10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from · to ·

Commission File Number: 000-22339

RAMBUS INC.

(Exact name of registrant as specified in its charter)

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

4440 El Camino Real, Los Altos, CA 94022

(Address of principal executive offices) (zip code)

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

The number of shares outstanding of the registrant’s Common Stock, par value $.001 per share, was 102,275,108 as of April 16, 2004.

RAMBUS INC.

FORM 10-Q

INDEX

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Condensed Balance Sheets as of March 31, 2004 (unaudited) and December 31, 2003 (audited)	1
	Consolidated Condensed Statements of Operations for the Three Months Ended March 31, 2004 (unaudited) and March 31, 2003 (unaudited)	2
	Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2004 (unaudited) and March 31, 2003 (unaudited)	3
	Notes to Unaudited Consolidated Condensed Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	39
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 2.	Changes in Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Submission to Matters to a vote of Security Holders	41
Item 5.	Other Information	41
Item 6.	Exhibits and Reports on Form 8-K	41
Signature		42
Exhibit Index

PART I — FINANCIAL INFORMATION

Item 1.    Financial Statements.

RAMBUS INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

	March 31, 2004			December 31, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	63,084		$	42,005
Marketable securities		47,430			24,777
Accounts receivable		790			10,263
Prepaid and deferred taxes		12,731			12,890
Prepaids and other current assets		4,850			5,652
Total current assets		128,885			95,587
Property and equipment, net		10,610			10,965
Marketable securities, long-term		128,843			121,756
Restricted investments		5,094			4,576
Deferred taxes, long-term		61,473			43,557
Purchased intangible assets		12,852			13,184
Other assets		1,729			3,461
Total assets	$	349,486		$	293,086
LIABILITIES
Current liabilities:
Accounts payable	$	2,773		$	2,776
Accrued salaries and benefits		4,120			4,369
Other accrued liabilities		4,792			3,659
Deferred revenue		24,510			24,180
Total current liabilities		36,195			34,984
Deferred revenue, less current portion		16,113			18,022
Total liabilities		52,308			53,006
Commitments and contingencies (Notes 7 and 9)
STOCKHOLDERS’ EQUITY
Convertible preferred stock, $.001 par value:
Authorized: 5,000,000 shares;
Issued and outstanding: no shares at March 31, 2004 and December 31, 2003		—			—
Common stock, $.001 par value:
Authorized: 500,000,000 shares;
Issued and outstanding: 102,167,499 shares at March 31, 2004 and 99,154,444 shares at December 31, 2003		102			99
Additional paid-in capital		326,708			278,187
Accumulated deficit		(30,102	)		(38,407	)
Accumulated other comprehensive income		470			201
Total stockholders’ equity		297,178			240,080
Total liabilities and stockholders’ equity	$	349,486		$	293,086

See Notes to Unaudited Consolidated Condensed Financial Statements.

1

RAMBUS INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2004		2003
Revenues:
Contract revenues	$	5,079	$	3,267
Royalties		27,462		24,812
Total revenues		32,541		28,079
Costs and expenses:
Cost of contract revenues		5,234		3,210
Research and development		7,427		7,267
Marketing, general and administrative		11,208		13,131
Total costs and expenses		23,869		23,608
Operating income		8,672		4,471
Interest and other income, net		4,104		2,984
Income before income taxes		12,776		7,455
Provision for income taxes		4,471		2,386
Net income	$	8,305	$	5,069
Net income per share:
Basic	$	0.08	$	0.05
Diluted	$	0.07	$	0.05
Number of shares used in per share calculations:
Basic		100,966		97,169
Diluted		111,198		103,785

See Notes to Unaudited Consolidated Condensed Financial Statements.

2

RAMBUS INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2004			2003
Cash flows from operating activities:
Net income	$	8,305		$	5,069
Adjustments to reconcile net income to net cash provided by operating activities:
Tax benefit of stock option exercises		20,247			2,151
Depreciation		1,020			1,330
Amortization of intangible assets		330			—
Decrease in valuation allowance related to investments		—			(1,231	)
Gain on sale of investment		(3,166	)		—
Change in operating assets and liabilities:
Accounts receivable		9,473			(3,319	)
Prepaids, deferred taxes and other assets		(16,922	)		(1,701	)
Accounts payable, accrued salaries and benefits and other accrued liabilities		881			3,123
Increases in deferred revenue		5,450			15,555
Decreases in deferred revenue		(7,029	)		(15,217	)
Net cash provided by operating activities		18,589			5,760
Cash flows from investing activities:
Purchases of property and equipment		(665	)		(1,033	)
Purchases of marketable securities		(162,494	)		(65,784	)
Maturities of marketable securities		133,008			63,490
Increase in restricted investments		(518	)		(334	)
Proceeds from sale of investment		4,866			2,000
Purchase of investment		—			(400	)
Net cash used in investing activities		(25,803	)		(2,061	)
Cash flows from financing activities:
Net proceeds from issuance of Common Stock		28,278			3,833
Repurchase of Common Stock		—			(14,703	)
Net cash provided by (used in) financing activities		28,278			(10,870	)
Effect of exchange rates on cash and cash equivalents		15			(10	)
Net increase (decrease) in cash and cash equivalents		21,079			(7,181	)
Cash and cash equivalents at beginning of period		42,005			28,656
Cash and cash equivalents at end of period	$	63,084		$	21,475
Non-Cash disclosure
Intellectual property rights received on disposition of investment		—		$	500

See Notes to Unaudited Consolidated Condensed Financial Statements.

3

RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1.    Basis of Presentation

The accompanying consolidated condensed financial statements include the accounts of Rambus Inc. (“Rambus” or “the Company”) and its wholly-owned subsidiaries, Rambus K.K., located in Tokyo, Japan, and Rambus Deutschland GmbH, located in Hamburg, Germany. All intercompany accounts and transactions have been eliminated in the accompanying consolidated condensed financial statements.

In the opinion of management, the consolidated condensed financial statements include all adjustments (consisting only of normal recurring items) necessary to present 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 consolidated condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (or 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, for the twelve months ended December 31, 2003, included in Rambus’s 2003 Annual Report filed on Form 10-K with the SEC on February 13, 2004.

2.    Accounting Policies and Recent Accounting Pronouncements

Stock-Based Compensation

Rambus accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Stock options are generally granted with exercise prices equivalent to fair market value, and no compensation cost is recognized. When stock options are granted with exercise prices below fair market value, employee stock-related compensation expense is recognized accordingly. Rambus complies with the disclosure provisions as required under Statement of Financial Accounting Standards, or SFAS, No. 123 “Accounting for Stock-Based Compensation.”

In December 2002, the Financial Accounting Standards Board, or FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure,” an amendment of SFAS 123. If Rambus had recognized compensation expense based upon the fair value of stock option awards, including shares issued under the Rambus employee stock purchase plan (collectively called options), at the grant date consistent with the methodology prescribed under SFAS 123, Rambus’s net income (loss) and net income (loss) per share would have changed to the pro forma amounts indicated below (in thousands, except share data; unaudited):

	Three Months Ended March 31,
	2004			2003
Net Income, as reported	$	8,305		$	5,069
Add: Stock-based employee compensation expense (credit) included in reported net earnings, net of tax		—			—
Deduct: Stock-based employee compensation expense determined under the fair value method, net of tax		(6,974	)		(6,451	)
Pro forma net income (loss)	$	1,331		$	(1,382	)

4

RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

2.    Accounting Policies and Recent Accounting Pronouncements (continued)

	Three Months Ended March 31,
	2004		2003
Basic income (loss) per share
As reported	$	0.08	$	0.05
Pro forma	$	0.01	$	(0.01	)
Diluted income (loss) per share
As reported	$	0.07	$	0.05
Pro forma	$	0.01	$	(0.01	)
Number of shares used in per share calculations:
Basic		100,966		97,169
Diluted		111,198		103,785

(1) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’s vesting period.

The effects of applying SFAS 123 on the pro forma disclosures for the first quarter of 2004 is not likely to be representative of the effects on pro forma disclosures in future periods.

Recent Accounting Pronouncements

In January 2003, FASB issued FASB Interpretation No. 46, or FIN 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, which addresses consolidation by business enterprises of variable interest entities, or VIEs, either: (1) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) in which the equity investors lack an essential characteristic of a controlling financial interest. In December 2003, FASB issued a revised Interpretation No. 46, which provides guidance on the identification of and reporting for VIEs. Interpretation No. 46 was effective for Rambus in the first quarter of 2004. The adoption of Interpretation No. 46 did not have a material effect on Rambus’s results of operations or financial position for the period reported.

In April 2004, the Emerging Issues Task Force issued Statement No. 03-06, or EITF 03-06, “Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share”. EITF 03-06 addresses a number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends on its common stock. The issue also provides further guidance in applying the two-class method of calculating earnings per share, clarifying what constitutes a participating security and how to apply the two-class method of computing earnings per share once it is determined that a security is participating, including how to allocate undistributed earnings to such a security. EITF 03-06 is effective for fiscal periods beginning after March 31, 2004. The adoption of EITF 03-06 is not expected to have a material effect on Rambus’s results of operations or financial position.

3.    Business Combinations

On December 24, 2003, Rambus completed the acquisition of certain high-speed signaling assets from Velio Communications Inc., or Velio, for $13 million in cash. As a result of this acquisition, Rambus recorded purchased intangible assets of $13.2 million, including transaction costs. The valuation and useful lives of the

5

RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

3.    Business Combinations (continued)

acquired intangible assets were allocated based on estimates which considered a number of factors including valuations. These intangible assets are being amortized over their estimated useful lives of ten years. Amortization expense of purchased intangible assets was $330,281 for the first quarter of 2004.

4.    Revenue Recognition

Rambus’s revenues consist of royalty revenues and contract revenues generated from the following five types of agreements with semiconductor and systems companies: (1) RDRAM^™ licenses, which are licenses for chips fully compatible with the RDRAM memory interface, (2) XDR^™ and Redwood^™ licenses, which are licenses for chips fully compatible with the XDR and Redwood interfaces, (3) RaSer^™ licenses, which are licenses for Rambus’s RaSer interface that licensees integrate into their logic semiconductors, (4) a patent cross-license with Intel Corporation, or Intel, and (5) SDRAM- and DDR- compatible licenses, which are licenses that cover the use of Rambus’s patents and intellectual property in SDRAM and DDR memory chips and controllers which control such memory. Rambus does not recognize contract revenues in excess of cash received if collectibility is not probable. Rambus recognizes royalty revenues upon notification of sale by its licensees if collectibility is probable. The terms of the royalty agreements generally require licensees to give Rambus notification and to pay Rambus royalties within 60 days of the end of the quarter during which the sales occur.

RDRAM Licenses.    RDRAM licenses generally allow a semiconductor manufacturer to use Rambus’s RDRAM memory interface and to receive engineering implementation services and customer support. Rambus delivers to a new RDRAM licensee an implementation package, which contains the information needed to develop a chip incorporating RDRAM memory interface in the licensee’s process. An implementation package includes a specification, generalized circuit layout database software for the particular version of the chip which the licensee intends to develop, test parameter software and, for memory chips, a core interface specification. Test parameters are the programs that test the RDRAM interface embedded in the customer’s product. Some licensees have contracted to have Rambus provide the specific engineering implementation services required to optimize the generalized circuit layout for the licensee’s manufacturing process. The RDRAM licenses also provide for the right to receive ongoing customer support, which includes technical advice on chip specifications, enhancements, debugging and testing.

Rambus recognizes revenue on RDRAM licenses consistent with American Institute of Certified Public Accountants, or AICPA, Statement of Position, or SOP, No. 97-2, and SOP 98-9, “Software Revenue Recognition.” This SOP applies 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 services provided under these agreements are comprised of license fees, and engineering service fees. Contract fees are bundled together as the total price of the agreement does not vary as a result of inclusion or exclusion of services and vendor specific objective evidence, or VSOE, for the undelivered element has not been established. Accordingly, the revenues from such contracts are recognized ratably over the period during which the post-contract customer support is expected to be provided independent of the payment schedules under the contract, including milestones. At the time Rambus begins to recognize revenue under RDRAM licenses, the remaining obligations are no longer significant. These remaining obligations are primarily to keep the product updated and include activities such as responding to inquiries and periodic customer meetings. 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 are due on pre-determined dates and include significant up-front fees. The excess of contract fees billed over revenue recognized is shown on the balance sheet as deferred revenue. Rambus reviews assumptions regarding the post-contract customer support periods on a regular basis. If Rambus determines that it is necessary to revise its estimates of the support periods, the total amount of revenue recognized over the life of the contract

6

RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

4.    Revenue Recognition (continued)

would not be affected. However, to the extent the new assumptions regarding the post-contract customer support periods were less than the original assumptions, the contract fees would be recognized ratably over an accelerated period. Conversely, if the new estimated periods were longer than the original assumptions, the contract fees would be recognized ratably over a longer period.

XDR and Redwood Licenses.    XDR and Redwood interface licenses currently provide for the payment of license fees and engineering fees, as well as royalties. Rambus currently recognizes revenue on XDR and Redwood licenses using the percentage-of-completion method of accounting. Rambus determines progress-to-completion using input measures based on labor-hours incurred. 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. Rambus reviews assumptions regarding the work necessary to complete projects on a quarterly basis. If Rambus determines that it is necessary to revise its estimates of the work 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 amount of work necessary to complete a project were less than the original assumptions, the contract fees would be recognized sooner than originally expected. Conversely, if the new estimated total amount of work necessary to complete a project was longer than the original assumptions, the contract fees would be recognized over a longer period.

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 are due on pre-determined dates and include significant up-front fees. The excess of contract fees billed over revenue recognized is shown on the balance sheet as deferred revenue.

RaSer licenses.    RaSer interface licenses provide for the payment of license fees, engineering fees and royalties. Revenues from license fees and engineering fees are currently recognized ratably over the period during which the post-contract customer support is expected to be provided, independent of the payment schedules under the contract. The excess of contract fees billed over revenue recognized is shown on the balance sheet as deferred revenue.

Intel cross-license.    In September 2001, Rambus entered into a cross-license agreement with Intel that grants Intel a license to Rambus’s patent portfolio. Rambus recognizes revenue from this arrangement on a quarterly basis as amounts become due and payable. The agreement terminates in September 2006 and after that date Intel will have a fully paid license to all of Rambus’s patents claiming priority prior to September 2006.

SDRAM-compatible and DDR-compatible licenses.    SDRAM-compatible and DDR-compatible licenses generally provide for the payment of fees, which include compensation for use of Rambus’s patents from the time Rambus notifies the licensee of potential infringement. Accordingly, these fees are classified as royalty revenues, which are recognized ratably over the five-year contract period. The current contracts will begin to expire in June 2005.

Allowance for Doubtful Accounts.    Rambus’s allowance for doubtful accounts is determined using a combination of factors to ensure that Rambus’s trade and financing receivables balances are not overstated due to uncollectibility. Rambus determines its allowance for doubtful accounts based on a variety of factors. For the first quarters of 2004 and 2003, Rambus reported a balance of $0 in its allowance for doubtful accounts.

7

RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

8

5.    Comprehensive Income

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments and unrealized gains and losses on marketable securities. Other comprehensive income is presented in the balance sheet under accumulated other comprehensive income in stockholders’ equity.

Comprehensive income is as follows (in thousands; unaudited):

	Three Months Ended March 31,
	2004		2003
Net Income	$	8,305	$	5,069
Other comprehensive income (loss):
Foreign currency translation adjustments		15		(10	)
Unrealized gain (loss) on marketable securities, net of tax		254		(92	)
Other comprehensive income (loss)		269		(102	)
Total comprehensive income	$	8,574	$	4,967

6.    Employee Stock Option Plans

Stock Option Program Description

Rambus officers and employees are eligible to participate in the 1997 Stock Plan. Non-executive officer employees are also eligible to participate in the 1999 Stock Plan. The 1997 Stock Plan permits the Board of Directors of Rambus, or the Board, or the Compensation Committee of the Board, or the Compensation Committee, to grant stock options, stock purchase rights and Common Stock Equivalents to employees, including executive officers, on such terms as the Board or the Compensation Committee may determine. The 1999 Stock Plan permits the Board or the Compensation Committee to grant stock options to employees on such terms as the Board or the Compensation Committee may determine. The Board or the Compensation Committee has authority to grant and administer stock options to all Rambus employees.

In determining the size of a stock option grant to a new officer or other key employee, the Board or the Compensation Committee takes into account equity participation by comparable employees within Rambus, external competitive circumstances and other relevant factors. These options typically vest over 60 months and thus require the employee’s continuing services to Rambus. Additional options may be granted to current employees to reward exceptional performance or to provide additional unvested equity incentives for retention. The method of vesting of additional options granted to current employees has and will vary over time based on approval of the Board or the Compensation Committee.

In addition, under the 1997 Stock Plan, the Board has delegated to two executive officers the authority to grant new hire options to non-executive officer employees. Each option granted to a new employee under this authority is subject to the following terms:

· The grant date is the first business day of the month following the employee’s first day of work

· The exercise price is our closing price as quoted on Nasdaq on the day of grant

· The grant must be within the range for the employee’s level as specified by the Board or Compensation Committee and all such grants are subject to a pre-determined cap

· The total share budget for the executive officers to grant under this authority without further Board or Compensation Committee approval is 1,000,000 shares

RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

6.    Employee Stock Option Plans (continued)

Distribution and Dilutive Effect of Options

The following table illustrates the grant dilution and exercise dilution (in thousands, except percentages; unaudited):

	Three Months Ended March 31,
	2004		2003
Shares of common stock outstanding	102,167		96,820
Granted	346		663
Canceled	(31	)	(524	)
Net options granted	315		139
Grant dilution(1)	0.3	%	0.1	%
Exercised	3,013		721
Exercise dilution(2)	2.9	%	0.7	%

Note 1: The percentage for grant dilution is computed based on options granted less options canceled as a percentage of total outstanding shares of common stock.

Note 2: The percentage for exercise dilution is computed based on options exercised as a percentage of total outstanding shares of common stock.

The following table summarizes the options granted to the named executive officers. The named executive officers are Rambus’s Chief Executive Officer and the four other most highly paid executive officers whose salary and bonus for the twelve months ended December 31, 2003 were in excess of $100,000.

	Three Months Ended March 31,
	2004		2003
Options granted to the named executive officers	160,000		—
Options granted to the named executive officers as a % of total options granted	46.2	%	0.0	%
Options granted to the named executive officers as a % of net options granted	50.9	%	0.0	%
Options granted to the named executive officers as a % of outstanding shares	0.2	%	0.0	%
Cumulative options held by named executive officers as a % of total options outstanding	30.4	%	29.3	%

9

RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

6.    Employee Stock Option Plans (continued)

General Option Information

A summary of activity under all stock option plans is as follows:

			Options Outstanding
	Options Available for Grant		Number of Shares		Weighted Average Exercise Price Per Share
Outstanding at December 31, 2002	7,014,873		27,923,467		$	12.85
Options granted	(4,655,500	)	4,655,500		$	20.44
Options exercised	—		(3,377,880	)	$	6.84
Options canceled	1,557,286		(1,557,286	)	$	13.72
Outstanding at December 31, 2003	3,916,659		27,643,801		$	14.80
Shares reserved	3,653,146		—			—
Options granted	(346,000	)	346,000		$	31.23
Options exercised	—		(3,013,055	)	$	9.39
Options canceled	31,387		(31,387	)	$	11.42
Outstanding at March 31, 2004	7,255,192		24,945,359		$	15.69

The following table summarizes information about outstanding and exercisable options as of March 31, 2004:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$0.25 – $3.82	2,213,014	5.44	$	2.58	897,249	$	2.23
$4.00 – $4.67	1,124,386	8.29		4.59	246,267		4.59
$4.72 – $4.86	4,852,244	7.41		4.86	2,042,553		4.86
$5.93 – $8.64	2,422,482	8.40		7.96	474,688		7.87
$9.07 – $13.75	2,638,434	5.75		11.77	1,954,881		12.09
$13.91 – $15.66	1,933,783	5.94		15.02	1,413,730		14.96
$15.67	3,083,800	5.56		15.67	1,970,041		15.67
$15.69 – $25.16	3,212,716	9.21		23.05	378,161		17.12
$25.51 – $37.66	2,095,500	7.47		34.29	466,960		37.67
$54.63 – $83.00	1,369,000	6.55		60.88	259,843		71.20
$0.25 – $83.00	24,945,359	7.04	$	15.69	10,104,373	$	13.35

As of March 31, 2004, a total of 32,200,551 shares of Common Stock (24,945,359 of which are outstanding and 7,255,192 of which are available for future grant) were reserved for issuance under all stock option plans. As of March 31, 2004 and December 31, 2003, options for the purchase of 10,104,373 and 11,866,481 shares, respectively, were exercisable without being subject to repurchase by Rambus.

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

6.    Employee Stock Option Plans (continued)

The following table presents the option exercises for the first quarter of 2004 and option values as of that date for the named executive officers:

	Number of Shares Acquired on Exercise	Value Realized		Number of Securities Underlying Unexercised Options at March 31, 2004		Intrinsic Values of Unexercised, In-the-Money Options at March 31, 2004 (1)
				Exercisable	Unexercisable	Exercisable		Unexercisable
Named executive officers	1,082,391	$	24,626,342	3,148,445	4,446,599	$	48,737,644	$	57,569,227

(1) Market value of the underlying securities based on the closing price of Rambus’s Common Stock on March 31, 2004 (the last trading day of the first quarter of 2004) on the Nasdaq Stock Market of $28.02 per share minus the exercise price per share.

7.    Stockholders’ Equity

Warrants

In October 1998, Rambus’s Board of Directors authorized an incentive program in the form of warrants for a total of up to 1,600,000 shares of Rambus Common Stock to be issued to various RDRAM licensees. The warrants, which were issued at the time certain targets were met, have an exercise price of $2.50 per share and a life of five years from the date of issuance. These warrants vest and become exercisable only upon the achievement of certain milestones by Intel relating to shipment volumes of RDRAM chipsets, which could result in a non-cash charge to the statement of operations based on the fair value of the warrants if and when the achievement of the Intel milestones becomes probable. Since Intel has announced the phase-out of the 850E chipset, the likelihood that the unvested warrants will vest is considered remote. As of March 31, 2004, a total of 1,520,000 of these warrants had been issued and 1,400,000 remain outstanding. These warrants began to expire in February 2004 and will be fully expired in January 2006.

Contingent Common Stock Equivalents and Options

As of March 31, 2004, there were 1,000,000 contingent unvested Common Stock Equivalents, or CSEs, and 1,001,346 contingent unvested options, which vest upon the achievement of certain milestones by Intel relating to shipment volumes of RDRAM chipsets. These CSEs were granted to Rambus’s CEO and President in 1999 and the options were granted to employees in 1999 and 2001. The CSEs were granted with a term of 10 years and the options were granted with an exercise price of $2.50 and a term of 10 years. If and when the achievement of the Intel milestones become probable, there would be an almost entirely non-cash charge to the statement of operations based on the fair value of the CSEs and options. Since Intel has announced the phase out of the 850E chipset, the likelihood that the unvested CSEs and options will vest is considered remote.

Share Repurchase Program

In October 2001, Rambus’s Board of Directors approved a share repurchase program of Rambus Common Stock principally to reduce the dilutive effect of employee stock options. Since the beginning of the plan, the Board has authorized the purchase in open market transactions of up to ten million shares of outstanding Rambus Common Stock over an undefined period of time. As of March 31, 2004, Rambus has repurchased 6.2 million shares of Rambus Common Stock. No shares were repurchased in the first quarter of 2004. As of March 31, 2004, there remained an outstanding authorization to repurchase 3.8 million shares of outstanding Rambus Common Stock.

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

8.    Net Income Per Share

Net income per share is computed in accordance with SFAS No. 128, “Earnings Per Share,” which requires the presentation of basic and diluted net income per share. Basic net income per share is calculated using the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated using the weighted average number of common shares and common stock equivalents, if dilutive, outstanding during the period. Net income per share is calculated as follows (in thousands, except per share data; unaudited):

	Three Months Ended March 31,
	2004		2003
Numerator:
Net income	$	8,305	$	5,069
Denominator:
Weighted average shares used to compute basic EPS		100,966		97,169
Dilutive common stock equivalents		10,162		6,592
Dilutive common stock warrants		70		24
Weighted average shares used to compute diluted EPS		111,198		103,785
Net income per share:
Basic	$	0.08	$	0.05
Diluted	$	0.07	$	0.05

For the first quarters of 2004 and 2003, there were approximately 2,902,720 and 11,297,868 anti-dilutive weighted shares, respectively, which were excluded from the calculation of diluted weighted average shares outstanding. These options’s exercise prices were greater than the average market price of the common shares for the period or the options were contingent upon the satisfaction of certain conditions, as described in Note 7 under “Contingent Common Stock Equivalents and Options”, that had not been met as of March 31, 2004 and 2003.

9.    Litigation and Asserted Claims

Infineon Litigation

On August 8, 2000, Rambus filed suit in the U.S. District Court for the Eastern District of Virginia, or the Virginia court, against Infineon Technologies AG, or Infineon, and its North American subsidiary for patent infringement of two U.S. patents (USDC Virginia Civil Action No.: 3:00CV524). On September 25, 2000, Infineon filed counterclaims against Rambus in the U.S. case seeking a declaratory judgment that the two asserted patents are invalid and not infringed and further claiming contributory infringement by Rambus of two Infineon U.S. patents. In addition, Infineon also asserted breach of contract, fraud, RICO, and monopolization claims in connection with Rambus’s participation in an industry standards-setting group known as JEDEC where Infineon has alleged that Rambus did not disclose certain of our then-pending patents and patent applications (“JEDEC related claims”). The Infineon counterclaims sought compensatory and punitive damages, attorneys’ fees, injunctions to halt future infringement of the Infineon patents, and an award of a royalty-free license to the Rambus patents. In October 2000, Rambus amended its complaint to assert infringement of two additional U.S. patents. In January 2001, Infineon amended its answer and counterclaims to include a request for a declaratory judgment that all four asserted Rambus patents are invalid and not infringed. In addition, Infineon withdrew all contributory patent infringement claims against Rambus relating to Infineon’s U.S. patents.

Trial began in the Virginia case on April 23, 2001. On May 4, 2001, the Virginia court granted Infineon’s motion to dismiss Rambus’s patent infringement case and granted Rambus’s motion to dismiss Infineon’s breach

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

9.    Litigation and Asserted Claims (continued)

of contract and monopolization claims. On May 9, 2001, the jury returned a verdict against Rambus on the fraud claims and for Rambus on the RICO claims. The jury awarded Infineon $3.5 million in punitive damages, which was reduced to $350,000 under Virginia law. On August 9, 2001, as a result of post-trial motions, the Virginia court set aside the constructive fraud verdict with respect to both SDRAM and DDR SDRAM standard setting. The actual fraud verdict with respect to DDR SDRAM standard setting was also set aside. Post-trial motions by Infineon resulted in the Virginia court awarding Infineon approximately $7.1 million in attorneys’ fees. In addition, on November 26, 2001, the Virginia court issued a permanent injunction prohibiting Rambus from filing additional patent infringement actions against Infineon in the U.S. under certain of Rambus’s U.S. patent claims with regard to JEDEC-compliant SDRAM and DDR SDRAM chips and (subject to certain conditions) successor JEDEC-compliant chips. Rambus appealed rulings by the Virginia court relating to infringement, including rulings on patent claim construction, which are known as “Markman rulings.” Rambus also appealed numerous liability rulings by the Virginia court with respect to the JEDEC related claims concerning SDRAM standard setting. Rambus also filed an appeal with respect to the permanent injunction ruling. Infineon appealed two rulings against it: that Rambus committed no fraud with respect to the JEDEC DDR SDRAM standard and that no injunction should reach patent enforcement actions in Europe. These appeals were consolidated by the U.S. Court of Appeals for the Federal Circuit (CAFC) (Appeal Nos. 01-1449, 01-1583, 01-1604, 01-1641, 02-1174 and 02-1192). Briefing on all of the issues appealed was completed on an expedited schedule, and oral arguments were heard by the CAFC on June 3, 2002.

On January 29, 2003, a three-judge panel of the CAFC issued its opinion in the Infineon appeal. On April 4, 2003, the panel denied a motion for rehearing and the entire CAFC denied rehearing en banc. In its opinion, the CAFC reversed the fraud judgment against Rambus. In so doing it stated, inter alia, that the JEDEC disclosure rules suffered from a “staggering lack of defining details” and could not support a finding of fraud and that, in any event, Rambus had not, through any omission, communicated any false statement because none of Rambus’s patent applications on file at the time we were a JEDEC member read on the JEDEC SDRAM standard then being considered. The panel concluded that Infineon had introduced no evidence of any actionable breach of duty by Rambus. The panel also vacated the Infineon district court’s judgment of non-infringement based on what it found to be the district court’s erroneous interpretations of Rambus’s patents, upholding, in substantial part, the broader interpretations that Rambus had urged. In addition, based on its holding, the panel determined that the injunction entered against Rambus was moot, affirmed the district court’s denial of Infineon’s request to extend that injunction to foreign suits against Infineon as well as the district court ruling that no DDR fraud had occurred, vacated the attorneys’ fees award against Rambus and remanded the case to the Virginia court for retrial of Rambus’s infringement claims against Infineon. In the new trial the CAFC further ruled that the Virginia court may consider sanctions against Rambus for litigation misconduct, but only if Infineon is found to be the prevailing party in such retrial. Retrial is to be based on the new patent claim constructions found by the CAFC.

On Infineon’s motion, the CAFC stayed issuance of its mandate on April 11, 2003. This stay prevented further proceedings in the Virginia court pending a ruling on Infineon’s petition for writ of certiorari to the U.S. Supreme Court. On April 17, 2003, the Virginia court released Rambus’s supersedes bond and letter of credit, which had been filed with that court on August 28, 2001 in order to satisfy judgment on the now vacated award of attorney’s fees.

On October 6, 2003, the Supreme Court denied Infineon’s petition for certiorari, without record of any dissent. Jurisdiction for the case has passed back to the trial court, which originally set the date for the trial to begin on June 10, 2004. On April 27, 2004, the trial date was postponed to a new date in the fall of 2004. The new date is expected to be set before the end of May 2004. The date change was at the initiative of the trial court judge, who among other things, cited the number of pretrial issues that remain to be resolved, and the possible

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

9.    Litigation and Asserted Claims (continued)

need for time for Rambus to appeal certain of those rulings prior to trial. Infineon moved to stay the case pending resolution of the FTC process and raised further allegations of litigation misconduct, including allegations of document spoliation based on claims that Rambus’s 2000-2001 document production to Infineon was inadequate. Infineon contends that our 2000-2001 document production did not include certain later discovered documents that Rambus later produced to other parties, at least some of which would have been produced to Infineon had they been discovered earlier. Infineon had threatened to try to reopen its JEDEC-related claims based on this issue but has not yet done so. Rambus believes that the issues to be tried should be focused on the infringement and validity of the patents in suit and the remedies, including damages, to which Rambus is entitled. The Virginia court has denied Infineon’s request to stay the case. Among other pre-trial rulings, the court has confined the parties to the expert reports previously on file and new ones necessitated by the appellate decision or by new documents. The court has also limited Rambus’s infringement case to four patent claims in three of the four patents on which Rambus initially sued Infineon. The court has not yet ruled definitively as to what counterclaims or defenses of Infineon will survive to trial; but did permit Infineon to take discovery related to its litigation misconduct allegations, and did permit Infineon to amend its counter claims to add a new legal theory (under California Civil Code §17200) to pursue, among other things, Infineon’s allegations, against Rambus, of JEDEC misconduct, document spoliation and litigation misconduct. Rambus anticipates that it will further challenge such claims prior to trial and will continue to vigorously defend against them and to vigorously pursue its potential claims.

On August 7, 2000, Rambus filed suit in the District Court in Mannheim, Germany, or the Mannheim court, against Infineon for infringement of one of Rambus’s European patents, European Patent No. 0525068 (the “‘068 patent”), which deals with one Rambus technology involving use of an access time register in DRAM. On July 20, 2001, the Mannheim court issued an “order for evidence” requiring the appointment of an independent technical expert to evaluate certain technical aspects of our infringement claim. The Mannheim court subsequently appointed its independent technical expert, and, the expert delivered his report to the Mannheim court and the parties in early May 2002. After the completion of briefing by the parties in response to the Mannheim court’s expert report, the validity of the same Rambus European patent was confirmed by an opposition board of the European Patent Office, or EPO, in a hearing conducted on September 10 and 11, 2002. After reviewing extensive prior art asserted by Infineon and other Rambus litigation opponents, the EPO Opposition Board upheld the validity of Rambus’s patent but, applying a unique feature of European patent law, required Rambus to add additional language based on a conclusion that that language better reflected the scope of claims as originally filed by Rambus in Europe. Under European patent law, unlike U.S. patent law, patent claims cannot generally be amended to expand their scope beyond that of the claims as initially filed. Rambus appealed the EPO Opposition Boards inclusion of this additional language; three DRAM companies appealed the validity ruling. A hearing on these appeals took place between February 10-12, 2004. The Technical Appeals Board of the EPO issued an oral ruling on February 12, 2004 revoking the ’068 patent without explanation. A written opinion of the Technical Appeals Board’s findings could be issued at any time.

A hearing was held in March 2003 at the Utility Model Division of the German Patent Office regarding a Rambus utility model that is similar in scope to the European patent that had been at issue in the EPO. Based on the same reasoning of the EPO Opposition Board, the German Patent Office required Rambus to add additional language to its utility model claim in order to preserve the utility model. However, in the Utility Model case, Rambus rejected the particular additional language requested by the German patent office and the Utility Model was, for this reason and based on a prior art argument, revoked. Rambus has appealed the decision, but, as a practical matter, it has little or no bearing on Rambus’s future patent rights as the prior art at issue has limited scope and, in any event, German utility models have — compared to patents — very limited terms, which have already expired in Rambus’s case. This hearing is set for June 19, 2004 although Rambus believes it may be postponed.

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

9.    Litigation and Asserted Claims (continued)

Micron Litigation

On August 28, 2000, Micron Technology, Inc., or Micron, filed suit against Rambus in the U.S. District Court in Delaware (USDC Delaware Civil Action No.: 00-792-RRM). The suit asserts violations of federal antitrust laws, deceptive trade practices, breach of contract, fraud and negligent misrepresentation in connection with Rambus’s participation in JEDEC. Micron’s suit seeks a declaration of monopolization by us, 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. In February 2001, Rambus filed its answer and counterclaims, whereby Rambus disputed Micron’s claims and asserted infringement by Micron of the eight U.S. patents. Both sides filed a number of potentially dispositive motions for summary judgment. On February 27, 2002, the court ruled on some of these motions, denying Micron’s motion for summary judgment on its claims of fraud. The Delaware court also postponed trial on all of the issues in the Micron case until after the CAFC reviews the judgments of the Virginia court in the Infineon matter. Limited discovery is ongoing in the Delaware action. Due to the resignation of Judge Roderick R. McKelvie, this case was assigned to a Magistrate Judge for all pretrial proceedings, and has since been assigned to the Judge Kent A. Jordan who has filled the vacancy left by Judge McKelvie. A hearing with Judge Jordan was scheduled for the Delaware Micron case on July 7, 2003, but was taken off the calendar at the request of the parties. The parties are currently deciding whether or not to change the status of this case to inactive, although such a status, if adopted, could be changed back to active upon the request of either party.

In September 2000, Rambus filed suit against Micron in the Mannheim court, the Tribunal de Grande Instance de Paris in Paris, France, or the Paris court, the High Court of Justice, Chancery Division, Patents Court at the Royal Courts of Justice in London, Great Britain, or the London court, and the District Court in Monza, Italy, or the Monza court, for infringement of a European patent. Rambus’s German suit against Micron is, like Rambus’s German suit against Infineon, in the Mannheim court, which issued an “order for evidence” on December 7, 2001 requiring the appointment of an expert. The appointed expert is the same expert as was appointed in the Infineon and Hynix cases in Germany. The expert issued his report in late 2002, and, as in the Infineon case, a hearing is currently scheduled for June 2004, although Rambus believes that this hearing date may be postponed. The French suit and the British suit have been temporarily stayed pending the validity determination of the EPO. On May 2, 2001, the independent experts appointed by the Monza court issued a report that confirmed the validity of the Rambus patent in suit and determined that Micron’s SDRAM products infringe the Rambus patent. On May 25, 2001, the Monza court declined to grant Rambus a preliminary injunction due to its conclusion that the experts had not addressed one technical issue. Rambus appealed the Monza court’s ruling, and on July 18, 2001, the Appeals Court rejected the appeal on jurisdictional grounds. The infringement suit against Micron in Italy on the first European patent has been stayed, but if it resumes, it will resume in the District Court of Milan rather than in Monza.

In December 2000, Micron filed a declaratory judgment suit of non-infringement of a second European patent against Rambus in the District Court of Avezzano, Italy. In response, Rambus asserted infringement of the second European patent in Milan, Italy. The actions on the second European patent in Italy have also been stayed. Further, Rambus filed suit against Micron in Germany and Italy for infringement of a third European patent. Both of these additional suits have also been stayed.

Hynix Litigation

On August 29, 2000, Hyundai Electronics Industries Co., Ltd., or Hyundai, and various subsidiaries filed suit against Rambus in the U.S. District Court for the Northern District of California (USDC Northern District of California Case No.: 00-20905 RMW). Since filing suit, Hyundai has changed its name to “Hynix Semiconductor

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

9.    Litigation and Asserted Claims (continued)

Inc.”, or Hynix. The suit asserts breach of contract in connection with Rambus’s participation in JEDEC and seeks a declaratory judgment that eleven Rambus patents are invalid and not infringed by Hynix.

In October 2000, Hynix amended its complaint to further assert violations of federal antitrust laws, deceptive trade practices, breach of contract, fraud and negligent misrepresentation in connection with Rambus’s participation in JEDEC. Hynix seeks a declaration of monopolization by Rambus, compensatory and punitive damages, and attorneys’ fees. In February 2001, Rambus filed its answer and counterclaims, whereby Rambus disputes Hynix’s claims and assert infringement of eleven U.S. patents. On November 21, 2001, the California court ruled that the claim construction applied in the Virginia case against Infineon should be applied in the case with Hynix, and, as a result, dismissed most of Rambus’s claims of patent infringement against Hynix. In doing so, the California court relied on the principles of collateral estoppel and declined to decide whether, on the merits, the Virginia claim construction was correctly or incorrectly decided. The Virginia claim construction issue was one of the matters that will be reviewed as part of Rambus’s appeal in the Infineon case. On December 17, 2001, the California court stayed the Hynix case until the CAFC decides the Rambus v. Infineon appeal. On May 10, 2002, Hynix filed a motion to lift the stay. Hynix also moved to file a second amended reply to add new affirmative defenses of estoppel and waiver to Rambus’s counterclaims of infringement. Rambus opposed the motion to lift the stay, but did not oppose Hynix’s motion to file the second amended reply. Argument on this motion was heard on June 14, 2002. On June 18, 2002, the court denied Hynix’s motion to lift the stay, granted its motion for leave to file a second amended reply to counterclaims, and scheduled another case management conference for September 20, 2002. At that case management conference, Hynix renewed its motions to lift the stay, which were denied, except with respect to discovery that would not be affected by the CAFC decision in the Infineon case. At that same conference, the court permitted Rambus to move to amend its complaint to add new claims for patent infringement, and Rambus filed that motion on October 4, 2002. A further case management conference occurred on November 22, 2002 at which point the California court considered proposed trial schedules and fully lifted the stay. On March 14, 2003 the California court set the Hynix trial date for November 8, 2004. On April 2, 2003, the court set the pretrial schedule. Pursuant to that schedule, Rambus filed and won a motion to vacate a previous collateral estoppel summary judgment order in the Hynix case, accordingly Rambus’s patent infringement claims that were subject to that earlier ruling have been reinstated into the case. That same April 2, 2003 pre-trial schedule sets forth dates for summary judgment motions, and for a “Markman” claim construction hearing. On January 12, 2004, both of the parties filed summary judgment motions related to the patents in suit. Rambus filed for summary judgment of infringement on multiple claims in seven of the patents in suit. Hynix filed on a variety of issues relating to alleged invalidity and non-infringement on a subset of Rambus’ asserted claims. Hearings on the proposed claim constructions and on both sides’ motions for partial summary judgment were heard on March 23-24, 2004. An order from the court is expected at any time.

In September 2000, Rambus filed suit against Hynix in the Mannheim court, the Paris court and the London court for infringement of a European patent. The French suit included court-sanctioned seizure of documents and samples from a Hynix facility. On December 7, 2001, in the German suit, an “order for evidence” calling for the appointment of an independent expert was issued by the Mannheim court. The appointed expert has not yet completed his report in the Hynix case. The French suit and the British suit have been stayed.

Memory Purchasers Class Action

On April 3, 2002, Rambus was served with a complaint in an action entitled Holiday Matinee, Inc. v. Rambus Inc. No. CV 806325, filed in California Superior Court, Santa Clara County. The complaint in that case purports to be on behalf of an alleged class of “indirect purchasers” of memory from January 2000 to March 2002. Plaintiff alleges that those purchasers paid higher prices for various types of DRAM due to Rambus’s

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

9.    Litigation and Asserted Claims (continued)

alleged unlawful use of market power in the various DRAM markets to coerce vendors of equipment using that technology to enter into supposed agreements in restraint of trade. Plaintiffs base their claims on Rambus’s alleged anticompetitive actions in patenting and licensing various technologies relating to DRAM, which plaintiffs assert, occurred during Rambus’s involvement at JEDEC in 1992 through 1996, as well as during Rambus’s subsequent patent licensing and litigation efforts. The complaint alleges claims under (i) California Business & Professions Code § 16700 for allegedly having coerced “market participants” into entering supposedly unlawful licensing agreements in restraint of trade; (ii) California Business & Professions Code § 17200 for supposed “unfair business practices” that forced the public to pay “supra-competitive” prices for products incorporating DRAM technology; and (iii) a theory of unjust enrichment based on supposedly receiving “unearned royalties” from products that incorporated certain DRAM technology. Plaintiffs seek legal and equitable relief. Rambus demurred to this complaint in its entirety on June 24, 2002 and a hearing on this demurrer occurred on August 27, 2002, at which point the court granted Rambus’s demurrer, giving plaintiff leave to amend its complaint. Plaintiff filed an amended complaint on September 26, 2002. Rambus filed a demurrer to the amended complaint and a hearing was held on this demurrer on December 10, 2002. The court granted Rambus’s demurrer and again gave plaintiff leave to amend its complaint. After Plaintiff filed its second amended complaint, Rambus demurred successfully again and plaintiff moved to dismiss its complaint with prejudice, reserving however, their rights of appeal from the decisions against them. That motion was granted on April 17, 2003 when the complaint was dismissed with prejudice. Plaintiff filed a notice of appeal on June 20, 2003 and filed its initial appeal brief in early September 2003. Rambus filed its brief in opposition on October 16, 2003, and Holiday Matinee replied on November 7, 2003. Oral arguments are currently scheduled for May 11, 2004. Rambus intends to continue to vigorously defend itself in this action.

FTC Complaint and European Commission Competition Directorate-General Request for Information

On June 19, 2002, the Federal Trade Commission, or FTC, filed a complaint against Rambus. The FTC has alleged that through Rambus’s 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 has also alleged that Rambus’s action and practices at JEDEC constituted unfair methods of competition in violation of Section 5 of the FTC Act. As a remedy, the FTC has sought to invalidate Rambus’s right to enforce patents with priority dates prior to June 1996 as against products made pursuant to certain existing and future JEDEC standards. On or about April 22, 2003, Rambus received courtesy copies of requests for information from the European Commission Competition Directorate-General indicating that it had received complaints from Infineon and Hynix apparently making similar allegations. Rambus answered those requests on June 16, 2003. Rambus obtained a copy of Infineon’s complaint to the EU in late July, and on October 8, 2003, at the request of the Directorate, filed its response. Rambus has heard nothing from the EU since that date.

On July 5, 2002, Rambus moved to stay the FTC action until the CAFC issued a ruling in the Rambus v. Infineon appeal; this motion was denied, and Rambus filed its answer to the complaint on July 29, 2002. There was substantial motion practice, including a motion filed by FTC complaint counsel seeking a default judgment based on alleged document destruction deriving from a 1998 Rambus document retention plan. The administrative law judge, or ALJ, denied complaint counsel’s motion, although he did enter certain rebuttable presumptions against Rambus as sanctions for what the ALJ called Rambus’s “gross negligence” in implementing Rambus’s document retention plan and failing to keep an inventory of documents not retained. Among other motions, the Department of Justice, or DOJ, successfully sought to intervene in the FTC action, and obtained a limit on certain deposition questioning by Rambus pending completion of the DOJ’s criminal investigation of DRAM manufacturers for price-fixing. Rambus was informed that Rambus is not a target of the

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

9.    Litigation and Asserted Claims (continued)

DOJ investigation. The ALJ denied Rambus’s motion for summary judgment and entered other rulings on pre-hearing motions in the action. The parties filed pre-hearing briefs on April 22, 2003. The administrative hearing began on April 30, 2003. It ended on August 1, 2003, with closing arguments on October 8, 2003. On February 17, 2004, the FTC ALJ issued his initial decision dismissing the FTC’s Complaint against Rambus on multiple independent grounds. Complaint counsel has filed their opening appellate brief on April 16, 2004. Briefing to the five FTC Commissioners on this appeal is expected to conclude July 16, 2004. No date for the oral argument has been set. Rambus intends to continue to vigorously defend itself in this matter.

Potential Future Litigation

In addition to the above, there is at least one additional area where Rambus foresees potential litigation activity, perhaps in this or next quarter. Rambus is now evaluating what antitrust or other remedies Rambus may pursue based on evidence, some of which has been endorsed in the fact findings that are part of the FTC ALJ’s February 17, 2004 initial decision, indicating that there were concerted efforts beginning in the 1990’s to deter innovation in the DRAM market and to deter market acceptance of Rambus’s RDRAM product. Rambus has not decided whether to pursue such litigation and there can be no assurance that such litigation, if brought, will be successful.

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

General

This Form 10-Q contains forward-looking statements. These forward-looking statements include, without limitation, our predictions regarding the following:

· Sources, amounts and concentration of revenue

· Product development

· Improvements in technology

· Engineering, marketing and general and administration expenses

· Research and development expenses

· Success in the market

· Sources of competition

· Outcome and effect of current and potential future litigation

· Protection of intellectual property

· International licenses

· Adoption of accounting pronouncements

· Terms of our licenses

· Trading price of our common stock

· Operating results

· Realization of deferred assets

· Accounting estimates and procedures

· Valuation allowance for income tax

· Amortization of intangible assets

You can identify these and other forward-looking statements by the use of words such as “may,” “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 “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.

Overview

Rambus creates a broad range of chip-to-chip interface technologies that enhance the performance and cost-effectiveness of our customers’ semiconductor and system products. These solutions are used in a broad range of computing, consumer electronics and communications applications. Our interface solutions can be grouped into two major categories: memory interfaces and logic interfaces. Our memory interface solutions provide an interface between memory chips and logic chips. Our logic interface solutions provide an interface between two logic chips. These solutions are currently covered by more than 300 U.S. and international patents, and we currently have over 300 patent applications pending. These patents and patent applications cover important innovations in memory interfaces and, we believe, logic and serial interfaces. Our advanced chip-to-chip interface solutions increase the data transfer rate between semiconductor chips, improving performance and reducing systems costs.

We license our patented inventions to semiconductor and system companies who incorporate them into interfaces of their own design and pay us royalties. Also, we license our intellectual property to semiconductor and system companies who incorporate our interface technologies into their semiconductors and systems, for which we receive royalty payments or other revenues. In addition, we offer engineering services to companies to help them successfully integrate our interface technologies into their chip and system products.

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Royalties represent a substantial portion of our total revenue. The remaining part of our revenue is contract revenue which includes license fees and engineering services fees. Amounts invoiced to our customers in excess of recognized revenue are recorded as deferred revenues. The timing of these invoices and the amounts invoiced to customers can vary significantly depending on specific contract terms and can have a significant impact on deferred revenues in any given period.

We have a high degree of customer concentration, with our top five customers representing 78% and 87% of our revenue for the first quarters of 2004 and 2003, respectively. In addition, for the first quarter of 2004, revenues from Intel, Toshiba Corporation, or Toshiba, Elpida Memory Inc., or Elpida, and Samsung Electronics Co. LTD, or Samsung, each accounted for greater than 10% of our total revenues and for the first quarter of 2003, revenues from Intel, Toshiba and Samsung each accounted for greater than 10% of our total revenues. Our revenue from companies based outside of the United States accounted for 66% and 62% of our revenues for the first quarters of 2004 and 2003, respectively. We expect to have significant revenues from companies based outside the United States for the foreseeable future.

For the last three years, 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 during this time and we anticipate future litigation expenses to 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.

Results of Operations

Results of Operations

The following table sets forth, for the periods indicated, the percentage of total revenues represented by certain items reflected in our consolidated condensed statements of operations and the percentage change of such items between periods (unaudited):

	Three Months Ended March 31, 2004		Three Months Ended March 31, 2003
Revenues:
Contract revenues	15.6	%	11.6	%
Royalties	84.4		88.4
Total revenues	100.0	%	100.0	%
Costs and expenses:
Cost of contract revenues	16.1		11.4
Research and development	22.8		25.9
Marketing, general and administrative	34.4		46.8
Total costs and expenses	73.3		84.1
Operating income	26.7		15.9
Interest and other income, net	12.6		10.6
Income before income taxes	39.3		26.5
Provision for income taxes	13.8		8.5
Net income	25.5	%	18.0	%

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	Three Months Ended         March 31,
	2004		2003		Change
Total revenues (in millions)
Contract revenues	$	5.1	$	3.3	54.5	%
Royalties		27.4		24.8	10.5
Total Revenues	$	32.5	$	28.1	15.7	%

Revenues were $32.5 million and $28.1 million in the first quarters of 2004 and 2003, respectively.

Contract revenues were $5.1 million and $3.3 million in the first quarters of 2004 and 2003, respectively. The change in contract revenue was due primarily to the increase of recognition of revenue associated with our XDR and Redwood interface technologies contracts. We recognize revenue on XDR and Redwood licenses using the percentage-of-completion method of accounting. We determine progress-to-completion using input measures based on labor-hours incurred. The increase in recognized revenue in the first quarter of 2004 was a result of an increase in the amount of work performed under these contracts over the same time period in 2003 and the addition of two new contracts that we began recognizing revenue on in the second and third quarters of 2003. We currently expect to recognize revenue on our existing XDR and Redwood interface technologies contracts through 2005.

Royalty revenues were $27.4 million and $24.8 million in the first quarters of 2004 and 2003, respectively. In the first quarter of 2004, our largest category of royalties related to the license of our patents for SDRAM and DDR-compatible products. Royalties increased for SDRAM and DDR-compatible products in the first quarter of 2004 as compared with the same time period in 2003 primarily due to increased royalties on increased shipments of SDRAM controllers and DDR memory devices. As of March 31, 2004, these royalties were recognized based on a percentage of the licensee’s revenue with the exception of one contract that had been previously amended to allow for fixed quarterly payments until there is a favorable resolution to the pending litigation. During the first quarter of 2003, there was a second licensee that had been paying a fixed quarterly sum. As a result of the January 29, 2003 Court of Appeals decision, the second licensee, who was previously paying a fixed quarterly sum for SDRAM and DDR-compatible royalties, reverted back to paying variable royalties in the second quarter of 2003.

The Intel cross-license agreement represented the second largest category of royalties in the first quarter of 2004. Royalties under this agreement were unchanged in first quarter of 2004 when compared to the same time period in 2003. We expect to continue recognizing revenue on this agreement through the second quarter of 2006.

Payments from licensees’ shipments of RDRAM memory chips and controllers that connect to RDRAM memory chips comprised the third largest category of our royalties in first quarter of 2004. RDRAM royalties decreased in the first quarter of 2004 when compared to the comparable period in 2003. This royalty drop was due to declines in unit shipments by licensees during the period. We believe that the unit decline was mostly driven by the decline in shipments of RDRAM memory chips for Intel’s 850E chipset.

Certain semiconductor companies are now marketing semiconductors which combine logic and DRAM on the same chip. Such technology, called “embedded DRAM,” eliminates the need for an external chip-to-chip interface to memory. The impact of embedded DRAM on our business is difficult to predict. If embedded DRAM were to gain widespread acceptance in the electronics industry, and if new royalty-generating licenses were not entered into between us and the manufacturers and/or users of the embedded DRAM products, embedded DRAM would have a negative impact on the royalties that we receive for the use of our patents. However, we believe embedded DRAM does not appear to be gaining significant acceptance in the industry. We do not currently receive royalties for embedded DRAM. There can be no assurance that competition from embedded DRAM will not increase in the future.

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	Three Months Ended         March 31,
	2004		2003		Change
Engineering expenses (in millions)
Cost of contract revenues	$	5.2	$	3.2	62.5	%
Research and development		7.4		7.3	1.4
Total Engineering Costs	$	12.6	$	10.5	20.0	%

Engineering costs, consisting of cost of contract revenues and research and development expenses, were $12.6 million and $10.5 million in the first quarters of 2004 and 2003, respectively. This increase in engineering costs was primarily a result of approximately 30 additional engineering personnel required to meet the milestones stated in the contracts for XDR and Redwood interfaces, the hiring of 14 engineering personnel as part of our acquisition of high speed signaling assets of Velio and increased payroll taxes due to exercises of employee stock options.

Cost of contract revenues were $5.2 million and $3.2 million in the first quarters of 2004 and 2003, respectively. This increase was primarily due to the hiring of approximately 30 additional engineering personnel necessary to fulfill XDR and Redwood interface contractual obligations. Our current expectation is that we will fulfill our XDR and Redwood contract obligations by the end of 2005. This increase was also due to the hiring of 14 engineering personnel as part of our acquisition of certain high-speed signaling assets of Velio. We believe the cost of contract revenues will continue to fluctuate over time both in absolute dollars and as a percentage of revenue based on our ongoing contractual requirements.

Research and development expenses were $7.4 million and $7.3 million in the first quarters of 2004 and 2003, respectively. We believe that in the future, research and development will continue to vary in both absolute dollars and as a percentage of revenue from period to period based on the nature, timing, and the number of research and development projects underway. The change in engineering headcount in any given period will also cause research and development spending to vary both in absolute dollars and as a percentage of revenue.

	Three Months Ended         March 31,
	2004		2003		Change
Marketing, general and administrative expenses (in millions)	$	11.2	$	13.1	(14.5	%)

Marketing, general and administrative expenses were $11.2 million and $13.1 million in the first quarters of 2004 and 2003, respectively. This decrease in marketing, general and administrative expenses primarily represented decreased litigation costs associated with the defense of our intellectual property. Litigation costs were $4.2 million and $7.1 million in the first quarters of 2004 and 2003, respectively. This decrease in litigation expenses was due to high spending in preparation for the FTC hearing in the first quarter of 2003. Litigation expenses are expected to vary from period to period, given the volatility of litigation activities. We expect litigation expenses will increase in the twelve months ending December 31, 2004 relative to the comparable period in 2003 as we continue to engage in simultaneous litigation in multiple jurisdictions.

In the first quarter of 2004, marketing, general and administrative costs excluding litigation expenses increased by $1.0 million when compared with the same time period in 2003 due to additional corporate governance and disclosure requirements, patent and licensing expenses and increased payroll taxes due to exercises of employee stock options. In the future, marketing, general and administrative expenses will vary from period to period based on the trade shows, advertising, legal and other marketing and administrative activities undertaken and the change in sales, marketing and administrative headcount in any given period.

	Three Months Ended March 31,
	2004		2003		Change
Interest and other income, net (in millions)	$	4.1	$	3.0	36.7	%

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Interest and other income, net consists primarily of gains on the sale of equity investments and interest income from our cash investments. Interest and other income were $4.1 and $3.0 million in the first quarters of 2004 and 2003, respectively. This increase is primarily due to a pre-tax gain of $3.2 million related to the sale of 85% of our investment in Tessera Technologies, or Tessera, in the first quarter of 2004. The remaining 15% of our investment in Tessera was sold in April 2004. In the same period of 2003, interest and other income included other income of $1.7 million, resulting from the divestiture of Rambus’s investment in NurLogic Design Inc., or NurLogic, which was acquired during the period by Artisan Components, Inc. The divestiture resulted in the receipt of cash, stock and an intellectual property license, all with a total of $5 million.

	Three Months Ended March 31,
	2004		2003		Change
Provision for income taxes (in millions)	$	4.5	$	2.4	87.5	%

The provision for income taxes was $4.5 million and $2.4 million in the first quarters of 2004 and 2003, respectively. In the first quarter of 2004, our effective tax rate was 35% as compared with a rate of 32% in the first quarter of 2003.

At March 31, 2004, our balance sheet included net deferred tax assets of approximately $73.9 million, primarily relating to the difference between tax and book treatment of depreciation and amortization, employee stock-related compensation expenses and deferred revenue, net operating losses and research and development credit carryforwards. In the first quarter of 2004, our net deferred tax assets increased by $26.9 million. Tax benefits from the exercise of employee stock options resulted in $20.2 million of the total increase in our net deferred tax assets.

Share Repurchase Program

In October 2001, Rambus’s Board of Directors approved a share repurchase program of Rambus Common Stock principally to reduce the dilutive effect of employee stock options. Since the beginning of the plan, the Board has authorized the purchase in open market transactions of up to ten million shares of outstanding Rambus Common Stock over an undefined period of time. As of March 31, 2004, Rambus has repurchased 6.2 million shares of Rambus Common Stock. No shares were repurchased in the first quarter of 2004. As of March 31, 2004, there remained an outstanding authorization to repurchase 3.8 million shares of outstanding Rambus Common Stock.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to investments, income taxes, litigation and other contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

· Revenue Recognition

· Litigation

· Marketable Securities

· Income Taxes

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Revenue Recognition

Our revenues consist of royalty revenues and contract revenues generated from the following five types of agreements with semiconductor and systems companies: (1) RDRAM licenses, which are licenses for chips fully compatible with the RDRAM memory interface, (2) XDR and Redwood licenses, which are licenses for chips fully compatible with the XDR and Redwood interfaces, (3) RaSer licenses, which are licenses for our RaSer interface that licensees integrate into their logic semiconductors, (4) a patent cross-license with Intel and (5) SDRAM- and DDR- compatible licenses, which are licenses that cover the use of our patents and other intellectual property in SDRAM and DDR memory devices and controllers which control such memory. We do not recognize contract revenues in excess of cash received if collectibility is not probable. We recognize royalty revenues upon notification of sale by our licensees if collectibility is probable. The terms of the royalty agreements generally require licensees to give us notification and to pay us royalties within 60 days of the end of the quarter during which the sales take place. We engage accounting firms independent of our external auditors to perform, on our behalf, periodic audits of some of our licensee’s reports of royalties to us and any adjustment resulting from such royalty audits is recorded in the period such adjustment is determined.

RDRAM Licenses.    RDRAM licenses generally allow a semiconductor manufacturer to use our RDRAM memory interface and to receive engineering implementation services and customer support. We deliver to a new RDRAM licensee an implementation package, which contains the information needed to develop a chip incorporating RDRAM memory interface in the licensee’s process. An implementation package includes a specification, generalized circuit layout database software for the particular version of the chip which the licensee intends to develop, test parameter software and, for memory chips, a core interface specification. Test parameters are the programs that test the RDRAM interface embedded in the customer’s product. Some licensees have contracted to have us provide the specific engineering implementation services required to optimize the generalized circuit layout for the licensee’s manufacturing process. The RDRAM licenses also provide for the right to receive ongoing customer support, which includes technical advice on chip specifications, enhancements, debugging and testing.

We recognize revenue on RDRAM licenses consistent with American Institute of Certified Public Accountants, or AICPA, Statement of Position (or SOP) No. 97-2, and SOP 98-9, “Software Revenue Recognition.” 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 services provided under these agreements include license fees, engineering service fees and post contract customer support. Contract fees are bundled together as the total price of the agreement does not vary as a result of inclusion or exclusion of such services and ongoing customer support. We have not established vendor specific objective evidence, or VSOE, for such contract elements including post contract customer support. Accordingly, the revenues from such contracts are recognized ratably over the period during which the post-contract customer support is expected to be provided independent of the payment schedules under the contract, including milestones. We review assumptions regarding the post-contract customer support periods on a regular basis. If we determine that it is necessary to revise our estimates of the support periods, 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 post-contract customer support periods were less than the original assumptions, the contract fees would be recognized ratably over an accelerated period. Conversely, if the new estimated periods were longer than the original assumptions, the contract fees would be recognized ratably over a longer period.

At the time we begin to recognize revenue under RDRAM licenses, the remaining obligations are no longer significant. These remaining obligations are primarily to keep the product updated and include activities such as responding to inquiries and periodic customer meetings. Part of these contract fees may be due upon the achievement of certain milestones, such as provision of certain deliverables by us or production of chips by the licensee. The remaining fees are due on pre-determined dates and include significant up-front fees. The excess of contract fees billed over revenue recognized is shown on the balance sheet as deferred revenue.

XDR and Redwood Licenses.    XDR and Redwood interface licenses currently provide for the payment of license fees and engineering fees, as well as royalties. We currently recognize revenue on XDR and Redwood

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licenses using the percentage-of-completion method of accounting. We determine progress-to- completion using input measures based on labor-hours incurred. 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. We review assumptions regarding the work necessary to complete projects on a quarterly basis. If we determine that it is necessary to revise our estimates of the work 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 amount of work necessary to complete a project were less than the original assumptions, the contract fees would be recognized sooner than originally expected. Conversely, if the new estimated total amount of work necessary to complete a project was longer than the original assumptions, the contract fees would be recognized over a longer period.

Part of these contract fees may be due upon the achievement of certain milestones, such as provision of certain deliverables by us or production of chips by the licensee. The remaining fees are due on pre-determined dates and include significant up-front fees. The excess of contract fees billed over revenue recognized is shown on the balance sheet as deferred revenue.

RaSer licenses.    RaSer interface licenses provide for the payment of license fees, engineering fees and royalties. Revenues from license fees and engineering fees are currently recognized ratably over the period during which the post-contract customer support is expected to be provided, independent of the payment schedules under the contract. The excess of contract fees billed over revenue recognized is shown on the balance sheet as deferred revenue.

Intel cross-license.    In September 2001, we entered into a cross-license agreement with Intel that grants Intel a license to our patent portfolio. We recognize revenue from this arrangement on a quarterly basis as amounts become due and payable. The agreement terminates in September 2006 and after that date Intel will have a fully paid license to all of our patents claiming priority prior to September 2006.

SDRAM-compatible and DDR-compatible licenses.    SDRAM-compatible and DDR-compatible licenses generally provide for the payment of fees, which include compensation for use of our patents from the time we notify the licensee of potential infringement. Accordingly, we classify these fees as royalty revenues, which are recognized ratably over the five-year contract period. The current contracts will begin to expire in June 2005.

Litigation

As of March 31, 2004, we are involved in certain legal proceedings, as discussed in Note 9 of our unaudited consolidated financial statements on page 12. Based upon consultation with the outside counsel handling our defense in these matters and an analysis of potential results, we have not accrued any amounts for potential losses related to these proceedings. Because of uncertainties related to both the amount and range of loss on the pending litigation, management is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, we will assess the potential liability related to our pending litigation. We will record accruals for losses if and when we determine the negative outcome of such matters to be probable and reasonably estimable. Our estimates regarding such losses could differ from actual results. Revisions in our estimates of the potential liability could materially impact our results of operations and financial position.

Marketable Securities

We classify all of our marketable securities as available-for-sale. We carry these investments at fair value, based on quoted market prices, and unrealized gains and losses are included in accumulated other comprehensive income, net of taxes, which is reflected as a separate component of stockholders’ equity. Realized gains and losses are recorded in our consolidated statement of operations. If we believe that an other-than-temporary decline exists, it is our policy to record a valuation allowance to reduce aggregate investments to fair value and record the related charge as a reduction of interest income.

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Income Taxes

As part of preparing our consolidated financial statements, we are required to calculate the income tax expense or benefit which relates to the pretax income or loss for the period. In addition, we are required to assess the realization of the tax asset or liability to be included on the consolidated balance sheet as of the reporting dates.

This process requires us to calculate various items including permanent and temporary differences between the financial accounting and tax treatment of certain income and expense items, differences between federal and state tax treatment of these items, the amount of taxable income reported to various states, foreign taxes and tax credits. The differing treatment of certain items for tax and accounting purposes results in deferred tax assets and liabilities, which are included on our consolidated balance sheet.

We assess the likelihood that our deferred tax assets will be recovered in the future through reductions of taxes that would otherwise be payable. This assessment is based in part on estimates of future taxable income and tax credits. The actual taxable income realized in the future and the other factors that determine how much benefit we ultimately realize from the deferred tax assets could vary materially from our estimates.

At March 31, 2004, our balance sheet included net deferred tax assets of approximately $73.9 million, primarily relating to the difference between tax and book treatment of depreciation and amortization, employee stock-related compensation expenses and deferred revenue, net operating losses and research and development credit carryforwards. In the first quarter of 2004, we increased our net deferred tax assets by $26.9 million. Tax benefits form the exercise of employee stock options resulted in $20.2 million of the total increase in our net deferred tax assets.

To the extent we believe that recovery of a tax asset included on the balance sheet is not likely or is uncertain, we must establish a valuation allowance. When we establish a valuation allowance or increase this allowance, we include an expense within the tax provision in the statement of operations. Significant judgment is required to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. As of March 31, 2004, we have recorded a valuation allowance of $1.4 million due to uncertainties related to our ability to recover certain of our deferred tax assets. In the event that actual results differ from the estimates or we adjust in future periods the estimates upon which the valuation allowance has been determined, we may need to record additional valuation allowance, which could materially impact our financial position and results of operations.

Liquidity and Capital Resources

	Three Months Ended March 31,						Increase (Decrease)
Cash flows (in millions)	2004			2003
Net cash provided by operating activities	$	18.6		$	5.8		$	12.8
Net cash used in investing activities	($	25.8	)	($	2.1	)	($	23.7	)
Net cash provided by (used in) financing activities	$	28.3		($	10.9	)	$	39.2

As of March 31, 2004, we had cash and cash equivalents and marketable securities of $239.4 million, including a long-term component of $128.8 million. As of March 31, 2004, we had total working capital of $92.7 million, including a short-term component of deferred revenue of $24.5 million. Deferred revenue represents the excess of billings to licensees over revenue recognized on license contracts, and the short-term component represents the amount of this deferred revenue expected to be recognized over the next twelve months.

Our operating activities provided net cash of $18.6 million and $5.8 million for the first quarters of 2004 and 2003, respectively. Cash generated in the first quarter of 2004 was primarily the result of net income adjusted for depreciation, a decrease in accounts receivable of $9.5 million primarily related to payments for XDR and Redwood

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interface contracts and an increase of the tax benefit of stock options exercised of $20.2 million. This cash generated from operations was partially offset by an increase in prepaid, deferred taxes and other assets of $16.9 million and by a net decrease in deferred revenue of $1.6 million. The decrease in deferred revenue represents revenues recognized in excess of contract billings. In the first quarter of 2003, net cash generated by operating activities consisted primarily of net income adjusted for depreciation, an increase of the tax benefit of stock options exercised and an increase in accounts payable and other liabilities primarily due to unsettled stock repurchases and increased legal expenses. This was partially offset by an increase in accounts receivable primarily due to increased billings for XDR and Redwood interface contracts and decreases in prepaids, deferred taxes and other assets, primarily due to increased foreign withholding taxes paid on payments received from licensees.

Net cash used in investing activities was $25.8 million and $2.1 million in the first quarters of 2004 and 2003, respectively. Investing activities in both periods primarily consisted of purchases and maturities of marketable securities and proceeds from the sales of investments. Investing activities for the first quarter of 2004 also included $4.9 million in cash proceeds received on the sale of 85% of our investment in Tessera Technologies, Inc. or Tessera. The remaining 15% of our investment in Tessera was sold in April 2004. Investing activities for the same time period in 2003 included cash proceeds received on the sale of our investment in NurLogic Design Inc.

Net cash provided by financing activities was $28.3 million in the first quarter of 2004 compared to $10.9 million used in financing activities in the same time period in 2003. For the first quarter of 2004, we generated net proceeds of $28.3 million from the issuance of Common Stock associated with the exercises of employee stock options. For the first quarter of 2003, we generated $3.8 million from the issuance of Common Stock associated with the exercises of employee stock options and used cash of $14.7 million to repurchase Common Stock.

We currently anticipate that existing cash balances will be adequate to meet our cash needs for at least the next 12 months.

Contractual Obligations

We relocated our headquarters at the beginning of 2001, and entered into an agreement to sublease our previous Mountain View facilities through the end of the existing lease term in February 2005. On January 26, 2004, we were notified that our subtenant filed for bankruptcy protection. On April 15, 2004, we received a settlement approved by the bankruptcy court of $1.9 million, which has been included as a reduction to the operating leases in the table below.

We lease our present office facilities in Los Altos, California, under an operating lease agreement. As part of this lease transaction, we provided a letter of credit restricting $600,000 of our cash as collateral for certain of our obligations under the lease. The cash is restricted as to withdrawal and is managed by a third party subject to certain limitations under our investment policy.

On December 24, 2003, we completed the acquisition of certain high-speed signaling assets from Velio. This purchase included subleasing from Velio an engineering facility in Chapel Hill, North Carolina. The Chapel Hill sublease originally ended in March 2004 and has been extended through June 2004. We have also signed a lease for a new facility in Chapel Hill, which is where we plan to relocate our current Chapel Hill office to in July 2004.

As of March 31, 2004, our material net contractual obligations are (in thousands):

	Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating Leases	$	33,062	$	3,808	$	10,158	$	10,148	$	8,948
Total	$	33,062	$	3,808	$	10,158	$	10,148	$	8,948

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RISK FACTORS

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

We seek to diligently protect our intellectual property rights. In connection with the extension of our licensing program to SDRAM-compatible and DDR-compatible products in 2000-01, we became involved in litigation related to such efforts. As of March 31, 2004, we were in litigation with three such potential SDRAM-compatible and DDR-compatible licensees. In each of these cases, we have claimed infringement of our patents while the potential licensees have generally sought damages and a determination that our patents at suit are invalid and not infringed. These potential licensees have also relied or may rely upon defenses and counterclaims (some not yet formally asserted) based on various allegations including that we engaged in litigation misconduct and/or acted improperly during our 1991–96 participation in the JEDEC standard setting organization. For example, Infineon has indicated that it may, by pointing to documents not produced by us in time for the 2001 trial, try to set aside the 2003 Federal Circuit decision in our favor and reopen all of its now-dismissed JEDEC-related claims against us. Infineon has also complained about the alleged destruction of evidence through our document retention programs. And Infineon has recently amended its counterclaims with leave of court, thereby attempting to assert other legal theories related to what it calls unfair business practices and JEDEC misconduct. While we believe that these new legal theories are meritless, there is no assurance that Infineon and or others will not succeed in such efforts or that Infineon and or others will not in some other way establish broad defenses against our patents or otherwise avoid or delay paying what we believe to be appropriate royalties for the use of our patents or that the pending litigations and other circumstances will not reach a point where we elect to compromise for less than what we now believe to be fair consideration.

Any of these matters, whether or not determined in our favor or settled by us, is costly and diverts the efforts and attention of our management and technical personnel from normal business operations. Furthermore, any adverse determination or other resolution in litigation could result in our losing certain rights, beyond the rights at issue in a particular case, including, among other things, our being effectively barred from suing others for violating certain or all of our intellectual property rights, our being subjected to significant liabilities, our being required to seek licenses from third parties, our being prevented from licensing our patented technology, or our being required to renegotiate with current licensees on a temporary or permanent basis. Any of these results from our litigation could cause a substantial decline in our revenues.

An adverse resolution by or with a governmental agency, such as the FTC or the European Patent Office, could result in severe limitations on our ability to protect and license our intellectual property and which would cause our revenues to decline substantially.

If there were an adverse determination by, or other resolution with, a government agency, we may be limited in enforcing our intellectual property rights and obtaining licenses, which would cause our revenues to decline substantially. For example, in April 2003, the FTC filed a complaint against us alleging, among other things, that we had failed to disclose certain patents and patent applications, during our participation in the establishment of SDRAM standards with JEDEC and that we should be precluded from enforcing our intellectual property rights in patents with a priority date prior to May 1996. Although the initial decision in the FTC proceeding supported Rambus and dismissed the complaint, that initial decision has been appealed by the FTC staff and may be reversed by the FTC or subject to some future compromise. The European Commission has directed inquiries to us relating to similar topics. If preceedings by one of these agencies, or any other governmental agency, resulted in a resolution that could limit our ability to enforce or license our intellectual property, our revenues could decline substantially. In addition, on February 12, 2004, the Technical Appeals Board of the European Patent Office issued and oral ruling revoking the European Patent No. 0525068 without explanation. If a sufficient number of our other patents are similarly impaired or revoked, that could also limit our ability to enforce or license our intellectual property our revenues would decline substantially.

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

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

· any current or future United States or foreign patent applications would be approved;

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

· the validity of our patents will be upheld;

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

· others will not independently develop similar or competing interfaces or design around any patents that may be issued to us.

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

Our inability to protect and own the intellectual property created by us would cause our business to suffer.

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

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

Since many of our revenue components fluctuate and are difficult to predict, and our expenses are largely independent of revenues in any particular period, it is difficult for us to accurately forecast revenues and profitability. Factors that could cause our operating results to fluctuate include:

· adverse litigation results;

· semiconductor and system companies’ acceptance of our interface products;

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

· semiconductor or system companies discontinuing major products incorporating our interfaces;

· announcements or introductions of new technologies or products by us or our competitors;

· the unpredictability of the timing of any litigation expenses;

· changes in our, chip and system companies’ development schedules and levels of expenditure on research and development;

· licensees terminating or failing to make payments under their current contracts or seeking to modify such contracts; and

· changes in our strategies including but not limited to changes in our licensing focus and/or possible acquisitions of companies with business models different from our own.

Currently, royalties account for over 80% of our total revenues and we believe that royalties will continue to represent a majority of total revenues in the future. Royalties are recognized in the quarter in which we receive a

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report from a licensee regarding the sale of licensed chips in the prior quarter, however, royalties are only recognized if collectibility is probable. Royalties are also dependent upon fluctuating sales volumes and prices of licensed chips that include our technology, all of which are beyond our ability to control or assess in advance. In addition, royalty revenues are affected by the seasonal shipment patterns of systems incorporating our interface products, or by a systems company change in its source of licensed chips, and the new source’s different royalty rates.

As a result of these uncertainties and effects being outside of our control, royalty revenues are challenging to predict and make accurate financial forecasts difficult to achieve, which could cause our stock price to become volatile and decline.

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

In the first quarters of 2004 and 2003, revenues from our top five licensees accounted for approximately 78% and 87% of our revenues, respectively. In addition, for the first quarter of 2004 revenues from Intel, Toshiba, Elpida and Samsung, each accounted for greater than 10% of our total revenues while for the first quarter of 2003, revenues from Intel, Toshiba and Samsung, each accounted for greater than 10% of our total revenues. We expect that we may continue to experience significant revenue concentration for the foreseeable future.

Substantially all of our licensees, including Intel, have the right to cancel their licenses, and the loss of any of our top five licensees would cause revenues to decline substantially. Because the revenues derived from various licensees vary from period to period depending on the addition of new contracts, industry consolidation, the expiration of deferred revenue schedules under existing contracts, and the volumes and prices at which the licensees have recently sold licensed semiconductors to system companies, the particular licensees which account for revenue concentration have varied from period to period. These variations are expected to continue in the foreseeable future, although we anticipate that revenue will continue to be concentrated in a limited number of licensees.

Our financial results are materially dependent upon Intel and if we cannot maintain this relationship into the future our results of operations may decline significantly.

Intel is our largest customer and is an important catalyst for the development of new memory and logic interfaces in the semiconductor industry. We have a patent cross-license agreement with Intel for which we will receive quarterly royalty payments through the second quarter of 2006. The patent cross-license agreement expires in September 2006, at which time, Intel will have a paid-up license for the use of all of our patents claiming priority prior to September 2006. Intel has the right to cancel the agreement with us prior to the expiration of the contract. We have other licenses with Intel, in addition to the patent cross-license agreement, for the development of RaSer interfaces. If we cannot maintain our relationship with Intel into the future, our results of operations may decline significantly.

Our licensing cycle is lengthy and costly which makes it difficult to predict future revenues, which may cause us to miss analysts’ estimates and result in our stock price declining.

Because our licensing cycle is a lengthy process, the accurate prediction of future revenues from new licenses is difficult. In addition, engineering services are dependent upon the varying level of assistance desired by licensees and, therefore, revenue from these services is also difficult to predict. We employ two methods of contract revenue accounting based upon the state of the technology licensed, the dollar magnitude of the program, and the ability to estimate work required over the contract period. We use ratable revenue recognition for mature technologies that require support after delivery of the technology. This method results in expenses associated with a particular contract to be recognized as incurred over the contract period, whereas contract fees

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associated with the contract are recognized ratably over the period during which the post-contract customer support is expected to be provided. We also use percentage-of-completion accounting for contracts that may require significant development and support over the contract term. There can be no assurance that we can accurately estimate the amount of resources required to complete projects, or that we will have, or be able to expend, sufficient resources required to complete a project. Furthermore, there can be no assurance that the product development schedule for these projects will not be changed or delayed. All of these factors make it difficult to predict future licensing revenue that may result in us missing analysts’ estimates and causing our stock price to decline

Our financial results are materially dependent on the DRAM market, which may experience declines in price and unit volume per system, which could cause our revenue to decline.

For the first quarter of 2004, a material portion of our royalties was derived from the sale of DRAM. As of March 31, 2004, except with respect to one licensee with whom we have a fixed royalty arrangement, royalties on DRAM are based on the volumes and prices of DRAM manufactured and sold by our licensees. For the first quarter of 2004, the SDRAM and DDR-compatible royalties were recognized based on a percentage of the licensee’s revenue with the exception of the one contract that had been previously amended to allow for fixed quarterly payments until there is a favorable resolution to the pending litigation.

Therefore, the royalties we receive are influenced by many of the risks faced by the DRAM market in general, including constraints on the volumes shipped during periods of shortage and reduced average selling prices, or ASPs, during periods of surplus. The DRAM market is intensely competitive and generally is characterized by declining ASPs over the life of a generation of chips. Such price decreases, and the corresponding decreases in per unit royalties we receive, can be sudden and dramatic. Compounding the effect of price decreases is the fact that, under certain of our RDRAM license agreements, royalty rates decrease as a function of time or volume. The decreases in DRAM prices, shipment volumes or in our royalty rates could cause our revenue to decline.

Our revenue could decline if sales made by systems companies decline.

Although sales of semiconductors to system companies that have adopted our interfaces for their products are not made directly by us, such sales directly affect the amount of royalties we receive from semiconductors. Therefore, our success is partially dependent upon the adoption of our chip-to-chip interfaces by system companies, particularly those that develop and market high-volume business and consumer products such as PCs and video game consoles. We are subject to many risks beyond our control that influence the success or failure of a particular system company, including, among others:

· competition faced by a system company in its particular industry;

· market acceptance of a system company’s products;

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

· technical challenges unrelated to our interfaces faced by a system company in developing its products; and

· the financial and other resources of the system company.

The process of persuading system companies to adopt our chip-to-chip interface can be lengthy and, even if adopted, there can be no assurance that our interfaces will be used in a product that is ultimately brought to market, achieves commercial acceptance or results in significant royalties to us. We must dedicate substantial resources to market to, and support, system companies, in addition to supporting the sales, marketing and technical efforts of our licensees in promoting our interfaces to system companies. Even if a systems company develops a product based on our interface, success in the market will depend in part on a supply of semiconductors from our licensees in sufficient quantities and at commercially attractive prices. Because we do not control the business practices of our licensees, we have no ability to establish the prices at which the chips containing our interfaces are made available to system companies or the degree to which our licensees promote our interfaces to system companies.

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We face intense competition that may cause our results of operations to suffer.

The semiconductor industry is intensely competitive and has been impacted by price erosion, rapid technological change, short product life cycles, cyclical market patterns and increasing foreign and domestic competition. In addition, most DRAM manufacturers, including our RDRAM and XDR licensees, produce versions of DRAM such as SDRAM, DDR, DDR2, GDDR, GDDR2 and GDDR3 that compete with RDRAM and XDR chips. These companies are larger and may have better access to financial, certain technical and other resources than we do.

We believe that our principal competition for memory interfaces may come from our licensees and prospective licensees, some of whom are evaluating and developing products based on technologies that they contend or may contend will not require a license from us. Companies are also beginning to take a system approach similar to ours in solving the application needs of system companies. Most DRAM suppliers have been producing DDR chips, which use a technology that doubles the memory bandwidth without increasing the clock frequency.

JEDEC, a standards setting body including semiconductor and systems companies, has standardized what they call an extension of DDR, known as DDR2. JEDEC is also thought to be standardizing what they describe as an extension of DDR that they refer to as DDR3. Other efforts are underway to create other products including those sometimes referred to as GDDR2 and GDDR3. To the extent that these alternatives might provide comparable system performance at lower or similar cost than RDRAM and XDR memory chips, or are perceived to require the payment of no or lower royalties, or to the extent other factors influence the industry, our licensees and prospective licensees may adopt and promote the alternative technologies. Even to the extent we determine that such alternative technologies infringe our patents, there can be no assurance that we would be able to negotiate agreements that would result in royalties being paid to us without litigation, which could be costly and the result of which would be uncertain.

In addition, certain semiconductor companies are now marketing semiconductors that combine logic and DRAM on the same chip. Such technology, called “embedded DRAM,” eliminates the need for an external chip-to-chip interface to memory. The impact of embedded DRAM on our business is difficult to predict. If embedded DRAM were to gain widespread acceptance in the electronics industry, and if new royalty-generating licenses were not entered into between us and the manufacturers and/or users of the embedded DRAM products, embedded DRAM would have a negative impact on the royalties that we receive for the use of our patents. We do not currently receive royalties for embedded DRAM. There can be no assurance that competition from embedded DRAM will not increase in the future.

In the RaSer interface business, we face additional competition from semiconductor companies that sell discrete transceiver chips for use in various types of systems, from semiconductor companies that develop their own serial link interfaces, as well as from competitors, such as Artisan Components, who license similar serial link interface cells. At the 10 gigabit per second speed, competition will also come from optical technology sold by system and semiconductor companies. There are standardization efforts under way or completed for serial links from standard bodies such as PCI-SIG and OIF. Although these and other competing efforts may infringe our existing or future patents, we may face increased competition in the future that could negatively impact our RaSer interface business.

In the Redwood interface business, we face additional competition from semiconductor companies who develop their own parallel bus interfaces, as well as competitors who license similar parallel bus interface cells. We may also see competition from industry consortia. Although these and other competing efforts may infringe our existing or future patents, we may face increased competition in the future that could negatively impact our Redwood interface business.

If we cannot effectively compete in these primary market areas, our results of operations could suffer.

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If market leaders do not successfully adopt our interface products our results of operation could decline.

An important part of our strategy for our interfaces is to penetrate markets by working with leaders in those markets. This strategy is designed to encourage other participants in those markets to follow such leaders in adopting our interfaces. If a high profile industry participant adopts our interfaces but fails to achieve success with its products or adopts and achieves success with a competing interface, our reputation and sales could be adversely affected. In addition, some industry participants have adopted, and others may in the future adopt, a strategy of disparaging our memory solutions adopted by their competitors or a strategy of otherwise undermining the market adoption of our solutions. If any of these events occur and market leaders do not successfully adopt our technologies, our results of operations could decline.

If we fail to gain and maintain acceptance of our technology in high-volume consumer products, our business results could suffer.

Our strategy includes the gaining of acceptance of our technology in high-volume consumer applications. These applications include video game consoles, such as the Sony PlayStation^®2, digital TVs and set-top boxes. There can be no assurance that consumer products that currently use our technology will continue to do so, nor can there be any assurance that the consumer products that incorporate our technology will be successful in generating expected royalties.

Our XDR and Redwood interfaces and the manufacturing processes to incorporate them are new and complex, which may lead to technology and product development scheduling risks and there remains significant contract work to be completed, therefore percentage-of-completion accounting is used for these licenses. There can be no assurance that we have accurately estimated the amount of resources required to complete the projects, or that we will have, or be able to expend, sufficient resources required for these types of projects. In addition, there is market risk associated with these products, and there can be no assurance that unit volumes, and their associated royalties, will occur. If our technology fails to capture or maintain a portion of the high-volume consumer market, our business result could suffer.

We might experience payment disputes for amounts owed to us under our licensing agreements, and this may harm our results of operations.

The standard terms of our license agreements require our licensees to document the manufacture and sale of products that incorporate our technology and report this data to us on a quarterly basis. While standard license terms give us the right to audit books and records of our licensees to verify this information, audits can be expensive, time consuming, and potentially detrimental to our ongoing business relationship with our licensees. We have implemented a royalty audit program, which consists of periodic royalty audits of our major licensees, using accounting firms that are independent of our external auditors, PricewaterhouseCoopers LLP. We have performed some audits but we primarily rely on the accuracy of the reports from licensees without independently verifying the information in them. Our failure to audit our licensees’ books and records may result in us receiving more or less royalty revenues than we are entitled to under the terms of our license agreements. The result of such royalty audits could result in an increase, as a result of a licensee’s underpayment, or decrease, as a result of a licensee’s overpayment, to previously reported royalty revenues. Such adjustments are recorded in the period they are determined. Any adverse material adjustments resulting from royalty audits or dispute resolutions may result in us missing analyst estimates and causing our stock price to decline. The royalty audit may also trigger disagreements over contract terms with our licensees and such disagreements could hamper customer relations, divert the efforts and attention of our management from normal operations and impact our business operations and financial condition.

Our inexperience in managing rapid growth or acquisitions could strain our resources and cause our financial results to decline.

We may not be equipped to successfully manage any future periods of rapid growth or expansion, which could be expected to place a significant strain on our limited managerial, financial, engineering and other

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resources. Such expansion could come from internal growth or acquisitions. Our licensees and system customers rely heavily on our technological expertise in designing, testing and manufacturing products incorporating our chip-to-chip interface technologies. In addition, relationships with new licensees or system companies generally require significant engineering support. As a result, any increases in adoption of our interfaces will increase the strain on our resources, particularly our engineers. Any delays or difficulties in our research and development process caused by these factors or others could make it difficult for us to develop future generations of our interface technologies and to remain competitive. In addition, the rapid rate of hiring or integrating new employees, or managing an acquisition, could be disruptive and could adversely affect the efficiency of our business. In addition, certain acquisitions may involve business models with which we are unfamiliar. The rate of our future expansion, if any, in combination with the complexity of the interfaces involved in our licensee-based business model, may demand an unusually high level of managerial effectiveness in anticipating, planning, coordinating and meeting our operational needs as well as the needs of the licensees and system companies. Additionally, we may be required to reorganize our managerial structure in order to more effectively respond to the needs of customers. Given the small pool of potential licensees and target systems companies, the adverse effect resulting from our lack of effective management in any of these areas will be magnified. Inability to manage the expansion of our business could cause our financial results to decline.

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

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

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

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

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

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

· available when system companies require these innovations; and

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

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Finally, significant technological innovations generally require a substantial investment before their commercial viability can be determined.

If we cannot successfully respond to rapid technological changes in the semiconductor industry by developing new products in a timely and cost effective manner our operating results will suffer.

As a result of a dispute regarding our intellectual property, we may be required to indemnify certain licensees, the cost of which could severely hamper our business operations and financial condition.

In any potential dispute involving our patents or other intellectual property, our licensees could also become the target of litigation. While we generally do not indemnify our licensees, some of our license agreements provide limited indemnities and some require us to provide technical support and information to a licensee that is involved in litigation involving use of our technology. In addition, we are obligated to indemnify certain licensees under the terms of certain license agreements, and we may agree to indemnify others in the future. Our support and indemnification obligations could result in substantial expenses. In addition to the time and expense required for us to supply such support or indemnification to our licensees, a licensee’s development, marketing and sales of licensed semiconductors could be severely disrupted or shut down as a result of litigation, which in turn could severely hamper our business operations and financial condition.

We face risks associated with our international operations and licenses which could result in a material adverse effect on our business, financial condition and results of operations.

For the first quarters of 2004 and 2003, international revenues constituted approximately 66% and 62% of our total revenues, respectively. We expect that revenues derived from international licensees will continue to represent a significant portion of our total revenues in the future.

To date, all of the revenues from international licensees have been denominated in United States dollars. However, to the extent that such licensees’ sales to systems companies are not denominated in United States 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 derivative instruments to hedge foreign exchange rate risk.

Our international operations and demand for the products of our licensees are subject to a variety of risks, including:

· tariffs, import restrictions and other trade barriers;

· changes in regulatory requirements;

· adverse tax consequences;

· export license requirements;

· foreign government regulation;

· political and economic instability;

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

· changes in diplomatic and trade relationships.

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

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

Our success is dependent upon our ability to identify, attract, motivate and retain qualified engineers who can enhance our existing technologies and introduce new technologies. Competition for qualified engineers, particularly those with significant industry experience, is intense. We are also dependent upon our senior management personnel, most of who have worked together for us for many years. The loss of the services of any of the senior management personnel or a significant number of our engineers could be disruptive to our development efforts or business relationships and could cause our business and operations to suffer.

Our stock price is extremely volatile.

The trading price of our common stock has been subject to very wide fluctuations which may continue in the future in response to, among other things, the following:

· any progress, or lack of progress, real or perceived, in the development of products that incorporate our chip-to-chip interfaces;

· our signing or not signing new licensees;

· new litigation or developments in current litigation;

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

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

· developments with respect to patents or proprietary rights and other events or factors.

In addition, the equity markets have experienced volatility that has particularly affected the market prices of equity securities of many high technology companies and that often has been unrelated or disproportionate to the operating performance of such companies. These broad market fluctuations may adversely affect the market price of our common stock.

Our operations are primarily located in California and, as a result, are subject to natural disasters, which could result in a business stoppage and negatively affect our operating results.

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

Future changes in financial accounting standards or practices or existing taxation rules or practices may cause adverse unexpected revenue fluctuations and affect our reported results of operations.

A change in accounting standards or practices or a change in existing taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and taxation rules and varying interpretations of accounting pronouncements and taxation practice have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.

For example, any changes requiring that we record compensation expense in the statement of operations for employee stock options using the fair value method or changes in existing taxation rules related to stock options

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could have a significant negative effect on our reported results. Several agencies and entities are considering, and the Financial Accounting Standards Board has announced, proposals to change generally accepted accounting principles in the United States that, if implemented, would require us to record charges to earnings for employee stock option grants. This pending requirement would negatively impact our earnings. For example, recording a charge for employee stock options under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” would have created a reduction to net income of $7.0 million, net of tax for the first quarter of 2004 and an expense, net of tax of $6.5 million for the first quarter of 2003. This would have resulted in net income of $1.3 million and a net loss of $1.4 million for the first quarters of 2004 and 2003, respectively.

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

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

· our board of directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock;

· our board of directors is staggered into 2 classes, only one of which is elected at each annual meeting;

· stockholder action by written consent is prohibited;

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

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

· the ability of our stockholders to call special meetings of stockholders is prohibited; and

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

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

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

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and NASDAQ National Market rules, are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed.

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General economic conditions may further reduce our revenues and harm our business.

We are subject to risks arising from adverse changes in domestic and global economic conditions. Because of the economic slowdown in the United States and in other parts of the world, many industries are delaying or reducing technology purchases and investments. The impact of this slow down on us is difficult to predict, but if businesses or consumers defer or cancel purchases of new products that incorporate our chip-to-chip interface technology, our royalty revenues could decline, which would have an adverse effect on our results of operations and could have an adverse effect on our financial condition.

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Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We have no investments denominated in foreign country currencies and therefore are not subject to foreign exchange risk. We believe we mitigate default risk by investing in high-credit quality securities and by positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. An immediate 1% decrease in interest rates would be immaterial to our financial condition or results of operations.

The table below presents the carrying value and related weighted average interest rates for our investment portfolio. The carrying value approximates fair value at March 31, 2004.

	Carrying Value (in thousands)		Average Rate of Return at March 31, 2004 (annualized)
Marketable securities:
Cash equivalents	$	62,209	1.02	%
United States government debt securities		105,382	1.94	%
Corporate notes and bonds		49,751	2.19	%
Municipal notes and bonds		22,638	1.17	%
Total marketable securities	$	239,980

Item 4.    Controls and Procedures

Limitations on the Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation

The CEO/CFO evaluation of our disclosure controls and procedures and our internal controls over financial reporting included a review of the controls’ objectives and design, the controls’ implementation by Rambus and the effect of the controls on the information generated for use in this Quarterly Report. In the course of the controls evaluation, we seek to identify data errors, controls problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, were being undertaken. This type of evaluation will be done on a quarterly basis so that the conclusions concerning controls effectiveness can be reported in our Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. Our internal controls over financial reporting

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have been evaluated and will continue to be evaluated on a quarterly basis by our internal audit consultants. In addition, consistent with our past practices, our internal controls over financial reporting are evaluated by personnel in our finance organization. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures and our internal controls over financial reporting and to make modifications as necessary; our intent in this regard is that the disclosure controls and procedures and the internal controls over financial reporting will be maintained as dynamic systems that change (including with improvements and corrections) as conditions warrant.

Among other matters, we seek in our evaluation to determine whether (i) there were any “significant deficiencies” or “material weaknesses” in the company’s internal controls over financial reporting, (ii) the company had identified any acts of fraud involving personnel who have a significant role in the company’s internal controls over financial reporting or (iii) whether there has been any change in our internal controls over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. This information was important both for the controls evaluation generally and because the Section 302 Certifications of the CEO and CFO require that the CEO and CFO disclose certain information to our Board’s Audit Committee and to our independent accountants and to report on related matters in this section of the Quarterly Report.

Our review of our internal controls over financial reporting was made within the context of the relevant professional auditing standards defining “internal controls over financial reporting,” “significant deficiencies,” and “material weaknesses.” As part of our evaluation of internal controls over financial reporting, we also address other, less significant control matters that we or our auditors identify, and we determine what revision or improvement to make, if any, in accordance with our on-going procedures.

Conclusions Regarding Disclosure Controls and Procedures

Based upon the evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report, our CEO and CFO have concluded that, subject to the limitations noted above, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Conclusions Regarding Internal Controls Over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1.    Legal Proceedings

The information required by this item regarding legal proceedings is incorporated by reference to the information set forth in Note 9 entitled “Litigation and Asserted Claims” of the Notes to Unaudited Consolidated Condensed Financial Statements of this Form 10-Q.

Item 2.    Changes in Securities and Use of Proceeds

Share Repurchase Program

In October 2001, Rambus’s Board of Directors approved a share repurchase program of Rambus Common Stock principally to reduce the dilutive effect of employee stock options. Since the beginning of the plan, the Board has authorized the purchase in open market transactions of up to ten million shares of outstanding Rambus Common Stock over an undefined period of time. As of March 31, 2004, Rambus has repurchased 6.2 million shares of Rambus Common Stock. No shares were repurchased in the first quarter of 2004. As of March 31, 2004, there remained an outstanding authorization to repurchase 3.8 million shares of outstanding Rambus Common Stock as represented by the table below:

Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
1/1/04 – 1/31/04	—	—	—	3,842,937
2/1/04 – 2/29/04	—	—	—	3,842,937
3/1/04 – 3/31/04	—	—	—	3,842,937
Total	—	—	—	3,842,937

Item 3.    Defaults Upon Senior Securities—Not Applicable

Item 4.    Submission to Matters to a Vote of Security Holders—Not Applicable

Item 5.    Other Information—Not Applicable

Item 6.    Exhibits and Reports on Form 8-K

(a) Exhibits

Please refer to the Exhibit Index of this report on Form 10-Q.

(b) Reports on Form 8-K

A report on Form 8-K filed February 13, 2004, reporting under Item 5 the announcement that on February 12, 2004, Rambus issued a press release announcing the decision of the European Patent Office Appeals Board to revoke a certain European patent held by the company.

A report on Form 8-K filed April 14, 2004, reporting under Item 12 the announcement that on April 14, 2004, Rambus issued a press release regarding its financial results for the quarter ended March 31, 2004.

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SIGNATURE

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

RAMBUS INC.

April 29, 2004 Date:                                                                                          /S/    ROBERT K. EULAU         By:                                                                                             Robert K. Eulau, Senior Vice President, Finance, and Chief Financial Officer

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EXHIBIT INDEX

Exhibit Number	Description of Document
3.1(3)	Amended and Restated Certificate of Incorporation of Registrant filed May 29, 1997.
3.2(12)	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant filed June 14, 2000.
3.3(15)	Amended and Restated Bylaws of Registrant dated November 21, 2002.
3.4(17)	Amendment to Amended and Restated Bylaws of Registrant dated March 28, 2003.
4.1(1)	Form of Registrant’s Common Stock Certificate.
4.2(1)	Amended and Restated Information and Registration Rights Agreement, dated as of January 7, 1997, between Registrant and the parties indicated therein.
4.3(13)	Amended and Restated Preferred Stock Rights Agreement, dated as of’ July 31, 2000, between Registrant and Fleet National Bank.
4.3.2(18)	First Amendment to the Amended and Restated Preferred Stock Rights Agreement, dated as of April 23, 2003, between Registrant and Equiserve Trust Company, N.A., as successor to Fleet National Bank.
4.4(7)	Warrant No. 1-REV dated January 7, 1997 issued to Intel Corporation to purchase shares of the Registrant’s common stock.
10.1(1)	Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers.
10.4(1)(2)	Semiconductor Interfaces License Agreement, dated as of November 15, 1996, between Registrant and Intel Corporation.
10.4.1(4)	Amendment No. 1 to Semiconductor Interfaces License Agreement, dated as of July 10, 1998, between Registrant and Intel Corporation.
10.5(11)	1990 Stock Plan, as amended, and related forms of agreements.
10.6(19)	1997 Stock Plan (as amended and restated as of July 10, 2003).
10.7(11)	1997 Employee Stock Purchase Plan and related forms of agreements.
10.8(1)	Standard Office Lease, dated as of March 10, 1991, between Registrant and SouthBay/Latham.
10.10(6)	Office Lease dated as of August 27, 1999, between Registrant and Los Altos–El Camino Associates, LLC.
10.1l(6)	Common Stock Equivalent Agreement, dated as of October 20, 1999, between the Registrant and Geoff Tate.
10.12(6)	Common Stock Equivalent Agreement, dated as of October 20, 1999, between the Registrant and David Mooring.
10.13(8)	Office Sublease, dated as of May 8, 2000, between Registrant and Muse Prime Software, Inc.
10.14(9)	1999 Nonstatutory Stock Option Plan (as amended and restated as of April 10, 2002).
10.15(2)(14)	[ * ] Patent License Agreement, dated as of September 14, 2001, by and between the Registrant and Intel Corporation.
10.16(16)	Amendment to Sublease, dated as of March 25, 2002, between Registrant and Muse Prime Software, Inc.
10.17(10)(17)	Development Agreement, dated as of January 6, 2003, between Registrant, Sony Computer Entertainment Inc. and Toshiba Corporation.
10.18(10)(17)	Redwood and Yellowstone Semiconductor Technology License Agreement, dated as of January 6, 2003, between Registrant, Sony Corporation and Sony Computer Entertainment Inc.
10.19(10)(17)	Redwood and Yellowstone Semiconductor Technology License Agreement, dated as of January 6, 2003, between Registrant and Toshiba Corporation.
10.20	David Mooring Employment Agreement, filed herewith.
31.1	Certification of Principal Executive Officer, filed herewith.
31.2	Certification of Principal Financial Officer, filed herewith.
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

(1) Incorporated by reference to Registration Statement No. 333-22885.

(2) Confidential treatment was granted with respect to certain portions of this exhibit. Omitted portions were filed separately with the Securities and Exchange Commission.

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

(4) Incorporated by reference to the Form 10-K filed on December 9, 1998.

(5) Incorporated by reference to the Registration Statement on Form S-8 filed December 22, 1999 (file no. 333-93427).

(6) Incorporated by reference to the Form 10-K filed on December 23, 1999.

(7) Incorporated by reference to the Form 8-K filed on July 7, 2000.

(8) Incorporated by reference to the Form 10-Q filed on August 9, 2000.

(9) Incorporated by reference to the Registration Statement on Form S-8 filed April 12, 2002 (file no. 333-86140).

(10) Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

(11) Incorporated by reference to the Registration statement on Form S-8 filed June 6, 1997, (file no. 333-28597).

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

(13) Incorporated by reference to the Form 8-A12G/A filed on August 3, 2000.

(14) Incorporated by reference to the Form 10-K filed on December 4, 2001.

(15) Incorporated by reference to the Form 10-K filed on November 26, 2002.

(16) Incorporated by reference to the Form 10-Q filed on April 30, 2002.

(17) Incorporated by reference to the Form 10-Q filed on April 30, 2003.

(18) Incorporated by reference to the Form 8-A12G/A filed on August 5, 2003.

(19) Incorporated by reference to the Form 10-Q filed on July 29, 2003.

EX-10.20

Exhibit 10.20

RAMBUS INC.

DAVID MOORING EMPLOYMENT AGREEMENT

THIS AGREEMENT is effective as of January 14, 2004 (the “Effective Date”), by and between Rambus Inc. (the “Company”) and David Mooring (“Executive”).

RECITALS

A. Executive is employed by the Company as President and is a member of the Board of Directors of the Company.

B. On the Effective Date, Executive has resigned as President, but shall remain a Section 16 officer and member of the Board of Directors of the Company.

C. The Company desires to retain Executive’s services as a Section 16 officer on a full-time basis through the period ending January 16, 2005, which period may be extended by mutual agreement of the parties (the “Full-Time Employment Term”) and afterwards as a part-time employee through the period of an additional twelve months, working a minimum of half-time (the “Part-Time Employment Term”), upon the terms set forth herein.

NOW, THEREFORE, the parties agree as follows:

1.    Term.    The term of this Agreement shall commence on the Effective Date and shall continue until all the payments due and all other obligations of the parties hereunder have been made or satisfied.

2.    Duties of Executive.

(a)    Full-Time Employment Term.    As of the Effective Date, Executive shall no longer be President, but will remain a Section 16 officer of the Company. During the Full-Time Employment Term, Executive shall devote his full-time during normal business hours to the Company, but with different duties than in prior years, whereby the Executive will no longer manage the Company’s operations, but instead shall focus on assisting the Company on licensing, corporate development and strategy, reporting to the Company’s Chief Executive Officer. During the Full-Time Employment Term, Executive’s compensation and other benefits shall be as provided in Section 3(a).

(b)    Part-Time Employment Term.    During the Part-Time Employment Term Executive agrees to perform services as a Section 16 officer, part-time employee working a minimum of half-time as is reasonably requested by the Company. During the Part-Time Employment Term, Executive’s schedule may be reduced below a minimum of half-time only by express written agreement with the Company. During the Part-Time Employment Term, Executive’s compensation and other benefits shall be as provided in Section 3(b)

3.    Compensation.

(a)    Full-Time Employment Term.

(i)    Cash Compensation.    While employed by the Company during the Full-Time Employment Term (i) Executive shall be paid a base salary equal to the Executive’s 2003 base salary and in accordance with the Company’s standard payroll practices, and (ii) Executive’s annual target bonus shall equal to the target bonus for Executive during 2003.

(ii)    Benefits.    While employed by the Company during the Full-Time Employment Term, Executive shall be eligible to participate in the employee benefit plans and executive compensation programs maintained by the Company applicable to other key executives of the Company, including (without limitation) retirement plans, savings or profit sharing plans, stock option, incentive or other bonus plans, life, disability, health, accident and other insurance programs, paid vacations, sabbaticals

and similar plans or programs, subject, in each case, to the generally applicable terms and conditions of the applicable plan or program in question and to the determination of any committee administering such plan or program.

(b)    Part-Time Employment Term.

(i)    Cash Compensation.    While employed by the Company during the Part-Time Employment Term (i) Executive shall be paid a base salary pro-rated against his 2004 full-time salary, based upon the percentage of full-time employment that Executive’s working schedule represents, and (ii) Executive’s annual target bonus shall also be subject to such pro rata treatment. Executive shall also receive, promptly following the termination of the Part-Time Employment Term, full payment for all accrued wages, including but not limited to, unused vacation days to which he is entitled pursuant to the Company policy.

(ii)    Benefits.    While employed by the Company during the Part-Time Employment Term, Executive shall be eligible to participate in the employee benefit plans and executive compensation programs maintained by the Company applicable to other key executives of the Company, including (without limitation) retirement plans, savings or profit sharing plans, stock option, incentive or other bonus plans, life, disability, health, accident and other insurance programs, paid vacations, sabbaticals and similar plans or programs, subject, in each case, to the generally applicable terms and conditions of the applicable plan or program in question and to the determination of any committee administering such plan or program.

(c)    Stock Options and Common Stock Equivalents.    Subject to the accelerated vesting provisions of Section 4(b) below, Executive’s common stock equivalents and options to purchase the Company common stock shall be governed by the provisions of the applicable common stock equivalent and option agreements by and between Executive and the Company (the “Equity Compensation Agreements”). The vesting and exercisability of such common stock equivalents and options shall continue during the Full-Time Employment Term and the Part-Time Employment Term, in each case subject to Executive’s continued employment with the Company through the applicable vesting dates.

4.    Termination of Employment.

(a)    At-Will Employment.    Executive and the Company understand and acknowledge that Executive’s employment with the Company constitutes “at-will” employment. Subject to the provision of any accelerated stock option vesting required under Section 4(b) hereof, Executive and the Company acknowledge that this employment relationship may be terminated at any time, with or without good cause or notice or for any or no cause, at the option of either the Company or Executive.

(b)    Severance Accelerated Vesting.    Subject to Executive executing and not revoking a release of claims in favor of the Company in substantially the form attached hereto as Exhibit A, in the event that prior to January 17, 2006 (the “Severance Period”) (i) Executive resigns for Good Reason or (ii) Executive’s employment is terminated (A) by the Company other than for (i) “Cause” or (B) upon Executive’s death or “Disability” (as such terms are defined herein) then Executive shall receive immediate accelerated vesting of the shares of the Company’s common stock subject to stock options that would otherwise have vested had Executive remained employed by the Company through the end of the Severance Period.

(c)    “Cause” Definition.    For the purposes of this Agreement, “Cause” shall mean (i) Executive is convicted of or pleas nolo contendere or guilty to a felony involving moral turpitude; (ii) Executive engages in conduct that constitutes willful gross misconduct, provided that no act or failure to act shall be considered “willful” under this definition unless Executive acted, or failed to act, with an absence of good faith and without a reasonable belief that Executive’s action, or failure to act, was in the best interest of the Company.

(d)    “Good Reason” Definition.    For the purposes of this Agreement, “Good Reason” means, without Executive’s consent, (i) a material reduction in Executive’s duties that is inconsistent with the duties set forth in Section 2(a) above or a change in Executive’s reporting relationship such that Executive no longer reports directly to the Chief Executive Officer; (ii) Executive no longer being a Section 16 officer of the Company during the Full-Time Employment Term or Part-Time Employment Term; (iii) any reduction in

Executive’s base annual salary or annual target bonus opportunity (other than in connection with a general decrease in the salary or target bonuses for all officers of the Company); (iv) material breach by the Company of any of its obligations hereunder; (v) a requirement by the Company that Executive relocate his principal office to a facility more than 50 miles from the Company’s current headquarters; or (vi) failure of any successor to assume this Agreement; provided, however that, Executive’s employment shall not be considered terminated for “Good Reason” above unless written notice stating the basis for the termination is provided to the Company and the Company is given thirty (30) days after receipt of such notice to cure the neglect or conduct that is the basis of such claim.

(e)    “Disability Definition.”    For the purposes of this Agreement, “Disability” shall mean that the Executive has been unable to perform with reasonable accommodation his duties as an employee of the Company (or any subsidiary thereof that employs the Executive at such time) as the result of his incapacity due to physical or mental illness, and such inability, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative (such agreement as to acceptability not to be unreasonably withheld).

5.    Arbitration.

(a)    Executive agrees that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof, shall be finally settled by binding arbitration to be held in Santa Clara County, California under the Commercial Arbitration Rules, supplemented by the Supplemental Procedures for Large Complex Disputes, of the American Arbitration Association as then in effect (the “Rules”). The arbitrator(s) may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator(s) shall be final, conclusive and binding on the parties to the arbitration, and judgment may be entered on the decision of the arbitrator(s) in any court having jurisdiction.

(b)    The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to rules of conflicts of law, and the arbitration proceedings shall be governed by federal arbitration law and by the Rules, without reference to state arbitration law.

(c)    The Company shall pay the costs and expenses of such arbitration, and each party shall pay its own counsel fees and expenses.

(d)    EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION 5, WHICH DISCUSSES ARBITRATION. EMPLOYEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EMPLOYEE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE’S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO EXECUTIVE’S RELATIONSHIP WITH THE COMPANY.

6.    Indemnification and Insurance.    The standard form of indemnification agreement for officers and directors that Executive has entered into and any fiduciary insurance maintained by the Company shall remain in effect to the same extent that said indemnification or fiduciary insurance remains in effect for all officers and directors of the Company.

7.    General Provisions.

(a)    Entire Agreement.    This Agreement, the Equity Compensation Agreements and the Employment, Confidential Information and Invention Assignment Agreement previously entered into by and between the represents the entire agreement and understanding between the parties as to the subject matter hereof, and supersede all prior or contemporaneous agreements, whether written or oral. No waiver, alteration, or modification, if any, of the provisions of this Agreement shall be binding unless in writing and signed by duly authorized representatives of the parties hereto.

(b)    Successors.

(i)    Company Successors.    Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “the Company” shall include any successor to the Company’s business and/or assets that agrees to assume the Company’s obligations hereunder or which becomes bound by the terms of this Agreement by operation of law.

(ii)    Executive’s Successors.    The terms of this Agreement and all rights of Executive hereunder shall inure to the benefit of, and be enforceable by, Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

(c)    Conflicting Obligations.    Executive represents that he has not entered into, and will not enter into, any oral or written agreement in conflict herewith.

(d)    Counterparts.    This Agreement may be executed by either of the parties hereto in counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.

(e)    Governing Law; Consent to Personal Jurisdiction.    This Agreement shall be governed by and construed in accordance with the internal substantive laws, but not the choice of law rules, of the State of California. Executive hereby consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement or relating to any arbitration in which the parties are participants.

(f)    Other Activities.    Nothing herein shall preclude the Executive from (i) serving on the board of directors of a reasonable number of other corporations subject to the approval of the Company Board of Directors, which may not be unreasonably withheld; (ii) serving on the boards of a reasonable number of trade associations and/or charitable organizations; (iii) engaging in charitable activities and community affairs, and (iv) managing his personal investments and affairs.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above.

RAMBUS INC.	DAVID MOORING
/s/    Rambus Inc.	/s/    David Mooring
Date: January 14, 2004	Date: January 14, 2004

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Geoff Tate, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Rambus Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 29, 2004

/s/    GEOFF TATE        

Geoff Tate

Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Robert K. Eulau, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Rambus Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 29, 2004

/s/    ROBERT K. EULAU      

Robert K. Eulau

Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Geoff Tate, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Rambus Inc. on Form 10-Q for the quarter ended March 31, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Rambus Inc.

Date: April 29, 2004

By:	/s/    GEOFF TATE
Name: Title:	Geoff Tate Chief Executive Officer

I, Robert K. Eulau, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Rambus Inc. on Form 10-Q for the quarter ended March 31, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Rambus Inc.

Date: April 29, 2004

By:	/s/    ROBERT K. EULAU
Name: Title:	Robert K. Eulau Chief Financial Officer