delaware: Case No. 00-792-SLR

On August 28, 2000, Micron filed suit against Rambus in the U.S. District Court for Delaware. The suit asserts violations of federal antitrust laws, deceptive trade practices, breach of contract, fraud and negligent misrepresentation in connection with Rambus’ participation in JEDEC. Micron seeks a declaration of monopolization by Rambus, compensatory and punitive damages, attorneys’ fees, a declaratory judgment that eight Rambus patents are invalid and not infringed, and the award to Micron of a royalty-free license to the Rambus patents. Rambus has filed an answer and counterclaims disputing Micron’s claims and asserting infringement by Micron of 12 U.S. patents.

This case has been divided into three phases in the same general order as in the Hynix 00-20905 action: (1) unclean hands; (2) patent infringement; and (3) antitrust, equitable estoppel, and other JEDEC-related issues. A bench trial on Micron’s unclean hands defense began on November 8, 2007 and concluded on November 15, 2007. The court ordered post-trial briefing on the issue of when Rambus became obligated to preserve documents because it anticipated litigation. A hearing on that issue was held on May 20, 2008. The court ordered further post-trial briefing on the remaining issues from the unclean hands trial, and a hearing on those issues was held on September 19, 2008.

On January 9, 2009, the court issued an opinion in which it determined that Rambus had engaged in spoliation of evidence by failing to suspend general implementation of a document retention policy after the point at which the court determined that Rambus should have known litigation was reasonably foreseeable. The court issued an accompanying order declaring the 12 patents in suit unenforceable against Micron (the “Delaware Order”). On February 9, 2009, the court stayed all other proceedings pending appeal of the Delaware Order. On February 10, 2009, judgment was entered against Rambus and in favor of Micron on Rambus’ patent infringement claims and Micron’s corresponding claims for declaratory relief. On March 11, 2009, Rambus filed its notice of appeal. Rambus filed its opening brief on July 2, 2009. On July 24, 2009, Rambus filed a motion to assign this appeal to the same panel hearing the appeal in the Hynix case (discussed above) and to coordinate oral arguments of the two appeals. On August 8, 2009, Micron filed an opposition to Rambus’s motion to coordinate. On August 17, 2009, the Federal Circuit issued an order granting Rambus’s motion to coordinate oral arguments of the two appeals. On August 28, 2009, Micron filed its answering brief. On October 14, 2009, Rambus filed its reply brief. Oral argument was held on April 5, 2010. On June 9, 2010, the Federal Circuit issued an order that it would rehear oral argument in the coordinated appeals on the basis of the parties’ original briefs. Oral argument was reheard by an expanded panel of five judges on October 6, 2010. No decision has issued to date.

U.S. District Court of the Northern District of California

On January 13, 2006, Rambus filed suit against Micron in the U.S. District Court for the Northern District of California. Rambus alleges that 14 Rambus patents are infringed by Micron’s DDR2, DDR3, GDDR3, and other advanced memory products. Rambus seeks compensatory and punitive damages, attorneys’ fees, and injunctive relief. Micron has denied Rambus’ allegations and is alleging counterclaims for violations of federal antitrust laws, unfair trade practices, equitable estoppel, fraud and negligent misrepresentation in connection with Rambus’ participation in JEDEC. Micron seeks a declaration of monopolization by Rambus, injunctive relief, compensatory and punitive damages, attorneys’ fees, and a declaratory judgment of invalidity, unenforceability, and noninfringement of the 14 patents in suit.

As explained above, the court ordered a coordinated trial (without Samsung) of certain common JEDEC-related claims and defenses asserted in Hynix v Rambus, Case No. C 00-20905 RMW, Rambus Inc. v. Samsung Electronics Co. Ltd. et al., Case No. 05-02298 RMW, Rambus Inc. v. Hynix Semiconductor Inc., et al., Case No. 05-00334, and Rambus Inc. v. Micron Technology, Inc., et al., Case No. C 06-00244 RMW. The coordinated trial involving Rambus, Hynix, Micron and Nanya began on January 29, 2008, and was submitted to the jury on March 25, 2008. On March 26, 2008, the jury returned a verdict in favor of Rambus and against Hynix, Micron, and Nanya on each of their claims. Specifically, the jury found that Hynix, Micron, and Nanya failed to meet their burden of proving that: (1) Rambus engaged in anticompetitive conduct; (2) Rambus made important representations that it did not have any intellectual property pertaining to the work of JEDEC and intended or reasonably expected that the representations would be heard by or repeated to others including Hynix, Micron or Nanya; (3) Rambus uttered deceptive half-truths about its intellectual property

coverage or potential coverage of products compliant with synchronous DRAM standards then being considered by JEDEC by disclosing some facts but failing to disclose other important facts; or (4) JEDEC members shared a clearly defined expectation that members would disclose relevant knowledge they had about patent applications or the intent to file patent applications on technology being considered for adoption as a JEDEC standard. Hynix, Micron, and Nanya filed motions for a new trial and for judgment on certain of their equitable claims and defenses. A hearing on those motions was held on May 1, 2008. A further hearing on the equitable claims and defenses was held on May 27, 2008. On July 24, 2008, the court issued an order denying Hynix, Micron, and Nanya’s motions for new trial.

In these cases (except for the Hynix 00-20905 action), a hearing on claim construction and the parties’ cross-motions for summary judgment on infringement and validity was held on June 4 and 5, 2008. On July 10, 2008, the court issued its claim construction order relating to the Farmwald/Horowitz patents in suit and denied Hynix, Micron, Nanya, and Samsung’s (collectively, the “Manufacturers”) motions for summary judgment of noninfringement and invalidity based on their proposed claim construction. The court issued claim construction orders relating to the Ware patents in suit on July 25 and August 27, 2008, and denied the Manufacturers’ motion for summary judgment of noninfringement of certain claims. On September 4, 2008, at the court’s direction, Rambus elected to proceed to trial on 12 patent claims, each from the Farmwald/Horowitz family. On September 16, 2008, Rambus granted a covenant not to assert any claim of patent infringement against the Manufacturers under the Ware patents in suit (U.S. Patent Nos. 6,493,789 and 6,496,897), and each party’s claims relating to those patents were dismissed with prejudice. On November 21, 2008, the court entered an order clarifying certain aspects of its July 10, 2008, claim construction order. On November 24, 2008, the court granted Rambus’ motion for summary judgment of direct infringement with respect to claim 16 of Rambus’ U.S. Patent No. 6,266,285 by the Manufacturers’ DDR2, DDR3, gDDR2, GDDR3, GDDR4 memory chip products (except for Nanya’s DDR3 memory chip products). In the same order, the court denied the remainder of Rambus’ motion for summary judgment of infringement.

On January 19, 2009, Micron filed a motion for summary judgment on the ground that the Delaware Order should be given preclusive effect. Rambus filed an opposition to Micron’s motion on January 26, 2009, and a hearing was held on January 30, 2009. On February 3, 2009, the court entered a stay of this action pending resolution of Rambus’ appeal of the Delaware Order. Trial on Rambus’ patent infringement claims is scheduled to begin on May 2, 2011.

European Patent Infringement Cases

In 2001, Rambus filed suit against Micron in Mannheim, Germany, for infringement of European patent, EP 1 022 642. That suit has not been active. Two proceedings in Italy remain ongoing relating to Rambus’s claim that Micron is infringing European patent, EP 1 004 956, and Micron’s purported claim resulting from a seizure of evidence in Italy in 2000 carried out by Rambus pursuant to a court order.

DDR2, DDR3, gDDR2, GDDR3, GDDR4 Litigation (“DDR2”)

U.S District Court in the Northern District of California

On January 25, 2005, Rambus filed a patent infringement suit in the U.S. District Court for the Northern District of California court against Hynix, Infineon, Nanya, and Inotera. Infineon and Inotera were subsequently dismissed from this litigation and Samsung was added as a defendant. Rambus alleges that certain of its patents are infringed by certain of the defendants’ SDRAM, DDR, DDR2, DDR3, gDDR2, GDDR3, GDDR4 and other advanced memory products. Hynix, Samsung and Nanya have denied Rambus’ claims and asserted counterclaims against Rambus for, among other things, violations of federal antitrust laws, unfair trade practices, equitable estoppel, and fraud in connection with Rambus’ participation in JEDEC.

As explained above, the court ordered a coordinated trial of certain common JEDEC-related claims and defenses asserted in Hynix v Rambus, Case No. C 00-20905 RMW, Rambus Inc. v. Samsung Electronics Co. Ltd. et al., Case No. 05-02298 RMW, Rambus Inc. v. Hynix Semiconductor Inc., et al., Case No. 05-00334, and Rambus Inc. v. Micron Technology, Inc., et al., Case No. C 06-00244 RMW. The court subsequently excused Samsung from the coordinated trial on December 14, 2007, based on Samsung’s agreement to certain conditions, including trial of its claims against Rambus within six months following the conclusion of the coordinated trial. The coordinated trial involving Rambus, Hynix, Micron and Nanya began on January 29, 2008, and was submitted to the jury on March 25, 2008. On March 26, 2008, the jury returned a verdict in favor of Rambus and against Hynix, Micron, and Nanya on each of their claims. Specifically, the jury found that Hynix, Micron, and Nanya failed to meet their burden of proving that: (1) Rambus engaged in anticompetitive conduct; (2) Rambus made important representations that it did not have any intellectual property pertaining to the work of JEDEC and intended or reasonably expected that the representations would be heard by or repeated to others including Hynix, Micron or Nanya; (3) Rambus uttered deceptive half- truths about its intellectual property coverage or potential coverage of products compliant with synchronous DRAM standards then being considered by JEDEC by disclosing some facts but failing to disclose other important facts; or (4) JEDEC members shared a clearly defined expectation that members would disclose relevant knowledge they had about patent applications or the intent to file patent applications on technology being considered for adoption as a JEDEC standard. Hynix, Micron, and Nanya filed motions for a new trial and for judgment on certain of their equitable claims and defenses. A hearing on those motions was held on May 1, 2008. A further hearing on the equitable claims and defenses was held on May 27, 2008. On July 24, 2008, the court issued an order denying Hynix, Micron, and Nanya’s motions for new trial.

In these cases (except for the Hynix 00-20905 action), a hearing on claim construction and the parties’ cross-motions for summary judgment on infringement and validity was held on June 4 and 5, 2008. On July 10, 2008, the court issued its claim construction order relating to the Farmwald/Horowitz patents in suit and denied the Manufacturers’ motions for summary judgment of noninfringement and invalidity based on their proposed claim construction. The court issued claim construction orders relating to the Ware patents in suit on July 25 and August 27, 2008, and denied the Manufacturers’ motion for summary judgment of noninfringement of certain claims. On September 4, 2008, at the court’s direction, Rambus elected to proceed to trial on 12 patent claims, each from the Farmwald/Horowitz family. On September 16, 2008, Rambus granted a covenant not to assert any claim of patent infringement against the Manufacturers under U.S. Patent Nos. 6,493,789 and 6,496,897, and each party’s claims relating to those patents were dismissed with prejudice. On November 21, 2008, the court entered an order clarifying certain aspects of its July 10, 2008, claim construction order. On November 24, 2008, the court granted Rambus’s motion for summary judgment of direct infringement with respect to claim 16 of Rambus’s U.S. Patent No. 6,266,285 by the Manufacturers’ DDR2, DDR3, gDDR2, GDDR3, GDDR4 memory chip products (except for Nanya’s DDR3 memory chip products). In the same order, the court denied the remainder of Rambus’s motion for summary judgment of infringement.

On January 19, 2009, Samsung, Nanya, and Hynix filed motions for summary judgment on the ground that the Delaware Order should be given preclusive effect. Rambus filed opposition briefs to these motions on January 26, 2009, and a hearing was held on January 30, 2009. On February 3, 2009, the court entered a stay of this action pending resolution of Rambus’ appeal of the Delaware Order. Trial on Rambus’ patent infringement claims is scheduled to begin on May 2, 2011.

On January 19, 2010, Rambus and Samsung entered into a Settlement Agreement pursuant to which the parties released all claims against each other with respect to all outstanding litigation between them and certain other potential claims. The Settlement Agreement is described in further detail in Note 3, “Settlement Agreement with Samsung.” A stipulation and order of dismissal with prejudice of claims between Rambus and Samsung was entered on February 11, 2010.

European Commission Competition Directorate-General

On or about April 22, 2003, Rambus was notified by the European Commission Competition Directorate-General (Directorate) (the “European Commission”) that it had received complaints from Infineon and Hynix. Rambus answered the ensuing requests for information prompted by those complaints on June 16, 2003. Rambus obtained a copy of Infineon’s complaint to the European Commission in late July 2003, and on October 8, 2003, at the request of the European Commission, filed its response. The European Commission sent Rambus a further request for information on December 22, 2006, which Rambus answered on January 26, 2007. On August 1, 2007, Rambus received a statement of objections from the European Commission. The statement of objections alleges that through Rambus’ participation in the JEDEC standards setting organization and subsequent conduct, Rambus violated European Union competition law. Rambus filed a response to the statement of objections on October 31, 2007, and a hearing was held on December 4 and 5, 2007.

On December 9, 2009, the European Commission announced that it has reached a final settlement with Rambus to resolve the pending case. Under the terms of the settlement, the Commission made no finding of liability, and no fine will be assessed against Rambus. Rambus commits to offer licenses with maximum royalty rates for certain memory types and memory controllers on a forward-going basis (the “Commitment”). The Commitment is expressly made without any admission by Rambus of the allegations asserted against it. The Commitment also does not resolve any existing claims of infringement prior to the signing of any license with a prospective licensee, nor does it release or excuse any of the prospective licensees from damages or royalty obligations through the date of signing a license. Rambus offers licenses with maximum royalty rates for five-year worldwide licenses of 1.5% for DDR2, DDR3, GDDR3 and GDDR4 SDRAM memory types. Qualified licensees will enjoy a royalty holiday for SDR and DDR DRAM devices, subject to compliance with the terms of the license. In addition, Rambus offers licenses with maximum royalty rates for five-year worldwide licenses of 1.5% per unit for SDR memory controllers through April 2010, dropping to 1.0% thereafter, and royalty rates of 2.65% per unit for DDR, DDR2, DDR3, GDDR3 and GDDR4 memory controllers through April 2010, then dropping to 2.0%. The Commitment to license at the above rates remains valid for a period of five years from December 9, 2009. All royalty rates are applicable to future shipments only and do not affect liability, if any, for damages or royalties that accrued up to the time of the license grant.

On March 25, 2010, Hynix filed appeals with the General Court of the European Union purporting to challenge the settlement and the European Commission’s rejection of Hynix’s complaint. No decision has issued to date on Hynix’s appeal.

Superior Court of California for the County of San Francisco

On May 5, 2004, Rambus filed a lawsuit against Micron, Hynix, Infineon and Siemens in San Francisco Superior Court (the “San Francisco court”) seeking damages for conspiring to fix prices (California Bus. & Prof. Code §§ 16720 et seq.), conspiring to monopolize under the Cartwright Act (California Bus. & Prof. Code §§ 16720 et seq.), intentional interference with prospective economic advantage, and unfair competition (California Bus. & Prof. Code §§ 17200 et seq.). This lawsuit alleges that there were concerted efforts beginning in the 1990s to deter innovation in the DRAM market and to boycott Rambus and/or deter market acceptance of Rambus’ RDRAM product. Subsequently, Infineon and Siemens were dismissed from this action (as a result of a settlement with Infineon) and three Samsung-related entities were added as defendants.

On January 19, 2010, Rambus and Samsung entered into a Settlement Agreement pursuant to which the parties released all claims against each other with respect to all outstanding litigation between them and certain other potential claims. The Settlement Agreement is described in further detail in Note 3, “Settlement Agreement with Samsung.” A stipulation of dismissal with prejudice of claims between Rambus and Samsung was filed on February 4, 2010.

Trial had been scheduled to begin on January 11, 2010. On January 13 and 21, 2010, a hearing was held on Micron’s emergency request for a two-month continuance. At the conclusion of the hearing, the request for continuance was granted. Trial is scheduled to commence on a date to be determined.

Stock Option Investigation Related Claims

On May 30, 2006, the Audit Committee commenced an internal investigation of the timing of past stock option grants and related accounting issues.

On May 31, 2006, the first of three shareholder derivative actions was filed in the U.S. District Court for the Northern District of California against Rambus (as a nominal defendant) and certain current and former executives and board members. These actions have been consolidated for all purposes under the caption, In re Rambus Inc. Derivative Litigation, Master File No. C-06-3513-JF (N.D. Cal.), and Howard Chu and Gaetano Ruggieri were appointed lead plaintiffs. The consolidated complaint, as amended, alleges violations of certain federal and state securities laws as well as other state law causes of action. The complaint seeks disgorgement and damages in an unspecified amount, unspecified equitable relief, and attorneys’ fees and costs.

On August 22, 2006, another shareholder derivative action was filed in Delaware Chancery Court against Rambus (as a nominal defendant) and certain current and former executives and board members (Bell v. Tate et al., 2366-N (Del. Chancery)). On May 16, 2008, this case was dismissed pursuant to a notice filed by the plaintiff.

On August 30, 2007, another shareholder derivative action was filed in the U.S. District Court for the Southern District of New York against Rambus (as a nominal defendant) and PricewaterhouseCoopers LLP (Francl v. PricewaterhouseCoopers LLP et al., No. 07-Civ. 7650 (GBD)). On November 21, 2007, the New York court granted PricewaterhouseCoopers LLP’s motion to transfer the action to the Northern District of California.

On October 18, 2006, the Board of Directors formed a Special Litigation Committee (the “SLC”) to evaluate potential claims or other actions arising from the stock option granting activities. The Board of Directors appointed J. Thomas Bentley, Chairman of the Audit Committee, and Abraham Sofaer, a retired federal judge and Chairman of the Legal Affairs Committee, both of whom joined the Rambus Board of Directors in 2005, to comprise the SLC.

On August 24, 2007, the final written report setting forth the findings of the SLC was filed with the court. As set forth in its report, the SLC determined that all claims should be terminated and dismissed against the named defendants in In re Rambus Inc. Derivative Litigation with the exception of claims against named defendant Ed Larsen, who served as Vice President, Human Resources from September 1996 until December 1999, and then Senior Vice President, Administration until July 2004. The SLC entered into settlement agreements with certain former officers of Rambus. The aggregate value of the settlements to Rambus exceeds $5.3 million in cash as well as substantial additional value to Rambus relating to the relinquishment of claims to over 2.7 million stock options. On October 5, 2007, Rambus filed a motion to terminate in accordance with the SLC’s recommendations. Subsequently, the parties settled In re Rambus Inc. Derivative Litigation and Francl v. PricewaterhouseCoopers LLP et al., No. 07-Civ. 7650 (GBD). The settlement provided for a payment by Rambus of $2.0 million and dismissal with prejudice of all claims against all defendants, with the exception of claims against Ed Larsen, in these actions. The $2.0 million was accrued for during the quarter ended June 30, 2008 within accrued litigation expenses and paid in January 2009. A final approval hearing was held on January 16, 2009, and an order of final approval was entered on January 20, 2009.

On July 17, 2006, the first of six class action lawsuits was filed in the U.S. District Court for the Northern District of California against Rambus and certain current and former executives and board members. These lawsuits were consolidated under the caption, In re Rambus Inc. Securities Litigation, C-06-4346-JF (N.D. Cal.). The settlement of this action was preliminarily approved by the court on March 5, 2008. Pursuant to the settlement agreement, Rambus paid $18.3 million into a settlement fund on March 17, 2008. Some alleged class members requested exclusion from the settlement. A final fairness hearing was held on May 14, 2008. That same day the court entered an order granting final approval of the settlement agreement and entered judgment dismissing with prejudice all claims against all defendants in the consolidated class action litigation.

On March 1, 2007, a pro se lawsuit was filed in the Northern District of California by two alleged Rambus shareholders against Rambus, certain current and former executives and board members, and PricewaterhouseCoopers LLP (Kelley et al. v. Rambus, Inc. et al. C-07-01238-JF (N.D. Cal.)). This action was consolidated with a substantially identical pro se lawsuit filed by another purported Rambus shareholder against the same parties. The consolidated complaint against Rambus alleges violations of federal and state securities laws, and state law claims for fraud and breach of fiduciary duty. Following several rounds of motions to dismiss, on

April 17, 2008, the court dismissed all claims with prejudice except for plaintiffs’ claims under sections 14(a) and 18(a) of the Securities and Exchange Act of 1934 as to which leave to amend was granted. On June 2, 2008, plaintiffs filed an amended complaint containing substantially the same allegations as the prior complaint although limited to claims under sections 14(a) and 18(a) of the Securities and Exchange Act of 1934. Rambus’ motion to dismiss the amended complaint was heard on September 12, 2008. On December 9, 2008, the court granted Rambus’ motion and entered judgment in favor of Rambus. Plaintiffs filed a notice of appeal on December 15, 2008. Plaintiffs’ filed their opening brief on April 13, 2009. Rambus opposed on May 29, 2009, and plaintiffs filed a reply brief on June 12, 2009. On June 16, 2010, the United States Court of Appeals for the Ninth Circuit issued a decision affirming the judgment in favor of Rambus.

On September 11, 2008, the same pro se plaintiffs filed a separate lawsuit in Santa Clara County Superior Court against Rambus, certain current and former executives and board members, and PricewaterhouseCoopers LLP (Kelley et al. v. Rambus, Inc. et al., Case No. 1-08-CV-122444). The complaint alleges violations of certain California state securities statues as well as fraud and negligent misrepresentation based on substantially the same underlying factual allegations contained in the pro se lawsuit filed in federal court. On October 4, 2010, the court ordered that the plaintiffs be permitted to file a second amended complaint. Rambus has informed the court that it will file a demurrer to plaintiffs’ second amended complaint on the ground that it is barred by the doctrine of claim preclusion, among other things.

On August 25, 2008, an amended complaint was filed by certain individuals and entities in Santa Clara County Superior Court against Rambus, certain current and former executives and board members, and PricewaterhouseCoopers LLP (Steele et al. v. Rambus Inc. et al., Case No. 1-08-CV-113682). The amended complaint alleges violations of certain California state securities statues as well as fraud and negligent misrepresentation. On October 10, 2008, Rambus filed a demurrer to the amended complaint. A hearing was held on January 9, 2009. On January 12, 2009, the court sustained Rambus’ demurrer without prejudice. Plaintiffs filed a second amended complaint on February 13, 2009, containing the same causes of action as the previous complaint. On March 17, 2009, Rambus filed a demurrer to the second amended complaint. A hearing was held on May 22, 2009. On May 26, 2009, the court sustained in part and overruled in part Rambus’s demurrer. On June 5, 2009, Rambus filed an answer denying plaintiffs’ remaining allegations. Discovery is ongoing.

NVIDIA Litigation

U.S District Court in the Northern District of California

On July 10, 2008, Rambus filed suit against NVIDIA Corporation (“NVIDIA”) in the U.S. District Court for the Northern District of California alleging that NVIDIA’s products with memory controllers for SDR, DDR, DDRx, GDDR, and GDDRy (where DDRx and GDDRy includes at least DDR2, DDR3 and GDDR3) technologies infringe 17 patents. On September 16, 2008, Rambus granted a covenant not to assert any claim of patent infringement against NVIDIA under U.S. Patent Nos. 6,493,789 and 6,496,897, accordingly 15 patents remain in suit. On December 30, 2008, the court granted NVIDIA’s motion to stay this case as to Rambus’ claims that NVIDIA’s products infringe nine patents that are also the subject of proceedings in front of the International Trade Commission (described below), and denied NVIDIA’s motion to stay the remainder of Rambus’ patent infringement claims. Certain limited discovery is proceeding. A case management conference is scheduled for January 28, 2011.

On July 11, 2008, one day after Rambus filed suit, NVIDIA filed its own action against Rambus in the U.S. District Court for the Middle District of North Carolina alleging that Rambus committed antitrust violations of the Sherman Act; committed antitrust violations of North Carolina law; and engaged in unfair and deceptive practices in violation of North Carolina law. NVIDIA seeks injunctive relief, damages, and attorneys’ fees and costs. This case has been transferred and consolidated into Rambus’s patent infringement case. Rambus filed a motion to dismiss NVIDIA’s claims prior to transfer of the action to California, and no decision has issued to date.

International Trade Commission

On November 6, 2008, Rambus filed a complaint with the U. S. International Trade Commission (the “ITC”) requesting the commencement of an investigation pertaining to NVIDIA products. The complaint seeks an exclusion order barring the importation, sale for importation, or sale after importation of products that infringe nine Rambus patents from the Ware and Barth families of patents. The accused products include NVIDIA products that incorporate DDR, DDR2, DDR3, LPDDR, GDDR, GDDR2, and GDDR3 memory controllers, including graphics processors, and media and communications processors. The complaint names NVIDIA as a proposed respondent, as well as companies whose products incorporate accused NVIDIA products and are imported into the United States. Additional respondents include: Asustek Computer Inc. and Asus Computer International, BFG Technologies,

Biostar Microtech and Biostar Microtech International Corp., Diablotek Inc., EVGA Corp., G.B.T. Inc. and Giga-Byte Technology Co., Hewlett-Packard, MSI Computer Corp. and Micro-Star International Co., Palit Multimedia Inc. and Palit Microsystems Ltd., Pine Technology Holdings, and Sparkle Computer Co.

On December 4, 2008, the ITC instituted the investigation. A hearing on claim construction was held on March 24, 2009, and a claim construction order issued on June 22, 2009. On June 5, 2009, Rambus moved to withdraw from the investigation four of the asserted patents and certain claims of a fifth asserted patent in order to simplify the investigation, streamline the final hearing, and conserve Commission resources. A final hearing before the administrative law judge was held October 13-20, 2009, and the parties submitted two rounds of post-hearing briefs.

On January 22, 2010, the administrative law judge issued a final initial determination holding that the importation of the accused NVIDIA products violates section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1337 because they infringe seventeen claims of three asserted Barth patents. The administrative law judge held that the accused NVIDIA products literally infringe all asserted claims of each asserted Barth and Ware patent, that they infringe three asserted claims under the doctrine of equivalents, that respondents contribute to and induce infringement of all asserted claims, and that the asserted patents are not unenforceable due to unclean hands or equitable estoppel. The administrative law judge held that the asserted Barth patents are not invalid for anticipation or obviousness and are not obvious for double patenting. The administrative law judge further held that, while the accused products infringed eight claims of the two asserted Ware patents and that those patents are not unenforceable due to inequitable conduct, no violation has occurred because the asserted Ware patents are invalid due to anticipation and obviousness. The administrative law judge recommended that the ITC issue (1) a limited exclusion order prohibiting the unlicensed importation of accused products by any respondent; and (2) a cease and desist order prohibiting domestic respondents from engaging in certain activities in the United States with respect to the accused products. On February 12, 2010, the parties’ filed petitions asking the full Commission to review certain aspects of the final initial determination.

On March 25, 2010, the ITC determined to review certain obviousness findings regarding the Barth patents and certain obviousness and anticipation findings regarding the Ware patents. The parties have submitted briefing on these issues and on the issue of remedy and bonding. On May 24, 2010, the ITC extended the target date for completion of the investigation by two days to May 26, 2010. On May 26, 2010, the ITC requested further briefing on the impact of the license between Rambus and Samsung on the administrative law judge’s findings and conclusions, particularly on the issue of patent exhaustion. On June 7, 2010 and June 15, 2010, the parties filed briefs as requested by the ITC. On June 22, 2010, the ITC requested additional briefing to discuss the relevance and effect with respect to the issue of patent exhaustion of a decision issued on May 27, 2010, by the United States Court of Appeals for the Federal Circuit in a case captioned Fujifilm Corp. v. Benun. On June 25, 2010, the parties filed briefs as requested by the ITC.

On July 26, 2010, the ITC issued its final determination affirming the administrative law judge’s initial determination with certain modifications to provide further analysis of issues related to obviousness. The ITC found that respondents failed to demonstrate that Rambus’ patent rights are exhausted with respect to accused products that incorporate Samsung memory. The ITC issued (1) a limited exclusion order prohibiting the unlicensed importation by any respondent of memory controller products and products incorporating a memory controller that infringe one or more of the seventeen claims of three asserted Barth patents; and (2) a cease and desist order prohibiting respondents with commercially significant inventories of infringing products in the United States from importing, selling, marketing, advertising, distributing, offering for sale, transferring (except for exportation), and soliciting U.S. agents or distributors for, memory controller products and products incorporating a memory controller that infringe one or more of the seventeen claims of three asserted Barth patents, in violation of 19 U.S.C. § 1337. The ITC determined that the amount of the bond to permit importation during the sixty-day Presidential review period was 2.65 percent of the entered value of the subject imports. The ITC denied respondents’ request for stay and terminated the investigation. The parties have each filed notices of appeal with the Federal Circuit, but no party’s opening brief is yet due.

Potential Future Litigation

In addition to the litigation described above, companies continue to adopt Rambus technologies into various products. Rambus has notified many of these companies of their use of Rambus technology and continues to evaluate how to proceed on these matters.

There can be no assurance that any ongoing or future litigation will be successful. Rambus spends substantial company resources defending its intellectual property in litigation, which may continue for the foreseeable future given the multiple pending litigations. The outcomes of these litigations — as well as any delay in their resolution — could affect Rambus’ ability to license its intellectual property in the future.

The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with accounting for contingencies.

15. Fair Value of Financial Instruments

The fair value measurement statement defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which the Company would transact, and the Company considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance.

The Company’s financial instruments are measured and recorded at fair value, except for cost method investments and convertible notes. The Company’s non-financial assets, such as goodwill, intangible assets, and property and equipment, are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.

Fair Value Hierarchy

The fair value measurement statement requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurement be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

The Company uses unadjusted quotes to determine fair value. The financial assets in Level 1 include money market funds.

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

The Company uses observable pricing inputs including benchmark yields, reported trades, and broker/dealer quotes. The financial assets in Level 2 include U.S. government bonds and notes, corporate notes, commercial paper and municipal bonds and notes.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The financial assets in Level 3 include a cost investment whose value is determined using inputs that are both unobservable and significant to the fair value measurements.

The Company tests the pricing inputs by obtaining prices from two different sources for the same security on a sample of its portfolio. The Company has not adjusted the pricing inputs it has obtained. The following table presents the financial instruments that are carried at fair value and summarizes the valuation of our cash equivalents and marketable securities by the above pricing levels as of September 30, 2010 and December 31, 2009:


	As of September 30, 2010
			Quoted
			Market		Significant
			Prices in		Other		Significant
			Active		Observable		Unobservable
			Markets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
Money market funds	$	159,577	$	159,577	$	—	$	—
U.S. government bonds and notes		270,729		48,548		222,181		—
Corporate notes, bonds and commercial paper		44,515		—		44,515		—

Total available-for-sale securities	$	474,821	$	208,125	$	266,696	$	—


	As of December 31, 2009
			Quoted
			Market		Significant
			Prices in		Other		Significant
			Active		Observable		Unobservable
			Markets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
Money market funds	$	280,908	$	280,908	$	—	$	—
U.S. government bonds and notes		138,829		—		138,829		—
Corporate notes, bonds and commercial paper		32,291		—		32,291		—

Total available-for-sale securities	$	452,028	$	280,908	$	171,120	$	—

The Company made an investment of $2.0 million in a non-marketable equity security of a private company during the third quarter of 2009. The Company monitors the investment for other-than-temporary impairment and record appropriate reductions in carrying value when necessary. The Company evaluated the fair value of the investment in the non-marketable security as of September 30, 2010 and determined that there were no events that caused a decrease in its fair value below the carrying cost.

The following table presents the financial instruments that are measured and carried at cost on a nonrecurring basis as of September 30, 2010 and December 31, 2009:

As of September 30, 2010

Impairment

Quoted

charges for

market

Significant

the nine

prices in

other

Significant

months

active

observable

unobservable

ended

Carrying

markets

inputs

September

(in thousands)

Value

(Level 1)

(Level 2)

(Level 3)

30, 2010

Investment in non-marketable security

2,000

—

2,000

—

As of December 31, 2009

Quoted

Impairment

market

Significant

charges for

prices in

other

Significant

the year

active

observable

unobservable

ended

Carrying

markets

inputs

December

(in thousands)

Value

(Level 1)

(Level 2)

(Level 3)

31, 2009

Investment in non-marketable security

2,000

—

2,000

—

The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure as of September 30, 2010 and December 31, 2009:


	As of September 30, 2010						As of December 31, 2009
	Face		Carrying				Face		Carrying
(in thousands)	Value		Value		Fair Value		Value		Value		Fair Value
5% Convertible Senior Notes due 2014	$	172,500	$	118,824	$	227,559	$	172,500	$	112,012	$	261,160
Zero Coupon Convertible Senior Notes due 2010		—		—		—		136,950		136,032		142,599

Total Convertible notes	$	172,500	$	118,824	$	227,559	$	309,450	$	248,044	$	403,759

The fair value of the convertible notes at each balance sheet date is determined based on recent quoted market prices for these notes. As discussed in Note 16, “Convertible Notes,” as of September 30, 2010, the convertible notes are carried at face value of $172.5 million less any unamortized debt discount. The carrying value of other financial instruments, including cash, accounts receivable, accounts payable and other payables, approximates fair value due to their short maturities.

The Company monitors its investments for other than temporary losses by considering current factors, including the economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment, reductions in carrying values when necessary and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in the market. Any other than temporary loss is reported under “Interest and other income, net” in the consolidated statement of operations. During the nine months ended September 30, 2010, the Company has not incurred any impairment loss on its investments.

16. Convertible Notes

The Company’s convertible notes are shown in the following table.


	As of September 30,			As of December 31,
(in thousands)	2010			2009
5% Convertible Senior Notes due 2014	$	172,500		$	172,500
Zero Coupon Convertible Senior Notes due 2010		—			136,950

Total principal amount of convertible notes		172,500			309,450
Unamortized discount		(53,676	)		(61,406	)

Total convertible notes	$	118,824		$	248,044
Less current portion		—			(136,032	)

Total long-term convertible notes	$	118,824		$	112,012

5% Convertible Senior Notes due 2014. On June 29, 2009, the Company issued $150.0 million aggregate principal amount of 5% convertible senior notes due June 15, 2014. As of the date of issuance, the Company determined that the liability component of the 2014 Notes was approximately $92.4 million and the equity component was approximately $57.6 million. On July 10, 2009, an additional $22.5 million of the 2014 Notes were issued as a result of the underwriters exercising their overallotment option. As of the date of issuance of the $22.5 million 2014 Notes, the Company determined that the liability component was approximately $14.3 million and the equity component was approximately $8.2 million. The unamortized discount related to the 2014 Notes is being amortized to interest expense using the effective interest method over five years through June 2014.

The Company will pay cash interest at an annual rate of 5% of the principal amount at issuance, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2009. In the second quarter of 2010, the Company made a payment of approximately $4.3 million related to the 2014 Notes. Issuance costs were approximately $5.1 million of which $3.2 million is related to the liability portion, which is being amortized to interest expense over five years (the expected term of the debt), and $1.9 million is related to the equity portion. The 2014 Notes are the Company’s general unsecured obligation, ranking equal in right of payment to all of the Company’s existing and future senior indebtedness, including the 2010 Notes, and are senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated to the 2014 Notes.

The 2014 Notes are convertible into shares of the Company’s Common Stock at an initial conversion rate of 51.8 shares of Common Stock per $1,000 principal amount of 2014 Notes. This is equivalent to an initial conversion price of approximately $19.31 per share of common stock. Holders may surrender their 2014 Notes for conversion prior to March 15, 2014 only under the following circumstances: (i) during any calendar quarter beginning after the calendar quarter ending September 30, 2009, and only during such calendar quarter, if the closing sale price of the Common Stock for 20 or more trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the conversion price in effect on the last trading day of the immediately preceding calendar quarter, (ii) during the five business day period after any 10 consecutive trading day period in which the trading price per $1,000 principal amount of 2014 Notes for each trading day of such 10 consecutive trading day period was less than 98% of the product of the closing sale price of the Common Stock for such trading day and the applicable conversion rate, (iii) upon the occurrence of specified distributions to holders of the Common Stock, (iv) upon a fundamental change of the Company as specified in the Indenture governing the 2014 Notes, or (v) if the Company calls any or all of the 2014 Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date. On and after March 15, 2014, holders may convert their 2014 Notes at any time until the close of business on the third business day prior to the maturity date, regardless of the foregoing circumstances.

Upon conversion of the 2014 Notes, the Company will pay (i) cash equal to the lesser of the aggregate principal amount and the conversion value of the 2014 Notes and (ii) shares of the Company’s Common Stock for the remainder, if any, of the Company’s conversion obligation, in each case based on a daily conversion value calculated on a proportionate basis for each trading day in the 20 trading day conversion reference period as further specified in the Indenture.

The Company may not redeem the 2014 Notes at its option prior to June 15, 2012. At any time on or after June 15, 2012, the Company will have the right, at its option, to redeem the 2014 Notes in whole or in part for cash in an amount equal to 100% of the principal amount of the 2014 Notes to be redeemed, together with accrued and unpaid interest, if any, if the closing sale price of the Common Stock for at least 20 of the 30 consecutive trading days immediately prior to any date the Company gives a notice of redemption is greater than 130% of the conversion price on the date of such notice.

Upon the occurrence of a fundamental change, holders may require the Company to repurchase some or all of their 2014 Notes for cash at a price equal to 100% of the principal amount of the 2014 Notes being repurchased, plus accrued and unpaid interest, if any. In addition, upon the occurrence of certain fundamental changes, as that term is defined in the Indenture, the Company will, in certain

circumstances, increase the conversion rate for 2014 Notes converted in connection with such fundamental changes by a specified number of shares of Common Stock, not to exceed 15.5401 per $1,000 principal amount of the 2014 Notes.

The following events are considered “Events of Default” under the Indenture which may result in the acceleration of the maturity of the 2014 Notes:

	(1)		default in the payment when due of any principal of any of the 2014 Notes at maturity, upon redemption or upon exercise of a repurchase right or otherwise;

	(2)		default in the payment of any interest, including additional interest, if any, on any of the 2014 Notes, when the interest becomes due and payable, and continuance of such default for a period of 30 days;

	(3)		the Company’s failure to deliver cash or cash and shares of Common Stock (including any additional shares deliverable as a result of a conversion in connection with a make-whole fundamental change) when required to be delivered upon the conversion of any 2014 Note;

	(4)		default in the Company’s obligation to provide notice of the occurrence of a fundamental change when required by the Indenture;

	(5)		the Company’s failure to comply with any of its other agreements in the 2014 Notes or the Indenture (other than those referred to in clauses (1) through (4) above) for 60 days after the Company’s receipt of written notice to the Company of such default from the trustee or to the Company and the trustee of such default from holders of not less than 25% in aggregate principal amount of the 2014 Notes then outstanding;

	(6)		the Company’s failure to pay when due the principal of, or acceleration of, any indebtedness for money borrowed by the Company or any of its subsidiaries in excess of $30,000,000 principal amount, if such indebtedness is not discharged, or such acceleration is not annulled, by the end of a period of ten days after written notice to the Company by the trustee or to the Company and the trustee by the holders of at least 25% in aggregate principal amount of the 2014 Notes then outstanding; and

	(7)		certain events of bankruptcy, insolvency or reorganization relating to the Company or any of its material subsidiaries (as defined in the Indenture).

If an event of default, other than an event of default in clause (7) above with respect to the Company occurs and is continuing, either the trustee or the holders of at least 25% in aggregate principal amount of the 2014 Notes then outstanding may declare the principal amount of, and accrued and unpaid interest, including additional interest, if any, on the 2014 Notes then outstanding to be immediately due and payable. If an event of default described in clause (7) above occurs with respect to the Company the principal amount of and accrued and unpaid interest, including additional interest, if any, on the 2014 Notes will automatically become immediately due and payable.

Zero Coupon Convertible Senior Notes due 2010. On February 1, 2005, the Company issued $300.0 million aggregate principal amount of zero coupon convertible senior notes due February 1, 2010 (the “2010 Notes”) to Credit Suisse First Boston LLC and Deutsche Bank Securities as initial purchasers who then sold the 2010 Notes to institutional investors.

The 2010 Notes were unsecured senior obligations, ranking equally in right of payment with all of Rambus’ existing and future unsecured senior indebtedness, and senior in right of payment to any future indebtedness that is expressly subordinated to the 2010 Notes.

The 2010 Notes were convertible at any time prior to the close of business on the maturity date into, in respect of each $1,000 principal of the 2010 Notes:

•

cash in an amount equal to the lesser of

(1)

the principal amount of each note to be converted and

(2)

the “conversion value,” which is equal to (a) the applicable conversion rate, multiplied by (b) the applicable stock price, as defined.

•

if the conversion value is greater than the principal amount of each note, a number of shares of Rambus Common Stock (the “net shares”) equal to the sum of the daily share amounts, calculated as defined. However, in lieu of delivering net shares, Rambus, at its option, may deliver cash, or a combination of cash and shares of its Common Stock, with a value equal to the net shares amount.

The initial conversion price was $26.84 per share of Common Stock (which represented an initial conversion rate of 37.2585 shares of Rambus Common Stock per $1,000 principal amount of the 2010 Notes). The initial conversion price was subject to certain adjustments, as specified in the indenture governing the 2010 Notes.

On February 1, 2010, the Company paid upon maturity the remaining $137.0 million in face value of the 2010 Notes.

Additional paid-in capital at September 30, 2010 and December 31, 2009 includes $63.9 million related to the equity component of the 2014 Notes.

As of September 30, 2010, none of the conversion conditions were met related to the 2014 Notes. Therefore, the classification of the entire equity component for the 2014 Notes in permanent equity is appropriate as of September 30, 2010.

Interest expense related to the notes for the three and nine months ended September 30, 2010 and 2009 is as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
	(In thousands)
2014 Notes coupon interest at a rate of 5%	$	2,156	$	2,128	$	6,468	$	2,170
2014 Notes amortization of discount at an additional effective interest rate of 11.7%		2,797		2,737		7,283		2,790
2010 Notes amortization of discount at an effective interest rate of 8.4%		—		2,776		958		8,168

Total interest expense	$	4,953	$	7,641	$	14,709	$	13,128

During the second quarter of 2010, the Company adjusted its interest expense by approximately $1.0 million due to the incorrect amortization of the non-cash debt discount related to the 2014 Notes. The Company concluded that the correction was not material to the previous or present periods.

17. Acquisitions

During the third quarter of 2010, the Company purchased patents in an asset acquisition for approximately $3.3 million as part of the Company’s ongoing acquisition activities to broaden its technology portfolio. The patent acquisition was not significant to the financial statements.

During the second quarter of 2010, as part of the Company’s ongoing acquisition activities to broaden its technology portfolio, the Company acquired two businesses for $2.7 million and purchased patents for $2.3 million. For the acquired businesses, $2.0 million and $0.7 million were related to patents and equipment, respectively. The $0.7 million related to the equipment will be paid on an installment basis. Of the $0.7 million, approximately $0.4 million has been paid and is included in cash flows from financing activities on the consolidated statement of cash flows. The remaining $0.3 million will be paid during the fourth quarter of 2010. The business combinations and patent acquisition were not significant to the financial statements.

During the first quarter of 2010, the Company purchased patents in an asset acquisition for approximately $1.5 million. The Company paid $1.2 million through the third quarter of 2010 which is included in cash flows from financing activities on the consolidated statement of cash flows. The remaining $0.3 million will be paid during the fourth quarter of 2010. The patent acquisition was not significant to the financial statements.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to our expectations for future events and time periods. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including any statements regarding trends in future revenue or results of operations, gross margin or operating margin, expenses, earnings or losses from operations, synergies or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning developments, performance or industry ranking; any statements regarding future economic conditions or performance; any statements regarding pending investigations, claims, disputes or other litigation activities; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Generally, the words “anticipate,” “believes,” “plans,” “expects,” “future,” “intends,” “may,” “should,” “estimates,” “predicts,” “potential,” “continue,” “projects” and similar expressions identify forward-looking statements. Our forward-looking statements are based on current expectations, forecasts and assumptions and are subject to risks, uncertainties and changes in condition, significance, value and effect. As a result of the factors described herein, and in the documents incorporated herein by reference, including, in particular, those factors described under “Risk Factors,” we undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this report with the Securities and Exchange Commission.

Rambus, RDRAM^tm, XDR^tm, FlexIO^tm and FlexPhase^tm are trademarks or registered trademarks of Rambus Inc. Other trademarks that may be mentioned in this annual report on Form 10-K are the property of their respective owners.

Industry terminology, used widely throughout this annual report, has been abbreviated and, as such, these abbreviations are defined below for your convenience:


Double Data Rate		DDR
Dynamic Random Access Memory		DRAM
Fully Buffered-Dual Inline Memory Module		FB-DIMM
Gigabits per second		Gb/s
Graphics Double Data Rate		GDDR
Input/Output		I/O
Light Emitting Diodes		LED
Lighting and Display Technology		LDT
Liquid Crystal Display		LCD
Peripheral Component Interconnect		PCI
Rambus Dynamic Random Access Memory		RDRAM^tm
Single Data Rate		SDR
Synchronous Dynamic Random Access Memory		SDRAM
eXtreme Data Rate		XDR^tm

From time to time we will refer to the abbreviated names of certain entities and, as such, have provided a chart to indicate the full names of those entities for your convenience.


Advanced Micro Devices Inc.		AMD
ARM Holdings plc		ARM
Elpida Memory, Inc.		Elpida
Fujitsu Limited		Fujitsu
General Electric Company		GE
Global Lighting Technologies, Inc.		GLT
Hewlett-Packard Company		Hewlett-Packard
Hynix Semiconductor, Inc.		Hynix
Infineon Technologies AG		Infineon
Inotera Memories, Inc.		Inotera
Intel Corporation		Intel
International Business Machines Corporation		IBM
Joint Electronic Device Engineering Councils		JEDEC
Micron Technologies, Inc.		Micron
Nanya Technology Corporation		Nanya
NEC Electronics Corporation		NEC
NVIDIA Corporation		NVIDIA


Optical Internetworking Forum		OIF
Qimonda AG (formerly Infineon’s DRAM operations)		Qimonda
Panasonic Corporation		Panasonic
Peripheral Component Interconnect — Special Interest Group		PCI-SIG
Samsung Electronics Co., Ltd.		Samsung
Sony Computer Electronics		Sony
Spansion, Inc.		Spansion
Texas Instruments Inc.		Texas Instruments
Toshiba Corporation		Toshiba

Business Overview

We are a premier intellectual property licensing company. Our primary focus is the design, development and licensing chip interface technologies and architectures that are foundational to nearly all digital electronics products. Our chip interface technologies aim to improve the performance, power efficiency, time-to-market and cost-effectiveness of our customers’ semiconductor and system products for computing, gaming and graphics, consumer electronics and mobile applications. The key elements of our strategy are as follows:

Innovate: Develop and patent our innovative technology to provide fundamental competitive advantage when incorporated into semiconductors and electronic systems.

Drive Adoption: Communicate the advantages of our patented innovations and technology to the industry and encourage its adoption through demonstrations and incorporation in the products of select customers.

Monetize: License our patented inventions and technology solutions to customers for use in their semiconductor and system products.

In December 2009, we added lighting technology to our portfolio of solutions through the acquisition of patented innovations and technology from GLT. This technology is complementary to our chip interface technologies since it is intended to improve the visual capabilities, form factor, power efficiency and cost effectiveness of backlighting of LCD displays in products for computing, gaming and graphics, consumer electronics and mobile applications. Our new technology also has significant potential to enable cost-effective and power-efficient LED-based general lighting products.

As of September 30, 2010, our chip interface, lighting and other technologies are covered by approximately 1,120 U.S. and foreign patents. Additionally, we have approximately 850 patent applications pending. These patents and patent applications cover important inventions in memory and logic chip interfaces, optoelectronics and other technologies. Some of the patents and pending patent applications are derived from a common parent patent application or are foreign counterpart patent applications. We have a program to file applications for and obtain patents in the United States and in selected foreign countries where we believe filing for such protection is appropriate. In some instances, obtaining appropriate levels of protection may involve prosecuting continuation and counterpart patent applications based on a common parent application. We believe that our patented innovations provide our customers means to achieve higher performance, improved power efficiency, lower risk, and greater cost-effectiveness in their semiconductor and system products.

Our primary method of providing technology to our customers is through our patented innovations. We license our broad portfolio of patented inventions to semiconductor and system companies who use these inventions in the development and manufacture of their own products. Such licensing agreements may cover the license of part, or all, of our patent portfolio. Patent license agreements are generally royalty bearing.

We also develop a range of solutions including “leadership” (which are Rambus-proprietary solutions widely licensed to our customers) and industry-standard solutions that we provide to our customers under license for incorporation into their semiconductor and system products. Due to the often complex nature of implementing state-of-the art technology, we offer engineering services to our customers to help them successfully integrate our solutions into their semiconductors and systems. These technology license agreements may have both a fixed price (non-recurring) component and ongoing royalties. Engineering services are generally offered on a fixed price basis. Further, under technology licenses, our customers may receive licenses to our patents necessary to implement these solutions in their products with specific rights and restrictions to the applicable patents elaborated in their individual contracts with us.

Royalties represent a substantial majority of our total revenue. We derive the majority of our royalty revenue by licensing our broad portfolio of patents for chip interfaces to our customers. Such licenses may cover part or all of our patent portfolio. Leading semiconductor and system companies such as AMD, Fujitsu, Intel, Panasonic and Samsung have licensed our patents for use in their own products.

We also derive additional revenue by licensing a range of technology solutions including our leadership architectures and industry-standard solutions to customers for use in their semiconductor and system products. Our customers include leading companies such as Elpida, IBM, Panasonic, Samsung, Sony and Toshiba. Due to the complex nature of implementing our technologies, we provide engineering services under certain of these licenses to help our customers successfully integrate our technology solutions into their

semiconductors and system products. Licensees also may receive, in addition to their technology license agreements, patent licenses as necessary to implement the technology in their products with specific rights and restrictions to the applicable patents elaborated in their individual contracts.

The remainder of our revenue is contract services revenue which includes license fees and engineering services fees. The timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenue or account receivables in any given period.

We intend to continue making significant expenditures associated with engineering, marketing, general and administration including litigation expenses, and expect that these costs and expenses will continue to be a significant percentage of revenue in future periods. Whether such expenses increase or decrease as a percentage of revenue will be substantially dependent upon the rate at which our revenue or expenses change.

Executive Summary

During the first quarter of 2010, we signed a significant settlement agreement with Samsung bringing the Company into a profit position for the nine month period ended September 30, 2010. See Note 3, “Settlement Agreement with Samsung,” of Notes to Unaudited Consolidated Financial Statements of this Form 10-Q for further discussion. We continue to pursue other revenue opportunities in order to grow our revenue. In December 2009, we added lighting technology through the acquisition of patented innovations and technology from GLT as part of our strategy to expand our patent portfolio and diversify our business. In June 2010, we signed a broad licensing agreement for the use of our patented lighting innovations with GE Lighting, a unit of GE’s Appliances & Lighting business. We also purchased patents and two small businesses as part of our ongoing acquisition activities to broaden our technology portfolio during the nine month period ended September 30, 2010.

Research and development continues to play a key role in our efforts to maintain product innovations. Our engineering expenses for the three and nine months ended September 30, 2010 increased $5.8 million and $16.9 million, respectively, as compared to the same periods in 2009 primarily due to increased headcount from our LDT group and the funding for our 2010 Corporate Incentive Plan (the “2010 CIP”) which includes the bonus related to the Samsung settlement. As a percentage of revenue, engineering expenses increased and decreased for the three and nine months ended September 30, 2010, respectively, as compared to the same periods in 2009. The increase for the three month period was due primarily to the reasons discussed above. The decrease for the nine month period was due to higher revenue primarily attributed to the settlement with Samsung. Marketing, general and administrative expenses in aggregate decreased $2.0 million and $10.7 million, respectively, for the three and nine months ended September 30, 2010 as compared to the same periods in 2009 primarily due to lower litigation expenses. Our higher revenue combined with the decrease in marketing, general and administrative expenses, has caused marketing, general and administrative expenses to decrease as a percentage of revenue. Additionally, for the three and nine months ended September 30, 2010, we incurred costs of restatement and related legal activities of $1.2 million and $3.4 million, respectively, primarily due to litigation expense associated with a private shareholder lawsuit related to the 2006-2007 stock option investigation.

Trends

There are a number of trends that we expect may or will have a material impact on us in the future, including global economic conditions with the resulting impact on sales, continuing pursuit of litigation against companies that we believe have infringed our patented technologies and shifts in our overall effective tax rate.

We have a high degree of revenue concentration, with our top five licensees representing approximately 87% and 90% of our revenue for the three and nine months ended September 30, 2010, respectively. This compares with the three and nine months ended September 30, 2009, in which revenue from our top five licensees accounted for approximately 79% and 77% of our revenue, respectively. As a result of our settlement with Samsung, Samsung is expected to account for a significant portion of our ongoing licensing revenue for the remainder of 2010. For the three months ended September 30, 2010, revenue from AMD, Fujitsu, Panasonic and Samsung each accounted for 10% or more of our total revenue. For the nine months ended September 30, 2010, revenue from Samsung accounted for 10% or more of our total revenue. For the three months ended September 30, 2009, revenue from AMD, Fujitsu, NEC, Panasonic and Toshiba each accounted for 10% or more of our total revenue. For the nine months ended September 30, 2009, revenue from AMD, Fujitsu, NEC, Panasonic, Sony and Toshiba each accounted for 10% or more of our total revenue.

Many of our licensees have the right to cancel their licenses. The particular licensees which account for revenue concentration have varied from period to period as a result of the addition of new contracts, expiration of existing contracts, renewals of existing

contracts, industry consolidation and the volumes and prices at which the licensees have recently sold licensed semiconductors to system companies. These variations are expected to continue in the foreseeable future, although we expect that our revenue concentration will decrease over time as we license new customers.

The semiconductor industry is intensely competitive and highly cyclical. Our visibility with respect to future sales is very limited at this time. To the extent that macroeconomic fluctuations negatively affect our principal licensees, the demand for our technology may be significantly and adversely impacted and we may experience substantial period-to-period fluctuations in our operating results. The recent downturn in worldwide economic conditions also threatens the financial health of our commercial counterparties, including companies with whom we have entered into licensing arrangements, settlement agreements or that have been subject to litigation judgments that provide for payments to us, and their ability to fulfill their financial and other obligations to us. Some of our existing patent licensees have fixed royalty payments which are not impacted by the recent economic downturn. Royalty payments from the remaining licensees are related to variable royalty agreements which have been impacted by the recent economic conditions. Current market indicators are mixed, but there are some recent signs of some stabilization. However, there continue to be indications that global demand will not quickly recover and may continue to contract for most, if not all, of 2010. Such lower demand levels may adversely impact our revenue and profitability. See Item 1A, “Risk Factors.”

The royalties we receive are partly a function of the adoption of our chip interfaces by system companies. Many system companies purchase semiconductors containing our chip interfaces from our licensees and do not have a direct contractual relationship with us. Our licensees generally do not provide us with details as to the identity or volume of licensed semiconductors purchased by particular system companies. As a result, we face difficulty in analyzing the extent to which our future revenue will be dependent upon particular system companies. System companies face intense competitive pressure in their markets, which are characterized by extreme volatility, frequent new product introductions and rapidly shifting consumer preferences. There can be no assurance as to the unit volumes of licensed semiconductors that will be purchased by these companies in the future or as to the level of royalty-bearing revenue that our licensees will receive from sales to these companies. Additionally, there can be no assurance that a significant number of other system companies will adopt our chip interfaces or that our dependence upon particular system companies will decrease in the future. See Item 1A, “Risk Factors.”

Our revenue from companies headquartered outside of the United States accounted for approximately 85% and 93% of our total revenue for the three and nine months ended September 30, 2010, respectively, as compared to 83% and 82% for the three and nine months ended September 30, 2009, respectively. We expect that revenue derived from international licensees will continue to represent a significant portion of our total revenue in the future. To date, all of the revenue from international licensees have been denominated in U.S. dollars. However, to the extent that such licensees’ sales to their customers are not denominated in U.S. dollars, any royalties that we receive as a result of such sales could be subject to fluctuations in currency exchange rates. In addition, if the effective price of licensed semiconductors sold by our foreign licensees were to increase as a result of fluctuations in the exchange rate of the relevant currencies, demand for licensed semiconductors could fall, which in turn would reduce our royalties. We do not use financial instruments to hedge foreign exchange rate risk.

For additional information concerning international revenue, see Note 12, “Business Segments, Exports and Major Customers,” of Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Engineering costs as a percentage of revenue increased and decreased for the three and nine months ended September 30, 2010, respectively, as compared to the same periods in the prior year as discussed above. In the near term, we expect engineering costs to be higher than in 2009 due primarily to the engineering activities in our LDT group and the funding for our 2010 CIP which includes the bonus related to the Samsung settlement. In addition, we intend to continue to make investments in the infrastructure and technologies required to maintain our product innovations and leadership position in chip interface technologies and, as a result, expenses are expected to increase.

Marketing, general and administrative expenses in the aggregate and as a percentage of revenue decreased for the three and nine months ended September 30, 2010, respectively, as compared to the same periods in the prior year as discussed above. Historically, we have been involved in significant litigation stemming from the unlicensed use of our inventions. Our litigation expenses have been high and difficult to predict and we anticipate future litigation expenses will continue to be significant, volatile and difficult to predict. If we are successful in the litigation and/or related licensing, our revenue could be substantially higher in the future; if we are unsuccessful, our revenue may not grow or may decrease. Furthermore, our success in litigation matters pending before courts and regulatory bodies that relate to our intellectual property rights have impacted and will likely continue to impact our ability and the terms upon which we are able to negotiate new or renegotiate existing licenses for our technology. We will continue to pursue

litigation against those companies that have infringed our patented technologies, which in turn will continue to increase marketing, general and administrative expenses as litigation expenses will continue to increase until such litigation is resolved.

As we continue to pursue litigation and invest in research and development projects and if we experience lower revenue from our licensees in the future, our cash from operations will be negatively affected.

Results of Operations

The following table sets forth, for the periods indicated, the percentage of total revenue represented by certain items reflected in our unaudited consolidated statements of operations:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Revenue:
Royalties		98.2	%		96.5	%		98.9	%		94.7	%
Contract revenue		1.8	%		3.5	%		1.1	%		5.3	%

Total revenue		100.0	%		100.0	%		100.0	%		100.0	%

Operating costs and expenses:
Cost of revenue*		4.3	%		6.7	%		2.2	%		6.7	%
Research and development*		72.5	%		60.0	%		29.1	%		61.2	%
Marketing, general and administrative*		88.0	%		107.2	%		38.2	%		121.1	%
Costs (recoveries) of restatement and related legal activities, net		3.9	%		0.2	%		1.5	%		(17.0	)%
Gain from settlement		(32.5	)%		—	%		(50.1	)%		—	%

Total operating costs and expenses		136.2	%		174.1	%		20.9	%		172.0	%

Operating income (loss)		(36.2	)%		(74.1	)%		79.1	%		(72.0	)%

Interest income and other income, net		1.0	%		3.2	%		0.5	%		4.3	%
Interest expense		(15.6	)%		(27.4	)%		(6.3	)%		(16.0	)%

Interest and other expense, net		(14.6	)%		(24.2	)%		(5.8	)%		(11.7	)%

Income (loss) before income taxes		(50.8	)%		(98.3	)%		73.3	%		(83.7	)%
Provision for income taxes		14.0	%		0.3	%		22.6	%		0.1	%

Net income (loss)		(64.8	)%		(98.6	)%		50.7	%		(83.8	)%


* Includes stock-based compensation:

Cost of revenue		0.1	%		1.0	%		0.1	%		1.1	%
Research and development		7.8	%		8.4	%		3.3	%		8.9	%
Marketing, general and administrative		15.7	%		18.4	%		6.6	%		19.3	%


	Three Months							Nine Months
	Ended September 30,				Change in			Ended September 30,				Change in
(Dollars in millions)	2010		2009		Percentage			2010		2009		Percentage
Total Revenue
Royalties	$	31.2	$	26.9		15.9	%	$	229.9	$	77.8		195.4	%
Contract revenue		0.5		1.0		(42.2	)%		2.6		4.4		(41.4	)%

Total revenue	$	31.7	$	27.9		13.9	%	$	232.5	$	82.2		182.8	%

Royalty Revenue

Patent Licenses

Our patent royalties increased approximately $3.1 million to $23.2 million for the three months ended September 30, 2010 from $20.1 million for the same period in 2009. Our patent royalties increased approximately $149.8 million to $208.2 million for the nine months ended September 30, 2010 from $58.4 million for the same period in 2009. The increase in both periods was primarily due to the patent license revenue related to the settlement with Samsung in the first quarter of 2010. See Note 3, “Settlement Agreement with Samsung,” of Notes to Unaudited Consolidated Financial Statements of this Form 10-Q for further details.

In March 2010, AMD elected to exercise its right to renew the Rambus-AMD Patent License Agreement through the third quarter of 2015. The license fee during the renewal period will be determined at the end of 2010. The original term of AMD’s agreement runs through the end of September 2010.

We are in negotiations with some existing licensees regarding renewals, as some of the existing patent license agreements have recently expired. In the event that negotiations for patent license renewal with some of these licensees are not signed before the end of 2010, our revenue from patent royalties may be lower than anticipated. We expect patent royalties will continue to vary from period to period based on our success in adding new licensees, as well as the level of variation in our licensees’ reported shipment volumes, sales price and mix, offset in part by the proportion of licensee payments that are fixed.

Technology Licenses

Royalties from technology licenses increased approximately $1.2 million to $8.0 million for the three months ended September 30, 2010 from $6.8 million for the same period in 2009. The increase was primarily due to higher royalties reported from increased shipments related to DDR2 technologies in the third quarter of 2010.

Royalties from technology licenses increased approximately $2.3 million to $21.7 million for the nine months ended September 30, 2010 from $19.4 million for the same period in 2009. The increase was primarily due to higher royalties reported from increased shipments related to DDR2 technologies and higher royalties from XDR^tm DRAM associated with increased shipments of the Sony PlayStation^®3 product, partially offset by lower royalties from RDRAM^TM controllers in the first half of 2010 due to a one-time catch-up royalty payment for the Sony PlayStation^®2 product in the second quarter of 2009.

In the future, we expect technology royalties will continue to vary from period to period based on our licensees’ shipment volumes, sales prices, and product mix.

Contract Revenue

Contract revenue decreased approximately $0.5 million to $0.5 million for the three months ended September 30, 2010 from $1.0 million for the same period in 2009. The decrease was primarily due to the substantial completion of technology development contracts in previous periods.

Contract revenue decreased approximately $1.8 million to $2.6 million for the nine months ended September 30, 2010 from $4.4 million for the same period in 2009. The decrease was primarily due to the completion of a $1.1 million industry standard chip interface contract in the second quarter of 2009.

We believe that contract revenue recognized will continue to fluctuate over time based on our ongoing contractual requirements, the amount of work performed, the timing of completing engineering deliverables, and by changes to work required, as well as new technology development contracts booked in the future.

Engineering costs:


	Three Months Ended							Nine Months Ended
	September 30,				Change in			September 30,				Change in
(Dollars in millions)	2010		2009		Percentage			2010		2009		Percentage
Engineering costs
Cost of revenue	$	1.4	$	1.6		(14.2	)%	$	4.9	$	4.6		6.7	%
Stock-based compensation		0.0		0.3		(94.0	)%		0.1		0.9		(83.9	)%

Total cost of revenue		1.4		1.9		(26.4	)%		5.0		5.5		(8.3	)%

Research and development		20.5		14.4		42.6	%		60.0		43.0		39.4	%
Stock-based compensation		2.5		2.3		5.9	%		7.7		7.3		6.2	%

Total research and development		23.0		16.7		37.5	%		67.7		50.3		34.6	%

Total engineering costs	$	24.4	$	18.6		31.1	%	$	72.7	$	55.8		30.4	%

Total engineering costs increased 31.1% and 30.4% for the three and nine months ended September 30, 2010, respectively, as compared to the same periods in 2009 primarily due to the increase in headcount from our LDT group and the funding for our 2010 CIP, which includes the employee bonus related to the Samsung settlement, increase in patent research related costs and additional amortization expense related to intangible assets acquired from GLT.

In the near term, we expect engineering costs to be higher than in 2009 due primarily to the engineering activities in our various engineering groups and the funding for our 2010 CIP which includes the employee bonus related to the Samsung settlement as well as amortization expense related to the intangible assets acquired throughout the year. In addition, we intend to continue to make investments in the infrastructure and technologies required to maintain our product innovation and leadership position in chip interface technologies and, as a result, costs are expected to increase.

Marketing, general and administrative costs:


	Three Months Ended							Nine Months Ended
	September 30,				Change in			September 30,				Change in
(Dollars in millions)	2010		2009		Percentage			2010		2009		Percentage
Marketing, general and administrative costs
Marketing, general and administrative costs	$	18.3	$	12.8		43.5	%	$	56.7	$	38.8		46.0	%
Litigation expense		4.6		12.0		(61.3	)%		16.9		45.0		(62.5	)%
Stock-based compensation		5.0		5.1		(3.1	)%		15.3		15.8		(3.1	)%

Total marketing, general and administrative costs	$	27.9	$	29.9		(6.5	)%	$	88.9	$	99.6		(10.8	)%

Total marketing, general and administrative costs decreased 6.5% and 10.8% for the three and nine months ended September 30, 2010 as compared to the same periods in 2009 due primarily to decreased litigation expenses related to ongoing major cases. Non-litigation related marketing, general and administrative costs increased for the three and nine months ended September 30, 2010 primarily due to increased headcount in corporate development commencing in 2009 as a result of our strategic initiatives to identify and acquire additional technology opportunities, funding for our 2010 CIP, which includes the employee bonus related to the Samsung settlement, increased marketing expenses related to trade shows, increased consulting fees and increased general legal expenses.

In the future, marketing, general and administrative costs will vary from period to period based on the trade shows, advertising, legal, acquisition and other marketing and administrative activities undertaken, and the change in sales, marketing and administrative headcount in any given period. Litigation expenses are expected to vary from period to period due to the variability of litigation activities.

Gain from settlement:

Three Months Ended

Nine Months Ended

September 30,

Change in

September 30,

Change in

(Dollars in millions)

2010

2009

Percentage

2010

2009

Percentage

Gain from settlement

10.3

—

NM*

116.5

—

NM*


*		NM — percentage is not meaningful as the change is too large

The settlement with Samsung is a multiple element arrangement for accounting purposes. For a multiple element arrangement, we are required to determine the fair value of the elements. We considered several factors in determining the accounting fair value of the elements of the settlement with Samsung which included a third party valuation using an income approach, the Black-Scholes option pricing model and a residual approach (collectively the “Fair Value”). Gain from settlement of $10.3 million and $116.5 million in the three and nine months ended September 30, 2010, respectively, represents the Fair Value of the cash consideration allocated to the resolution of the antitrust litigation settlement and the residual value of other elements.

Costs (recoveries) of restatement and related legal activities, net:

Three Months Ended

Nine Months Ended

September 30,

Change in

September 30,

Change in

(Dollars in millions)

2010

2009

Percentage

2010

2009

Percentage

Costs (recoveries) of restatement and related legal activities, net

1.2

0.1

NM*

3.4

(14.0

)

NM*


*		NM — percentage is not meaningful as the change is too large

Costs (recoveries) of restatement and related legal activities, net, consist primarily of investigation, audit, legal and other professional fees related to the 2006-2007 stock option investigation and the filing of the restated financial statements and related litigation.

Costs of restatement and related legal activities, net, were $1.2 million for the three months ended September 30, 2010 primarily due to litigation expense associated with a private shareholder lawsuit related to the 2006-2007 stock option investigation. As compared to the same period in 2009, the increase in costs in 2010 was primarily due to increased litigation activities related to the private shareholder lawsuit related to the 2006-2007 stock option investigation as well as the absence of reimbursements of $0.4 million from an insurance carrier in connection with the derivative and class action lawsuits. We recorded the $0.4 million as a recovery of costs of restatement and related legal activities for the three months ended September 30, 2009.

Costs of restatement and related legal activities, net, were $3.4 million for the nine months ended September 30, 2010 primarily due to litigation expense associated with a private shareholder lawsuit related to the 2006-2007 stock option investigation. As compared to the same period in 2009, the increase in costs in 2010 was primarily due to the absence of reimbursements of $12.3 million from the insurance carriers in 2009, and the receipt of $4.5 million from former executives as part of their settlement agreements with us in connection with the derivative and class action lawsuits. The $16.8 million was recorded as a recovery of costs of restatement and related legal activities for the nine months ended September 30, 2009. Until all the litigation and related issues are resolved, we anticipate that there could be additional amounts relating to these matters in the future.

Interest and other expense, net:


	Three Months									Nine Months
	Ended September 30,						Change in			Ended September 30,						Change in
(Dollars in millions)	2010			2009			Percentage			2010			2009			Percentage
Interest income and other income, net	$	0.3		$	0.9			(65.0	)%	$	1.0		$	3.5			(69.9	)%
Interest expense		(4.9	)		(7.6	)		(35.2	)%		(14.7	)		(13.1	)		12.0	%

Interest and other expense, net	$	(4.6	)	$	(6.7	)		(31.2	)%	$	(13.7	)	$	(9.6	)		41.9	%

Interest income and other income, net consists primarily of interest income generated from investments in high quality fixed income securities. The decrease in interest and other income, net, for the three and nine months ended September 30, 2010 as compared to the same periods in 2009 was primarily due to lower yields on invested balances.

Interest expense primarily consists of non-cash interest expense related to the amortization of the debt discount on the 2010 Notes, which were repaid during the first quarter of 2010, and the 2014 Notes as well as the coupon interest related to the 2014 Notes.

During the second quarter of 2010, we adjusted our interest expense by approximately $1.0 million due to the incorrect amortization of the non-cash debt discount related to the 2014 Notes. We concluded that the correction was not material to the previous or present periods.

We expect interest expense to be higher in 2010 as the 2014 Notes were outstanding for only six months in 2009 and increase steadily as the 2014 Notes reach maturity. See Note 16, “Convertible Notes,” of Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Provision for income taxes:


	Three Months Ended							Nine Months Ended
	September 30,						Change in	September 30,						Change in
(Dollars in millions)	2010			2009			Percentage	2010			2009			Percentage
Provision for income taxes	$	4.4		$	0.1		NM	$	52.5		$	0.1		NM

Effective tax rate		(27.5	)%		(0.3	)%			30.8	%		(0.1	)%


*		NM — percentage is not meaningful as the change is too large

Our effective tax rate for the three months ended September 30, 2010 is lower than the U.S. statutory tax rate applied to our pretax loss due primarily to foreign withholding taxes and the full valuation allowance on our U.S. net deferred tax assets. Our effective tax rate for the nine months ended September 30, 2010 is lower than the U.S. statutory tax rate applied to our pretax income due primarily to foreign withholding taxes and the full valuation allowance on our U.S. net deferred tax assets.

During the three and nine months ended September 30, 2010, we paid withholding taxes of $4.1 million and $50.9 million, respectively, to the Korean tax authorities related to the payments received under the settlement with Samsung. We recorded a provision for income taxes of $4.4 million and $52.5 million, respectively, for the three and nine months ended September 30, 2010, which is primarily comprised of the Korean taxes and state alternative minimum taxes. As we continue to maintain a valuation allowance against our U.S. deferred tax assets, our tax provision is based primarily on the Korean withholding taxes and state alternative minimum taxes.

As of September 30, 2010, we estimate net deferred tax assets, before valuation allowance, of approximately $90.8 million, which consists of net operating loss carryovers, tax credit carryovers, depreciation and amortization, employee stock-based compensation expenses and certain liabilities, partially reduced by deferred tax liabilities associated with the convertible debt instruments that may be settled in cash upon conversion, including partial cash settlements. As of September 30, 2010, a full valuation allowance has been recorded against the U.S. deferred tax assets. During the nine months ended September 30, 2010, we reduced our deferred tax assets from $153.1 million to $90.8 million, and a corresponding reduction of our valuation allowance. This partial release of the valuation allowance is primarily related to the utilization of net operating loss carryforwards offsetting the U.S. tax provision for the nine months ended September 30, 2010. Our management periodically evaluates the realizability of our net deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is solely dependent on our ability to generate sufficient future taxable income during periods prior to the expiration of tax statutes to fully utilize these assets. We intend to maintain the remaining valuation allowance until sufficient positive evidence exists to support reversal of the valuation allowance.

Our effective tax rate for the three and nine months ended September 30, 2009 is lower than the U.S. statutory tax rate applied to our net loss due to a full valuation allowance on our U.S. net deferred tax assets, foreign income taxes and state income taxes, partially offset by refundable research and development tax credits.

Liquidity and Capital Resources


	As of
	September 30,			December 31,
	2010			2009
	(In millions)
Cash and cash equivalents	$	218.2		$	289.1
Marketable securities		266.7			171.1

Total cash, cash equivalents, and marketable securities	$	484.9		$	460.2


	Nine Months Ended
	September 30,
	2010			2009
	(In millions)
Net cash provided by (used in) operating activities	$	179.4		$	(25.6	)
Net cash provided by (used in) investing activities	$	(119.5	)	$	92.2
Net cash provided by (used in) financing activities	$	(130.7	)	$	184.5

Liquidity

Our management continues to believe that total cash, cash equivalents and marketable securities will continue at adequate levels to finance our operations, projected capital expenditures and commitments for the next twelve months. Cash needs for the first three quarters of 2010 were funded primarily from operating activities due to the settlement with Samsung as well as financing activities due to proceeds from issuance of common stock pursuant to the Stock Purchase Agreement with Samsung and from the issuance of common stock under our equity incentive plans.

Operating Activities

Cash provided by operating activities of $179.4 million for the nine months ended September 30, 2010 was primarily attributable to the net income, which included revenue and gain related to the settlement with Samsung, adjusted for non-cash items, including stock-based compensation expense, non-cash interest expense and depreciation/amortization expense. Changes in operating assets and liabilities for the nine months ended September 30, 2010 primarily included increases in accrued salaries due to the 2010 CIP, which includes the bonus related to the Samsung settlement, offset by decreases in accrued litigation.

Cash used in operating activities for the nine months ended September 30, 2009 of $25.6 million was primarily attributable to the net loss adjusted for certain non-cash items and changes in operating assets and liabilities which included decreases in accrued litigation expenses due to recognition of proceeds of $5.0 million from an insurance company related to the derivative and class action lawsuits offset by increases in accounts payable due to the timing of vendor payments.

Investing Activities

Cash used in investing activities of approximately $119.5 million for the nine months ended September 30, 2010 primarily consisted of purchases of available-for-sale marketable securities of $319.1 million, partially offset by proceeds from the maturities of available-for-sale marketable securities of $218.5 million and proceeds from sale of a marketable security of $1.7 million. During the first three quarters of 2010, we purchased patents and businesses for an aggregate amount of $7.5 million. In addition, we paid $13.1 million for the build-out of the facilities at Sunnyvale and Ohio, and to acquire computer and machinery equipment.

Cash provided by investing activities of approximately $92.2 million for the nine months ended September 30, 2009 primarily consisted of proceeds from the maturities of available-for-sale marketable securities of $221.4 million, partially offset by purchases of available-for-sale marketable securities of $123.4 million. In addition, we paid $2.3 million to acquire property and equipment, primarily computer software, and $1.6 million for intangible assets. We also made a $2.0 million investment in a non-marketable security.

Financing Activities

Cash used in financing activities was $130.7 million for the nine months ended September 30, 2010 due primarily to the payment upon maturity of $137.0 million in face value of the 2010 Notes and stock repurchased with an aggregate price of $105.1 million under our share repurchase program, and also payment of $90.0 million related to the share repurchase agreement (the “Share Repurchase Agreement”) with J.P. Morgan Securities Inc., as agent for JPMorgan Chase Bank, National Association, London Branch (“JP Morgan”) discussed below, offset by proceeds received of $192.0 million from the issuance of common stock pursuant to the Stock Purchase Agreement with Samsung and $10.9 million from issuance of common stock under equity incentive plans. We also made payments totaling $1.6 million under installment payment plans to acquire intangible assets and equipment.

Cash provided by financing activities was $184.5 million for the nine months ended September 30, 2009. We received proceeds of $168.2 million from the issuance of the 2014 Notes. Additionally, we received approximately $16.3 million from the issuance of common stock under equity incentive plans.

We currently anticipate that existing cash, cash equivalents and marketable securities balances and cash flows from operations will be adequate to meet our cash needs for at least the next 12 months. We do not anticipate any liquidity constraints as a result of either the current credit environment or investment fair value fluctuations. Additionally, we have the intent and ability to hold our debt investments that have unrealized losses in accumulated other comprehensive loss for a sufficient period of time to allow for recovery of the principal amounts invested. We continually monitor the credit risk in our portfolio and mitigate our credit risk exposures in accordance with our policies. As described elsewhere in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and this Quarterly Report on Form 10-Q, we are involved in ongoing litigation related to our intellectual

property and our past stock option investigation. Any adverse settlements or judgments in any of this litigation could have a material adverse impact on our results of operations, cash balances and cash flows in the period in which such events occur.

Contractual Obligations

On December 15, 2009, we entered into a definitive triple net space lease agreement with MT SPE, LLC (the “Landlord”) whereby we lease approximately 125,000 square feet of office space located at 1050 Enterprise Way in Sunnyvale, California (the “Sunnyvale Lease”). The office space will be used for our corporate headquarters, as well as engineering, marketing and administrative operations and activities. We plan to move to the new premises in the fourth quarter of 2010 following completion of leasehold improvements. The Sunnyvale Lease has a term of 120 months from the commencement date. The initial annual base rent is $3.7 million, subject to a full abatement of rent for the first six months of the Sunnyvale Lease term. The annual base rent increases each year to certain fixed amounts over the course of the term as set forth in the Sunnyvale Lease and will be $4.8 million in the tenth year. In addition to the base rent, we will also pay operating expenses, insurance expenses, real estate taxes and a management fee. We have two options to extend the Sunnyvale Lease for a period of 60 months each and a one-time option to terminate the Sunnyvale Lease after 84 months in exchange for an early termination fee.

During the first quarter of 2010, we began a build-out of this facility and expect to incur approximately $13.5 million in construction costs of which approximately $8.1 million has been incurred as of September 30, 2010. Under the terms of the Sunnyvale Lease, the landlord has agreed to reimburse us approximately $9.1 million of this amount. Because certain improvements to be constructed by us are considered structural in nature and we are responsible for any cost overruns, for accounting purposes, we are treated in substance as the owner of the construction project. Therefore, we have capitalized $25.1 million in property and equipment based on the estimated fair value of the portion of the building that we will occupy with a corresponding non-cash obligation for construction in progress. The fair value was determined as of December 31, 2009 using level 3 fair value inputs (defined as prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity)) and the cost approach which measures the value of an asset as the cost to reconstruct or replace it with another asset of like utility.

Upon completion of construction, we will apply the methodology related to sale-leaseback accounting. At that time, we will determine whether the lease will be treated as a capital or operating lease.

On March 8, 2010, we entered into a lease agreement with Fogg-Brecksville Development Co. (the “Ohio Landlord”) for 24,814 square feet of space consisting of 7,158 square feet of office area and 17,656 square feet of warehouse area, located in Brecksville, Ohio (the “Ohio Lease”). We moved to the new premises in the third quarter of 2010 following completion of leasehold improvements. The warehouse area will be converted into office space and manufacturing space. The office space will be used for the LDT group’s engineering activities while the manufacturing space will be used for the manufacturer of prototypes for the LDT group. The Ohio Lease has a term of 60 months from the commencement date which is the earlier of (i) the date upon which we first take occupancy of the premises once the construction work is completed or (ii) the first day of the month following completion and notification by the lessor to us of completion of construction of the building. The initial annual base rent is approximately $136,000. In addition to the base rent, we will also pay operating expenses, insurance expenses, real estate taxes and a management fee. We have an option to extend the Lease for an additional period of 60 months.

During the first quarter of 2010, we began a build-out of this facility and expect to incur approximately $1.7 million in construction costs of which substantially all the costs have been incurred as of September 30, 2010. Because certain improvements constructed by us are considered structural in nature and we are responsible for any cost overruns, for accounting purposes, we are treated in substance as the owner of the construction project. Therefore, we have capitalized $0.8 million in property and equipment based on the estimated fair value of the portion of the building that it will occupy with a corresponding non-cash obligation for construction in progress. The fair value was determined as of March 31, 2010 using level 3 fair value inputs and the cost approach which measures the value of an asset as the cost to reconstruct or replace it with another asset of like utility. Upon completion of construction in the fourth quarter of 2010, we will account for the arrangement as a financing arrangement as sale-leaseback accounting cannot be applied. The building will be reflected as an asset on our balance sheets throughout the term of the lease. The lease payments will be recorded as interest expense using the effective interest method over the term of the lease and the building will be depreciated on a straight-line basis over a period of 15 years. At the end of the lease term in 2015, we have an option to renew the lease for an additional 60 months. As a result of the significant amount of construction costs and leasehold improvements, we currently would expect to renew the lease for an additional 60 months so the lease term for accounting purposes will be 10 years. At the end of the lease term, Should we decide not to renew the lease, we would reverse the net book value of the building and the corresponding financing liability and record the difference, if any, as a gain.

On June 29, 2009, we entered into an Indenture with U.S. Bank, National Association, as trustee, relating to the issuance by us of $150.0 million aggregate principal amount of the 2014 Notes. On July 10, 2009, an additional $22.5 million in aggregate principal amount of 2014 Notes were issued as a result of the underwriters exercising their overallotment option. The aggregate principal amount of the 2014 Notes outstanding as of September 30, 2010 was $172.5 million, offset by unamortized debt discount of $53.7 million in the accompanying consolidated balance sheets. The debt discount is currently being amortized over the remaining 45 months until maturity of the 2014 Notes on June 15, 2014. See Note 16, “Convertible Notes,” of Notes to Unaudited Consolidated Financial Statements of this Form 10-Q for additional details.

As of September 30, 2010, our material contractual obligations are:


			Remainder
(in thousands)	Total		of 2010		2011		2012		2013		2014		Thereafter
Contractual obligations(1)
Leases (2)	$	46,602	$	2,156	$	5,104	$	5,140	$	4,469	$	4,580	$	25,153
Convertible notes		172,500		—		—		—		—		172,500		—
Interest payments related to convertible notes		34,120		4,313		8,625		8,625		8,625		3,932		—

Total	$	253,222	$	6,469	$	13,729	$	13,765	$	13,094	$	181,012	$	25,153


(1)		The above table does not reflect possible payments in connection with uncertain tax benefits of approximately $10.9 million, including $9.0 million recorded as a reduction of long-term deferred tax assets and $1.9 million in long-term income taxes payable, as of September 30, 2010. Although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, we cannot reasonably estimate the outcome at this time.

(2)		Includes both the Sunnyvale Lease and Ohio Lease.

Contingently Redeemable Common Stock

On January 19, 2010, pursuant to the terms of a Stock Purchase Agreement (the “Stock Purchase Agreement”), Samsung purchased for cash from us 9.6 million shares of our common stock (the “Shares”) with certain restrictions and put rights. The issuance of the Shares by us to Samsung was made through a private transaction. The Stock Purchase Agreement provides Samsung a one-time put right, beginning 18 months after the date of the Stock Purchase Agreement and extending to 19 months after the date of the Stock Purchase Agreement, to elect to put back to us up to 4.8 million of the Shares at the original issue price of $20.885 per share (for an aggregate purchase price of up to $100.0 million). The 4.8 million shares have been recorded, at estimated Fair Value, as contingently redeemable common stock on the consolidated balance sheet as of September 30, 2010.

The Stock Purchase Agreement prohibits the transfer of the Shares by Samsung for 18 months after the date of the Stock Purchase Agreement, subject to certain exceptions. After expiration of the transfer restriction period, the Stock Purchase Agreement provides that Samsung may transfer a limited number of shares on a daily basis, provides us with a right of first offer for proposed transfers above such daily limits, and, if no sale occurs to us under the right of first offer, allows Samsung to transfer the Shares. Under the Stock Purchase Agreement, we have also agreed that after the transfer restriction period, Samsung will have certain rights to register the Shares for sale under the securities laws of the United States, subject to customary terms and conditions.

The 9.6 million shares were accounted for as part of a multiple element arrangement where their respective Fair Value was determined to be $192.0 million. The $192.0 million was further allocated as follows:

	•		$113.5 million related to 4.8 million shares treated as contingently redeemable common stock due to the contractual put rights associated with those shares

	•		$78.5 million related to the remaining 4.8 million shares treated as stockholders’ equity

See Note 3, “Settlement Agreement with Samsung,” of Notes to Unaudited Consolidated Financial Statements of this Form 10-Q for further discussion.

Share Repurchase Program

In October 2001, our Board of Directors (the “Board”) approved a share repurchase program of our Common Stock, principally to reduce the dilutive effect of employee stock options. Under this program, the Board approved the authorization to repurchase up to 19.0 million shares of our outstanding Common Stock over an undefined period of time. On February 25, 2010, the Board approved a new share repurchase program authorizing the repurchase of up to an additional 12.5 million shares. Share repurchases under the program may be made through open market, established plan or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. There is no expiration date applicable to the program. The new share repurchase program replaces the program authorized in October 2001.

During the three months ended September 30, 2010, we repurchased approximately 0.5 million shares of our Common Stock with an aggregate price of approximately $9.8 million. During the nine months ended September 30, 2010, we repurchased approximately 4.8 million shares of our Common Stock with an aggregate price of approximately $105.1 million. As of September 30, 2010, we had repurchased a cumulative total of approximately 21.6 million shares of our Common Stock with an aggregate price of approximately $338.9 million since the commencement of the program in 2001. As of September 30, 2010, there remained an outstanding authorization to repurchase approximately 10.0 million shares of our outstanding Common Stock.

We record stock repurchases as a reduction to stockholders’ equity. We record a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the cost of the shares repurchased exceeds the average original proceeds per share received from the issuance of Common Stock. During the nine months ended September 30, 2010, the cumulative price of the shares repurchased exceeded the proceeds received from the issuance of the same number of shares. The excess of $89.5 million was recorded as an increase to accumulated deficit for the nine months ended September 30, 2010. During the nine months ended September 30, 2009, we did not repurchase any Common Stock.

On August 19, 2010, we entered into the Share Repurchase Agreement with JP Morgan to repurchase approximately $90.0 million of our Common Stock, as part of our share repurchase program.

Under the Share Repurchase Agreement, we pre-paid to JP Morgan the $90.0 million purchase price for the Common Stock and JP Morgan will deliver to us a number of shares of Common Stock to be determined based on the volume weighted average price of the Common Stock, calculated over a period of between one and four months following the date of the Share Repurchase Agreement (the “Valuation Period”), minus an agreed upon discount between the parties. The shares of Common Stock will be delivered by JP Morgan to us on the third business day following the Valuation Period described above.

In addition, under the Share Repurchase Agreement, we have the option, in our sole discretion, to terminate the transaction early in the event that the volume weighted average price of the Common Stock exceeds a price agreed upon between the parties at the time the Share Repurchase Agreement was executed.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, investments, income taxes, litigation and other contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting estimates include those regarding (1) revenue recognition, (2) litigation and settlements, (3) income taxes, (4) stock-based compensation, (5) marketable securities, (6) non-marketable securities and (7) convertible notes. For a discussion of our critical accounting estimates, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2009.

Revenue Recognition

Overview

We recognize revenue when persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collection is reasonably assured. If any of these criteria are not met, we defer recognizing the

revenue until such time as all criteria are met. Determination of whether or not these criteria have been met may require us to make judgments, assumptions and estimates based upon current information and historical experience.

Our revenue consists of royalty revenue and contract revenue generated from agreements with semiconductor companies, system companies and certain reseller arrangements. Royalty revenue consists of patent license and technology license royalties. Contract revenue consist of fixed license fees, fixed engineering fees and service fees associated with integration of our technology solutions into our customers’ products. Contract revenue may also include support or maintenance. Reseller arrangements generally provide for the pass-through of a percentage of the fees paid to the reseller by the reseller’s customer for use of our patent and technology licenses. We do not recognize revenue for these arrangements until we have received notice of revenue earned by and paid to the reseller, accompanied by the pass-through payment from the reseller. We do not pay commissions to the reseller for these arrangements.

In addition, we may enter into certain settlements of patent infringement disputes. The amount of consideration received upon any settlement (including but not limited to past royalty payments, future royalty payments and punitive damages) is allocated to each element of the settlement based on the Fair Value of each element. In addition, revenues related to past royalties are recognized upon execution of the agreement by both parties, provided that the amounts are fixed or determinable, there are no significant obligations and collectability is reasonably assured. We do not recognize any revenues prior to execution of the agreement since there is no reliable basis on which we can estimate the amounts for royalties related to previous periods or assess collectability. Elements that are related to royalty revenue in nature (including but not limited to past royalty payments and future royalty payments) will be recorded as royalty revenue in the consolidated statements of operations. Elements that are not related to royalty revenue in nature (including but not limited to punitive damage and settlement) will be recorded as gain from settlement which is reflected as a separate line item within the operating expenses section in the consolidated statements of operations.

Many of our licensees have the right to cancel their licenses. In such arrangements, revenue is only recognized to the extent that is consistent with the cancellation provisions. Cancellation provisions within such contracts generally provide for a prospective cancellation with no refund of fees already remitted by customers for products provided and payment for services rendered prior to the date of cancellation. Unbilled receivables represent enforceable claims and are deemed collectible in connection with our revenue recognition policy.

Royalty Revenue

We recognize royalty revenue upon notification by our licensees and when deemed collectible. The terms of the royalty agreements generally either require licensees to give us notification and to pay the royalties within 60 days of the end of the quarter during which the sales occur or are based on a fixed royalty that is due within 45 days of the end of the quarter. We have two types of royalty revenue: (1) patent license royalties and (2) technology license royalties.

Patent licenses. We license our broad portfolio of patented inventions to semiconductor and systems companies who use these inventions in the development and manufacture of their own products. Such licensing agreements may cover the license of part, or all, of our patent portfolio. The contractual terms of the agreements generally provide for payments over an extended period of time. For the licensing agreements with fixed royalty payments, we generally recognize revenue from these arrangements as amounts become due. For the licensing agreements with variable royalty payments which can be based on either a percentage of sales or number of units sold, we earn royalties at the time that the licensees’ sales occur. Our licensees, however, do not report and pay royalties owed for sales in any given quarter until after the conclusion of that quarter. As we are unable to estimate the licensees’ sales in any given quarter to determine the royalties due to us, we recognize royalty revenues based on royalties reported by licensees during the quarter and when other revenue recognition criteria are met.

Technology licenses. We develop proprietary and industry-standard chip interface products, such as RDRAM^TM and XDR ^TM that we provide to our customers under technology license agreements. These arrangements include royalties, which can be based on either a percentage of sales or number of units sold. We earn royalties on such licensed products sold worldwide by our licensees at the time that the licensees’ sales occur. Our licensees, however, do not report and pay royalties owed for sales in any given quarter until after the conclusion of that quarter. As we are unable to estimate the licensees’ sales in any given quarter to determine the royalties due to us, we recognize royalty revenues based on royalties reported by licensees during the quarter and when other revenue recognition criteria are met.

Contract Revenue

We generally recognize revenue using percentage of completion for development contracts related to licenses of our interface solutions, such as XDR ^tm and FlexIO ^tm that involve significant engineering and integration services. For all license and service agreements accounted for using the percentage-of-completion method, we determine progress to completion using input measures based upon contract costs incurred. Prior to the first quarter of 2008, we determined progress to completion using labor-hours incurred. The change to input measures better reflects the overall gross margin over the life of the contract. This change did not have a significant impact on our results of operations. We have evaluated use of output measures versus input measures and have determined that our output is not sufficiently uniform with respect to cost, time and effort per unit of output to use output measures as a measure of progress to completion. Part of these contract fees may be due upon the achievement of certain milestones, such as provision of certain deliverables by us or production of chips by the licensee. The remaining fees may be due on pre-determined dates and include significant up-front fees.

A provision for estimated losses on fixed price contracts is made, if necessary, in the period in which the loss becomes probable and can be reasonably estimated. If we determine that it is necessary to revise the estimates of the total costs required to complete a contract, the total amount of revenue recognized over the life of the contract would not be affected. However, to the extent the new assumptions regarding the total efforts necessary to complete a project are less than the original assumptions, the contract fees would be recognized sooner than originally expected. Conversely, if the newly estimated total efforts necessary to complete a project are longer than the original assumptions, the contract fees will be recognized over a longer period.

If application of the percentage-of-completion method results in recognizable revenue prior to an invoicing event under a customer contract, we will recognize the revenue and record an unbilled receivable. Amounts invoiced to our customers in excess of recognizable revenue are recorded as deferred revenue. The timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenue or unbilled receivables in any given period.

We also recognize revenue for development contracts related to licenses of our chip interface products that involve non-essential engineering services and post contract support (“PCS”). These SOPs apply to all entities that earn revenue on products containing software, where software is not incidental to the product as a whole. Contract fees for the products and services provided under these arrangements are comprised of license fees and engineering service fees which are not essential to the functionality of the product. Our rates for PCS and for engineering services are specific to each development contract and not standardized in terms of rates or length. Because of these characteristics, we do not have a sufficient population of contracts from which to derive vendor specific objective evidence for each of the elements.

Therefore, after we deliver the product, if the only undelivered element is PCS, we will recognize all revenue ratably over either the contractual PCS period or the period during which PCS is expected to be provided. We review assumptions regarding the PCS periods on a regular basis. If we determine that it is necessary to revise the estimates of the support periods, the total amount of revenue to be recognized over the life of the contract would not be affected.

Expiration of Rights Plan

Our stockholder rights plan expired in July 2010 and we made the decision not to renew the plan at this time.

Recent Accounting Pronouncements

See Note 2 “Recent Accounting Pronouncements” of Notes to Unaudited Consolidated Financial Statements of this Form 10-Q for discussion of recent accounting pronouncements including the respective expected dates of adoption.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to financial market risks, primarily arising from the effect of interest rate fluctuations on our investment portfolio. Interest rate fluctuation may arise from changes in the market’s view of the quality of the security issuer, the overall economic outlook, and the time to maturity of our portfolio. We mitigate this risk by investing only in high quality, highly liquid instruments. Securities with original maturities of one year or less must be rated by two of the three industry standard rating agencies as follows: A1 by Standard & Poor’s, P1 by Moody’s and/or F-1 by Fitch. Securities with original maturities of greater than one year must be rated by two of the following industry standard rating agencies as follows: AA- by Standard & Poor’s, Aa3 by Moody’s and/or AA- by Fitch. By corporate policy, we limit the amount of exposure to $15.0 million or 10% of the portfolio, whichever is lower, for any one non-U.S. Government issuer. A single U.S. Agency can represent up to 25% of the portfolio. No more than 20% of the total

portfolio may be invested in the securities of an industry sector, with money market fund investments evaluated separately. Our policy requires that at least 10% of the portfolio be in securities with a maturity of 90 days or less. We may make investments in U.S. Treasuries, U.S. Agencies, corporate bonds and municipal bonds and notes with maturities up to 36 months. However, the bias of our investment portfolio is shorter maturities. All investments must be U.S. dollar denominated.

We invest our cash equivalents and marketable securities in a variety of U.S. dollar financial instruments such as Treasuries, Government Agencies, Commercial Paper and Corporate Notes. Our policy specifically prohibits trading securities for the sole purposes of realizing trading profits. However, we may liquidate a portion of our portfolio if we experience unforeseen liquidity requirements. In such a case if the environment has been one of rising interest rates we may experience a realized loss, similarly, if the environment has been one of declining interest rates we may experience a realized gain. As of September 30, 2010, we had an investment portfolio of fixed income marketable securities of $474.8 million including cash equivalents. If market interest rates were to increase immediately and uniformly by 1.0% from the levels as of September 30, 2010, the fair value of the portfolio would decline by approximately $1.1 million. Actual results may differ materially from this sensitivity analysis.

The table below summarizes the amortized cost, fair value, unrealized gains (losses) and related weighted average interest rates for our cash equivalents and marketable securities portfolio as of September 30, 2010 and December 31, 2009:


	September 30, 2010
					Gross		Gross			Weighted
			Amortized		Unrealized		Unrealized			Rate of
(in thousands)	Fair Value		Cost		Gains		Losses			Return
Money Market Funds	$	159,577	$	159,577	$	—	$	—			0.13	%
U.S. Government Bonds and Notes		270,729		270,700		73		(44	)		0.29	%
Corporate Notes, Bonds and Commercial Paper		44,515		44,546		13		(44	)		0.39	%

Total cash equivalents and marketable securities		474,821		474,823		86		(88	)
Cash		10,072		10,072		—		—

Total cash, cash equivalents and marketable securities	$	484,893	$	484,895	$	86	$	(88	)


	December 31, 2009
					Gross		Gross			Weighted
			Amortized		Unrealized		Unrealized			Rate of
(dollars in thousands)	Fair Value		Cost		Gains		Losses			Return
Money Market Funds	$	280,908	$	280,908	$	—	$	—			0.01	%
U.S. Government Bonds and Notes		138,829		138,521		377		(69	)		1.09	%
Corporate Notes, Bonds and Commercial Paper		32,291		32,222		70		(1	)		1.89	%

Total cash equivalents and marketable securities		452,028		451,651		447		(70	)
Cash		8,165		8,165		—		—

Total cash, cash equivalents and marketable securities	$	460,193	$	459,816	$	447	$	(70	)

The fair value of our convertible notes is subject to interest rate risk, market risk and other factors due to the convertible feature. The fair value of the convertible notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the convertible notes will generally increase as our common stock prices increase and decrease as the stock prices fall. The interest and market value changes affect the fair value of our convertible notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we do not carry the convertible notes at fair value. We present the fair value of the convertible notes for required disclosure purposes. The following table summarizes certain information related to our 2014 Notes as of September 30, 2010:

Fair Value Given a

10%

Increase in Market

Decrease in Market

(in thousands)

Fair Value

Prices

5% Convertible Senior Notes due 2014

227,559

250,314

204,803

We invoice our customers in U.S. dollars. Although the fluctuation of currency exchange rates may impact our customers, and thus indirectly impact us, we do not attempt to hedge this indirect and speculative risk. Our overseas operations consist primarily of one design center in India and small business development offices in Germany, Japan, Korea and Taiwan. We monitor our foreign currency exposure; however, as of September 30, 2010, we believe our foreign currency exposure is not material enough to warrant foreign currency hedging.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities and Exchange Act of 1934 as amended (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2010, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

In December 2009, the Company formed the LDT group, in connection with acquisition of certain technology and a portfolio of advanced lighting and optoelectronics patents from Global Lighting Technologies. As a result, we have begun integrating the processes and systems relating to the new group into our existing system of internal control over financial reporting. Except for the processes, systems and controls relating to the integration of the LDT group, there have not been any changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. All of the other smaller business acquisitions during the year have been integrated into our existing business processes, systems and controls.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this item regarding legal proceedings is incorporated by reference to the information set forth in Note 14 “Litigation and Asserted Claims” of Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Item 1A. Risk Factors

Because of the following factors, as well as other variables affecting our operating results, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. See also “Special Note Regarding Forward-Looking Statements” elsewhere in this report.

Risks Associated With Our Business, Industry and Market Conditions

If market leaders do not adopt our innovations, our results of operations could decline.

An important part of our strategy is to penetrate our target market segments by working with leaders in those market segments. This strategy is designed to encourage other participants in those segments to follow such leaders in adopting our innovations. If a high profile industry participant adopts our innovations but fails to achieve success with its products or adopts and achieves success with a competing technology, our reputation and sales could be adversely affected. For example, if our commercial relationships with Samsung do not achieve success, our reputation could be adversely affected given the market position of Samsung as a leading memory manufacturer. In addition, some industry participants have adopted, and others may in the future adopt, a strategy of disparaging our memory solutions adopted by their competitors or a strategy of otherwise undermining the market adoption of our solutions.

We target system companies to adopt our chip interface technologies, particularly those that develop and market high volume business and consumer products, which were traditionally focused on PCs, including PC graphics processors, and video game consoles, and now include HDTVs, cellular and digital phones, PDAs, digital cameras and other consumer electronics that incorporate all varieties of memory and chip interfaces. In particular, our strategy includes gaining acceptance of our technology in high volume consumer applications, including video game consoles, such as the Sony PlayStation^®3, HDTVs and set top boxes. As we diversify

our technologies, such as through the establishment of our LDT group, we will seek out other target markets in and related to computing, gaming and graphics, consumer electronics, mobile and general lighting applications. We are subject to many risks beyond our control that influence whether or not a potential licensee or partner company will adopt our technologies, including, among others:

	•		competition faced by a company in its particular industry;

	•		the timely introduction and market acceptance of a company’s products;

	•		the engineering, sales and marketing and management capabilities of a company;

	•		technical challenges unrelated to our innovations faced by a company in developing its products;

	•		the financial and other resources of a company;

	•		the supply of semiconductors from our memory and chip interface licensees in sufficient quantities and at commercially attractive prices;

	•		the ability to establish the prices at which the chips containing our chip interfaces are made available to system companies; and

	•		the degree to which our licensees promote our innovations to their customers.

There can be no assurance that consumer products that currently use our technology will continue to do so, nor can there be any assurance that the consumer products that incorporate our technology will be successful in their markets in order to generate expected royalties, nor can there be any assurance that any of our technologies selected for licensing will be implemented in a commercially developed or distributed product. If any of these events occur and market leaders do not successfully adopt our technologies, our strategy may not be successful and, as a result, our results of operations could decline.

We have traditionally operated in an industry that is highly cyclical and in which the number of our potential customers may be in decline as a result of industry consolidation, and we face intense competition in all of our target markets that may cause our results of operations to suffer.

The semiconductor industry is intensely competitive and has been impacted by price erosion, rapid technological change, short product life cycles, cyclical market patterns and increasing foreign and domestic competition. As the semiconductor industry is highly cyclical, significant economic downturns characterized by diminished demand, erosion of average selling prices, production overcapacity and production capacity constraints could affect the semiconductor industry. We have just experienced such a period of economic downturn. As a result, we may achieve a reduced number of licenses, tightening of customers’ operating budgets, difficulty or inability of our customers to pay our licensing fees, extensions of the approval process for new licenses and consolidation among our customers, all of which may adversely affect the demand for our technology and may cause us to experience substantial period-to-period fluctuations in our operating results.

Many of our customers operate in industries that have experienced significant declines as a result of the recent economic downturn. In particular, DRAM manufacturers, which make up a majority of our existing and potential licensees, have suffered material losses and other adverse effects to their businesses. These factors may result in industry consolidation as companies seek to reduce costs and improve profitability through business combinations. Consolidation among our existing DRAM and other customers may result in loss of revenues under existing license agreements. Consolidation among companies in the DRAM and other industries within which we license our technology may reduce the number of future licensees for our products and services. In either case, consolidation in the DRAM and other industries in which we operate may negatively impact our short-term and long-term business prospects, licensing revenues and results of operations.

We face competition from semiconductor and intellectual property companies who provide their own DDR memory chip interface technology and solutions. In addition, most DRAM manufacturers, including our XDR^tm licensees, produce versions of DRAM such as SDR, DDRx, GDDRx SDRAM and LPDDRx which compete with XDR^tm chips. We believe that our principal competition for memory chip interfaces may come from our licensees and prospective licensees, some of which are evaluating and developing products based on technologies that they contend or may contend will not require a license from us. In addition, our competitors are also taking a system approach similar to ours in seeking to solve the application needs of system companies. Many of these companies

are larger and may have better access to financial, technical and other resources than we possess. Wider applications of other developing memory technologies, including FLASH memory, may also pose competition to our licensed memory solutions.

JEDEC has standardized what it calls extensions of DDR, known as DDR2 and DDR3. Other efforts are underway to create other products including those sometimes referred to as GDDR4 and GDDR5, as well as new ways to integrate products such as system-in-package DRAM. To the extent that these alternatives might provide comparable system performance at lower or similar cost than XDR^tm memory chips, or are perceived to require the payment of no or lower royalties, or to the extent other factors influence the industry, our licensees and prospective licensees may adopt and promote alternative technologies. Even to the extent we determine that such alternative technologies infringe our patents, there can be no assurance that we would be able to negotiate agreements that would result in royalties being paid to us without litigation, which could be costly and the results of which would be uncertain.

Our LDT group faces competition from system and subsystem providers of backlighting and general lighting solutions, some of which have substantial resources and operations.

If for any of these reasons we cannot effectively compete in these primary market segments, our results of operations could suffer.

If our LDT group does not succeed, our results of operations may be adversely affected.

The future success of our LDT group, formed in connection with the December 2009 acquisition of certain technology and a portfolio of advanced lighting and optoelectronics patents of Global Lighting Technologies, depends on our ability to improve the visual capabilities, form factor, power efficiency and cost-effectiveness of backlighting of LCD displays in products for computing, gaming and graphics, consumer electronics, mobile and general lighting applications. We will need to keep pace with rapid changes in advanced lighting and optoelectronics technology, changing consumer requirements, new product introductions and evolving industry standards, any of which could render our existing technology obsolete if we fail to respond in a timely manner. The extent to which companies in the general lighting industry adopt solid state lighting and license our lighting technologies, and the timing of such adoption and licensing, if it occurs at all, is subject to many factors beyond our control and is not predictable by us. We are subject to many risks beyond our control that influence whether or not a potential licensee or partner company will adopt and license our lighting technologies.

The development, application and licensing of new backlit lighting technologies is a complex process subject to a number of uncertainties, including the integration of our LDT group into the rest of our company and the small size of the LDT group. Our competitors have significant marketing, workforce, financial and other resources and longer operating history which could make acceptance of our lighting technologies more difficult. If others develop innovative proprietary lighting technology that is superior to ours or if we fail to accurately anticipate technology and market trends, respond on a timely basis with our own new enhancements and technology, and achieve broad market acceptance of these enhancements and technology, our competitive position may be harmed and our operating results may be adversely affected.

In order to grow, we may have to invest more resources in research and development than anticipated, which could increase our operating expenses and negatively impact our operating results.

If new competitors, technological advances by existing competitors, our entry into new markets, and/or development of new technologies or other competitive factors require us to invest significantly greater resources than anticipated in our research and development efforts, our operating expenses would increase. For the nine months ended September 30, 2010 and 2009, research and development expenses were $67.7 million and $50.3 million, respectively, including stock-compensation of approximately $7.7 million and $7.3 million, respectively. If we are required to invest significantly greater resources than anticipated in research and development efforts without an increase in revenue, especially with respect to our LDT group and any other new technologies that we pursue outside of our core memory and chip interface technologies, our operating results could decline. Research and development expenses are likely to fluctuate from time to time to the extent we make periodic incremental investments in research and development, including as a result of our investment in new technologies, and these investments may be independent of our level of revenue. In order to grow, which may include entering new markets and/or developing new technologies, we anticipate that we will continue to devote substantial resources to research and development. We expect these expenses to increase in absolute dollars in the foreseeable future due to the increased complexity and the greater number of products under development as well as selectively hiring additional employees.

Our revenue is concentrated in a few customers, and if we lose any of these customers, our revenue may decrease substantially.

We have a high degree of revenue concentration. As a result of our settlement with Samsung, Samsung is expected to account for a significant portion of our ongoing licensing revenue commencing in 2010. Our top five licensees represented approximately 90% and 77% of our revenues for the nine months ended September 30, 2010 and 2009, respectively. For the nine months ended September 30, 2010, revenue from Samsung accounted for 10% or more of our total revenue. For the nine months ended September 30, 2009, revenue from AMD, Fujitsu, NEC, Panasonic, Sony and Toshiba each accounted for 10% or more of our total revenue. We expect to continue to experience significant revenue concentration for the foreseeable future.

In addition, some of our commercial agreements require us to provide certain customers with the lowest royalty rate that we provide to other customers for similar technologies, volumes and schedules. These clauses may limit our ability to effectively price differently among our customers, to respond quickly to market forces, or otherwise to compete on the basis of price. The particular licensees which account for revenue concentration have varied from period to period as a result of the addition of new contracts, expiration of existing contracts, renewal of existing contracts, industry consolidation, the expiration of deferred revenue schedules under existing contracts, and the volumes and prices at which the licensees have recently sold licensed semiconductors to system companies. These variations are expected to continue in the foreseeable future, although we anticipate that revenue will continue to be concentrated in a limited number of licensees.

We are in negotiations with licensees and prospective licensees to reach patent license agreements for DRAM devices and DRAM controllers. We expect that patent license royalties will continue to vary from period to period based on our success in renewing existing license agreements and adding new licensees, as well as the level of variation in our licensees’ reported shipment volumes, sales price and mix, offset in part by the proportion of licensee payments that are fixed. A number of our significant license agreements have expired in 2010, including certain ones that accounted for more than 10% of our revenue in the year ended December 31, 2009. We are currently in discussions with those licensees whose agreements have expired in 2010. However, we cannot provide any assurance that we will reach agreement on renewal terms or that the royalty rates we will be entitled to receive under the new agreements will be as favorable to us as our current agreements. If we are unsuccessful in renewing any of these patent license agreements, our results of operations may decline significantly.

Weak global economic conditions may adversely affect demand for our products and services.

Our operations and performance depend significantly on worldwide economic conditions, and the U.S. and world economies continue to experience weak economic conditions. Uncertainty about global economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit, negative financial news and declines in income or asset values, which could have a material negative effect on the demand for the products of our licensees in the foreseeable future. Other factors that could influence demand include continuing increases in fuel and energy costs, competitive pressures, including pricing pressures, from companies that have competing products, changes in the credit market, conditions in the residential real estate and mortgage markets, consumer confidence, and other macroeconomic factors affecting consumer spending behavior. If our licensees experience reduced demand for their products as a result of economic conditions or otherwise, our business and results of operations could be harmed.

If our counterparties are unable to fulfill their financial and other obligations to us, our business and results of operations may be affected adversely.

Any downturn in economic conditions could threaten the financial health of our counterparties, including companies with whom we have entered into licensing arrangements, settlement agreements, or that have been subject to litigation judgments that provide for payments to us, and their ability to fulfill their financial and other obligations to us. Economic downturns such as the one we are currently experiencing lead to financial pressures on our counterparties and may eventually lead to bankruptcy proceedings or other attempts to avoid financial obligations that are due to us under licenses, settlement agreements or litigation judgments. Because bankruptcy courts have the power to modify or cancel contracts of the petitioner which remain subject to future performance and alter or discharge payment obligations related to pre-petition debts, we may receive less than all of the payments that we would otherwise be entitled to receive from any such counterparty as a result of a bankruptcy proceedings.

In 2009, two of our counterparties, Qimonda and Spansion, were subject to insolvency proceedings in their applicable jurisdictions as a result of a downturn in business. Qimonda, which was a party to a settlement and licensing agreement with us, is under the process of being liquidated under its German insolvency proceeding. As part of the process, the administrator for Qimonda’s insolvency informed us that our license agreement was terminated. Under the license agreement, if we entered into licenses with certain other DRAM manufacturers, Qimonda would have been required to make certain additional payments to us up to an aggregate of $100.0 million. Given the status of Qimonda’s liquidation and the notice of termination of the license agreement, we do not believe that even if we satisfied the conditions for additional payments, we will obtain any future payment from Qimonda or the successors to

its business. Spansion, which was one of our licensees that owed us an immaterial amount at the time of its insolvency, has now exited its voluntary Chapter 11 reorganization.

If we are unable to collect all of such payments owed to us, or if other of our counterparties enter into bankruptcy or otherwise seek to renegotiate their financial obligations to us as a result of the deterioration of their financial health, our business and results of operations may be affected adversely.

Our business and operating results may be harmed if we undertake any restructuring activities or if we are unable to manage growth in our business.

From time to time, we may undertake to restructure our business. There are several factors that could cause a restructuring to have an adverse effect on our business, financial condition and results of operations. These include potential disruption of our operations, the development of our technology, the deliveries to our customers and other aspects of our business. Employee morale and productivity could also suffer and we may lose employees whom we want to keep. Loss of sales, service and engineering talent, in particular, could damage our business. Any restructuring would require substantial management time and attention and may divert management from other important work. Employee reductions or other restructuring activities also cause us to incur restructuring and related expenses such as severance expenses. Moreover, we could encounter delays in executing any restructuring plans, which could cause further disruption and additional unanticipated expense.

Our business historically experienced periods of rapid growth that placed significant demands on our managerial, operational and financial resources. In the event that we return to such a period of growth, whether through internal expansion or acquisitions of other businesses or technologies, we would need to improve and expand our management, operational and financial systems and controls. We also would need to expand, train and manage our employee base. We cannot assure you that in connection with any such growth we will be able to timely and effectively meet demand and maintain the quality standards required by our existing and potential customers and licensees. If we ineffectively manage our growth or we are unsuccessful in recruiting and retaining personnel, our business and operating results will be harmed.

If we cannot respond to rapid technological change in our target markets by developing new innovations in a timely and cost-effective manner, our operating results will suffer.

We derive most of our revenue from our chip interface technologies that we have patented. We expect that this dependence on our fundamental technology will continue for the foreseeable future. The semiconductor industry is characterized by rapid technological change, with new generations of semiconductors being introduced periodically and with ongoing improvements. The introduction or market acceptance of competing chip interfaces that render our chip interfaces less desirable or obsolete would have a rapid and material adverse effect on our business, results of operations and financial condition. The announcement of new chip interfaces by us could cause licensees or system companies to delay or defer entering into arrangements for the use of our current chip interfaces, which could have a material adverse effect on our business, financial condition and results of operations. We are dependent on the semiconductor industry to develop test solutions that are adequate to test our chip interfaces and to supply such test solutions to our customers and us.

Our continued success depends on our ability to introduce and patent enhancements and new generations of our chip interface technologies that keep pace with other changes in the semiconductor industry and which achieve rapid market acceptance. We must continually devote significant engineering resources to addressing the ever increasing need for higher speed chip interfaces associated with increases in the speed of microprocessors and other controllers. The technical innovations that are required for us to be successful are inherently complex and require long development cycles, and there can be no assurance that our development efforts will ultimately be successful. In addition, these innovations must be:

	•		completed before changes in the semiconductor industry render them obsolete;

	•		available when system companies require these innovations; and

	•		sufficiently compelling to cause semiconductor manufacturers to enter into licensing arrangements with us for these new technologies.

Significant technological innovations generally require a substantial investment before their commercial viability can be determined, and this concept applies to all of our target markets. There can be no assurance that we have accurately estimated the

amount of resources required to complete our innovation efforts, or that we will have, or be able to expend, sufficient resources required for the development of our innovations. In addition, there is market risk associated with these products for which we develop technological innovations, and there can be no assurance that unit volumes, and their associated royalties, will occur. If our technology fails to capture or maintain a portion of the high volume target consumer market, our business results could suffer.

Some of our revenue is subject to the pricing policies of our licensees over whom we have no control.

We have no control over our licensees’ pricing of their products and there can be no assurance that licensee products using or containing our chip interfaces will be competitively priced or will sell in significant volumes. One important requirement for our memory chip interfaces is for any premium charged by our licensees in the price of memory and controller chips over alternatives to be reasonable in comparison to the perceived benefits of the chip interfaces. If the benefits of our technology do not match the price premium charged by our licensees, the resulting decline in sales of products incorporating our technology could harm our operating results.

Our licensing cycle is lengthy and costly and our marketing and licensing efforts may be unsuccessful.

The process of persuading customers to adopt and license our chip interface and other technologies can be lengthy and, even if successful, there can be no assurance that our technologies will be used in a product that is ultimately brought to market, achieves commercial acceptance, or results in significant royalties to us. We generally incur significant marketing and sales expenses prior to entering into our license agreements, generating a license fee and establishing a royalty stream from each licensee. The length of time it takes to establish a new licensing relationship can take many months or even years. In addition, our ongoing intellectual property litigation and regulatory actions have and will likely continue to have an impact on our ability to enter into new licenses and renewals of licenses. As such, we may incur costs in any particular period before any associated revenue stream begins, if at all. If our marketing and sales efforts are very lengthy or unsuccessful, then we may face a material adverse effect on our business and results of operations as a result of delay or failure to obtain royalties.

Future revenue is difficult to predict for several reasons, and our failure to predict revenue accurately may cause us to miss analysts’ estimates and result in our stock price declining.

Our lengthy and costly license negotiation cycle and our ongoing intellectual property litigation make our future revenue difficult to predict because we may not be successful in entering into licenses with our customers on our estimated timelines and we are reliant on the litigation timelines for any results or settlements, such as our January 2010 settlement with Samsung.

While some of our license agreements provide for fixed, quarterly royalty payments, many of our license agreements provide for volume-based royalties, and may also be subject to caps on royalties in a given period. The sales volume and prices of our licensees’ products in any given period can be difficult to predict. As a result, our actual results may differ substantially from analyst estimates or our forecasts in any given quarter.

In addition, a portion of our revenue comes from development and support services provided to our licensees. Depending upon the nature of the services, a portion of the related revenue may be recognized ratably over the support period, or may be recognized according to contract accounting. Contract revenue accounting may result in deferral of the service fees to the completion of the contract, or may be recognized over the period in which services are performed on a percentage-of-completion basis. There can be no assurance that the product development schedule for these projects will not be changed or delayed. All of these factors make it difficult to predict future licensing revenue and may result in our missing previously announced earnings guidance or analysts’ estimates which would likely cause our stock price to decline.

Our quarterly and annual operating results are unpredictable and fluctuate, which may cause our stock price to be volatile and decline.

Since many of our revenue components fluctuate and are difficult to predict, and our expenses are largely independent of revenue in any particular period, it is difficult for us to accurately forecast revenue and profitability. Factors other than those set forth above, which are beyond our ability to control or assess in advance, that could cause our operating results to fluctuate include:

	•		semiconductor and system companies’ acceptance of our chip interface products;

	•		the success of high volume consumer applications, such as the Sony PlayStation^® 3;

	•		the dependence of our royalties upon fluctuating sales volumes and prices of licensed chips that include our technology;

	•		the seasonal shipment patterns of systems incorporating our chip interface products;

	•		the loss of any strategic relationships with system companies or licensees;

	•		semiconductor or system companies discontinuing major products incorporating our chip interfaces;

	•		the unpredictability of litigation results or settlements and the timing and amount of any litigation expenses;

	•		changes in our customers’ development schedules and levels of expenditure on research and development;

	•		our licensees terminating or failing to make payments under their current contracts or seeking to modify such contracts, whether voluntarily or as a result of financial difficulties;

	•		the results of our efforts to expand into new target markets, such as with our LDT group;

	•		changes in our strategies, including changes in our licensing focus and/or acquisitions of companies with business models or target markets different from our own; and

	•		changes in the economy and credit market and their effects upon demand for our technology and the products of our licensees.

We believe that royalties will continue to represent a majority of total revenue for the foreseeable future. For the nine months ended September 30, 2010 and 2009, royalties accounted for 99% and 95%, respectively, of our total revenue. Royalties are generally recognized in the quarter in which we receive a report from a licensee regarding the sale of licensed chips in the prior quarter; however, royalties are recognized only if collectability is assured. As a result of these uncertainties and effects being outside of our control, royalty revenue is difficult to predict and makes it difficult to develop accurate financial forecasts, which could cause our stock price to become volatile and decline.

A substantial portion of our revenue is derived from sources outside of the United States and this revenue and our business generally are subject to risks related to international operations that are often beyond our control.

For the nine months ended September 30, 2010 and 2009, revenue from our sales to international customers constituted approximately 93% and 82% of our total revenue, respectively. As a result of our continued focus on international markets, we expect that future revenue derived from international sources will continue to represent a significant portion of our total revenue.

To date, all of the revenue from international licensees has been denominated in U.S. dollars. However, to the extent that such licensees’ sales to systems companies are not denominated in U.S. dollars, any royalties which are based as a percentage of the customer’s sales that we receive as a result of such sales could be subject to fluctuations in currency exchange rates. In addition, if the effective price of licensed semiconductors sold by our foreign licensees were to increase as a result of fluctuations in the exchange rate of the relevant currencies, demand for licensed semiconductors could fall, which in turn would reduce our royalties. We do not use financial instruments to hedge foreign exchange rate risk.

We currently have international operations in India (design), Japan (business development), Taiwan (business development) and Germany (business development). Our international operations and revenue are subject to a variety of risks which are beyond our control, including:

	•		export controls, tariffs, import and licensing restrictions and other trade barriers;

	•		profits, if any, earned abroad being subject to local tax laws and not being repatriated to the United States or, if repatriation is possible, limited in amount;

	•		treatment of revenue from international sources and changes to tax codes, including being subject to foreign tax laws and being liable for paying withholding, income or other taxes in foreign jurisdictions;

	•		foreign government regulations and changes in these regulations;

	•		social, political and economic instability;

	•		lack of protection of our intellectual property and other contract rights by jurisdictions in which we may do business to the same extent as the laws of the United States;

	•		changes in diplomatic and trade relationships;

	•		cultural differences in the conduct of business both with licensees and in conducting business in our international facilities and international sales offices;

	•		operating centers outside the United States;

	•		hiring, maintaining and managing a workforce remotely and under various legal systems; and

	•		geo-political issues.

We and our licensees are subject to many of the risks described above with respect to companies which are located in different countries, particularly home video game console, PC and other consumer electronics manufacturers located in Asia and elsewhere. There can be no assurance that one or more of the risks associated with our international operations could not result in a material adverse effect on our business, financial condition or results of operations.

We have in the past and may in the future make acquisitions or enter into mergers, strategic transactions or other arrangements that could cause our business to suffer.

As part of our strategic initiatives, we have completed, currently are evaluating, and expect to continue to engage in, investments in or acquisitions of companies, products or technologies, and the entry into strategic transactions or other arrangements. These acquisitions, investments, transactions or arrangements are likely to range in size, some of which may be significant. After completing an acquisition, including the December 2009 acquisition of technology and a patent portfolio from Global Lighting Technologies and our smaller business acquisitions during 2010, we may experience difficulty integrating that company’s or division’s personnel and operations, which could negatively affect our operating results. In addition:

	•		the key personnel of the acquired entity or business may decide not to work for us or may not perform according to our expectations;

	•		we may experience additional legal, financial and accounting challenges and complexities in areas such as licensing, tax planning, cash management and financial reporting;

	•		our ongoing business, including our operations, technology development and deliveries to our customers, may be disrupted or receive insufficient management attention, and employee retention and productivity could also suffer;

	•		we may not be able to recognize the financial benefits we anticipated and/or we may suffer losses, both with respect to our ongoing business and the acquired entity or business;

	•		our increasing international presence resulting from acquisitions may increase our exposure to international currency, tax and political risks; and

	•		our lack of experience in new markets, products or technologies may cause us to fail to recognize the forecasted financial and strategic benefits of the acquisition.

In connection with our strategic initiatives related to future acquisitions or mergers, strategic transactions or other arrangements, we may incur substantial expenses regardless of whether any transactions occur. Further, the risks described above may be exacerbated as a result of managing multiple acquisitions simultaneously. In addition, we may be required to assume the liabilities of the companies we acquire. By assuming the liabilities, we may incur liabilities such as those related to intellectual property infringement or indemnification of customers of acquired businesses for similar claims, which could materially and adversely affect

our business. We may have to incur debt or issue equity securities to pay for any future acquisition, the issuance of which could involve restrictive covenants or be dilutive to our existing stockholders.

Unanticipated changes in our tax rates or in the tax laws and regulations could expose us to additional income tax liabilities which could affect our operating results and financial condition.

We are subject to income taxes in both the United States and various foreign jurisdictions. Significant judgment is required in determining our worldwide provision (or benefit) for income taxes and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws and regulations as well as other factors. Our tax determinations are regularly subject to audit by tax authorities and developments in those audits could adversely affect our income tax provision. Although we believe that our tax estimates are reasonable, the final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions which could affect our operating results.

Our results of operations could vary as a result of the methods, estimates and judgments we use in applying our accounting policies.

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations, including the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities, as described elsewhere in this report. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, such as percentage-of-completion contracts, investments, income taxes, litigation, goodwill and intangibles, and other contingencies. Such methods, estimates, and judgments are, by their nature, subject to substantial risks, uncertainties, and assumptions, and factors may arise over time that lead us to change our methods, estimates, and judgments. In addition, actual results may differ from these estimates under different assumptions or conditions.

Changes in those methods, estimates, and judgments could significantly affect our results of operations. In particular, the measurement of share-based compensation expense requires us to use valuation methodologies and a number of assumptions, estimates, and conclusions regarding matters such as expected forfeitures, expected volatility of our share price, and the exercise behavior of our employees. Changes in these factors may affect both our reported results (including cost of contract revenue, research and development expenses, marketing, general and administrative expenses and our effective tax rate) and any forward-looking projections we make that incorporate projections of share-based compensation expense. Furthermore, there are no means, under applicable accounting principles, to compare and adjust our reported expense if and when we learn about additional information that may affect the estimates that we previously made, with the exception of changes in expected forfeitures of share-based awards. Factors may arise that lead us to change our estimates and assumptions with respect to future share-based compensation arrangements, resulting in variability in our share-based compensation expense over time.

If we are unable to attract and retain qualified personnel, our business and operations could suffer.

Our success is dependent upon our ability to identify, attract, compensate, motivate and retain qualified personnel, especially engineers, who can enhance our existing technologies and introduce new technologies. Competition for qualified personnel, particularly those with significant industry experience, is intense, in particular in the San Francisco Bay Area where we are headquartered and in the area of Bangalore, India where we have a design center. We are also dependent upon our senior management personnel. The loss of the services of any of our senior management personnel, or key sales personnel in critical markets, or critical members of staff, or of a significant number of our engineers could be disruptive to our development efforts or business relationships and could cause our business and operations to suffer.

Our operations are subject to risks of natural disasters, acts of war, terrorism or widespread illness at our domestic and international locations, any one of which could result in a business stoppage and negatively affect our operating results.

Our business operations depend on our ability to maintain and protect our facility, computer systems and personnel, which are primarily located in the San Francisco Bay Area. The San Francisco Bay Area is in close proximity to known earthquake fault zones. Our facility and transportation for our employees are susceptible to damage from earthquakes and other natural disasters such as fires, floods and similar events. Should an earthquake or other catastrophes, such as fires, floods, power loss, communication failure or similar events disable our facilities, we do not have readily available alternative facilities from which we could conduct our business,

which stoppage could have a negative effect on our operating results. Acts of terrorism, widespread illness and war could also have a negative effect at our international and domestic facilities.

Risks Related to Corporate Governance and Capitalization Matters

The price of our common stock may fluctuate significantly, which may make it difficult for holders to resell their shares when desired or at attractive prices.

Our common stock is listed on The NASDAQ Global Select Market under the symbol “RMBS.” The trading price of our common stock has been subject to wide fluctuations which we expect to continue in the future in response to, among other things, the following:

	•		new litigation or developments in current litigation, including an unfavorable outcome to us from court proceedings relating to our litigation with Hynix, Micron, Nanya and NVIDIA and reaction to any settlements that we enter into with former litigants, such as Samsung;

	•		any progress, or lack of progress, real or perceived, in the development of products that incorporate our innovations;

	•		our signing or not signing new licensees;

	•		announcements of our technological innovations or new products by us, our licensees or our competitors;

	•		positive or negative reports by securities analysts as to our expected financial results;

	•		developments with respect to patents or proprietary rights and other events or factors;

	•		trading activity related to our share repurchase plans; and

	•		issuance of additional securities by us, such as our issuance of approximately 9.6 million shares of common stock to Samsung in connection with our settlement agreement in January 2010.

In addition, the stock market in general, and prices for companies in our industry in particular, have experienced extreme volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance. Because our outstanding senior convertible notes are convertible into shares of our common stock, volatility or depressed prices of our common stock could have a similar effect on the trading price of our notes. In addition, the existence of the notes may encourage short selling in our common stock by market participants because the conversion of the notes could depress the price of our common stock. Sales of substantial amounts of shares of our common stock in the public market, or the perception that those sales may occur, could cause the market price of our common stock to decline. In addition, lack of positive performance in our stock price may adversely affect our ability to retain key employees.

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including new Securities and Exchange Commission, regulations and NASDAQ rules, have historically created uncertainty for companies such as ours. Any new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Any new investment of resources to comply with evolving laws, regulations and standards, may result in increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed and our business and operations would suffer.

We have been party to, and may in the future be subject to, lawsuits relating to securities law matters which may result in unfavorable outcomes and significant judgments, settlements and legal expenses which could cause our business, financial condition and results of operations to suffer.

In connection with our stock option investigation, we and certain of our current and former officers and directors, as well as our current auditors, were subject to several stockholder derivative actions, securities fraud class actions and/or individual lawsuits filed in federal court against us and certain of our current and former officers and directors. The complaints generally allege that the defendants violated the federal and state securities laws and state law claims for fraud and breach of fiduciary duty. While we have settled the derivative and securities fraud class actions, the individual lawsuits continue to be adjudicated. For more information about the historic litigation described above, see Note 14, “Litigation and Asserted Claims,” of Notes to Unaudited Consolidated Financial Statements of this Form 10-Q. The amount of time to resolve these current and any future lawsuits is uncertain, and these matters could require significant management and financial resources which could otherwise be devoted to the operation of our business. Although we have expensed or accrued for certain liabilities that we believe will result from certain of these actions, the actual costs and expenses to defend and satisfy all of these lawsuits and any potential future litigation may exceed our current estimated accruals, possibly significantly. Unfavorable outcomes and significant judgments, settlements and legal expenses in litigation related to our past and any future securities law claims could have material adverse impacts on our business, financial condition, results of operations, cash flows and the trading price of our common stock.

We are leveraged financially, which could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future research and development needs, and to defend our intellectual property.

We have indebtedness. In 2009, we issued $172.5 million aggregate principal amount of our 2014 Notes. The degree to which we are leveraged could have important consequences, including, but not limited to, the following:

	•		our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, litigation, general corporate or other purposes may be limited;

	•		a substantial portion of our cash flows from operations will be dedicated to the payment of the principal of our indebtedness as we are required to pay the principal amount of our 2014 Notes in cash upon conversion if specified conditions are met or when due;

	•		if upon any conversion of our 2014 Notes we are required to satisfy our conversion obligation with shares of our common stock or we are required to pay a “make-whole” premium with shares of our common stock, our existing stockholders’ interest in us would be diluted; and

	•		we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions.

A failure to comply with the covenants and other provisions of our debt instruments could result in events of default under such instruments, which could permit acceleration of all of our notes. Any required repayment of our notes as a result of a fundamental change or other acceleration would lower our current cash on hand such that we would not have those funds available for use in our business.

If we are at any time unable to generate sufficient cash flow from operations to service our indebtedness when payment is due, we may be required to attempt to renegotiate the terms of the instruments relating to the indebtedness, seek to refinance all or a portion of the indebtedness or obtain additional financing. There can be no assurance that we will be able to successfully renegotiate such terms, that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to us.

If securities or industry analysts change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us, our business or our market. If one or more of the analysts who cover us change their recommendation regarding our stock adversely, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Our restated certificate of incorporation and bylaws, Delaware law and our outstanding convertible notes contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.

Our restated certificate of incorporation, our bylaws and Delaware law contain provisions that might enable our management to discourage, delay or prevent a change in control. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. Pursuant to such provisions:

	•		our board of directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock, which means that a new stockholder rights plan could be implemented by our board to replace our old plan that has now expired;

	•		our board of directors is staggered into two classes, only one of which is elected at each annual meeting;

	•		stockholder action by written consent is prohibited;

	•		nominations for election to our board of directors and the submission of matters to be acted upon by stockholders at a meeting are subject to advance notice requirements;

	•		certain provisions in our bylaws and certificate of incorporation such as notice to stockholders, the ability to call a stockholder meeting, advance notice requirements and action of stockholders by written consent may only be amended with the approval of stockholders holding 66 2/3% of our outstanding voting stock;

	•		our stockholders have no authority to call special meetings of stockholders; and

	•		our board of directors is expressly authorized to make, alter or repeal our bylaws.

We are also subject to Section 203 of the Delaware General Corporation Law, which provides, subject to enumerated exceptions, that if a person acquires 15% or more of our outstanding voting stock, the person is an “interested stockholder” and may not engage in any “business combination” with us for a period of three years from the time the person acquired 15% or more of our outstanding voting stock.

Certain provisions of our outstanding convertible notes could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a fundamental change, holders of the notes will have the right, at their option, to require us to repurchase, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest on the notes, all or a portion of their notes. We may also be required to issue additional shares of our common stock upon conversion of such notes in the event of certain fundamental changes.

Litigation, Regulation and Business Risks Related to our Intellectual Property

We face current and potential adverse determinations in litigation stemming from our efforts to protect and enforce our patents and intellectual property, which could broadly impact our intellectual property rights, distract our management and cause a substantial decline in our revenue and stock price.

We seek to diligently protect our intellectual property rights. In connection with the extension of our licensing program to SDR SDRAM-compatible and DDR SDRAM-compatible products, we became involved in litigation related to such efforts against different parties in multiple jurisdictions. In each of these cases, we have claimed infringement of certain of our patents, while the manufacturers of such products have generally sought damages and a determination that the patents in suit are invalid, unenforceable, and not infringed. Among other things, the opposing parties have alleged that certain of our patents are unenforceable because we engaged in document spoliation, litigation misconduct and/or acted improperly during our 1991 to 1995 participation in the JEDEC standard setting organization (including allegations of antitrust violations and unfair competition). See Note 14, “Litigation and Asserted Claims,” of Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

There can be no assurance that any or all of the opposing parties will not succeed, either at the trial or appellate level, with such claims or counterclaims against us or that they will not in some other way establish broad defenses against our patents, achieve conflicting results, or otherwise avoid or delay paying royalties for the use of our patented technology. Moreover, there is a risk that if one party prevails against us, other parties could use the adverse result to defeat or limit our claims against them; conversely, there can

be no assurance that if we prevail against one party, we will succeed against other parties on similar claims, defenses, or counterclaims. In addition, there is the risk that the pending litigations and other circumstances may cause us to accept less than what we now believe to be fair consideration in settlement.

Any of these matters, whether or not determined in our favor or settled by us, is costly, may cause delays (including delays in negotiating licenses with other actual or potential licensees), will tend to discourage future design partners, will tend to impair adoption of our existing technologies and divert the efforts and attention of our management and technical personnel from other business operations. In addition, we may be unsuccessful in our litigation if we have difficulty obtaining the cooperation of former employees and agents who were involved in our business during the relevant periods related to our litigation and are now needed to assist in cases or testify on our behalf. Furthermore, any adverse determination or other resolution in litigation could result in our losing certain rights beyond the rights at issue in a particular case, including, among other things: our being effectively barred from suing others for violating certain or all of our intellectual property rights; our patents being held invalid or unenforceable or not infringed; our being subjected to significant liabilities; our being required to seek licenses from third parties; our being prevented from licensing our patented technology; or our being required to renegotiate with current licensees on a temporary or permanent basis. Even if we are successful in our litigation, or any settlement of such litigation, there is no guarantee that the applicable opposing parties will be able to pay any damages awards timely or at all as a result of financial difficulties or otherwise. Delay or any or all of these adverse results could cause a substantial decline in our revenue and stock price.

An adverse resolution by or with a governmental agency could result in severe limitations on our ability to protect and license our intellectual property, and would cause our revenue to decline substantially.

From time to time, we are subject to proceedings by government agencies, such as our Federal Trade Commission and European Commission proceedings over the past several years. These proceedings may result in adverse determinations against us or in other outcomes that could limit our ability to enforce or license our intellectual property, and could cause our revenue to decline substantially.

In addition, third parties have and may attempt to use adverse findings by a government agency to limit our ability to enforce or license our patents in private litigations, to challenge or otherwise act against us with respect to such government agency proceedings, such as the attempts by Hynix to appeal our settlement with the European Commission, and to assert claims for monetary damages against us. Although we have successfully defeated certain attempts to do so, there can be no assurance that other third parties will not be successful in the future or that additional claims or actions arising out of adverse findings by a government agency will not be asserted against us.

Further, third parties have sought and may seek review and reconsideration of the patentability of inventions claimed in certain of our patents by the U.S. Patent and Trademark Office (“PTO”) and/or the European Patent Office (the “EPO”). Currently, we are subject to several re-examination proceedings, including proceedings initiated by Hynix, Micron and NVIDIA as a defensive action in connection with our litigation against those companies. An adverse decision by the PTO or EPO could invalidate some or all of these patent claims and could also result in additional adverse consequences affecting other related U.S. or European patents, including in our intellectual property litigation. If a sufficient number of such patents are impaired, our ability to enforce or license our intellectual property would be significantly weakened and this could cause our revenue to decline substantially.

The pendency of any governmental agency acting as described above may impair our ability to enforce or license our patents or collect royalties from existing or potential licensees, as our litigation opponents may attempt to use such proceedings to delay or otherwise impair any pending cases and our existing or potential licensees may await the final outcome of any proceedings before agreeing to new licenses or pay royalties.

Litigation or other third-party claims of intellectual property infringement could require us to expend substantial resources and could prevent us from developing or licensing our technology on a cost-effective basis.

Our research and development programs are in highly competitive fields in which numerous third parties have issued patents and patent applications with claims closely related to the subject matter of our programs. We have also been named in the past, and may in the future be named, as a defendant in lawsuits claiming that our technology infringes upon the intellectual property rights of third parties. In the event of a third-party claim or a successful infringement action against us, we may be required to pay substantial damages, to stop developing and licensing our infringing technology, to develop non-infringing technology, and to obtain licenses, which could result in our paying substantial royalties or our granting of cross licenses to our technologies. Threatened or ongoing third-party claims or infringement actions may prevent us from pursuing additional development and licensing arrangements for some

period. For example, we may discontinue negotiations with certain customers for additional licensing of our patents due to the uncertainty caused by our ongoing litigation on the terms of such licenses or of the terms of such licenses on our litigation. We may not be able to obtain licenses from other parties at a reasonable cost, or at all, which could cause us to expend substantial resources, or result in delays in, or the cancellation of, new product.

If we are unable to successfully protect our inventions through the issuance and enforcement of patents, our operating results could be adversely affected.

We have an active program to protect our proprietary inventions through the filing of patents. There can be no assurance, however, that:

	•		any current or future U.S. or foreign patent applications will be approved and not be challenged by third parties;

	•		our issued patents will protect our intellectual property and not be challenged by third parties;

	•		the validity of our patents will be upheld;

	•		our patents will not be declared unenforceable;

	•		the patents of others will not have an adverse effect on our ability to do business;

	•		Congress or the U.S. courts or foreign countries will not change the nature or scope of rights afforded patents or patent owners or alter in an adverse way the process for seeking patents;

	•		changes in law will not be implemented that will affect our ability to protect and enforce our patents and other intellectual property;

	•		new legal theories and strategies utilized by our competitors will not be successful;

	•		others will not independently develop similar or competing chip interfaces or design around any patents that may be issued to us; or

	•		factors such as difficulty in obtaining cooperation from inventors, pre-existing challenges or litigation, or license or other contract issues will not present additional challenges in securing protection with respect to patents and other intellectual property that we acquire.

If any of the above were to occur, our operating results could be adversely affected.

Our inability to protect and own the intellectual property we create would cause our business to suffer.

We rely primarily on a combination of license, development and nondisclosure agreements, trademark, trade secret and copyright law, and contractual provisions to protect our non-patentable intellectual property rights. If we fail to protect these intellectual property rights, our licensees and others may seek to use our technology without the payment of license fees and royalties, which could weaken our competitive position, reduce our operating results and increase the likelihood of costly litigation. The growth of our business depends in large part on the use of our intellectual property in the products of third party manufacturers, and our ability to enforce intellectual property rights against them to obtain appropriate compensation. In addition, effective trade secret protection may be unavailable or limited in certain foreign countries. Although we intend to protect our rights vigorously, if we fail to do so, our business will suffer.

We rely upon the accuracy of our licensees’ recordkeeping, and any inaccuracies or payment disputes for amounts owed to us under our licensing agreements may harm our results of operations.

Many of our license agreements require our licensees to document the manufacture and sale of products that incorporate our technology and report this data to us on a quarterly basis. While licenses with such terms give us the right to audit books and records of our licensees to verify this information, audits rarely are undertaken because they can be expensive, time consuming, and potentially detrimental to our ongoing business relationship with our licensees. Therefore, we typically rely on the accuracy of the reports from licensees without independently verifying the information in them. Our failure to audit our licensees’ books and records may result in our receiving more or less royalty revenue than we are entitled to under the terms of our license agreements. If we conduct royalty audits in the future, such audits may trigger disagreements over contract terms with our licensees and such

disagreements could hamper customer relations, divert the efforts and attention of our management from normal operations and impact our business operations and financial condition.

Any dispute regarding our intellectual property may require us to indemnify certain licensees, the cost of which could severely hamper our business operations and financial condition.

In any potential dispute involving our patents or other intellectual property, our licensees could also become the target of litigation. While we generally do not indemnify our licensees, some of our license agreements provide limited indemnities, and some require us to provide technical support and information to a licensee that is involved in litigation involving use of our technology. In addition, we may agree to indemnify others in the future. Any of these indemnification and support obligations could result in substantial expenses. In addition to the time and expense required for us to indemnify or supply such support to our licensees, a licensee’s development, marketing and sales of licensed semiconductors could be severely disrupted or shut down as a result of litigation, which in turn could severely hamper our business operations and financial condition as a result of lower or no royalty payments.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer and Affiliated Purchasers


			Total Number						Maximum
			of Shares						Number of
			Purchased as						Shares that
			Part of						May Yet be
			Publicly						Purchased
	Total Number		Announced				Average		Under the
	of Shares		Plans or				Price Paid		Plans or
Period	Purchased		Programs		Total Paid		per Share		Programs
Cumulative shares repurchased as of 12/31/2009		16,810,950		16,810,950	$	233,756,155	$	13.90		2,240,913
Additional authorization										12,500,000

										14,740,913
2/1/2010 - 2/28/2010		1,233,287		1,233,287	$	26,472,746	$	21.47		13,507,626
4/1/2010 - 4/30/2010		519,895		519,895	$	12,715,797	$	24.46		12,987,731
5/1/2010 - 5/31/2010		1,793,068		1,793,068	$	42,502,150	$	23.70		11,194,663
6/1/2010 - 6/30/2010		686,000		686,000	$	13,594,241	$	19.82		10,508,663
8/1/2010 - 8/31/2010		528,641		528,641	$	9,822,533	$	18.58		9,980,022

Cumulative shares repurchased as of 9/30/2010		21,571,841		21,571,841	$	338,863,622	$	15.71

During the nine months ended September 30, 2010, we repurchased approximately 4.8 million shares of our Common Stock with an aggregate price of approximately $105.1 million. As of September 30, 2010, we had repurchased a cumulative total of approximately 21.6 million shares of our Common Stock with an aggregate price of approximately $338.9 million since the commencement of the program in 2001. As of September 30, 2010, there remained an outstanding authorization to repurchase approximately 10.0 million shares of our outstanding Common Stock.

On August 19, 2010, we entered into a share repurchase agreement (the “Share Repurchase Agreement”) with J.P. Morgan Securities Inc., as agent for JPMorgan Chase Bank, National Association, London Branch (“JP Morgan”) to repurchase approximately $90.0 million of our Common Stock, as part of our share repurchase program.

Item 3. Defaults Upon Senior Securities

Not Applicable

Item 4. Reserved

Item 5. Other Information

Not Applicable

Item 6. Exhibits

Refer to the Exhibit Index of this quarterly report on Form 10-Q.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	RAMBUS INC.
Date: October 29, 2010	By:	/s/ Satish Rishi
		Satish Rishi
		Senior Vice President, Finance and Chief Financial Officer

INDEX TO EXHIBITS


Exhibit
Number		Description of Document

3.1 (1)		Amended and Restated Certificate of Incorporation of Registrant filed May 29, 1997.

3.2 (2)		Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant filed June 14, 2000.

3.3 (3)		Amended and Restated Bylaws of Registrant dated April 29, 2010.

10.1 (4)		Confirmation between Rambus Inc. and J.P. Morgan Securities Inc., as agent for JPMorgan Chase Bank, National Association, London Branch, dated August 19, 2010.

31.1		Certification of Principal Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(1)		Incorporated by reference to the Form 10-K filed on December 15, 1997.

(2)		Incorporated by reference to the Form 10-Q filed on May 4, 2001.

(3)		Incorporated by reference to the Form 10-Q filed on July 30, 2010.

(4)		Incorporated by reference to the Form 8-K filed on August 19, 2010.