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

Jeff Schreiner - CapStone Investments Michael Cohen - MDC Financial Kelly Anderson - Sidoti & Co. Hamed Khorsand - BWS Financial

Good day ladies and gentlemen and welcome to your Q3 2010 Rambus Incorporated conference call. [Operator Instructions.] And now it's my pleasure to announce your host, Satish Rishi. Satish, go ahead.

Thank you operator and welcome to the Rambus third quarter 2010 conference call. I'm Satish Rishi, chief financial officer and on the call today are Harold Hughes, our president and CEO; Tom Lavelle, our general counsel; and Sharon Holt, senior VP and general manager of our semiconductor business group. The press release for the results that will be discussed here today has been filed with the SEC on Form 8-K. A replay of this conference call will be available for the next week at 800-642-1687. You can hear the replay by dialing the toll-free number and then entering ID number 15043450 when you hear the prompt. In addition, we are simultaneously webcasting this call and a replay can be accessed on our website beginning today at 5:00 P.M. Pacific Time. I need to advise you that the discussion today will contain forward-looking statements regarding our financial prospects, pending litigation, and demand for our technologies, among other things. These statements are subject to risks and uncertainties, which are more fully described in the documents we filed with the SEC, including our 8-Ks, 10-Qs and 10-Ks. These forward-looking statements could differ materially from our actual results and we are under no obligation to update these statements. Further, we will discuss non-GAAP financial measures on the call today and we have posted on our website reconciliations of these non-GAAP financials to the most directly comparable GAAP measures. You can find a copy of our earning release and the reconciliation on our website at www.rambus.com, on the Investor Relations page in the financial releases. With that I'll turn the call over to Harold.

Thanks Satish, and good afternoon, everyone. Customer licensing income for the third quarter was $42 million. A major swing factor for Q3, as we discussed when we provided guidance the last call, was signing patent license renewals. While the renewal negotiations are active and proceeding well, they were not concluded in Q3. Our business model builds on a value creation cycle that starts with innovation. As a company of inventors, we have built a portfolio of over 1,000 active patents. In addition, we have close to 1,000 pending applications in the pipeline. The second part of our value creation cycle is driving adoption of our innovations. In support of this effort, we participated in a number of industry events during the course of the quarter. We had multiple presentations and technology demonstrations at MemCom in July. There we showcased our DDR 3PHY running at 1866 mega transfers per second with the ability to run at 2133. This is state of the art performance for DDR3, but particularly so since we implemented our silicon demo in a low-cost wire bond package. Wire bond is a key packaging technology for high-volume consumer electronics products. Also during the quarter, at the Intel Developer Forum, two of our PhDs presented how we can meet the challenges of next-generation graphics and mobile memory. From an application standpoint, both graphics and mobile memory products must deliver high-performance video and images at the lowest possible power. Our engineers have also shown how differential signaling can meet both performance and power requirements of next-generation graphics and mobile products. Our Mobile XDR solution is specifically tailored to enable breakthrough performance in upcoming smart phones and tablets. With solutions like Mobile XDR memory, Rambus solves some of the industry's toughest system challenges. The third stage in the value creation cycle is to monetize our innovations. Progress was made here with the signing of a patent license with NVIDIA during the quarter. That agreement was ultimately a result of the action we pursued at the ITC. We are prepared to take whatever action is needed, including recourse to the legal process, in order to ensure we are fairly compensated for the use of our patented innovations. Meanwhile, we continue to make progress on our diversification strategy. We are staffing up and equipping our lighting and display technology team to seize the tremendous opportunity of solid state lighting. We've moved into a new design facility in Brecksville Ohio, hired additional engineers and researchers, and are almost done with setting up a state of the art prototyping line there. We believe our commitment to innovation makes Rambus a great home for inventors. As we've said previously, we intend to bring on board new businesses like lighting and display that serve our mission and can benefit from Rambus's strengths. We have the organizational capabilities to enable rapid integration of the acquisitions we make and with our world-class licensing platform we can drive the growth of our new businesses with only modest investment in people and capital. And with that, I'll turn the call over to Tom to provide an update on legal developments. Tom?

Thanks Harold, and good afternoon everyone. At the end of July we received notification of the International Trade Commission's final determination regarding certain NVIDIA products. The ITC affirmed the findings of its administrative law judge, finding certain NVIDIA products infringed three Rambus patents. The ITC immediately issued a limited exclusion order and cease and desist orders barring the importation of certain NVIDIA products into the United States. This final determination was subject to a presidential review period. The presidential review period has since expired. NVIDIA has appealed the decision to the federal circuit. In the meantime, in August, we signed a patent license [inaudible] with NVIDIA, which allows them and the other respondents in the case to continue shipping their products into the U.S. Under the terms of the agreement, which was based on worldwide forward-looking shipments only, NVIDIA will pay Rambus a 1% royalty rate for SDR memory controllers and a 2% royalty rate for other memory controllers including DDR, DDR2, DDR3, LPDDR, LPDDR2, GDDR2, GDDR3, GDDR4, and portions of GDDR5 memory controllers. These rates are in line with the commitments Rambus made with the European Commission. For those interested, the agreement is similar in most material aspects to the sample license agreement posted on Rambus.com. There has been some question as to what would happen if NVIDIA were to cancel its license. Under such circumstances, Rambus would be under no obligation to again offer the EC license or rates to NVIDIA as part of any subsequent relationship. Further, the limited exclusion order issued by the ITC remains in effect for the duration of the relevant patents, whether there is a license agreement in place or not. Moving now to the federal circuit, on October 6, oral arguments were heard before the CAFC in Washington DC. The issues being discussed were Hynix's appeal of the $397 million judgment against them and our appeal of the Micron Delaware decision. The panel of judges consisted of the honorable judges Newman, Gajarsa, Bryson, Linn, and Lourie. The federal circuit empaneled five judges for this case instead of the normal sized panel of three judges. We very much appreciate the resources and attention the court has applied to this case given the issues before it. As is normal for these proceedings, the court has not given indication of when it may issue its decision. As a side note, audio recordings of the October 6 oral arguments are available at the court's website at www.cafc.uscourts.gov. In the case against Hynix, they were originally ordered by Judge White to post a $250 million bond as security against the $397 million judgment, and to secure the remainder of the judgment with a lien against certain assets of Hynix in Korea. We sought reconsideration of the original bond order and the court revised its order and directed Hynix to post a bond for the full amount of the judgment, plus post-judgment interest. Hynix posted the bond earlier this week. The bond has issued in the approximate amount of $401 million. These amounts are, of course, in addition to the escrowed loyalty payments for the duration of the compulsory license that was also at issue and has since expired. Finally, I’d like to provide an update regarding the price fixing case in San Francisco. We have been advised by Judge Kramer that Judge McBride will likely be the presiding judge in this matter at trial. This is fairly typical for the California Superior Court to have a different judge presiding at trial than the judge who oversaw the pre-trial activities. We don't have a firm trial date yet, but we are hopeful that we will begin trial in February of next year, which the judge has indicated is a tentative trial date. That's it for the legal update for this quarter. Now I'll turn the call back over to Satish for a review of the financials.

Thanks Tom. For the third quarter of 2010, customer license income was $42 million, of which $31.7 million is recognized as revenue and $10.3 million was recognized as gain from settlement. Just as a reminder, even though we received $25 million as royalty payments from Samsung, accounting rules require us to recognize only $14.7 million as revenue and the remaining $10.3 million as a contra-expense as a gain from settlement. In the previous quarter, customer license income was $49.2 million, of which $38.9 million was recognized as revenue and $10.3 million was recognized as a gain from settlement. In the second quarter we received the last payment from three separate licensing agreements that have expired. We are in the process of negotiating these licenses and we'll have some more detail on that later. In the quarter a year ago, customer licensing income and revenue of [bulk] $27.9 million. The increase in customer licensing income from a year ago was primarily due to the royalty payments from Samsung. Operating expenses, excluding the gain from settlement, for the third quarter were $53.5 million, down 4% from the previous quarter and up 10% from the third quarter of last year. These operating expenses include approximately $7.5 million of stock-based compensation, $1.2 million related to the cost of restatement, and $4.2 million for the Samsung settlement bonus accrual. By comparison, last quarter included approximately $7.9 million of stock-based compensation and $1.6 million related cost of restatement, and $4 million for the Samsung settlement bonus accrual. Operating expenses a year ago included $7.7 million of stock-based compensation and $100,000 related to the recovery of restatement costs, which included reimbursement from our insurance carrier. To provide a better comparison year-over-year, I'm excluding expenses related to stock-based compensation, costs related to the past investigation, and the Samsung settlement bonus accruals from my discussion. Excluding these expenses, adjusted operating expenses in this quarter were $40.6 million, down 4% from the previous quarter and flat with the quarter a year ago. Non-litigation operating expense was at $36 million, or down 3% sequentially driven by lower patent related expenses and up 25% year over year, driven primarily due to the incremental expenses from the addition of the lighting division. Litigation expenses were $4.6 million for the quarter, down 11% from the prior quarter and down 61% from the quarter a year ago. Our adjusted operating income for the quarter was $1.4 million as compared to $6.9 million in the previous quarter and a loss of $12.9 million a year ago. Overall cash, defined as cash, cash equivalents, and market securities, were at $485 million, a decrease of $115 million from the previous quarter. During the quarter we repurchased approximately 500,000 shares, or $9.8 million, and also entered into an accelerated share repurchase program to buy back approximately $90 million in common stock. The purchases have not yet been completed, and the shares have not been delivered to us. We expect that to happen in Q4. During the quarter we also spent approximately $3 million on a couple of patent acquisitions. Our provision for income taxes for the quarter was $4.4 million. We continued to maintain a valuation allowance against deferred tax assets and that tax provision is based on the anticipated cash payment for the quarter, which is primarily withholding taxes. The previous quarter provision was lower because it contained a credit for prior AMT paid. Now, I will give you some thoughts regarding the fourth quarter. This guidance [inaudible] our reasonable estimate, where actual results could differ materially from what I'm about to review. For the fourth quarter, we expect customer licensing income to be $50 million to $60 million, of which $40 million to $50 million will be recognized as revenue and approximately $10 million as a gain from settlement. The wider range reflects the fact that we currently have patent license renewal negotiations underway with a few licensees, which may or may not conclude before the end of the quarter. For the fourth quarter, we expect operating expenses to be between $46 million and $51 million. This includes a credit from the gain from settlement of approximately $10 million, an estimate for litigation expenses of $6 million to $9 million, stock-based compensation of approximately $8 million, and a Samsung settlement bonus accrual of approximately $5 million. Before we open the call for questions, I would like to address a couple of inquiries we've received from the shareholders via email or through our website. The first question is for Sharon: "Can you give us the status on the patent license renewals in Q3?"

Sure Satish. As Harold said during his remarks, we are in active and ongoing discussions with the licensees who are up for renewal. That includes Toshiba, Renesas, and Elpida, among others. As I've said in previous calls, our general philosophy is that we're going to take as long as it takes to reach agreements that meet the needs of our business and our shareholders, and that's exactly what we're doing. That being said, the negotiations are proceeding well, and I also want to remind everyone that the revenue doesn't go away. So to the extent it takes us longer to get a license signed, once we sign it we still expect to receive catch up payments to fill the gap.

Thanks Sharon. The next question is "Could you give us the status on the signing of the Mobile XDR licenses?"

Sure. Thanks Satish. We believe Mobile XDR is the best solution for next-generation smart phones and feature phones, and we're pushing very hard to secure design wins for Mobile XDR. As we're out doing that, we of course have gained a better understanding of the alternatives being considered by our customers. Those really include two different paths. One would be a continuation of the industry standard roadmap. That would be the LPDDR roadmap. The other potential path for customers is a more disruptive technology, a wide I/O memory solution. Again, as I said, we believe Mobile XDR is the best solution. It's got a unique combination of time to market, performance, ease of use, and solution cost advantages over both these other alternatives. One thing that we are encountering is a perception by some customers that the industry standard solutions are free. I want to remind everyone that we have licensees paying us today for the use of our innovations in LPDDR and LPDDR2 memory solutions. And to the extent that these or other future industry standard solutions are adopted and use our innovations, we will pursue to monetize that through our licensing efforts.

Thanks Sharon. Tom, on a previous conference call we had been asked about the Farmwald Horowitz patents that had been extended past April 18, 2010. Can you give us an update on that?

Sure Satish. And what I want to point out is 13 of the Farmwald Horowitz patents have expiration dates past that date, April 18 of 2010. Of those 13, six have since expired. That is, they had expiration dates before today. Of those 13 patents that have expiration dates longer, five have been asserted in various Rambus litigations. Of those five that have been asserted, two currently remain unexpired and their expiration dates are in June and September of 2011, respectively. So for the math-challenged, that's seven of the original Farmwald Horowitz patents remain unexpired today. Two are in litigation and assertions and they expire June and September of '11. And there are obviously five others that have not expired either and they have expiration dates that go anywhere from June of '11 through June of 2014.

Thanks Tom. That concludes our prepared remarks. On behalf of the management team I'd like to thank those who submitted questions to us during the course of the quarter. Our plan is to continue addressing questions submitted by shareholders on a periodic basis at this forum. Operator, we are now ready to open the call for questions.

[Operator Instructions.] Our first question is coming from Jeff Schreiner from Capstone Investments. Jeff Schreiner - CapStone Investments: I think that it might go to you Satish, first, but given your guidance, which looks like a healthy increase even after you take part of Samsung and put it down in the op ex as an offset, should we be assuming, or could you provide us some guidance whether the variance in what you've reported this quarter and the growth in next quarter comes primarily from NVIDIA? Or is there an estimated range that you could give us that you're expecting for the NVIDIA quarterly payment?

Jeff, it's difficult to give a range on NVIDIA because we still haven't received their first payment, so once we get their first payment we'll be able to see what calculations they're using versus ours. That's not until next quarter, but you are right. Some of the delta does include offset from NVIDIA. We also have additional expected royalties coming in from [inaudible] shipments, specifically shipments that occur in Q3 we get royalty payments in Q4. So some of the variable [inaudible] will be higher in Q4 than they were in Q3.

Have you guys been able to compile any information about NVIDIA's average ASP considering the price restrictions set in via EU agreement?

We have a tremendous amount of data we've been able to compile, but I don't think that's something we should discuss in this call, representing NVIDIA's ASPs. That's something you should look for them to do.

What about the TAFC decision, Tom, looking at that. I'm looking at a couple questions on that just in terms of maybe what that decision impact could have on NVIDIA's ability to litigate a past due portion of the royalties.

That's a speculative question. What could it do depends on obviously what the fed circuit decides with respect to both Hynix and Micron. And I'm just not really in a position to speculate on what they're going to decide, but is it possible that there could be some impact? It's possible on the one hand. On the other hand in the ITC case the administrative law judge found that there was no prejudice and the LEO went into effect and the ITC confirmed that. So it's not obvious that there would be any effect at all at this point.

And what impact has NVIDIA's decision to negotiate and license with Rambus, how has that affected negotiations with AMD? Should we be modeling a flat amount going forward, or has Rambus been able to achieve, and it is the end of the year that I believe you stated you would give us some information, has Rambus been able to achieve a higher quarterly payment from AMD now?

Jeff, I'll start to answer your question and then Satish can chime in. You mentioned ongoing negotiations with AMD and I just want to be clear that there are not negotiations going on with AMD at this time. They already exercised their right to renew and there was a predetermined calculation that was part of the original license agreement that determines what the forward-going payments will be under the renewal. And Satish, I think, can shed a little bit of light on that.

Just looking at their year-to-date number and comparing them with 2005 I think we expect our fixed payments to go up by the mid-teens. So I'd say between 14% to 18% higher than what they've been receiving in the past.

So just so I'm understanding correctly, Satish, you're saying to increase into the teens on an annual basis is what they're going to pay, or are you talking about the percentage increase?

No, this is their payment to us on a quarterly basis or an annual basis, because they have a fixed payment.

Right. And so now you're saying you think it's going to be in the mid-teens?

No, the percentage increase is going to be about in the mid-teens.

That's what I was trying to understand.

You know, it would be 1.14 to 1.18 times what they had been receiving in the past.

Okay. Very helpful. I don't want to take up too much time, so I'll just ask one more question here. What's the status, Tom, with the anti-trust trial? And the reason I say status is that if McBride takes the case, what ability do defendants have to delay the starting of the case by appealing that decision and does that then impact at all in your discussions with your counsel the ability of this case to go to trial if Mr. Price's case has not gone to trial on February 1st in mid-February versus June? A lot of uncertainty, it seems, here for you guys and just trying to understand how you're handling, maybe Satish, the expense with legal with that? How you're handling getting ready for a February trial that may be moved to June or vice versa? And maybe how you think a potential appeal, if lobbied in by the defendants, could impact the case in the near term.

Well, I'll start with the answer on that Jeff. Thanks. I will fully confirm that there's a lot of uncertainty as to that particular case the starting date, certainly therefore when it would be completed. You may know, and I continue to hope, that we will have a February 2011 trial date started in front of Judge McBride. I don't want to speculate on what kind of strategies or theories that the defendants can come up with to further delay the trial. They've surprised us with some of the things they've come up with to date and rather than give them any more ideas I think I won't make any speculation on that [laughter]. As you know, I think, Judge Kramer has indicated that the start of the Mattel versus Bratz trial is a significant issue in getting our case started. Apparently a Ninth Circuit ruling occurred today that pushes it off into December on some re-judgment motions in that case, which we're not a part of so there's no misunderstanding, and we won't know realistically when that trial will start until late December, possibly January, possibly later. And so that just sort of further identifies the uncertainty. We really don't know when it's going to start, but we're still hoping for February of 2011.

[Operator Instructions.] And we'll go with our next question from Michael Cohen with MDC Financial. Michael Cohen - MDC Financial: My first question is actually about the Fujitsu license that was I guess executed back in March 2006. It was to be between $108 million and $198 million based on Fujitsu's use of licensed memory. I wondered if you could share how much money Rambus has received to date from Fujitsu in between that $108 million and $198 million range.

Michael, we typically don't break out by customer. We do show what top ten customers are in our Ks and Qs, but we don't disclose by customer what the payments are, what we have received and what we have yet to receive.

Would you be willing to give us a clue, like the high or low end of the range?

Their license comes up for renewal next year and I'm not going to say whether they are high end or the low end at this point in time.

And can you share what quarter next year it's going to come up for renewal?

It's Q1 of 2011. It was a five-year term from 2006.

And my next question, and this might be a Harold question. Similar to the Fujitsu license, is Rambus still doing anything to put pressure on systems companies to use licensed memory and [inaudible] similar to the Fujitsu deal? And if so, how has it been for license - kind of change the dynamics by having a lot more licensed memory out there [inaudible].

I think your final phrase goes a long way in answering the question. You may recall that the Fujitsu license was negotiated quite a while ago, in essence, with the exception of Elpida, everyone was unlicensed. We've done quite well, we think, in litigation. We hope to do better shortly, and obviously we have signed Samsung. We are working hard to get Elpida signed so the beneficial effect of that particular concept is obviously reduced in proportion to the number of companies signed. That would be the best way I could put it.

Do you think that we should kind of abandon the hope that we might see more systems level licenses, or is that something that Rambus is actively trying to pursue with its strategy?

I would simply say that the issues revolving around DRAM and the controller running them is one way of looking at system licenses. We have other ways of looking at system licenses. As relates to the first model, if you will, the one used at Fujitsu, I don't believe we will use it, but that does not mean that other system-type licensing is off the table. On the contrary.

And my last question is probably kind of a combination for Satish and Tom. There appears to be still two outstanding shareholder suits from the option backdating period. I was wondering if Rambus had taken the charge or if you suspect any kind of material liability that we should expect from those suits going forward.

We have not taken a charge, and we do not expect to be taking - there's not a contingent liability on our books at this point in time.

More precisely, we haven't taken a reserve, a charge would only happen were there to be a settlement.

And no, there is no settlement at this point on either of those cases. And you're referring to the Steele cases and the Kelley cases. We're working hard, as you probably know, to try to get the Kelley cases fully dismissed. They've been dismissed previously and we're working to get those re-dismissed if you will. With respect to Steele that's ongoing litigation and we're treating it as seriously as any of our other litigation.

And it appears that the Kelley case recently had a ruling where they were allowed to file a second amended complaint, so it appears that one is still going forward as well.

They were given the opportunity to do so again. We're still hopeful that that case will be dismissed. Keep in mind they're representing themselves and quite often judges will give a lot more leeway in pro se cases than they would if they had been represented by outside counsel, law firms for example. I don't want to predict an outcome of a case, but they're given a little bit more leeway than many other [plain talk] parties would be given.

I noticed that there's been many complaints, both in the federal and in the state up to this point.

That's correct.

[Operator Instructions.] We'll take our next question from Kelly Anderson from Sidoti & Company. Kelly Anderson - Sidoti & Co.: Just a quick one on the timing issue for the price fixing case. The potential for delay there, is that being motivated by specific issues to the case, or are there additional challenges you have to address, maybe related to the switch in judges there, or is it completely related to the other trial that's going to go ahead of yours?

It's a good question. At the present time the delay in getting a trial date set in court is the potential conflict of another case by one of the attorneys representing one of the defendants in the case, and that is as I alluded to earlier, Mattel vs. Bratz case, in which one of the defense lawyers in our case is a lawyer in that case as well. So at the present time Judge Kramer has indicated that conflict is the issue with respect to whether we start, hopefully February, or some time later in 2011.

Okay, thanks. That's very helpful. I also had a question on the lighting initiatives there. You seemed to reference initiatives in solid state lighting but I understand you have some technology related to backlighting as well. Can you tell me a little bit about what your focus is for the lighting products and how quickly you think, if there's any way you can put a guess to this, you can monetize the investments that you've made there?

In my comments I referenced the design facility that we're completing in Ohio. The purpose of that facility is to prototype various lighting solutions for customers, the first of which is G.E. - obviously we'd like to sign other ones - doing a prototype design for G.E. based upon their needs. It would then be manufactured presumably in a lower cost country and then shipped through G.E. That's a process that I think you could measure in quarters, not longer than that. As I said, in addition to G.E. we're obviously going to attempt to sign many other people. Very excited about that, and we think we have technology that will allow G.E. to be very successful. The patents that we acquired - and there were a large number of them, I won't guess the number off the top of my head. It was the better part of 200 - have relevance to backlighting as you've said, and we're contemplating our particular strategy right now. But no, I do believe that they have value and we'll get back to you in the not too distant future as to how we'll go to market.

And just a follow on to that, the patents that you acquired during the third quarter were they also related to lighting technologies?

The smaller ones we acquired?

Yes.

No, they're what we call semiconductor tuck-ins.

Got it. Okay great. And then just a quick one for Satish. Is there any way you can help us to estimate what the share count might look like for 4Q given the -

Stock's been fairly stable already, between $18 and $20 at this point in time, so for $90 million you can make an estimate and say if stock price remains where it is, if that's an assumption you want to make, you can take 90 million and divide by $20 or $19 and get to the number of shares. Because the ASR will be completed in Q4, so we will reduce the share count by 90 million worth of dollars in the quarter, so I think that would be a fair enough guess.

Our next question is coming from Hamed Khorsand from BWS Financial. Hamed Khorsand - BWS Financial: You made some comments about the XDR Mobile initiative you guys are going through. Could you provide a little bit more detail? In the whole process that you guys are getting involved in have you guys been able to obtain a handset maker to include it into a design so that testing could begin with actual handsets as a memory solution? Any details on where you guys actually are in the process?

There's a lot that we have been able to do, both on our own and then in sharing information and simulation results with potential partners, but as of yet we haven't announced any partners and so I'm not at liberty to give names.

You've talked about increase in staff. Are you just basically nullifying the restructuring you guys incurred last year? And what kind of increase are we looking at in op ex.

I don't think I would state it as a nullification. A significant portion of the increase in heads we have have come in the lighting division, about 20-25. That's a large portion of the increase. And we continue to look at areas outside of just the memory area when we make some hires to begin to build small businesses there and replacing any of the turnover we have.

So is it fair to assume that op ex will continue to move higher beyond Q4?

I think it's fair to assume that, but not by amounts that are terribly significant to our P&L.

I would agree with that.

And at the moment I am showing no further questions.