Satish Rishi - SVP and CFO Harold Hughes - President and CEO Tom Lavelle - SVP and General Counsel Sharon Holt - SVP, Worldwide Sales, Licensing and Marketing

Jeff Schreiner - American Technology Research, Inc. Michael Cohen - Pacific American Securities, LLC Hamed Khorsand - BWS Financial

Good day, everyone, and welcome to this Rambus second quarter 2007 conference call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Satish Rishi. Please go ahead, sir.

Thank you, operator, and welcome to the Rambus second quarter 2007 conference call. I am Satish Rishi, Chief Financial Officer. And with me today is Harold Hughes, our President and CEO. We also have, with us, Tom Lavelle, Senior Vice President and General Counsel, and Sharon Holt, Senior Vice President of Sales, Licensing and Marketing, for the Q&A session. The press release for the results that will be discussed here today has been filed with the SEC on Form 8-K. If you want a copy of the release, please visit our website, at www.rambus.com, on the "Investor Relations" page, under "financial releases." A replay of this conference call will be available for the next week at 888-203-1112. You can hear the replay by dialing the toll-free number and then entering ID number 2759641, when you hear the prompt. In addition, we are simultaneously webcasting this call, and the replay can be accessed on our website beginning today, at 5:00 PM, Pacific Standard Time. Before I begin, I need to advise you that the discussion today will contain forward-looking statements regarding our financial prospects, pending litigation, and demand for our products, among other things. These statements are subject to risks and uncertainties, which are more fully described in the documents we file with the SEC, including our 8-Ks, 10-Qs and 10-Ks. These forward-looking statements may differ materially from our actual results. The revenue numbers represented today through our press release and this discussion are not yet audited and will be finalized, when we file our financial statements. Now, I'll to turn the call over to Harold. Harold?

Thank, Satish, and good afternoon everyone. Our second quarter revenue result was $47.5 million. While within our guidance for the quarter, revenue was, nonetheless, down approximately 5% sequentially. We remain committed to a strategy of providing vital chip interface technology to leading system and semiconductor companies through patents and products. It's the right course to deliver sustained long-term growth. But our short-term results have been and will continue to be impacted by the FTC order. Our licensing momentum was slowed, and as we said, the FTC order will have a direct impact on revenues in Q3 and Q4. We are working hard -- very hard indeed to mitigate the downside on revenues with new licensing deals. On the product front, we are making good progress in advancing the market adoption of our leadership XDR memory architecture. As we've said before, we have business development activities for XDR in all of our sales geographies. We also had a number of announcements in the course of the quarter regarding the momentum of the XDR architecture. We announced in June that the industry reached an important milestone by shipping 25 million XDR DRAMs. The bulk of these XDR devices have been shipped within the last 12 months. Further, the majority of these devices shipped into the flagship application for XDR architecture, so any computer entertainments, PlayStation 3. Also, during the quarter, the global rollout of the PS3 continued, as it made its debut in South Korea. Sony has reported that 5.5 million PS3s had shipped from the initial launch in November of last year through March of this year. As Sony has recently pointed out, the PS3 is positioned as the long-term product for the gaming market. The PS2, after all, is still in production and selling strongly with over 110 million PS2s shipped to date. The PS3, with its enormous computing capability and breakthrough graphics performance, which our technology helps to enable -- we're always proud to point out -- has lots of headroom for growth. Sony has described the PS3 as the gaming platform for the next 10 years. Another exciting and high-volume application, which launched last quarter, was the latest generation of Texas Instruments' DLP projectors incorporating XDR DRAM. While TI selected the XDR architecture for the DLP projector platform a while ago, we were just recently able to announce this partnership with the launch of TI's new product at the InfoCom trade show in June. According to market researcher iSuppli, about 5 million front projectors are shipped worldwide annually. TI believes DLP projectors enjoy about a 50% share of this market. Further, TI forecasted over 70 models of DLP front projectors will be introduced this year with leading consumer electronic companies, such as Panasonic, Mitsubishi, Sharp and BenQ. With a single XDR memory device, DLP front projectors can produce full 1080P high-definition video with a range of vibrant colors. We are also seeing great potential for the XDR memory architecture in digital television. With requirements for handling multiple streams of HD content, enhanced image processing, and motion compensation tasks, 10-bit color and more, HDTV designers need a memory architecture that provides the highest bandwidth performance with the fewest devices. Rambus's XDR memory architecture delivers bandwidth of up to 8 gigabytes a second with a single XDR DRAM device and has a roadmap to device bandwidth to 12 gigabits a second and beyond. Current production XDR DRAM devices operating at 4 gigahertz provide a level of performance suitable for even high-end systems slated for the end of the decade. This need for higher bandwidth is a recurring theme across multiple applications and markets. We talked in this call about the need for bandwidth in gaming and in consumer electronic products, such as projectors and HDTVs. Of course, the biggest consumer of memory technology is computing. The adoption of multi-core processors in computing requires a huge increase in bandwidth in order to get the most out of these new platforms. Here again, the device bandwidth of XDR combined with scalability of the XDR architecture make it an ideal choice for PCs and graphics. With 1-gigabit devices, XDR can scale to 4 gigabytes of capacity, which is well suited for the needs of PC main memory. And with device bandwidths that can scale to 12 gigabits a second and beyond, XDR can provide the bandwidth that unleashes the power of the latest multi-core processors. It's thanks to the work of Rambus's scientists and engineers that we can offer the highest performance interface solutions available. Our team is dedicated to solving some of the world's most challenging technology problems. With a team of only 300 engineers, we have developed innovations and inventions, which are and will be foundational to digital electronics. And these innovations and inventions support a wide -- a world-class part -- patent portfolio that continues to grow. At the end of June, our patent count stood just shy of 650 patents, with over 500 pending. Among the patents that just issued this past quarter are patents related to high capacity server memory as well as current and future high-speed main memory. The impact of our inventions is the result of the investment we have made in core technology development. It's this investment that leads to revolutionary inventions that enable our interface product leadership and field our sustainable patent licensing business. With that, I'll turn the call back to Satish. But before I do, I'd like to thank him and his team for the progress he has made and they have made on the Herculean effort that is a restatement or what a restatement has become in our country today. Thank you, Satish. And the call is over to you.

Thank you, Harold. As Harold mentioned, total revenue for the quarter was $47.5 million, which were down 5% from the first quarter of this year. Given that we're in the process of restating our financials, we do not have the complete income statement details to share with you today. Overall cash, defined as cash, cash equivalents and marketable securities, decreased by approximately $3 million from the first quarter of 2007, ending the quarter at $442 million. Reduction in the cash was related primarily due to payments for the stock option investigation and the payment of quarter-ending (ph) taxes on behalf of our non-executive employees, offset by cash -- incoming cash from our ongoing operations. Let me provide you a quick update on the status of our financial restatement. We share the frustration of how long this process has been taking, and we are doing all we can to work through it in a very diligent manner. As we mentioned in previous calls, the independent investigation into stock option granting has been largely completed. The numbers have been finalized. And now, we're going through the review and audit process. To recap what we've already said, we estimate that the charge for all of the stock option related issues, including misstated options, accounting for vesting, after terminations, etcetera, will be a non-cash pretax charge of approximately $170 million for the period 1997 to 2005. Charges not related to stock option issues are expected to be insignificant between 1997 and 2005. We are getting close to finalizing the 10-K and hope to be able to report full earnings at our next quarterly call. Turning now to quick update on NASDAQ. On May 31, we had announced that the NASDAQ Listing and Hearing Review Council had granted us an exception until July 18, 2007. On July 13, we reported that we had received a letter from the NASDAQ Board of Directors stating that they have called for a review of the previous decision of the Listing Council, and it also granted us a stay pending further consideration by the Board. We have not received any additional information at this time as to when the NASDAQ Board will meet and discuss our case. We will provide the Board information, as and when requested. There can be no assurance that the Board will allow us to remain listed on NASDAQ, while we complete the restatement process. We will provide additional updates on this process via an 8-K and press releases, as appropriate and as we have done in the past. Now, let me provide some guidance on what we expect for the next quarter. As we mentioned on the last call, we expect the FTC order to have a direct revenue impact starting in Q3. The FTC order also has had an impact on the progress of our patent licensing discussions. In order to comply with the FTC order, we must work through some complex issues with our current customers regarding contract royalties in excess of the maximum allowable loyalty rate, or MAL. As you recall, the FTC order is in effect for patent royalties on SDR and DDR, SDRAM memory devices, and SDR and DDR controllers that are shipped after April 12, 2007. The appeal process regarding the FTC order is well underway. And as we mentioned on the last call, based on our estimates, we expect that this may put up to $15 million of revenue in the second half of this year at risk. Given what we know at this time, we estimate that Q3 revenue will be between $41 million and $46 million. This concludes our prepared remarks. Operator, would you please open the call up for questions? Operator? Question-and-Answer Section:

(Operator Instructions) We'll pause just a moment. We'll go first to Jeff Schreiner with American Technology Research. Jeff Schreiner - American Technology Research, Inc.: I was just wondering if we could talk a little bit about the opportunities outside litigation, right now? And what the company sees -- if we were to take away the option of litigation ever being successful, what the company really sees driving revenues and opportunities at this time?

Hi, Jeff. Harold speaking. I'm not exactly sure of the thrust of your question. I -- let me just talk a bit about our business model. And in doing that, hopefully, I'll hit upon the issues that concern you. The business model has always been to continue to invest in technology. And as I've shown you or as I've discussed today, we've continued to create technology filed as patents and work with customers to use that technology in their products. That's obviously what we would be inclined to do. On occasion, unfortunately, we find it necessary to take legal action, when people want to use the technology without paying for it. The company started with the Farmwald-Horowitz patent. But subsequent to that, we've invented what we believe to be very, very powerful pieces of technology, which has the market both moves forward at an accelerating -- the technology market moves forward at an accelerating rate. We believe that the likelihood of that technology being an effective part of new products is increasing. Our technology, obviously, is focused on high performance. But we've also talked about low power and flash in the past, all of which, we think, will be crucial portions of technology products coming out now and in the future. Having said that -- and Tom's here specifically to talk about litigation, were the questions to come up -- we don't intend to give up on our patent -- on our legal positions against those people violating our Farmwald-Horowitz patents. Did that answer your question? Jeff Schreiner - American Technology Research, Inc.: Well, it kind of. It really comes down to, Harold, that then what's going to drive revenues? If litigation keeps kind of remaining in the backdrop as an opportunity, it certainly seems that investors don't really have the confidence really of late that there is really anything that Rambus can do in the near term. And when you talk about future, you're talking probably greater -- I would assume, you mean greater than 12 months. And just wondering, kind of, how the company would really grow revenues over the next three to four quarters? It certainly seems in guidance --

Well, we talk to -- I talk more to customers than I do to shareholders. Maybe I should change that. But when we talk with customers, we're talking practically not at all about the Farmwald-Horowitz patents, which are the subjects of litigation. We're really talking about our current and future technology, which they in this hyper-competitive world see as something that's important for them to be profitable. So that is, I think, the exciting part of our licensing work, now, and our development work. It's really about the future. Even the Farmwald-Horowitz, as valuable as they are, have an expiration date. And to be successful as a company -- and we're all very much dedicated to do that -- it's the future, it's the technology that we've invented in the last five to 10 years, which we believe will be the source of our revenue, literally now and going forward. Jeff Schreiner - American Technology Research, Inc.: Okay. I don't want to take up too much time today. I just have one question for Tom. Tom, August 7 -- am I correct in the date that the Federal Circuit will be hearing the appeal in Rambus versus Samsung related to the Eastern District of Virginia case?

Yes, that's correct. There's an oral argument scheduled for August 7 in Washington, DC. Jeff Schreiner - American Technology Research, Inc.: And when will we expect a decision on that?

Months -- months after that. Whether it's two, three, four, I don't really know. Jeff Schreiner - American Technology Research, Inc.: Okay. Thank you, gentlemen.

Thanks, Jeff.

Next, we'll go to Michael Cohen with Pacific American Securities. Michael Cohen - Pacific American Securities, LLC: Yes. This question is for Harold. You used to talk a lot about the systems level licensing strategy, and you talked about that continually -- almost like the mantra for a while. And then, it sort of stopped around the time of the 2006 analyst day. And I was wondering how do you feel about the systems level licensing strategy and if you could talk about that a little bit?

I don't think that we've changed the strategy. Oftentimes, pricing things change, as the circumstances dictate. But it's with the system companies that we speak most frequently, Michael. Michael Cohen - Pacific American Securities, LLC: I guess, I'm -- what I'm really wondering is why the change in communication to investors on that point.

I don't think it did. I think in my presentation today, I talked about creating technology for systems and semiconductor companies. And indeed, I'd let Sharon add some color here. The bulk of our licensing discussions and our business discussions tend to be with system-type companies. Michael Cohen - Pacific American Securities, LLC: Okay.

If you have perceived a change, you should read nothing into it. Michael Cohen - Pacific American Securities, LLC: Okay. That answers my question, because I did perceive a change, and it made me wonder if there was a change that really hadn't been talked about and just kind of suddenly dropped. My next question is regarding PCI Express. And I was wondering how you feel about the pursuing licensing opportunities there?

Well, in PCI express is almost by definition a standard. And to the extent it's a standard, it's in the interest of those creating the standard and using the standard products to license it as broadly as possible. It's not a -- it is something that we will obviously do, as customers need it. We will tend to do more of it as it relates to the upcoming standard because, presumably there, the performance requirements are difficult to engineer. But it's not going to be the basis of our revenue strategy, going forward. Michael Cohen - Pacific American Securities, LLC: Okay. And --

And, Michael, I would just add to that. PCI Express is one of, obviously, many chip-to-chip interface standards. The focus of Rambus is on high-speed signaling, high-speed interface technology. Clearly, we've had a primary focus in the memory space. But many of the signaling techniques that we develop are equally applicable to PCI Express or other interface standards. So you'll see us continue to participate in that space, where we have one of our critical customers with high value or a more complex implementation of that. In terms of the more commodity side of the market, that's not a primary focus for us. We tend to focus on the leading edge, and you'll continue to see us do that. Michael Cohen - Pacific American Securities, LLC: Okay. On the leading edge, in flash memory, Harold had talked about having that as an applicable target area. I was wondering if you could give us a little bit more detail on how you think your technology applies to flash?

Well, Michael, I'm not going to talk about this too much, because we have some very interesting progress in this area. We are engaged with flash companies looking at some future technology areas. We actually do think there is great potential to look at flash in a couple of different segments of the market. Obviously, the mobile space is interesting. There are other market segments, where there are some more, I would say, unusual and innovative ways to use flash to reduce cost and power. And Rambus is very active in this area. We hope to have some announcements upcoming, but we're not prepared to disclose any of those today. Michael Cohen - Pacific American Securities, LLC: Are you focused in flash on how it's -- the memory communicates to the controller or it's specifically to unique use of the flash memory and high speed connections there?

That's it. Yes.

I would say both. Yes.

Yes. Michael Cohen - Pacific American Securities, LLC: Okay.

The wonderful thing about flash is it's low cost relative to DRAM and the fact that it need not be refreshed all the time. The bad thing is that you read through it and write through it very slowly. Solving these problems is hard. And we have found that in the solution of hard problems oftentimes lie wonderful revenue opportunities. Michael Cohen - Pacific American Securities, LLC: Okay. My next question is, probably, for Satish. As money ends up going in the FTC escrow account, will the amount of that escrow account be disclosed?

Not necessarily, because that money technically doesn't belong to us. So we will not be recognizing the revenues. So until we win the appeal, we will not be able to recognize any of that. So it is not my current plan to be talking about that portion of it, because we have no rights over that until after the decision is made. But if something changes, we'll let you know. Michael Cohen - Pacific American Securities, LLC: Is it --

But we expect to win. Michael Cohen - Pacific American Securities, LLC: Okay. And just maybe something to think about, going forward, I think, from an investor standpoint, it would be nice if we could have visibility. Of course, you can't include it in revenues but just what is in the account, so we know about the potential for our contingency, should you end up getting that. And my last question, I was wondering -- and this is probably for Sharon -- do you know when DDR3 will finally emerge commercially available in the market?

So, obviously, I can't comment on behalf of the companies that are out there supplying DDR3 products. But certainly, our view based on what we've seen is that we will start seeing product more available on the market in the early part of 2008. Michael Cohen - Pacific American Securities, LLC: Okay. Great. Thank you very much.

Thank you, Michael.

All right. Thank you.

(Operator Instructions) We'll go next to Hamed Khorsand with BWS Financial. Hamed Khorsand - BWS Financial: And good afternoon. My question was regarding your TI announcements. Where is Rambus currently in the process of entering into the entertainment industry? I know the PlayStation 3. Then the next step was entering into the high-end television market. But where are you now into -- what appliances next are you looking at?

Hi, Hamed. This is Sharon. You know, I think, we've talked about the digital television space. And if you look at the next wave of markets, that should be interesting from an XDR perspective. Digital television is probably the next major one that we see on the horizon. We've had a lot of activity going on this last year working with the system manufacturers as well as with their chip suppliers and our memory partners. And we've learned a lot about the requirements of those systems over the next several years. And we believe it's really not a matter of if, but when. XDR seems to have a very strong value proposition in that space. Hamed Khorsand - BWS Financial: All right. So I assume then, basically, as the television sets become cheaper, XDR becomes used on a wider scale?

I'm sorry. Could you repeat the question? Hamed Khorsand - BWS Financial: My question was, if -- is it safe for me to assume that when these digital television sets become lowered in price on a retail level then XDR usage would increase?

No. I think what you're seeing is, with the higher and higher resolutions and a lot more image processing going on in the DTV space, that's really driving the need for bandwidth, which is really pushing them much more in our direction. XDR provides a lot of bandwidth with the fewest number of devices. So there is a very strong value prop at the system level, where they can actually save on their bill of materials costs by converting to XDR. Hamed Khorsand - BWS Financial: Okay. And my -- another question was how much of your revenues that you've reported for second quarter -- was that from last-minute kind of sales before the FTC order went into effect?

Well, I can't give you that level of granularity. But your question has given me an interesting opportunity to really talk about our revenue and how we forecast. You know, I do want to comment. You know, we've been talking about the impacts of the FTC order. And it certainly is true that Q3 -- the quarter that we're in now -- is where we're really seeing the impact with our current licensees. But I want to remind you all that when the initial FTC decision came out about a year ago, that pretty much stalled all progress on negotiations that we had going on at that time. That stalling, if you will, continued until well after the remedy order came out earlier this year. While we digested it and the rest of the market digested it, for those of you that have been keeping up on it, the documents were quite complex, and there was a lot of back and forth to make sure that we really understand it -- understood what we needed to do. And then we're able to communicate that to our existing licensees. We're now in a position where we can start to reengage potential licensees and, of course, we're going to move forward and do that. But if you look at our current revenue stream, obviously, we have existing patent licensees with ongoing royalties. That's a part of our revenue stream, going forward. We have royalties that come from our product engagements, and then we also have contract revenues that come from the engineering programs that we have in place with many of our customers. And so when we forecast, we look at those elements. And then, of course, we look at new deals that we might sign in the quarter coming up. But we only forecast those that we're pretty darned sure, like a 100% sure, are going to come in. We have a very, what we call, a poppy business driven by big deals. And we're very careful not to put speculative deals into our forecast and into our guidance. Hamed Khorsand - BWS Financial: Okay. And my last question is -- were there any 10% customers during the quarter?

We typically don't announce that on the call. We'll have them in the financials when we report them. Hamed Khorsand - BWS Financial: Okay. But you won't be reporting financials for a while, though. So you can't disclose them?

No. No, I can't. I can't jump the gun here on that. Hamed Khorsand - BWS Financial: Okay. All right. Thank you.

All right. Thank you.

There are no further questions at this time. I would like to turn the call over to Mr. Rishi for any closing remarks.

Thank you. Thanks, everybody, for joining us on the call. I look forward to speaking to you soon. Thank you.

That does conclude today's conference call. Again, thank you all for your participation, and have a great day.