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, 2008

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.

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

     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 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):

     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 104,801,363 as of September 30, 2008.

 

 

RAMBUS INC.
TABLE OF CONTENTS

				PAGE
		Special Note Regarding Forward-Looking Statements			3
PART I.		FINANCIAL INFORMATION
Item 1.		Financial Statements:
		Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2008 and December 31, 2007			5
		Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2008 and 2007			6
		Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2008 and 2007			7
		Notes to Unaudited Condensed Consolidated Financial Statements			8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			44
Item 4.		Controls and Procedures			46
PART II.		OTHER INFORMATION			47
Item 1.		Legal Proceedings			47
Item 1A.		Risk Factors			47
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			63
Item 3.		Defaults Upon Senior Securities			63
Item 4.		Submission of Matters to a Vote of Security Holders			63
Item 5.		Other Information			63
Item 6.		Exhibits			63
Signature					64
Exhibit Index					65
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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;
	•		Resolution of the Federal Trade Commission and European Commission matters involving us;
	•		Protection of intellectual property;
	•		Amounts owed under licensing agreements;
	•		Terms of our licenses;
	•		Indemnification and technical support obligations;
	•		Success in the markets of our or our licensees’ products;
	•		Research and development costs and improvements in technology;
	•		Sources, amounts and concentration of revenue, including royalties;
	•		Effective tax rates;
	•		Realization of deferred tax assets/release of deferred tax valuation allowance;
	•		Product development;
	•		Sources of competition;
	•		Pricing policies of our licensees;
	•		Success in renewing license agreements;
	•		Operating results;
	•		International licenses and operations, including our design facility in Bangalore, India;
	•		Methods, estimates and judgments in accounting policies;
	•		Growth in our business;
	•		Acquisitions, mergers or strategic transactions;
	•		Ability to identify, attract, motivate and retain qualified personnel;
	•		Trading price of our Common Stock;
	•		Internal control environment;

	•		Corporate governance;
	•		Accounting, tax, regulatory, legal and other outcomes and effects of the stock option investigation;
	•		Consequences of the derivative, class-action and other lawsuits related to the stock option investigation;
	•		The level and terms of our outstanding debt;
	•		Engineering, marketing and general and administration expenses;
	•		Contract revenue;
	•		Interest and other income, net;
	•		Adoption of new accounting pronouncements;
	•		Likelihood of paying dividends;
	•		Effects of changes in the economy and credit market on our industry and business; and
	•		Restructuring activities.

     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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

		September 30,				December 31,
		2008				2007
		(In thousands, except shares
		and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents		$	106,786			$	119,391
Marketable securities			272,186				321,491
Accounts receivable			1,740				442
Unbilled receivables			690				1,478
Prepaids and other current assets			8,141				8,349
Deferred taxes			222				11,595
Total current assets			389,765				462,746
Restricted cash			1,238				2,286
Deferred taxes, long-term			2,613				116,209
Intangible assets, net			8,040				13,441
Property and equipment, net			23,672				24,587
Goodwill			4,454				4,454
Other assets			4,791				3,624
Total assets		$	434,573			$	627,347
LIABILITIES
Current liabilities:
Accounts payable		$	9,091			$	11,283
Accrued salaries and benefits			9,478				9,985
Accrued litigation expenses			13,636				26,234
Income taxes payable			479				834
Other accrued liabilities			4,988				5,060
Deferred revenue			2,329				2,756
Total current liabilities			40,001				56,152
Deferred revenue, less current portion			33				—
Convertible notes			160,000				160,000
Long-term income taxes payable			3,020				2,917
Other long-term liabilities			771				1,194
Total liabilities			203,825				220,263
Commitments and contingencies (Note 7 and 13)
STOCKHOLDERS’ EQUITY
Convertible preferred stock, $.001 par value:
Authorized: 5,000,000 shares
Issued and outstanding: no shares at September 30, 2008 and December 31, 2007			—				—
Common stock, $.001 par value:
Authorized: 500,000,000 shares
Issued and outstanding: 104,801,363 shares at September 30, 2008 and 105,294,534 shares at December 31, 2007			105				105
Additional paid-in capital			644,760				601,821
Accumulated deficit			(412,436	)			(194,966	)
Accumulated other comprehensive (loss) income			(1,681	)			124
Total stockholders’ equity			230,748				407,084
Total liabilities and stockholders’ equity		$	434,573			$	627,347

See Notes to Unaudited Condensed Consolidated Financial Statements

RAMBUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
		(In thousands, except per share amounts)
Revenue:
Royalties		$	25,793			$	35,327			$	91,174			$	118,263
Contract revenue			3,635				6,388				13,707				21,145
Total revenue			29,428				41,715				104,881				139,408
Costs and expenses:
Cost of contract revenue*			4,611				5,781				18,411				18,878
Research and development*			17,511				18,312				59,048				60,339
Marketing, general and administrative*			31,288				29,914				88,377				79,657
Restructuring costs*			4,024				—				4,024				—
Impairment of intangible asset			2,158				—				2,158				—
Costs of restatement and related legal activities			392				4,169				3,564				18,631
Total costs and expenses			59,984				58,176				175,582				177,505
Operating loss			(30,556	)			(16,461	)			(70,701	)			(38,097	)
Interest and other income, net			2,704				5,645				10,207				16,496
Loss before income taxes			(27,852	)			(10,816	)			(60,494	)			(21,601	)
Provision for (benefit from) income taxes (Note 9)			92				(4,318	)			124,748				(8,495	)
Net loss		$	(27,944	)		$	(6,498	)		$	(185,242	)		$	(13,106	)
Net loss per share:
Basic		$	(0.27	)		$	(0.06	)		$	(1.77	)		$	(0.13	)
Diluted		$	(0.27	)		$	(0.06	)		$	(1.77	)		$	(0.13	)
Weighted average shares used in per share calculation
Basic			104,897				103,820				104,795				103,820
Diluted			104,897				103,820				104,795				103,820
* Includes stock-based compensation:
Cost of contract revenue		$	1,321			$	1,333			$	4,604			$	4,069
Research and development		$	3,326			$	3,190			$	10,997			$	9,821
Marketing, general and administrative		$	4,371			$	4,138			$	12,899			$	14,512
Restructuring costs		$	547			$	—			$	547			$	—

See Notes to Unaudited Condensed Consolidated Financial Statements

RAMBUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Nine Months Ended
		September 30,
		2008				2007
		(In thousands)
Cash flows from operating activities:
Net loss		$	(185,242	)		$	(13,106	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation			28,500				28,402
Depreciation			8,440				8,635
Amortization of intangible assets			3,543				3,963
Restructuring costs (non-cash)			547				—
Impairment of intangible asset			2,158				—
Deferred tax provision (benefit)			124,290				(9,425	)
Loss on disposal of property and equipment			15				—
Change in operating assets and liabilities, net of effect of business acquisitions:
Accounts receivable and unbilled receivables			(510	)			(587	)
Prepaids and other assets			(92	)			(3,373	)
Accounts payable			(812	)			6,956
Accrued salaries and benefits and other accrued liabilities			(1,663	)			(3,289	)
Accrued litigation expenses			(12,598	)			2,168
Income taxes payable			(252	)			674
Increases in deferred revenue			2,203				19,117
Decreases in deferred revenue			(2,597	)			(21,145	)
Net cash provided by (used in) operating activities			(34,070	)			18,990
Cash flows from investing activities:
Purchases of property and equipment			(8,197	)			(5,659	)
Acquisition of intangible assets			(300	)			(30	)
Purchases of marketable securities			(304,574	)			(428,219	)
Maturities of or proceeds from the sale of marketable securities			352,322				616,059
Cash paid for acquisition of business			—				(1,139	)
Decrease in restricted cash			1,048				56
Net cash provided by investing activities			40,299				181,068
Cash flows from financing activities:
Payments under installment payment arrangement			(1,250	)			(4,250	)
Proceeds from issuance of common stock under employee stock plans			17,277				—
Repurchase and retirement of Company common stock			(34,921	)			—
Net cash used in financing activities			(18,894	)			(4,250	)
Effect of exchange rates on cash and cash equivalents			60				146
Net increase(decrease) in cash and cash equivalents			(12,605	)			195,954
Cash and cash equivalents at beginning of period			119,391				73,304
Cash and cash equivalents at end of period		$	106,786			$	269,258
Supplemental disclosure of cash flow information:
Property and equipment received and accrued in accounts payable and other accrued liabilities		$	89			$	1,119

See Notes to Unaudited Condensed Consolidated Financial Statements

RAMBUS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

     The accompanying unaudited condensed 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 condensed consolidated financial statements. Investments in entities with less than 20% ownership and in which Rambus 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 condensed 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 shown. Interim results are not necessarily indicative of results for a full year.

     The unaudited condensed 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 footnote disclosures included in 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, 2007.

     We have reclassified certain prior year balances to conform to the current year’s presentation. None of these reclassifications had an impact on reported net loss for any of the periods presented.

2. Recent Accounting Pronouncements

     In May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of General Accepted Accounting Principle.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement shall be effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With General Accepted Accounting Principles.” The Company believes the adoption of this pronouncement will not have a material impact on the Company’s financial statements.

     In May 2008, the FASB issued FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”), which clarifies the accounting for convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement. FSP APB 14-1 specifies that an issuer of such instruments should separately account for the liability and equity components of the instruments in a manner that reflect the issuer’s non-convertible debt borrowing rate when interest costs are recognized in subsequent periods. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008, and retrospective application is required for all periods presented. The Company is currently evaluating the potential impact of the adoption of FSP APB 14-1 on its financial statements. FSP APB 14-1 will apply to the Company and it expects to record additional non-cash interest expense related to its outstanding convertible debt instruments beginning in the first quarter of 2009.

     In April 2008, the FASB issued FSP FAS 142-3, “Determination of Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS 142, “Goodwill and Other Intangible Assets.” FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier adoption is not permitted. The Company is currently evaluating the potential impact the adoption of FAS FSP 142-3 will have on its financial statements.

     In February 2008, the FASB issued FASB Staff Position 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP 157-1”) and FSP 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”). FSP 157-1 amends SFAS No. 157 to remove certain leasing transactions from its scope. FSP 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. The provisions of SFAS No. 157 were adopted by the Company, as it applies to its financial instruments, effective beginning January 1, 2008. The impact of adoption of SFAS No. 157 is discussed in Note 14, “Fair Value of Financial Instruments.”

     In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” This Statement replaces SFAS No. 141. SFAS No. 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS No. 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company believes the adoption of this pronouncement will not have a material impact on the Company’s financial statements.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.” SFAS No. 160 requires that ownership interests in subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly identified, labeled, and presented in the consolidated financial statements within equity, but separate from the parent’s equity. It also requires that once a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. The provisions of SFAS No. 160 will be effective for the Company beginning January 1, 2009. The Company believes the adoption of this pronouncement will not have a material impact on the Company’s financial statements.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” SFAS No. 159 is effective for the Company in the fiscal year beginning January 1, 2008. SFAS No. 159 permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. SFAS No. 159 became effective in the first quarter of fiscal 2008. The Company has not elected to apply the fair value option to any of its financial instruments that are presently accounted for at cost.

3. Revenue Recognition

Overview

     Rambus recognizes revenue when persuasive evidence of an arrangement exists, Rambus 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, Rambus 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.

     Rambus’ revenue consist 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 product license royalties. Contract revenue consist of fixed license fees, fixed engineering fees and service fees associated with integration of Rambus’ chip interface products 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 Rambus’ patent and product licenses. Rambus 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. Rambus does not pay commissions to the reseller for these arrangements.

     Many of Rambus’ 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

     Rambus recognizes royalty revenue upon notification by its licensees. The terms of the royalty agreements generally either require licensees to give Rambus 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. From time to time, Rambus engages accounting firms other than its independent registered public accounting firm to perform, on Rambus’ behalf, periodic audits of some of the licensee’s reports of royalties to Rambus and any adjustment resulting from such royalty audits is recorded in the period such adjustment is determined. Rambus has two types of royalty revenue: (1) patent license royalties and (2) product license royalties.

     Patent licenses. Rambus 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 Rambus’ patent portfolio. Rambus generally recognizes revenue from these arrangements as amounts become due. The contractual terms of the agreements generally provide for payments over an extended period of time.

     Product licenses. Rambus develops proprietary and industry-standard chip interface products, such as RDRAM and XDR that Rambus provides to its customers under product license agreements. These arrangements include royalties, which can be based on either a percentage of sales or number of units sold. Rambus recognizes revenue from these arrangements (except for those royalties subject to the FTC order discussed below) upon notification from the licensee of the royalties earned and when collectability is deemed reasonably assured.

     On February 2, 2007, the Federal Trade Commission (the “FTC”) issued an order requiring Rambus to limit the royalty rates charged for certain SDR and DDR SDRAM memory and controller products sold after April 12, 2007. The FTC stayed this requirement on March 16, 2007, subject to certain conditions. One such condition of the stay limits the royalties Rambus can receive under certain contracts so that they do not exceed the FTC’s Maximum Allowable Royalties (“MAR”). Amounts in excess of MAR that are subject to the order are excluded from revenue. On April 22, 2008, the United States Court of Appeals for the District of Columbia (the “CADC”) overturned the FTC decision and remanded the matter back to the FTC for further proceedings consistent with the Court’s opinion. On June 6, 2008, the FTC petitioned the CADC to rehear the case en banc. On August 26, 2008, the Court denied the FTC’s petition for rehearing of this matter en banc, and on September 9, 2008, the Court issued its mandate setting aside the FTC’s order and instructing the FTC to take actions consistent with the Court’s ruling. The FTC did not seek, nor did it receive, a stay of the Court’s ruling, and thus the FTC’s order in the case has been vacated. On October 16, 2008, the FTC issued an order (“FTC Disposition Order”) authorizing Rambus to receive the excess consideration that customers have previously deducted from their quarterly payments made to Rambus under the Patent License Agreement (see Note 13 “Litigation and Asserted Claims”).

     At the time of the issuance of the mandate on September 9, 2008, $6.2 million had been determined as amounts in excess of MAR and had been excluded from revenue. As the FTC’s order has been vacated, the Company will recognize the previously unrecognized revenue in excess of MAR of $6.2 million as revenue when the corresponding cash payments are received. In the three months ended September 30, 2008, $0.9 million of the amounts in excess of MAR was previously received and recognized as revenue in the third quarter of 2008. The remaining $5.3 million will be recognized when the payments are received from the customers.

Contract Revenue

     Rambus generally recognizes revenue in accordance with the provisions of SOP 81-1 for development contracts related to licenses of its chip interface products, such as XDR and FlexIO that involve significant engineering and integration services. Revenue derived from such license and engineering services is recognized using the completed contract or percentage-of-completion method. For all license and service agreements accounted for using the percentage-of-completion method, Rambus determines progress to completion using input measures based upon contract costs incurred. Prior to the first quarter of 2008, Rambus 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 the Company’s results of operations. Rambus has evaluated use of output measures versus

input measures and has determined that its 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 Rambus 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 Rambus 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 were 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 were longer than the original assumptions, the contract fees will be recognized over a longer period.

     In certain periods, the estimated cost of contract revenue may exceed contract revenue that did not factor in the expected stream of future royalty payments. This can be further impacted by timing of expensing of pre-contract costs as research and development expenses and expensing of completed contract costs where the realizability of an asset is uncertain. As of September 30, 2008, the Company had accrued a liability of approximately $0.8 million related to estimated loss contracts. These expenses are recognized in cost of contract revenue during the quarter when such loss is determined.

     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 Rambus’ 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.

     If there is significant uncertainty about the time to complete or the deliverables by either party, Rambus evaluates the appropriateness of applying the completed contract method of accounting under SOP 81-1. Such evaluation is completed on a contract-by-contract basis. For all contracts where revenue recognition must be delayed until the contract deliverables are substantially complete, Rambus evaluates the realizability of the assets which the accumulated costs would represent and defers or expenses as incurred based upon the conclusions of its realization analysis.

     Rambus also recognizes revenue in accordance with SOP 97-2, SOP 98-4 and SOP 98-9 for development contracts related to licenses of its 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. Rambus’ 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, as required by SOP 97-2, after Rambus delivers the product, if the only undelivered element is PCS, Rambus will recognize all revenue ratably over either the contractual PCS period or the period during which PCS is expected to be provided. Rambus reviews assumptions regarding the PCS periods on a regular basis. If Rambus 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. However, if the new estimated periods were shorter than the original assumptions, the contract fees would be recognized ratably over a shorter period. Conversely, if the new estimated periods were longer than the original assumptions, the contract fees would be recognized ratably over a longer period.

4. Comprehensive Loss

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

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In thousands)		2008				2007				2008				2007
Net loss		$	(27,944	)		$	(6,498	)		$	(185,242	)		$	(13,106	)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax			—				114				60				146
Unrealized gain (loss) on marketable securities, net of tax			(1,112	)			217				(1,865	)			536
Other comprehensive income (loss)			(1,112	)			331				(1,805	)			682
Total comprehensive loss		$	(29,056	)		$	(6,167	)		$	(187,047	)		$	(12,424	)

     As a result of providing a full valuation allowance of the net deferred tax assets in the U.S., the Company reversed $0.5 million of unrealized gain (loss) previously recorded in other comprehensive income (loss) during the quarter ended June 30, 2008.

5. Stock-Based Compensation and Employee Stock Plans

     For the nine months ended September 30, 2008 and 2007, 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, 2008, Rambus granted 90,990 and 1,854,880 stock options, respectively, with an estimated total grant-date fair value of $1.0 million and $21.1 million, respectively. During the three and nine months ended September 30, 2008, Rambus recorded stock-based compensation related to stock options of $8.6 million and $25.9 million, respectively. These amounts include approximately $0.2 million of accrued stock-based compensation expense related to the next quarter in connection with the restructuring effort.

     During the three and nine months ended September 30, 2007, Rambus granted 108,500 and 2,867,950 stock options, respectively, with an estimated total grant-date fair value of $0.9 million and $35.2 million, respectively. During the three and nine months ended September 30, 2007, Rambus recorded stock-based compensation expense related to stock options of $8.8 million and $27.4 million, respectively, for all unvested options granted, including the modification charge for the extension of expiring options discussed below.

     The effect of recording stock-based compensation for the three and nine months ended September 30, 2007 includes a charge resulting from the Company’s modifying the terms of 33 and 138 grants, respectively, by offering an extension of time to exercise. An additional charge was taken during the nine month period to extend the time of the extension of the 59 grants previously extended in 2006. The total modification charge was $0.4 million and $3.2 million during the three and nine months ended September 30, 2007, respectively.

     The total intrinsic value of options exercised was $2.3 million and $12.5 million for the three and nine months ended September 30, 2008, respectively. There were no option exercises in the first nine months of 2007. 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 three and nine periods ended September 30, 2008, proceeds from employee stock option exercises totaled approximately $4.5 million and $14.8 million, respectively.

     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 nine months ended September 30, 2008 and 2007 calculated in accordance with SFAS No. 123(R).

Valuation Assumptions

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

		Stock Option Plans
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Stock Option Plans
Expected stock price volatility			70	%			53%-68	%			63-70	%			53%-69	%
Risk free interest rate			3.3	%			4.4%-4.9	%			3.0-3.3	%			4.4%-4.9	%
Expected term (in years)			5.3				6.2				5.3				6.2
Weighted-average fair value of stock options granted		$	10.25			$	8.44			$	11.35			$	12.28

		Employee Stock Purchase Plan
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008 (1)				2007(1)				2008				2007(1)
Employee Stock Purchase Plan
Expected stock price volatility			—				—				58	%			—
Risk free interest rate			—				—				1.7	%			—
Expected term (in years)			—				—				0.5				—
Weighted-average fair value of purchase rights granted under the purchase plan			—				—			$	7.41				—

     In the first quarter of 2008, the Company changed its methodology for determining estimated expected term for employee stock options from the Monte Carlo simulation model to observed historical exercise patterns. The change in methodology resulted from an analysis of observed historical exercise patterns which better approximates the actual expected term. The impact of this change was not significant to the Company’s results from operations.

     See Note 9 “Income Taxes” for additional information related to tax effects of stock-based compensation.

Summary of shares available for grant under stock option plans

     As of September 30, 2008, 2,214,659 shares of the 8,400,000 shares approved under the 2006 Plan remain available for grant. The 2006 Plan is now Rambus’ only plan for providing stock-based incentive compensation to eligible employees, executive officers and 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, 2007			4,589,131
Stock options granted			(1,854,880	)
Stock options forfeited			1,024,684
Stock options expired under former plans			(636,776	)
Nonvested equity stock and stock units granted (1)			(907,500	)
Total shares available for grant as of September 30, 2008			2,214,659

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, 2008 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of September 30, 2008.

		Options Outstanding
										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
		Number of				Exercise Price				Contractual				Intrinsic
		Shares				Per Share				Term				Value
		(Dollars in thousands, except per share amounts)
Outstanding as of December 31, 2007			18,750,738			$	20.17
Options granted			1,854,880				19.83
Options exercised			(1,323,529	)			11.18
Options forfeited			(1,024,684	)			23.33
Outstanding as of September 30, 2008			18,257,405				20.60				5.62			$	23,500
Vested or expected to vest at September 30, 2008			16,773,498				21.27				5.61				17,335
Options exercisable at September 30, 2008			11,348,116				21.55				4.58				17,261

     The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at September 30, 2008, based on the $12.85 closing stock price of Rambus’ Common Stock on September 30, 2008 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, 2008 was 3,387,975 and 2,719,811, respectively.

     As of September 30, 2008, there was $57.4 million of total unrecognized compensation cost, net of expected forfeitures, related to unvested stock-based compensation arrangements granted under the stock option plans. That cost is expected to be recognized over a weighted-average period of 2.9 years. The total fair value of options vested as of September 30, 2008 was $211.0 million.

Employee Stock Purchase Plans

     Under the 2006 Employee Stock Purchase Plan, the Company issued 146,633 shares at a price of $16.77 per share during the nine months ended September 30, 2008. No purchases were made under the Employee Stock Purchase Plans during the nine months ended September 30, 2007. As of September 30, 2008, 1,453,367 shares under the 2006 Purchase Plan remain available for issuance. During the three months ended September 30, 2008, the Company commenced a restructuring effort which reduced overall headcount. As a

result, the Company revised its estimate of expected compensation expense related to the Employee Stock Purchase Plan. For the three and nine months ended September 30, 2008, the Company recorded compensation expense related to the Employee Stock Purchase Plan of $0.3 million and $1.3 million, respectively. As of September 30, 2008, there was $0.1 million of total unrecognized compensation cost related to share-based compensation arrangements granted under the Employee Stock Purchase Plan. That cost is expected to be recognized over one month.

Nonvested Equity Stock and Stock Units

     For the three and nine months ended September 30, 2008, Rambus granted nonvested equity stock units to certain officers and employees, totaling 408,000 shares and 605,000 shares, respectively. These nonvested equity stock units have a service condition, generally a service period of four years. Included in the 2008 grants are 48,000 nonvested equity stock units which were granted to its chief executive officer with vesting subject to the achievement of certain performance conditions related to revenue goals and other factors. For the nine months ended September 30, 2008, the Company has not recognized any compensation expense for these performance equity stock units granted to its chief executive officer since the Company does not currently believe that the performance conditions will be met. During the second quarter of 2008, the Company updated the estimated forfeiture rate for all other nonvested equity stock units based on management’s future expectations. The nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $11.3 million.

     For the three and nine months ended September 30, 2008, Rambus recorded stock-based compensation expense of approximately $0.6 million and $1.8 million, respectively, related to all outstanding unvested equity stock grants. For the three and nine months ended September 30, 2007, Rambus recorded stock-based compensation expense of approximately $0.3 million and $1.0 million, respectively, related to all outstanding unvested equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of an estimate of forfeitures, was approximately $12.6 million at September 30, 2008.

     The following table reflects the activity related to nonvested equity stock and stock units for the nine months ended September 30, 2008:

						Weighted-
						Average
						Grant-Date
Nonvested Equity Stock and Stock Units		Shares				Fair Value
Nonvested at December 31, 2007			244,177			$	21.41
Granted			605,000				18.73
Vested			(59,177	)			20.26
Nonvested at September 30, 2008			790,000			$	19.45

Contingent Unvested Options

     As of December 31, 2007, there were 635,348 contingent unvested options, which vest upon the achievement of certain milestones by Intel relating to shipment volumes of RDRAM 850E chipsets. Intel has since phased out the 850E chipset and as a result the unvested options will never vest. The impact of the unvested options has been excluded from the calculation of net loss per share. During the nine months ended September 30, 2008, 40,300 contingent unvested options were forfeited. The forfeitures of the contingent unvested options are included in the forfeitures in the table summarizing stock option activity.

     As of September 30, 2008, there were 595,048 contingent unvested options, none of which are expected to vest.

6. Marketable Securities

     Rambus invests its excess cash 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, 2008
														Weighted
										Unrealized				Rate of
(dollars in thousands)		Fair Value				Book Value				Gain (Loss), net				Return
Money Market Funds		$	84,819			$	84,819			$	—				1.74	%
Municipal Bonds and Notes			1,004				1,000				4				3.85	%
U.S. Government Bonds and Notes			191,604				192,015				(411	)			3.04	%
Corporate Notes, Bonds, and Commercial Paper			98,519				99,390				(871	)			3.01	%
Total cash equivalents and marketable securities			375,946				377,224				(1,278	)
Cash			3,026				3,026				—
Total cash, cash equivalents and marketable securities		$	378,972			$	380,250			$	(1,278	)

		December 31, 2007
														Weighted
										Unrealized				Rate of
(dollars in thousands)		Fair Value				Book Value				Gain, net				Return
Money Market Funds		$	104,836			$	104,836			$	—				4.82	%
Municipal Bonds and Notes			3,008				3,000				8				4.81	%
U.S. Government Bonds and Notes			108,660				108,568				92				4.39	%
Corporate Notes, Bonds, and Commercial Paper			219,734				219,668				66				4.90	%
Total cash equivalents and marketable securities			436,238				436,072				166
Cash			4,644				4,644				—
Total cash, cash equivalents and marketable securities		$	440,882			$	440,716			$	166

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

		September 30,				December 31,
(dollars in thousands)		2008				2007
Cash equivalents		$	103,760			$	114,747
Short term marketable securities			272,186				321,491
Total cash equivalents and marketable securities			375,946				436,238
Cash			3,026				4,644
Total cash, cash equivalents and marketable securities		$	378,972			$	440,882

     The estimated fair value of cash equivalents and marketable securities classified by date of contractual maturity and the associated unrealized gain (loss) at September 30, 2008 and December 31, 2007 are as follows:

		As of								Unrealized Gain (Loss), net
		September 30,				December 31,				September 30,				December 31,
		2008				2007				2008				2007
		(In thousands)
Contractual maturity:
Due within one year		$	244,021			$	361,974			$	(748	)		$	27
Due from one year through three years			131,925				74,264				(530	)			139
		$	375,946			$	436,238			$	(1,278	)		$	166

     The unrealized losses were insignificant in relation to our total available-for-sale portfolio. The unrealized losses can be attributed to present credit market conditions.

     The Company adopted SFAS No. 157 effective January 1, 2008 for financial assets and liabilities measured on a recurring basis. SFAS No. 157 applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. For the discussion regarding the impact of the adoption of SFAS No. 157 on the Company’s marketable securities, see Note 14, “Fair Value of Financial Instruments.”

7. Commitments and Contingencies

     On February 1, 2005, Rambus issued $300.0 million aggregate principal amount of zero coupon convertible senior notes (the “convertible notes”) due February 1, 2010 to Credit Suisse First Boston LLC and Deutsche Bank Securities as initial purchasers who then sold the convertible notes to institutional investors. Rambus elected to pay the principal amount of the convertible notes in cash when they are due. Subsequently, Rambus repurchased a total of $140.0 million face value of the outstanding convertible notes in 2005. The convertible notes outstanding as of September 30, 2008 were $160.0 million and were classified as a non-current liability in the accompanying condensed consolidated balance sheets.

     As of September 30, 2008, Rambus’ material contractual obligations were:

		Payment Due by Year
						Remainder of
		Total				2008				2009				2010				2011				2012				Thereafter
		(In thousands)
Contractual obligations(1)
Operating leases		$	17,404			$	2,624			$	7,381			$	6,277			$	645			$	477			$	—
Convertible notes			160,000				—				—				160,000				—				—				—
Purchased software license agreements(2)			1,014				507				507				—				—				—				—
Total		$	178,418			$	3,131			$	7,888			$	166,277			$	645			$	477			$	—

     Rent expense was approximately $1.7 million and $5.2 million for the three and nine months ended September 30, 2008, respectively. Rent expense was approximately $1.6 million and $4.8 million for the three and nine months ended September 30, 2007, respectively.

     Deferred rent, included primarily in other long-term liabilities, was approximately $1.2 million and $1.5 million as of September 30, 2008 and December 31, 2007, respectively.

     In connection with certain litigation taking place in Germany, the German courts have requested that the Company set aside adequate funds to cover potential court cost claims. Accordingly, approximately $0.6 million is restricted as to withdrawal, managed by a third party subject to certain limitations under the Company’s investment policy and included in restricted cash, long-term, to cover the German court requirements.

     Indemnifications

     Rambus enters into standard license agreements in the ordinary course of business. Although Rambus 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 Rambus’ products. The maximum amount of indemnification Rambus could be required to make under these agreements is generally limited to fees received by Rambus. Rambus estimates the fair value of its indemnification obligation as insignificant, based upon its history of litigation concerning product and patent infringement claims. Accordingly, Rambus has no liabilities recorded for indemnification under these agreements as of September 30, 2008 or December 31, 2007.

     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, Rambus has agreements whereby its officers and directors are indemnified for certain events or occurrences while the officer or director is, or was serving, at Rambus’ 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 Rambus could be required to make under these indemnification agreements is unlimited. Rambus has a director and officer insurance policy that reduces Rambus’ exposure and enables Rambus to recover a portion of future amounts to be paid. As a result of these indemnification agreements, Rambus continues to make payments on behalf of current and former officers. As of September 30, 2008, the Company had made payments of approximately $6.8 million on their behalf, including $0.4 million in the quarter ended September 30, 2008. As of September 30, 2007, the Company had made payments of approximately $5.2 million on their behalf, including $0.8 million in the quarter ended September 30, 2007. These payments were recorded under costs of restatement and related legal activities in the condensed consolidated statements of operations.

     Warranties

     Rambus offers some of its customers a warranty that its products will conform to their functional specifications. To date, there have been no payments or material costs incurred related to fulfilling these warranty obligations. Accordingly, Rambus has no liabilities recorded for these warranties as of September 30, 2008 or December 31, 2007, respectively. Rambus assesses the need for a warranty accrual on a quarterly basis, and there can be no guarantee that a warranty accrual will not become necessary in the future.

8. Stockholders’ Equity

Share Repurchase Program

     In October 2001, Rambus’ Board of Directors (the “Board”) approved a share repurchase program of its Common Stock, principally to reduce the dilutive effect of employee stock options. To date, the Board has approved the authorization to repurchase up to 19.0 million shares of the Company’s outstanding Common Stock over an undefined period of time. For the three months ended September 30, 2008, 0.6 million shares were repurchased with an aggregate value of $10.0 million. During the nine months ended September 30, 2008, the Company repurchased approximately 2.0 million shares with an aggregate value of $34.9 million. As of September 30, 2008, Rambus had repurchased a cumulative total of approximately 15.2 million shares of its Common Stock with an aggregate value of approximately $219.5 million since the commencement of this program. As of September 30, 2008, there remained an outstanding authorization to repurchase approximately 3.8 million shares of Rambus’ outstanding Common Stock.

     Rambus records stock repurchases as a reduction to stockholders’ equity. As prescribed by Accounting Principles Board (“APB”) Opinion No. 6, “Status of Accounting Research Bulletins,” Rambus 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, 2008, the cumulative price of the shares repurchased exceeded the proceeds received from the issuance of the same number of shares. The excess of $32.2 million was recorded as an increase to accumulated deficit for the nine months ended September 30, 2008. During the nine months ended September 30, 2007, the Company did not repurchase any Common Stock.

9. Income Taxes

     The effective tax rate for the quarter ended September 30, 2008 was 0.3% which is lower than the U.S. statutory tax rate applied to the Company’s net loss primarily due to the establishment of a full valuation allowance on our U.S. net deferred tax assets in the second quarter of 2008. The effective tax rate for the quarter ended September 30, 2007 was 40.0% which was higher than the U.S. statutory tax rate applied to the Company’s net loss primarily due to research and development tax credits, non-deductible stock-based compensation expense related to our executives and other employees, state income taxes and foreign income taxes.

     As of September 30, 2008, the Company’s condensed consolidated balance sheet included net deferred tax assets, before valuation allowance, of approximately $152.9 million, which consists of net operating loss carryovers, tax credit carryovers, depreciation and amortization, employee stock-based compensation expenses and certain liabilities. For the quarter ended June 30, 2008, the Company recorded a non-cash income tax provision of $130.5 million to establish a valuation allowance to fully reserve previously recorded net

tax benefits generated from pre-tax losses in the U.S. 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. As previously disclosed in the Company’s 2007 Form 10-K for the year ended December 31, 2007, the Company’s forecasted future operating results are highly influenced by, among other factors, assumptions regarding (1) the Company’s ability to achieve its forecasted revenue, (2) its ability to effectively manage its expenses in line with its forecasted revenue and (3) general trends in the semiconductor industry.

     The Company weighed both positive and negative evidence and determined that there is a need for the valuation allowance during the quarter ended June 30, 2008 due to the existence of three years of historical cumulative losses and a revised forecast that projected future losses from operations in the U.S., which the Company considered significant verifiable negative evidence. Though considered positive evidence, projected income from favorable patent litigation and related settlements were not included in the determination for the valuation allowance due to the Company’s inability to reliably estimate the timing and amounts of such settlements. The Company intends to maintain the valuation allowance until sufficient positive evidence exists to support reversal of the valuation allowance.

     Rambus maintains liabilities for uncertain tax benefits 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, 2008, the Company had $14.1 million of unrecognized tax benefits, including $11.1 million recorded as a reduction of long-term deferred tax assets and $3.0 million in long-term income taxes payable. If recognized, approximately $0.5 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, 2007, the Company had $14.0 million of unrecognized tax benefits, including $8.5 million recorded as a reduction of long-term deferred tax assets, which is net of approximately $2.6 million of federal tax benefits, and including $2.9 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.

     Rambus recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision (benefit). At December 31, 2007 and September 30, 2008, an insignificant amount of interest and penalties are included in long-term income taxes payable.

     Rambus files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. Rambus is currently under a payroll examination by the Internal Revenue Service for the years ended December 31, 2004 and 2005. The Company is also 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 general examination by the IRS for tax years ended 2005 through 2007. The Company is also subject to examination by the State of California for tax years ended March 31, 2003 through December 31, 2007. In addition, any research and development credit carryforwards and net operating loss 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 is also subject to examination in various other jurisdictions for various periods.

10. Earnings (Loss) Per Share

     Earnings (loss) per share is calculated in accordance with SFAS No. 128, “Earnings 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 the convertible notes is calculated under the if-converted method. The dilutive effect of outstanding shares under the Company’s stock plans 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.

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
		(In thousands, except per share amounts)
Numerator:
Net loss		$	(27,944	)		$	(6,498	)		$	(185,242	)		$	(13,106	)
Denominator:
Weighted average shares used to compute basic EPS			104,897				103,820				104,795				103,820
Dilutive potential shares from stock options, ESPP and nonvested equity stock and stock units			—				—				—				—
Weighted average shares used to compute diluted EPS			104,897				103,820				104,795				103,820
Net loss per share:
Basic		$	(0.27	)		$	(0.06	)		$	(1.77	)		$	(0.13	)
Diluted		$	(0.27	)		$	(0.06	)		$	(1.77	)		$	(0.13	)

     For the three and nine months ended September 30, 2008 and 2007, approximately 5.9 million shares that would be issued upon the conversion of the contingently issuable convertible notes were excluded from the calculation of earnings per share because the conversion price was higher than the average market price of the Common Stock during these periods. For the three months ended September 30, 2008 and 2007, options to purchase approximately 11.9 million and 12.5 million shares, respectively, and for the nine months ended September 30, 2008 and 2007, options to purchase approximately 10.5 million and 11.0 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 and nine months ended September 30, 2008, an additional 2.7 million and 3.4 million shares, respectively, including nonvested equity stock and stock units, that would be dilutive have been excluded from the weighted average dilutive shares because there was a net loss for the period.

11. Business Segments, Exports and Major Customers

     Rambus operates in a single industry segment, the design, development and licensing of chip interface technologies and architectures. Five customers accounted for 23%, 13%, 13%, 13% and 10%, respectively, of revenue in the three months ended September 30, 2008. Four customers accounted for 19%, 16%, 15% and 10%, respectively, of revenue in the three months ended September 30, 2007. Six customers accounted for 20%, 14%, 12%, 11%, 10% and 10%, respectively, of revenue in the nine months ended September 30, 2008. Three customers accounted for 21%, 16% and 14%, respectively, of revenue in the nine months ended September 30, 2007. Rambus expects that its revenue concentration will decrease over the long term as Rambus licenses new customers.

     Rambus sells its chip interfaces and licenses to customers in the Far East, North America, and Europe. Revenue is attributed to individual countries according to the countries in which the licensees are headquartered. Revenue from customers in the following geographic regions is recognized as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In thousands)		2008				2007				2008				2007
Japan		$	23,279			$	25,619			$	83,839			$	93,985
North America			5,857				6,593				18,518				20,454
Taiwan			10				875				532				1,025
Korea			102				373				541				859
Singapore			114				532				288				532
Europe			66				7,723				1,163				22,553
		$	29,428			$	41,715			$	104,881			$	139,408

     At September 30, 2008, of the $23.7 million of total long-lived assets, approximately $20.3 million are located in the United States, $2.7 million are located in India and $0.7 million are located in other foreign locations. At December 31, 2007, of the $24.6 million of total long-lived assets, approximately $20.2 million were located in the United States, $3.6 million were located in India and $0.8 million were located in other foreign locations.

12. Amortizable Intangible Assets

     The components of the Company’s intangible assets as of September 30, 2008 and December 31, 2007 were as follows:

		As of September 30, 2008
		Gross Carrying				Accumulated				Net Carrying
		Amount				Amortization				Amount
		(In thousands)
Patents		$	9,941			$	(5,236	)		$	4,705
Intellectual property			10,384				(9,313	)			1,071
Customer contracts and contractual relationships			4,000				(2,102	)			1,898
Existing technology			2,700				(2,334	)			366
Non-competition agreement			100				(100	)			—
Total intangible assets		$	27,125			$	(19,085	)		$	8,040

		As of December 31, 2007
		Gross Carrying				Accumulated				Net Carrying
		Amount				Amortization				Amount
		(In thousands)
Patents		$	9,941			$	(4,363	)		$	5,578
Intellectual property			10,084				(7,759	)			2,325
Customer contracts and contractual relationships			8,000				(3,344	)			4,656
Existing technology			2,700				(1,828	)			872
Non-competition agreement			100				(90	)			10
Total intangible assets		$	30,825			$	(17,384	)		$	13,441

     Amortization expense for intangible assets for the three and nine months ended September 30, 2008 was $0.8 million and $3.5 million, respectively. Amortization expense for intangible assets for the three and nine months ended September 30, 2007 was $1.3 million and $3.9 million, respectively.

     During the three months ended September 30, 2008, based on communication it received from a customer, the Company determined that approximately $2.2 million of its intangible assets had no alternative future use and was impaired as a result of a customer’s change in technology requirements. The intangible asset relates to a contractual relationship acquired in the Velio acquisition during December 2003.

     The estimated future amortization expense of intangible assets as of September 30, 2008 was as follows (amounts in thousands):

Years Ending December 31:		Amount
2008 (remaining 3 months)		$	796
2009			2,708
2010			1,521
2011			1,193
2012			921
Thereafter			901
		$	8,040

     The valuation and useful lives of the acquired intangible assets were allocated based on estimated fair values at the acquisition dates. The value of the agreements, along with interviews and management’s estimates were used to determine the useful lives of the assets. The income approach, which includes an analysis of the cash flows and risks associated with achieving such cash flows, was the primary technique utilized in valuing the acquired patented technology. Key assumptions included estimates of revenue growth, cost of revenue, operating expenses and income taxes. The discount rates used in the valuation of intangible assets reflected the level of risk associated with the particular technology and the current return on investment requirements of the market.

13. 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.

     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 were 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 17, 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 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. No opinion has issued to date on Hynix’s post-trial motions for judgment as a matter of law and new trial on certain issues relating to validity and infringement, nor has any opinion issued to date on Rambus’ motions for equitable relief, supplemental damages, and prejudgment interest. 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.

     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 motion for new trial. The court has not yet ruled on their equitable claims and defenses.

     European Patent Infringement Case

     Beginning on September 4, 2000, Rambus filed suit against Hynix in multiple European jurisdictions for infringement of EP 0 525 068 (the “’068 patent”). Rambus later filed a further infringement action against Hynix in Mannheim, Germany on a second patent, EP 1 022 642 (the “’642 patent”). Both patents were opposed by Hynix, Micron, and Infineon in the European Patent Office (EPO). The ’068 patent was revoked by an Appeal Board in 2004, and a hearing in the opposition with respect to the ’642 patent has not yet been scheduled. On January 8, 2008, the Mannheim court issued an Order of Cost with respect to the ’068 proceeding requiring Rambus to reimburse Hynix court fees in the amount of $0.6 million. This amount has since been paid.

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 in 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 twelve 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. The matter was taken under submission, and 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 in the Northern District of California. Rambus alleges that fourteen 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 fourteen 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 motion for new trial. The court has not yet ruled on their equitable claims and defenses.

     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 twelve 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. One or more trials on Rambus’ patent infringement claims is set to begin on January 19, 2009.

     European Patent Infringement Cases

     On September 11, 2000, Rambus filed suit against Micron in multiple European jurisdictions for infringement of its ’068 patent (described above), which was later revoked. Additional suits were filed pertaining to the ’642 patent and a third Rambus patent, EP 1 004 956 (the “’956 patent”). Rambus’ suit against Micron for infringement of the ’642 patent in Mannheim, Germany, has not been active. The Mannheim court issued an Order of Cost with respect to the ’068 proceeding requiring Rambus to reimburse Micron attorneys fees in the amount of $0.45 million. This amount has since been paid.

     One proceeding in Italy relating to the ’642 patent was adjourned at a hearing on June 15, 2007, each party bearing its own costs. In two other proceedings in Italy relating to the ’956 patent, the court has scheduled hearings for May 6, 2009, regarding continuation of the proceedings. On September 29, 2005, Rambus received a letter from Micron seeking to toll a statute of limitations period in Italy for a purported cause of action resulting from a seizure of evidence in Italy in 2000 carried out by Rambus pursuant to a court order. Micron asserts that its damages allegedly caused by this seizure equal or exceed $30.0 million. Micron formally filed suit against Rambus relating to this seizure in February 2006. Rambus filed its written defense on April 24, 2006. The Italian court has ordered further briefing on issues related to Rambus’ suit in Italy for infringement of its ’068 patent. No decision has issued to date.

     DDR2, GDDR2 & GDDR3 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 in 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. That trial is currently scheduled to begin on September 22, 2008. 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 motion for new trial. The court has not yet ruled on their equitable claims and defenses.

     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 twelve 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. One or more trials on Rambus’ remaining patent infringement claims is set to begin on January 19, 2009.

     Samsung Litigation

     U.S District Court in the Northern District of California

     On June 6, 2005, Rambus filed a patent infringement suit against Samsung in the U.S. District Court in the Northern District of California alleging that Samsung’s SDRAM and DDR SDRAM parts infringe nine of Rambus’ patents. Samsung has denied Rambus’ claims and asserted counterclaims for non-infringement, invalidity and unenforceability of the patents, violations of various antitrust and unfair competition statutes, breach of license, and breach of duty of good faith and fair dealing. Samsung has also counterclaimed that Rambus aided and abetted breach of fiduciary duty and intentionally interfered with Samsung’s contract with a former employee by knowingly hiring a former Samsung employee who allegedly misused proprietary Samsung information. Rambus has denied Samsung’s counterclaims.

     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 as discussed below. 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 twelve 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. One or more trials on Rambus’ remaining patent infringement claims is set to begin on January 19, 2009.

     On August 11, 2008, the Court granted summary judgment in Rambus’ favor on Samsung’s claims for aiding and abetting a breach of fiduciary duty, intentional interference with contract, and certain aspects of Samsung’s unfair competition claim. On September 16, 2008, the Court entered a stipulation and order of dismissal with prejudice of certain of Samsung’s claims and defenses (including those based on Rambus’ alleged JEDEC conduct) and Rambus’ defenses corresponding to Samsung’s claims. A bench trial on the remaining claims and defenses that are unique to Samsung (breach of license, breach of duty of good faith and fair dealing, and estoppel based on those claims) was held between September 22 and October 1, 2008. Post-trial briefing on these issues as well as Samsung’s claims and defenses related to its allegations that Rambus spoliated evidence has been completed, but no decision has issued to date.

     U.S District Court in the Eastern District of Virginia

     On June 7, 2005, Samsung sued Rambus in the U.S. District Court in the Eastern District of Virginia seeking a declaratory judgment that four Rambus patents are invalid, unenforceable and/or not infringed. Rambus answered the complaint, disputing Samsung’s claims. Rambus granted Samsung covenants not to sue Samsung for infringement of the four patents for which Samsung sought declaratory relief. Rambus subsequently offered to pay Samsung’s attorneys’ fees, but Samsung did not accept the offer. On November 8, 2005, the Virginia court granted Rambus’ motion to dismiss with respect to Samsung’s claims for declaratory judgment but denied Rambus’ motion with respect to Samsung’s claim for attorneys’ fees pursuant to 35 U.S.C. § 285. On July 19, 2006, the Virginia court issued orders finding that: (1) it had subject matter jurisdiction over Samsung’s motions; (2) Samsung is a “prevailing party;” (3) Rambus had spoliated evidence in anticipation of litigation against DRAM manufacturers such as Samsung; (4) Rambus’ spoliation rendered the case exceptional; (5) Rambus did not assert its counterclaims in subjective bad faith or for the purpose of vexation; (6) Rambus’ counterclaims were not objectively baseless at the time they were filed; and (7) Samsung was not entitled to an award of attorneys’ fees.

     Rambus filed a notice of appeal to the United States Court of Appeals for the Federal Circuit (the “CAFC”) on August 16, 2006. Oral argument was heard on August 7, 2007. On April 29, 2008, the CAFC vacated the orders of the Virginia court denying Samsung’s application for attorney fees and entering findings with respect to the alleged spoliation of evidence. The CAFC held that the Virginia court’s findings with respect to alleged spoliation constituted an impermissible advisory opinion. The CAFC further held that Rambus’ offer to pay Samsung’s attorneys’ fees rendered the case moot, and that the Virginia court did not thereafter have independent jurisdiction to assess whether the case was exceptional. The CAFC remanded the matter to the Virginia court with the instruction that the court dismiss Samsung’s complaint. On May 30, 2008, the Virginia court dismissed Samsung’s complaint pursuant to the CAFC’s opinion.

     On July 28, 2008, Samsung filed a petition seeking review of the CAFC decision by the United States Supreme Court. On October 6, 2008, the United States Supreme Court denied Samsung’s petition.

     FTC Complaint

     On June 19, 2002, the FTC filed a complaint against Rambus. The FTC alleged that through Rambus’ action and inaction at JEDEC, Rambus violated Section 5 of the FTC Act in a way that allowed Rambus to obtain monopoly power in — or that by acting with intent to monopolize it created a dangerous probability of monopolization in — synchronous DRAM technology markets. The FTC also alleged that Rambus’ action and practices at JEDEC constituted unfair methods of competition in violation of Section 5 of the FTC Act. As a remedy, the FTC sought to enjoin Rambus’ right to enforce patents with priority dates prior to June 1996 as against products made pursuant to certain existing and future JEDEC standards.

     On February 17, 2004, the FTC Chief Administrative Law Judge issued his initial decision dismissing the FTC’s complaint against Rambus on multiple independent grounds (the “Initial Decision”). The FTC’s Complaint Counsel appealed this decision.

     On August 2, 2006, the FTC released its July 31, 2006, opinion and order reversing and vacating the Initial Decision and determining that Rambus violated Section 5 of the Federal Trade Commission Act. Following further briefing and oral argument on issues relating to remedy, the FTC released its opinion and order on remedy on February 5, 2007. The remedy order set the maximum royalty rate that Rambus could collect on the manufacture, use or sale in the United States of certain JEDEC-compliant parts after the effective date of the Order. The order also mandated that Rambus offer a license for these products at rates no higher than the maximums set by the FTC, including a further cap on rates for the affected non-memory products. The order further required Rambus to take certain steps to comply with the terms of the order and applicable disclosure rules of any standard setting organization of which it may become a member.

     The FTC’s order explicitly did not set maximum rates or other conditions with respect to Rambus’ royalty rates for DDR2 SDRAM, other post-DDR JEDEC standards, or for non-JEDEC-standardized technologies such as those used in RDRAM or XDR DRAM.

     On March 16, 2007, the FTC issued an order granting in part and denying in part Rambus’ motion for a stay of the remedy pending appeal. The March 16 order permitted Rambus to acquire rights to royalty payments for use of the patented technologies affected by the February 2 remedy order during the period of the stay in excess of the FTC-imposed maximum royalty rates on SDRAM and DDR SDRAM products, provided that funds above the maximum allowed rates be either placed into an escrow account to be distributed, or payable pursuant a contingent contractual obligation, in accordance with the ultimate decision of the court of appeals. In an opinion accompanying its order, the FTC clarified that it intended its remedy to be “forward-looking” and “prospective only,” and therefore unlikely to be construed to require Rambus to refund royalties already paid or to restrict Rambus from collecting royalties for the use of its technologies during past periods.

     On April 27, 2007, the FTC issued an order granting in part and denying in part Rambus’ petition for reconsideration of the remedy order. The FTC’s order and accompanying opinion on Rambus’ petition for reconsideration clarified the remedy order in certain respects. For example, (a) the FTC explicitly stated that the remedy order did not require Rambus to make refunds or prohibit it from collecting royalties in excess of maximum allowable royalties that accrue up to the effective date of the remedy order; (b) the remedy order was modified to specifically permit Rambus to seek damages in litigation up to three times the specified maximum allowable royalty rates on the ground of willful infringement and any allowable attorneys’ fees; and (c) under the remedy order, licensees were permitted to pay Rambus a flat fee in lieu of running royalties, even if such an arrangement resulted in payments above the FTC’s rate caps in certain circumstances.

     Rambus appealed the FTC’s liability and remedy orders to the United States Court of Appeals for the District of Columbia (the “CADC”). Oral argument was heard February 14, 2008. On April 22, 2008, the CADC issued an opinion which requires vacatur of the FTC’s orders. The CADC held that the FTC failed to demonstrate that Rambus’ conduct was exclusionary, and thus failed to establish its allegation that Rambus unlawfully monopolized any relevant market. The CADC’s opinion set aside the FTC’s orders and remanded the matter to the FTC for further proceedings consistent with the opinion. Regarding the chance of further proceedings on remand, the CADC expressed serious concerns about the strength of the evidence relied on to support some of the Commission’s crucial findings regarding the scope of JEDEC’s patent disclosure policies and Rambus’ alleged violation of those policies. On August 26, 2008, the CADC denied the FTC’s petition to rehear the case en banc. On October 16, 2008, the FTC issued an order explicitly authorizing Rambus to receive amounts above the maximum rates allowed by the FTC’s now-vacated order payable pursuant to any contingent contractual obligation.

     Indirect Purchaser Class Action

     On August 10, 2006, the first of nine class action lawsuits were filed against Rambus in 2006 alleging violations of federal and state antitrust laws, violations of state consumer protection laws, and various common law claims based almost entirely on the same conduct which was the subject of the FTC’s July 31, 2006 opinion. Three of these lawsuits filed outside of California were dismissed pursuant to agreement of the parties. The remaining six of these cases were consolidated under the caption, In re Rambus Antitrust Litigation, 06-4852 RMW (N.D. Cal.). The consolidated complaint seeks injunctive and declaratory relief, disgorgement, restitution and compensatory and punitive damages in an unspecified amount, and attorneys’ fees and costs. On March 28, 2007, Rambus filed a motion to dismiss the consolidated complaint. On July 27, 2007, the court heard oral argument on Rambus’ motion and took the matter under submission. No final order has been issued to date.

     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. The matter is currently under submission by the European Commission.

     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 1990’s 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 June 28, 2007, Hynix filed a motion for summary judgment on the ground that Rambus’ claims should be dismissed on the grounds that they allegedly were compulsory counterclaims in the Hynix 00-20905 action. Following briefing and oral argument, the court denied Hynix’s motion in an order filed November 2, 2007. Hynix sought review of the trial court’s order by the California Court of Appeal, which the appellate court summarily denied on January 17, 2008. On January 28, 2008, Hynix filed a petition for review of this decision by the California Supreme Court. Rambus filed an answer requesting that Hynix’s petition be denied. On March 19, 2008, the California Supreme Court issued an order denying Hynix’s petition.

     On May 28, 2008, defendants filed a motion for judgment on the pleadings in their favor on what they refer to as Rambus’ cause of action for “price fixing in and of itself.” At a hearing held on July 23, 2008, the San Francisco court denied defendants’ motion from the bench. A hearing on Rambus’ motion for summary judgment on the grounds that Micron’s cross-complaint is barred by the statute of limitations was held on August 1, 2008. At the hearing, the San Francisco court granted Rambus’ motion as to Micron’s first cause of action (alleged violation of California’s Cartwright Act) and continued the motion as to Micron’s second and third causes of action (alleged violation of unfair business practices act and alleged intentional interference with prospective economic advantage). No further order has issued on Rambus’ motion.

     Trial is scheduled to begin on March 16, 2009.

     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 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 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 the Company. These settlements are conditioned upon the dismissal of the claims asserted against these individuals in In re Rambus Inc. Derivative Litigation. The aggregate value of the settlements to the Company exceeds $6.5 million in cash and estimated equivalent value as well as substantial additional value to the Company relating to the relinquishment of claims to over 2.7 million stock options. The SLC stated its intention to assert control over the litigation. The conclusions and recommendations of the SLC are subject to review by the court. On October 5, 2007, Rambus filed a motion to terminate in accordance with the SLC’s recommendations. Pursuant to the parties’ agreement, that motion was taken off calendar.

     On August 30, 2007, another shareholder derivative action was filed in 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.

     Subject to court approval, the parties have agreed in principle to settle In re Rambus Inc. Derivative Litigation and Francl v. PricewaterhouseCoopers LLP et al., No. 07-Civ. 7650 (GBD). The settlement, which is subject to review by the court, provides for a payment by Rambus of $2.0 million and would lead to a 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.

     On July 17, 2006, the first of six class action lawsuits was filed in 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. The court took the matter under submission, and no decision has issued to date.

     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. Rambus’ response to the complaint is not yet due.

     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 statutes as well as fraud and negligent misrepresentation. On October 10, 2008, Rambus filed a demurrer to the amended complaint, and a hearing is scheduled for December 5, 2008.

     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 at least the SDR, DDR, DDR2, DDR3, GDDR and GDDR3 technologies infringe 17 patents. On August 29, 2008, NVIDIA filed a motion to dismiss or strike the complaint, or in the alternative, for more definite statement. A hearing is currently scheduled for November 14, 2008. 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.

     U.S. District Court in the Middle District of North Carolina

     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. On September 8, 2008, Rambus filed a motion to dismiss the complaint. On September 17, 2008, Rambus filed a motion to transfer this action to the Northern District of California where Rambus’ first-filed patent infringement suit is pending against NVIDIA. No hearing dates have been scheduled for either of these motions, and no rulings have issued to date.

     Potential Future Litigation

     In addition to the litigation described above, participants in the DRAM and controller markets 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 going forward.

     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 SFAS No. 5, “Accounting for Contingencies.”

14. Fair Value of Financial Instruments

     The Company adopted SFAS No. 157 effective January 1, 2008 for financial assets and liabilities measured on a recurring basis. SFAS No. 157 applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. There was no impact for adoption of SFAS No. 157 to the consolidated financial statements. SFAS No. 157 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;

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;

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 following table summarizes the valuation of our cash equivalents and marketable securities by the above SFAS No. 157 pricing levels as of September 30, 2008:

As of September 30, 2008

Quoted

market

Significant

prices in

other

Significant

active

observable

unobservable

markets

inputs

inputs

(in thousands)

Total

(Level 1)

(Level 2)

(Level 3)

Available-for-sale securities

$

375,946

$

84,819

$

291,127

$

—

     The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure as of September 30, 2008 and December 31, 2007:

		As of September 30, 2008								As of December 31, 2007
		Carrying								Carrying
(in thousands)		Value				Fair Value				Value				Fair Value
Convertible notes		$	160,000			$	158,710			$	160,000			$	164,482

     The fair value of the convertible notes are determined based on recent quoted market prices for these notes. The carrying value of other financial instruments, including cash, accounts receivable, accounts payable and other payables, approximate 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 condensed consolidated statement of operations. As of September 30, 2008 and December 31, 2007, the Company has not incurred any impairment loss on its investments.

     The Company has adopted SFAS No. 159 effective January 1, 2008. The Company has not elected the fair value option for financial instruments not already carried at fair value.

15. Restructuring Costs

     During the third quarter of 2008, the Company initiated a workforce reduction in certain areas of excess capacity. The cash severance, including continuance of certain employee benefits, totaled approximately $3.5 million and non-cash employee severance of approximately $0.5 million of stock-based compensation expense. The total restructuring charge for the three and nine month period ended September 30, 2008 was approximately $4.0 million. The Company paid approximately $1.6 million of severance and benefits during the quarter. The remaining $1.9 million of severance and benefits will be paid during the fourth quarter of 2008. The Company expects to complete its restructuring activities during the fourth quarter of 2008.

     The following table provides a summary of the restructuring activities for the period indicated:

		Employee				Employee
		Termination/Severance				Termination/Severance
		and Related Benefits				and Related Benefits				Other Expenses
		Cash				Non-Cash								Total
		(in thousands)
Balance at December 31, 2007		$	—			$	—			$	—			$	—
Charges to operations			3,477				547				—				4,024
Charges utilized/paid			(1,553	)			(547	)			—				(2,100	)
Balance at September 30, 2008		$	1,924			$	—			$	—			$	1,924

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 or disputes; 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” 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, XDR, FlexIO and FlexPhase are trademarks or registered trademarks of Rambus Inc. Other trademarks that may be mentioned in this quarterly report on Form 10-Q 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:

Advanced Backplane		ABP
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
Peripheral Component Interconnect		PCI
Rambus Dynamic Random Access Memory		RDRAM
Single Data Rate		SDR
Synchronous Dynamic Random Access Memory		SDRAM
eXtreme Data Rate		XDR

     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
Cadence Design Systems, Inc.		Cadence
Cisco Systems, Inc.		Cisco
Elpida Memory, Inc.		Elpida
Fujitsu Limited		Fujitsu
GDA Technologies, Inc.		GDA
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 Electron Device Engineering Council		JEDEC
Juniper Networks, Inc.		Juniper
Matsushita Electrical Industrial Co.		Matsushita
Micron Technologies, Inc.		Micron

Nanya Technology Corporation		Nanya
NEC Electronics Corporation		NECEL
Optical Internetworking Forum		OIF
Qimonda AG (formerly Infineon’s DRAM operations)		Qimonda
Peripheral Component Interconnect — Special Interest Group		PCI-SIG
Renesas Technology Corporation		Renesas
S3 Graphics, Inc.		S3 Graphics
Samsung Electronics Co., Ltd.		Samsung
Sony Computer Electronics		Sony
Spansion, Inc.		Spansion
ST Microelectronics		ST Micro
Synopsys Inc.		Synopsys
Tessera Technologies, Inc.		Tessera
Texas Instruments Inc.		Texas Instruments
Toshiba Corporation		Toshiba
Velio Communications		Velio

Business Overview

     We design, develop and license chip interface technologies and architectures that are foundational to nearly all digital electronics products. Our chip interface technologies are designed to improve the time-to-market, performance and cost-effectiveness of our customers’ semiconductor and system products for computing, communications and consumer electronics applications.

     As of September 30, 2008, our chip interface technologies are covered by more than 730 U.S. and foreign patents. Additionally, we have approximately 500 patent applications pending. These patents and patent applications cover important inventions in memory and logic chip interfaces, in addition to other technologies. We believe that our chip interface technologies provide a higher performance, lower risk, and more cost-effective alternative for our customers than can be achieved through their own internal research and development efforts.

     We offer our customers two alternatives for using our chip interface technologies in their products:

     First, 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 royalty bearing.

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

     We derive the majority of our annual 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, Elpida, Fujitsu, Qimonda, Intel, Matsushita, NECEL, Renesas, Spansion and Toshiba have licensed our patents for use in their own products.

     We derive additional revenue by licensing our leadership and industry-standard chip interface products to our customers for use in their semiconductor and system products. Our customers include leading companies such as Fujitsu, Elpida, IBM, Intel, Matsushita, Texas Instruments, Sony, ST Micro, Qimonda and Toshiba. Due to the complex nature of implementing our technologies, we provide engineering services under certain of these licenses to help successfully integrate our chip interface products into their semiconductors and systems. Additionally, product licensees may receive, as an adjunct to their chip interface license agreements, patent licenses as necessary to implement the chip interface in their products with specific rights and restrictions to the applicable patents elaborated in their individual contracts.

     Royalties represent a substantial portion of our total revenue. The remaining part 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 unbilled receivables in any given period.

     We have a high degree of revenue concentration, with our top five licensees representing approximately 72% and 67% of our revenue for the three and nine months ended September 30, 2008, respectively. This compares with the three and nine months ended September 30, 2007, in which revenue from our top five licensees accounted for approximately 68% of our revenue respectively. For the three months ended September 30, 2008, revenue from Fujitsu, Matsushita, NEC, AMD and Sony each accounted for 10% or more of our total revenue. For the nine months ended September 30, 2008, revenue from Fujitsu, Elpida, Sony, AMD, Matsushita and NEC each accounted for 10% or more of our total revenue. For the three months ended September 30, 2007, revenue from Qimonda, Fujitsu, Elpida and Toshiba each accounted for 10% or more of our total revenue. For the nine months ended September 30, 2007, revenue from Fujitsu, Qimonda and Elpida each accounted for 10% or more of our total revenue.

     Our revenue from companies headquartered outside of the United States accounted for approximately 80% and 82% of our total revenue for the three and nine months ended September 30, 2008, respectively, as compared to 84% and 85% for the three and nine months ended September 30, 2007, respectively. We expect that we may continue to experience significant revenue concentration and have significant revenue from sources outside the United States for the foreseeable future.

     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 would likely decline. 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 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 systems companies 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.

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 condensed consolidated statements of operations:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Revenue:
Royalties			87.7	%			84.7	%			86.9	%			84.8	%
Contract revenue			12.3	%			15.3	%			13.1	%			15.2	%
Total revenue			100.0	%			100.0	%			100.0	%			100.0	%
Costs and expenses:
Cost of contract revenue*			15.7	%			13.9	%			17.6	%			13.5	%
Research and development*			59.5	%			43.9	%			56.3	%			43.3	%
Marketing, general and administrative*			106.3	%			71.7	%			84.2	%			57.1	%
Restructuring costs*			13.7	%			—	%			3.8	%			—	%
Impairment of asset			7.3	%			—	%			2.1	%			—	%
Costs of restatement and related legal activities			1.3	%			10.0	%			3.4	%			13.4	%
Total costs and expenses			203.8	%			139.5	%			167.4	%			127.3	%
Operating loss			(103.8	)%			(39.5	)%			(67.4	)%			(27.3	)%
Interest and other income, net			9.2	%			13.5	%			9.7	%			11.8	%
Loss before income taxes			(94.6	)%			(26.0	)%			(57.7	)%			(15.5	)%
Provision for (benefit from) income taxes			0.3	%			(10.4	)%			118.9	%			(6.1	)%
Net loss			(94.9	)%			(15.6	)%			(176.6	)%			(9.4	)%
* Includes stock-based compensation:
Cost of contract revenue			4.5	%			3.2	%			4.4	%			2.9	%
Research and development			11.3	%			7.6	%			10.5	%			7.0	%
Marketing, general and administrative			14.9	%			9.9	%			12.3	%			10.4	%
Restructuring costs			1.9	%			—	%			0.5	%			—	%

		Three Months												Nine Months
		Ended September 30,								Change in				Ended September 30,								Change in
(Dollars in millions)		2008				2007				Percentage				2008				2007				Percentage
Total Revenue
Royalties		$	25.8			$	35.3				(27.0	)%		$	91.2			$	118.3				(22.9	)%
Contract revenue			3.6				6.4				(43.1	)%			13.7				21.1				(35.2	)%
Total revenue		$	29.4			$	41.7				(29.5	)%		$	104.9			$	139.4				(24.8	)%

Royalty Revenue

Patent Licenses

     In the three and nine months ended September 30, 2008, our largest source of royalties was related to the license of our patents for SDR and DDR-compatible products. Royalties decreased approximately $9.8 million and $31.8 million for SDR and DDR-compatible products in the three and nine months ended September 30, 2008, respectively, as compared to the same periods in 2007, primarily due to decreased royalty revenue from Qimonda, Fujitsu and Elpida.

     We are in negotiations with prospective and existing licensees. We expect SDR and DDR-compatible 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. In July 2008, we announced our decision to defer negotiations with Elpida related to patent license renewal, which will decrease revenue from patent royalties in future quarters.

     On February 2, 2007, the Federal Trade Commission (the “FTC”) issued an order requiring us to limit the royalty rates charged for certain SDR and DDR SDRAM memory and controller products sold after April 12, 2007. The FTC stayed this requirement on March 16, 2007, subject to certain conditions. One such condition of the stay limits the royalties we can receive under certain contracts so that they do not exceed the FTC’s Maximum Allowable Royalties (“MAR”). On June 6, 2008, the FTC petitioned the CADC to rehear the case en banc. On August 26, 2008 the Court denied the FTC’s petition for rehearing of this matter en banc, and on September 9, 2008, the Court issued its mandate setting aside the FTC’s order and instructing the FTC to take actions consistent with the Court’s ruling. The FTC did not seek, nor did it receive, a stay of the Court’s ruling, and thus the FTC’s order in the case has been vacated. On October 16, 2008, the FTC issued an order (“FTC Disposition Order”) authorizing Rambus to receive the excess consideration that customers have previously deducted from their quarterly payments made to Rambus under the Patent License Agreement.

     At the time of the issuance of the mandate on September 9, 2008, $6.2 million had been determined as amounts in excess of MAR and had been excluded from revenue. As the FTC’s order has been vacated, we will recognize the previously unrecognized revenue in excess of MAR of $6.2 million as revenue when the corresponding cash payments are received. In the three months ended September 30, 2008, $0.9 million of the amounts in excess of MAR was previously received and recognized as revenue in Q3’08. The remaining $5.3 million will be recognized when the payments are received from the customers.

Product Licenses

     In the three and nine months ended September 30, 2008, royalties from XDR, FlexIO, DDR and serial link-compatible products represented the second largest category of royalties. Royalties from XDR, FlexIO, DDR and serial link-compatible products increased approximately $0.6 million and $4.3 million during the three and nine months ended September 30, 2008, respectively, as compared to the same period in 2007. This increase was primarily due to higher royalties from DDR and serial link-compatible products. In the future, we expect royalties from XDR, FlexIO, DDR and serial link-compatible products will continue to vary from period to period based on our licensees’ shipment volumes, sales prices and product mix.

     In the three and nine months ended September 30, 2008, royalties from RDRAM-compatible products represented the third largest source of royalties. Royalties from RDRAM memory chips and controllers decreased approximately $0.4 million and increased approximately $0.4 million during the three and nine months ended September 30, 2008, respectively, as compared to the same period in 2007. The variance was primarily due to the fluctuation of royalties from RDRAM controllers.

Contract Revenue

Percentage-of-Completion Contracts

     Percentage of completion contract revenue decreased approximately $0.4 million and $1.3 million for the three and nine months ended September 30, 2008, respectively, as compared to the same period in 2007 due to lower revenue from various leadership chip interface contracts. We believe that percentage-of-completion contract revenue recognized will continue to fluctuate over time, based on our ongoing contractual requirements, the amount of work performed, and by changes to work required, as well as new contracts booked in the future.

Other Contracts

     Revenue for other contracts decreased approximately $2.3 million and $6.1 million for the three and nine months ended September 30, 2008, respectively, as compared to the corresponding period in 2007 due to decreased revenue from leadership chip interface contracts including FlexIO and XDR and industry standard chip interface contracts. We believe that other contracts revenue will continue to fluctuate over time based on our ongoing contract requirements, the timing of completing engineering deliverables, as well as new contracts booked in the future.

Engineering costs:

		Three Months Ended												Nine Months Ended
		September 30,								Change in				September 30,								Change in
(Dollars in millions)		2008				2007				Percentage				2008				2007				Percentage
Engineering costs
Cost of contract revenue		$	3.3			$	4.5				(26.0	)%		$	13.8			$	14.8				(6.8	)%
Stock-based compensation			1.3				1.3				(0.9	)%			4.6				4.1				13.2	%
Total cost of contract revenue			4.6				5.8				(20.3	)%			18.4				18.9				(2.5	)%
Research and development			14.2				15.1				(6.2	)%			48.0				50.5				(4.9	)%
Stock-based compensation			3.3				3.2				4.3	%			11.0				9.8				12.0	%
Total research and development			17.5				18.3				(4.4	)%			59.0				60.3				(2.1	)%
Total engineering costs		$	22.1			$	24.1				(8.2	)%		$	77.4			$	79.2				(2.2	)%