There is uneven sound volume in the original recording, with the voices sometimes being just above the background noise level. Some speakers also talked simultaneously or mumbled. John Dowd, what were you saying at the end of, "Yeah. I -- I've done my homework. I -- I -- I just wanna -- you know, if you want people just to be, you know, like you said ...?" I could not discern all of the words indicated by the ellipses. As always, please do your own due diligence in evaluating the following transcript and Rambus as a company. Rambus Annual Stockholders Meeting, 05-10-2006 Satish Rishi: Good morning every -- have people -- people in the webcast joining us now. My name is Satish, the Chief Financial Officer at Rambus. I would like to welcome you to our company presentation and Q&A session. Harold will provide you with an overview of the business and accomplishments, and I will follow with some -- Before we begin, we want to advise you that this presentation will contain forward-looking statements regarding our financial prospects, demand for our product, and product development among -- among other things. Such forward-looking statements are based on current expectations, estimates and projections by the company's indus -- by the company's industry and management's belief and assumptions. These statements are subject to risks and uncertainties which are more fully described -- the documents that we file with the SEC, including our 10-Ks, 10-Qs, and 8-Ks, and these statements may differ materially from our actual results. So, with that, let me reintroduce Harold back. Harold? Harold Hughes: Thank you, Satish. Thank you very much for joining me ... back for this one job, by the way, and hello, again, to those people here -- that's a second time. Thank you for bearing with us through the formal part of the presentation. Hello to those people on the web -- like to thank you and welcome you to California if you're here. If not, I can tell ya this weather is trying to be perfect as opposed to what it was before. So, without further ado, let's talk about -- as I said at the opening of the formal meeting, I feel significantly more confident about Rambus's future today than I did a year ago when I gave a presentation. During the year, we encountered many issues which we overcame. Our -- the accountive[?] issues and court cases, obviously. We did quite well in technology licensing in addition to litigation. All those have given us, I think, in the company, a far greater sense of purpose of where we are going. We had over our heads many black clouds which came from previous court issues, etc, a couple of actions, many of which have been removed. It doesn't necessary translate immediately into financial results, but as we'll discuss later, I think it puts us in position for far better. And, as you know, we did quite well in licensing not only from last year, but starting off this year very well. Have Sharon and her team to thank for that. We continue to tackle very very difficult technical issues. We've done well hiring people. We've done quite well retaining people. But what is Rambus? We think we are one of the world's premier IP [intellectual property] licensing companies. Obviously, we'd like to become THE premier IP licensing company. Premier is very important for 2 reasons here. Number one, I think, we're one of the first to take on the IP business as a business model. We've learned a great deal of what to do, and I obviously -- in the course of doing things, we've learned things not to do, but every day we get a bit better at managing it. We understand the risks and uncertainties. And so doing, we put in place things that -- that help mitigate them. We also believe that we're premier by virtue of the fact that the technology we have is very superior, technology that others would love to have, don't have, and we continue to -- to develop to the extent we possibly can. Our technology has become, as we like to say, science foundational for virtually all digital electronics. Many of the things that we've created in the past, such as synchronous memory, things like that, have become required within digital electronics that have compute functions inherent within them if they are to be effective in their markets they compete their competitors. We invented critical chip interface technology years ahead of the market and years ahead of those anticipating what the market will be as -- as the market goes forward. This is a unique charter. It's my experience in business to a certain extent, you're driven -- the effectiveness of your company 's driven by the extent to which you've set a challenging charter for employees. With a charter like we have, "Develop technology in anticipation where the market will go," we have the ability to attract and retain people that other companies would have a great deal of difficulty doing it. We're a small company, very small company. We compete with very very large -- very very large companies. But a product company's focus in technology is only so far ahead of where they're currently developing products. We can look out much further, and that's a very interesting charter to take to people, especially scientists who love challenges like that. We've developed a lot of our hiring techniques around such processes. We're very very pleased with the progress we made in 2005 in building up our ability to continue to go forward. Our mission, I think equally dramatic, is dramatically advance chip in -- chip interface technologies for unprecedented performance across compute platforms, be it computing, communications, or consumer electronics. I think a key proof statement of our success in this is the extent to which we were the deciding factor in the performance of the PlayStation 3. We're, again, a company of 370 or so employees in the PlayStation 3. There are many very very large engineering, well established engineering firms, many of which have tens of thousands of engineers. That notwithstanding, the interfaces, the key interfaces in that platform, the platform which was just shown this week in Los Angeles at the E3 [Electronic Entertainment Expo] conference shows incredible performance. That technology came from a small firm in Los Altos with a relatively small number of people which happens to be your firm, the firm that we represent, we represent on your behalf to sharehold -- quite an accomplishment. Our business model -- first and foremost, the foundation of our business model is core technology development or our advanced research program. The fruits of that become both our patent portfolio, and obviously then our ability to sell a product, be they our leadership product or industry standard products -- leadership products, for example, with the XDR, XDR2 and FlexIO, those things present in the Sony PlayStation 2 -- excuse me, PlayStation 3, but also XDR, PCI industry-standard products. We have great ability, because of our knowledge, to make those products even perform well, even though they are industry standards. During 2005, we did -- we -- we -- we have continued our progress. We announced just recently that Craig Hampel has become our first fellow. I suspect that puts us only -- what? -- 3,000 behind IBM at this point or something, but number one, it's important to have number one, Craig 's doing quite well. Mark Horowitz, one of our founders, is our chief scientist. I -- I'll have to admit that I was not able to get him beyond the 1 day a week he's committed. I'm trying to get him to 2. He keeps saying things about being a full-time Stanford professor, and I'm told that Stanford professors don't teach very much, so I presumably can get him to 2 days next year. I'm very happy to report that Mike Farmwald, another one of our founders, has found a project in which he's very very interested, and I'm trying to get him to spend as much time as possible at Rambus to help within that core technology development. It's very hard job to sit down and say, "What will DRAM or what will an interface be doing 10 years from now? By the way, what will the ingredients be? How would I test it? Who might the customers?" Great challenge, but we take that challenge and turn it around and being -- and use it as a way to really entice people to come to work with us that have the ability to do just that. Our core technology development is -- is run by Kevin Donnelly, whom you may know. He's a long-term Rambus employee. He himself has many patents. Very energized to do that. He's not here right now, because he's back in Los Altos running core technology development. The synergy between patents and products is the key enabler of the Rambus business model. A patent-only business model, we suspect, is unsustainable over time. It doesn't have the relationship with customers which are required to understand the needs of the market so as to anticipate better where things are going. It obviously has high profit margins, but it doesn't have that level of interaction which we believe are fundamental and around which we've built much of what we do. From just a product-only standpoint, very very competitive world, very very hard to make money in just selling products. It does give you that customer interaction but doesn't generate funds needed to fund our core technology development. The sweet spot, that place where you get that back some of launch angle, is when you combine the two. A perfect example would be where we combine it around a Rambus leadership product, where that -- that leadership product validates the value of the patents and, obviously, our ability to implement technology into -- in -- into customers' products by using our very superior engineering staff -- the product side of -- of -- of that -- of that process. High margin, high customer connection, understanding where things are going, and executing very very well. One of the things that's a goal for 2006 is the fact that as we develop relationships with customers, and as they learn how advanced our -- our high-speed I/O [input / output] processes are, they become more and more dependent upon us. For us to be as successful as I think we can be, we must find ways in 2006 to make our engineering significantly more productive. I don't want to solve this problem by adding engineer on top of engineer. I want some of our development technology to focus on engineering productivity. So -- so allow us to connect to more and more key customers. Samir Patel, who did a superb job developing our Indian operation, which is doing quite well, I might add. The first five's come out -- done very well. He is -- he is coming back to California, and he will be running the product side of engineering, responsible for supplying engineering services and product services to customers, but also, as -- as I said, he must set aside resources that focuses primarily, or, if not exclusively, on improving engineering productivity. To guide us, my staff and I have agreed -- several strategic imperatives. I think the first almost goes without saying. * We need to remain the uncontested technology leader -- high performance * chip interfaces. I said several times already that we're a small firm. * Our success has not gone unno -- has not gone unnoticed by firms * significantly bigger than we are. They have the capability also to * attract superior engineering. Much of our success will go back to our * charter, the atmosphere that we create, the way in which we can be * successful in the market, but we have to invest heavily here, and we * intend to do so. * Broadly license our technology both to systems and semiconductor * companies. We've made good progress in 2005 and obviously the start of * 2006. We've signed both AMD and Fujitsu. I think AMD -- was AMD 2006 * or the last day of 2005? So, what's a day among friends? The -- the -- * the -- I've spoken in the past about how difficult it is to sign a * license. I've not talked about what our status is with specific * customers. I've talked more about the process that we've devised to * allow us to address more customers. I think we've become very good at * managing these. I would not say for a second that it's easy to license * someone. If you made -- helpful -- how hard someone -- someone will * fight to keep a hold of a 100 million dollars or so that they might owe * us. But this is a process that we're getting better at, like I said. * It's a incremen -- it's a fundamental part of our business. It's * something that we do. It's a challenge for a salesperson who normally * goes in and sells a product to go in first and say, "Well, I'd like to * sell you this product but, oh, by the way, you also have a large * liability to us for patents." Put yourself in that position. Takes a * very very good salesperson to be able to manage that. Very very * difficult thing to do. * People engage with select group of industry leaders. We are at our most * effective when we deal with the platform level. We do interfaces. We * do those hard things between chips. We want -- we want to work with the * relatively small number of platform drivers to drive their platform * forward within their -- within their market, and also to get platforms * to compete one with the other. Very important that we present ourselves * in that fashion. Obviously, to the extent we're successful, platforms * go forward faster, demand for performance is higher. It's where we have * high performance that they're likely to -- to then need us -- need us * more quickly. We have 370 people. We have to focus. We have to pick * our places where we can -- we can do our best job. A very significant * portion of the company worked on Sony while we were doing Sony * PlayStation 3. When you only have 370, you can't do too many Sonys. * One of the reasons I spent some time talking about engineering * productivity is for that very reason. If we're successful, and we find * several Sonys, we need to be much more productive in our engineering -- * focus in 2006. Another key thing which is to -- for us to be successful * in engaging industry-leading customers, we need also to have those * relationships with the supply. Does us little good, frankly, to * convince someone who drives a platform if we can't also show them that * there will be available sufficient memory which will run at the speed * inherent in the technology that we're trying to get them to accept -- to * accept. That is a complicated chicken and egg dance that we do. * Obviously, to the extent that we can sign up more DRAM companies, we * have the ability, then, I suspect they become the egg or the chicken. I * guess it's somewhat academic, but then we have the ability to talk very * decisively and conclusively with people who are platform leaders. * Obviously, the biggest of this would be the PC platform, but there are * other ones along the way where we will hopefully try very hard to get * that chicken and egg issue addressed. * Lastly, and anyone who takes a quick look at our P&L recognizes that * anyone who spends 10 million dollars a quarter or practically 10 million * dollars a quarter is very very serious about protecting their -- their * -- their -- their inventions. What you don't see in that is the extent * to which we shepherd our patents. We have a very very good team that * manages those patents, gets the most out of them, manages worldwide * issues as well. And litigation? We'll talk also -- I'll try to * embarrass John later on. It's actually not that difficult. We had * strong progress planned for 2005. We had record revenue, 157 million * dollars. We started the year with record revenue, 47, and the guidance * we have given you would 'self be an additional record. Did a good job * in our leadership products and technology. We introduced the * microthreading concept to DRAM. We believe that will be very effective * in signing graphics customers. Our -- our feeling is that we will -- 4X * graphics performance improvement in a market where a little bit of * difference is very important. For those of you who've seen eight[?] * Suns, you know there's no extent to which they won't go to get better * graphics and better performance. We introduced the XDR2 DRAM running * at, I think, the rather phenomenal 8Ghz clock rate. We announced the * two main interfaces to Cell processor. Just recently from EDN, we got * innovation of the year for dynamic point-to-point technology. It * occurred to me before coming here that only Sh -- we have only Sharon, * who is our engineer, so I will redirect any engineering questions to * Sharon. She doesn't mind. And we signed a ini -- we signed a license * with IBM for their Cell processor on XDR and FlexIO. We grow our -- we * grew our patent portfolio. It reached 400 in May 2005, over a year ago. * It's now 490, and pending is currently 480. Pretty good performance * there. In 2005, as I said, we signed several licenses. In 2006, we * started out well, and not least of which, obviously, has been success in * the Hynix trial, one of our first opportunities to actually take things * to a jury in depth and at length. All 10 claims, and, obviously, within * Rambus, we were thinking, "Well, you know, boy, I sure hope we get one, * you know. Maybe we'll get 5." I'm not sure in my most optimistic * moments that I actually think we'd get all 10. Now, John may have. I * don't -- well, actually, I think John and I discussed it. I'm not sure * if John thought we'd get all 10, but he was pretty confident. He did, * all right. The jury awarded us a very large amount of money, 306 * million. That -- that relates only to their U.S. sales from the period * of June 2000 -- June 2000 to June 2005. But my hat is really off to * John. Going back, I guess the pressure on salespeople, the pressure on * John, has been quite extraordinary during this period. What you don't * see were the many hurdles that we had to overcome to get into position * to do this trial. Now, I'm not gonna take you through all those, * because I'm certain he'll with you shortly in the book that John is * probably looking for a publisher for right now, but really difficult * things we had to overcome just to have the ability to try this case. * Our in-house lawyers are -- have been executing quite remarkably. It's * not as though this is the only case we have going on, ladies and * gentlemen. We have multiple cases going on. We're doing quite well and * learning how to manage this. It's a process that needs to be done, but * unfortunately, I am convinced that in the technology business, the IP * [intellectual property] business, litigation is simply one thing that we * have to live with. Again, my hat off to John. Great job. I appreciate * the hard work. On occasion, John deals with me as a hostile witness, so * I probably am hostile in return. Let's talk a bit about the * implications of the Hynix trial verdict. First of all, we're extremely * grateful. The tri -- the trial, actually deliberation, was quite a * length of time. Tough issues were dealt with. The jury was most * deliberate. They came back, I think, very very clear and compelling ver * -- verdict. Strong message is included here. Doesn't necessarily mean * delay will happen without consequences. 306.9 million dollars is a real * number. Obviously, we are yet to collect that number, but what the jury * has rewarded, so this is pretty compelling proof to the rest of the DRAM * industry. The other side of the -- of the interface from DRAM is the * controller and system side. We can't help but help our systems -- our * systems and controller licensing efforts, and, obviously, we talk * potential licensing stuff in great detail. I spoke earlier about the * importance we have about wedding the p -- the platform owner with * adequate supply. We still want to settle on reasonable terms. The fact * that we haven't settled yet should give you some indication that we're * not gonna simply settle for next to nothing. We're gonna get a fair * price for -- for the value of our technology, but we do want to settle. * We want -- we want supply to our technology. Best interest of the * company to get this behind us at some point. But as it says, we intend * to get fair compensation. So, as a summary, clearly this removes some * of the uncertainty -- the ongoing and future litigation. Ah ha! * Importance of stock options. Said earlier that we compete or attempt to * license firms, many of which have engineers measur -- number -- numbered * in the thousands and thousands. As I said, our -- our success in this * interface area has hardly gone unnoticed by them. They have the ability * to hire just as we do. Talk about the importance of our charter. But * we need to have tools to allow us to attract and retain the best and the * brightest. I've done this for a long time. I remember way back -- * Intel in the late '70s. We were trying to hire finance people. We * would compete with Coca-Cola, Proctor and Gamble. I have here Danny * Park, whom I hired probably 20 years ago. I don't remember exactly who * you were thinking of going with -- with, probably a bank or something * like that. Absence of stock ho -- options would not have allowed me to * hire the people that we were able to do -- able to hire. I say that * with 100% certainty. Stock options align employees with shareholders. * I look at my employees as shareholders. Most of them are. I don't * necessarily see a difference. Why would I? The shares that we issue, * relative to shares outstanding, approximately 3% each -- each year -- * presumably, the work of the 3% will go down to the benefit of the 97[%] * who are non-employee stock holders. Strikes -- strikes me as pretty * good leverage. Stock options are an important part of our performance. * What we've tried to do at Rambus is to pay actually salaries less than * the market, offsetting that with stock options to align our employees. * You should go to Rambus some night when there's a take-out. It's not * unlikely that you'd en -- [laughs] 3:30[AM] people are still there * working. I'm not sure that if you went to a government organization * with no stock options if you'd have anyone there working on something at * 3:30. People at Intel -- excuse me. People at Intel do work hard as * well, but people at Rambus work very very hard. They see themselves as * owners. We do not have an executive stock option plan. Every employee * at Rambus has stock options. Every employee. Now, we also -- there is * the -- this organization called ISS. We have -- we have met the * standards that they've proposed. Now, some of the confusion that arises * with regards to this program relates to the new decision by the FASB * [Financial Accounting Standards Board] and the SEC to expense stock * options. Now, I don't have time -- you may not have interest to hear my * opinions on whether this makes sense or not, quite frankly. It's -- * it's about the basis on which stock options are determined. It's the * Black-Scholes method. It applies, in my opinion, something else, but * that notwithstanding, I am of the opinion, strongly, that this did not * come about by virtue of some accounting need to actually represent what * in many cases is simply seen as the shareholders' decision to dilute * themselves in return for which they'll get superior performance. I * frankly think that this is decided by companies who don't have stock * option programs or driven otherwise and have had very very little * success in competing with stock option-based companies. Ask yourself, * in the last 40 years of technology companies, great companies have been * established. Can you name one that was established without stock * options basis? Did they all get it wrong? Has the world changed now * that we've decided somehow expense these? Does Rambus, the company, pay * a penny to anyone when that stock option is exercised? No, on the * contrary, the employee gives us money. So, we have a concept here * whereas when I pay Satish's salary, I take out the Rambus checkbook to * pay him a check. Excuse me. I pay him cash, and consequently, the * Rambus balance sheet goes to -- the Rambus cash goes down. What happens * when Ram -- when Satish exercises that stock option? He takes out his * checkbook and writes Rambus a check. So, how do we have a transaction * booked the same way when the cash goes in opposite directions? I'm all * ears to hear the answer to that one. So, lastly, if I think about this * -- I apologize if I get irritated -- it's in my nature -- if the * litigants of Rambus were voting today or if the competitors of Rambus * were vote -- how would they vote on this -- on this process? They would * vote against this program. Why would we want to align with people with * whom we've been in litigation for what appears to be half a century? * Why would we align with them? So, my opinion on stock options -- I * guess I'd have to say, and I don't mean to be flip by this. I mean to * be very very honest. Stock options will remain a part of running this * company. I don't know how to run it without them. I do not know how to * run it without them, but if you believe fervently that we shouldn't have * them, sell the stock. Buy Coca-Cola. I don't know what you should buy, * but sell the stock. We need stock options to run this company. Ah ha! I guess we're really looking forward to the question and answer session, aren't we? Let me talk a bit now about the future. We're forecasting another year of revenue growth. One of the things that I think we got right in 2005 was to recognize that we can grow the company even if we don't sign another memory manufacturer. Now, obviously, we want to, but having the ability to grow a company, based upon having a licensing team that can go out and find contracts, such as we did to an AMD, has made Rambus a much more confident company about its position. Now, again, I don't want to imply for a second that we don't want to sign all the DRAM companies, but we can still grow our business to record revenue in 2005. We will continue to put more pressure on Sharon -- good for her -- to license more systems and patent and -- and -- and semiconductor companies. We're gonna -- we have restructured sales a bit, because we wanna focus on key accounts, key platform leaders. We've restructured sales to be core team driven, obviously run by Sharon. We'll continue to develop and grow our patent portfolio. And, lastly, you know, the chip interfaces, the PlayStation 3 -- I think it's an obligation of every Rambus shareholder to buy at least one PlayStation 3 when they come out. Now, if you have children, you can just probably buy one per children -- one per child -- per child. So, thank you very much. Satish. Satish Rishi: Thank you, Harold. Let me walk you very briefly through the financial performance of the company in the last 4 months, 15 months, so I'll be covering part of last quarter and also cover a little about last year. So, annual revenues, if you look at our revenue trend for the last 4 quarters, we've had record revenue every year. We have steadily increased our top line, and last year, we had 157 million dollars in revenue. For the full year, we have -- we -- we're predicting continued growth, so you can expect to have sharp look keep going up in the current year also, so everything we are doing would be aligning as we reorganize the company as if aligned our sales force to grow for products and licensing. I think we are working on the right -- right trend, and this is an enviable trend to have for -- for a growth company, especially for a small company like ours, and we're very proud of it. For a quarterly basis -- for a quarterly basis, if you look at revenue, we've seen some good uptick also in the business, and last quarter in Q1 2006, we reported revenues of 47 million and a guidance for the current quarter we are in, Q2, was between 48 and 51 million dollars. So, again, you know, a good trend. Things are getting aligned. We are delivering what we said we would deliver. If you look at the net income, Q2, we have -- we've been profitable. This is the leverage we have in our model. So, we have economies of scale, and as -- as you can see, we've had continual growth of the EPS [earnings per share] line. Now, for last quarter, I'm showing you numbers with and without the stock option expensing. With the stock option expensing, we had approximately 2 million dollars in -- in net income. Without -- with the stock option expe -- if we did not expense the stock options, we'd have 7 million dollars. Now, again, I'll talk a little bit about it. This is not something that we -- we have desires of doing, but we are compelled to do so, and even though we don't believe in the technology that we are required to use, there's some things that we are unable to fight or argue at this point in time. One man asked the question, why do your revenue go down between -- why did your net income go down between Q4 and Q1? Part of that is the investing -- investment that we had making in the infrastructure of the company. That -- that is one -- one reason why you're seeing a slight dip, and we are investing for the future of the company. We have a solid balance sheet, and as of last quarter, we had rev -- we had cash over 390 million dollars, and this -- this strong balance sheet allows us to release the -- for our product innovation and our growth strategies. From a cash flow perspective, we continue generate cash. We -- we have -- we have demonstrated consistently over a period of time we as a company from a business model can generate cash, and as all shareholders know, our cash is king and very important for the future of the company. We had used part of this cash flow that we've have to buy back our shares, and we have an active share buyback program which was approved by the board back in Oct -- in 2001. During that period, we have bought back about 31 -- 13 million shares at an average price of about $13.95. So, that, too is a good investment ... people buy back shares at a much lower price fare at that August -- rather than today. So, in summary, from the financial result, we continue to have a robust revenue growth. Last quarter, we -- last quarter and going forward from here on, we will be reporting EPS [earnings per share] by stock option, you know, that include stock option expensing. To the extent we can, we'll try and make sure that we clarify for our various constituents, whether it's investors or shareholders, employees, what the impact of the stock option is so they can get a good picture of what the real business is without being clouded by somebody called stock option expensing. We have a solid balance sheet, nearly 40 million dollars in cash, marketable securities, and again, our cash flow from operations is positive, and we have an active share buyback program. Before -- before we move onto Q&A [question and answer], I -- I do want to dissuade one question or clarify an issue that's been raised and some of the stock -- some of the shareholders have asked me this question, and that's again of stock option expense. So, as Harold men -- mentioned his presentation, the stock options program at Rambus is broadly -- not just executives -- and is essential to our being able to attract the best talent that there is that's required for the growth of the company and the success of the company. Really the last quarter -- there's just 2 points I want to make -- and the 2 disparate points that people tend to confuse the 2. One is that we had stock option exercises of close to 3.8 million shares in the last quarter. Now, more than half of these exercises were related to a couple of executives who transitioned out of Rambus and then they had to exercise -- they had to exercise their vested options or forfeit them, and, rightly so, they chose to exercise them. Second, for the period ended March 2006, as required by the FA -- FASB, we started recognizing stock option expense, which is 8.4 million dollars for that quarter, and what this does is it recognizes expense for all unvested and outstanding options that have been granted by the company. Now, this does not have a direct correlation to any of the options that were exercised during the quarter. So, they're two separate things, you know. On the one hand, there is stock option expensing that is occurring, but it is -- it is not -- it is not yet impacted or affected by the number of option exercise that occurred during the quarter. We do have a lot more detail on the stock option expensing in our most recent 10-Q, I -- which we filed yesterday, and we do not agree with the concept of expensing stock options or the methodology that we're required to employ, but it is a new accounting standard, so we have to live with that. I'll open up for Q&A? Person1: This is for the webcast. John Allen: John Allen, long-term shareholder. I appreciate the details that you did give us about your buyback program, and I'm wondering: Are more details available at any point in time about what transactions happened? Satish Rishi: Typically, we only disclose how many shares we bought back in a given quarter, but I think we could probably take into consideration -- we can show historically how much we bought back at what share prices. Probably, in the future, we can probably generate some sort of a chart that shows how well the program has worked or not. You know, we can -- we can definitely show that. John Allen: I, for one, would appreciate any more detail available. Satish Rishi: [O]K. Harold Hughes: Let me elaborate just a bit. I -- I'm a firm believer that that's the line of the balance sheet which should be managed like all other lines. Satish's job to keep the dilution down as much as possible and to buy back at times that are advantageous to our shareholders who aren't selling who are dependent on. John Dowd: Good morning. Thank you for the presentation, gentlemen. My name is John Dowd. I think I get the award for coming the furthest -- Kittery Point Maine. You mentioned, Harold, the -- that you were the only IP [intellectual property] company or one of the first. Well, there's another one out there. It's called Qualcomm. OK? Their capitalization is 88 billion. Yours is 3.75 -- well, went down a little bit this morning. That's 23 time -- 23 times your capitalization. Yet, they only took out -- terms of stock options and in such incentives -- 330 million versus your 103 million over the last 12 months. In other words, they only took out 3 times as much. They have 27 times the number of people, but they only took out 3 times the amount in terms of incentive remuneration. With respect to revenues, theirs are 39 times. Once again, they only took out 3 times. Income, 74 times. Yet, they only took out 3 times. So, there seems to be not a problem with the concept, Sir. I own Microsoft. I own Qualcomm. And I kind of agree with you that it does -- isn't quite correctly reflected when they pull the expenses and the method by which they use it, but there is a degree of magnitude that has to match the financial results of the -- of the -- of the company. You yourself just said, "Well, we've been doing well, but financ -- translating it into financial results hasn't quite matured here. We are a small company." [paraphrased] You don't treat yourselves like a small company in terms of the magnitude of the stock option incentives by any means. Again, I don't take issue with you, Sir, with respect to the concept. It's the degree we're talking about here, the degree. Harold Hughes: How many employees did you say Qualcomm has? John Dowd: 9400. Harold Hughes: And we have 370. John Dowd: Yeah. I -- I've done my homework. I -- I -- I just wanna -- you know, if you want people just to be, you know, like you said ... buying degree -- Harold Hughes: You have a question, Sir? Sir, what's the question? John Dowd: Yeah. The question? Harold Hughes: Yes. John Dowd: The question is: Do -- do you -- do you see maybe you're a little excessive here? Harold Hughes: Well, I think our market cap [market capitalization] per employee is extraordinary. We have 370 people, everyone of whom has stock options. I don't know how may at Qualcomm have stock options. We've had a very up and down time in the stock. In proportion to the gain of employees had to have been the fact that at some point in the past, our stock was low. Many of the options that recent were exercised were exercised around -- were probably granted in the 2001 period when our stock price was extremely low, in large part because we were pretty badly beaten in the Virginia 1 suit. We had people, Geoff and Dave Mooring, who did a great job holding the company together after a -- after a suit like that. We have people who can find jobs very very quickly. We issued a lot of options then when the price was 4. Now, the people -- those pro -- those options at that time probably represented no more than 5 to -- nay, let's say 10% maximum shares outstanding. That means that people who worked hard stayed here, overcame those problems, delivered the 90% to other shareholders, or the 3 point whatever billion dollars in value. We have -- we're always going to have a relatively high stock option percentage. We're trying to find the very very best people in just about every thing we do. Qualcomm manufactures semiconductors. They've also won patent cases. They've won suits. Let's see what happens after we settle and see what our earnings are. Right now, we have a stock that sells at a 100 times earnings. It's highly volatile, highly unstable. We want to get the PE [price / earnings ratio] down and the price up. We do that by signing licenses and increasing earnings. We become a more stable com -- I don't -- I understand what Qualcomm does. They do many things, but they're far further down the -- the model than we are. I'm sure I can think of several firms who don't do quite as well as we do. How many firms have a market cap in the billions with less than 500 people? Let me restate that. Can you think of one? So, at a very small number of people in large part motivated by stock options, which, as I said, represents no more than 5% of outstanding shares, have produced a market cap that's quite extraordinary, and I don't see us growing headcount nearly as quickly, good Lord willing, as we grow mark -- grow market cap. So, we'll get better than anyone else, not wor[se] -- that's not gonna come by somehow convincing myself that I can hire the people I need without stock options, broadly based. The fan -- the fan -- John Dowd: I don't disagree with you, Sir. It's just that -- once again, the magnitude and -- and -- and factors such as strike price, amount, vesting pro -- provision and exercise period. Those are things that maybe you should look into. That's all I'm saying. Harold Hughes: Yeah, well -- John Dowd: I'm not -- I'm not -- you know, you want dummies to sit here and say, take -- you 2 gentlemen go on -- you said, if you don't like it, sell the stock. I think that's a very Draconian comment for a CEO. Holy smokes. Must be very sure of -- that's an arrogant statement as a matter of fact. Now, I'll just drop that, and I just have one question on the legal side, and that would be for Mr. Danforth. I understand wh -- and I think most of us here understand why the IFX [Infineon] settlement was re -- the way it was reached and why it was reached, but didn't really know, I think, clear definition of what IP [intellectual property] was covered in the licenses, one, and, two, is the licensing agreement reached thereunder assignable, and if so, under what conditions? John Danforth: John, thank you for coming from Maine, and thank you for coming to the trial. I know that you've been deeply involved in following the story, and I appreciate your comments, and I appreciate you coming. On the IFX settlement, that was done under difficult circumstances, and I appreciate your recognition of that. I think that by getting that where we got it, we were able to move forward in a constructive way. It is assignable in the extent it's described in the 10-Q, which is that if there is a another entity which takes over all of the DRAM operations -- and I'm paraphrasing here, so please don't treat this as gospel -- but if another entity acquires all of the DRAM operations of Infineon, then -- excuse me -- then that new entity will be able to -- enjoy is a word I hate to use in this context, buy I'll say enjoy -- enjoy a royalty rate which was in effect the Infineon royalty rate based on their volume of shipment extrapolated to the new larger volume of shipment of the new combined entity. In addition, the new entity will be relieved from antitrust liability, if there is any, and so I think you recognize that those ... So, thank you. That was the second part of your question. Question was, what IP [intellectual property] was covered? It covered all of our IP related to DRAM, but it did not include, for example -- Kim, correct me if I'm wrong -- a license to XDR, which includes not just patents but also a number of technologies, you're probably right, trade secrets, and, importantly, it was only a DRAM license, which does not give any license to logic licenses, and that is ... Harold Hughes: To be clear on that, Infineon would have the rights to patents included in XDR but would not have our cookbook, as it were. So, with amount of time and money, presumably, they could recreate XDR. John Diggler: My name is John Diggler. I'm a long time shareholder. My question is about your recent characterization: Total Available Market for Rambus IP [intellectual property] being, I think it was 1.5 trillion dollars. Harold Hughes: Very large number. John Diggler: Yeah. I -- wondering if you can elaborate on that. I'm interested in what you consider the total realistic available market, and also, I -- I guess, the -- the other smaller number which is the total realistic available market that you'll actually pursue, and I'm wondering if you can talk about that -- terms of today, year from now, and maybe with a 5 and 10 year horizon. Harold Hughes: I'm not so sure about the last part there, but the -- the 1.5 trillion was meant to include, literally, the en -- just the totality of the electronic business that our interfaces would serve. Many of those markets, as you correctly anticipate, we would probably not get around to licensing for quite some time, so to go to the second number, well, more available market, I would say a number in the 300 million -- Kim, does that sound about -- 300 in 2008 would be a market we would seriously engage in a licensing discussion. Obviously, a significant number. I never meant three hundred fif -- 300 billion, yes. I didn't mean to give the 1.5 million -- excuse me -- 1.5 trillion. It's one reason I'm no longer a finance guy, obviously. 1.5 trillion number is some expectation of what we could actually do, but it -- it does put in mind the extent to which our technology has become incredibly pervasive. And the last question was? Sharon. Sharon Holt: J -- Just to clarify a little bit. The 1.5 trillion really refers to the overall electronic systems market, and, as Harold mentioned during his presentation, we do have an active program right now to license not only semiconductor companies, which is the 300 billion, but system companies as well. As to how much of that market we intend to capture, we haven't given any guidance on that yet. Harold Hughes: Sir. Person2: Will do. You talked about the challenge of negotiating or being cozy with someone that incidentally you are litigating as far as getting close to the doers of the platform and that, but -- intrinsic challenge -- maybe in -- along that line, I wanted to ask what your -- if you'd have -- care to say anything about the interaction with standards setting organizations going forward as proactively with, you know, move away from black sheep status for persona chief grata [probably meant to say, "persona non grata," which means, "an unacceptable person"] to something, you know, a partnership -- be a hell of a lot easier than this litigating, maybe. Harold Hughes: Let me have John answer the legal aspects of that, but I would say, in general, as I said, we can -- we can do these things in an ad hoc [improvised] basis without the formality of a standard setting body. We could be -- we could be very prominent in the establishment of a graphics DRAM. We need to do that beyond contractual. But as it relates to the legal aspects? John Danforth: Let me -- let me address that. I was actually at a symposium at Stanford, and the head of JEDEC was there, and he and I actually agreed on surprising number of things. One of the things, I think, we agreed on, is that standards setting organizations have to be very clear about the IP [intellectual property] rules. The other thing that we agreed on is it would be a tremendous thing for both standards setting organizations and for Rambus if Rambus could kind of rejoin that world on terms that were fair and didn't unfairly jeopardize our intellectual property. Now, is that feasible? I don't know when that will be feasible or even what -- which organizations that will, but I think it's a reasonable goal as long as we're suitably skeptical about what we're getting into. One thing that was said at the same conference that just -- amaze me, because it was so candid, was the statement that JEDEC has not informed the rules because of the request of certain JEDEC members who are in litigation with us. So, when you're dealing with that kind of a environment, it's hard to re-engage, but I think that, frankly, at some point in -- in its history, we'll be very useful for ... We just be very careful of how we do that. Person2: Further question, I guess, is the -- the 800 pound gorilla in the room that we don't -- any nifty product I see that's initially made in America -- really quickly fairly after that there's a -- a cheapo knockoff version from somewhere in China, and, you know, their -- their piracy is legion over there, and, so, what, you know -- are you prepared to deal with the piracy of the new millennia? Harold Hughes: We prepared, not to the extent we want to be. Do we expect that we'll have to? Certainly. Certain. That -- how that will develop is pretty hard to see. Fortunately, there are others with even bigger problems in front of us, and they're choosing, and they're solving issues, I think, that it will work to our benefit. Right now, many of the things we do are so hard that they actually haven't been undertaken by the proverbial 800 pound gorilla which you refer. One more question, please? Bob Hanson: Thank you. My name is Bob Hanson, long-term stockholder. Any clarification you could give us -- the 12 documents on the 16th date? Harold Hughes: A clarification is always necessary on that subject. John Danforth: Thank you. Thank you for that question. There have been a number of -- of perceptions where that issue stands, and let me be very clear about it. The judge in San Francisco Superior Court case, which is our antitrust case, is named Kramer, and Judge Kramer has already issued an order that deals with some of our document requests and some of the issues, but not all of them. Let me be very clear about what he has said and what he hasn't said and the timing that I expect. What he has said -- and, in the long run, this may be the most important thing that -- that occurs in the long wrong -- but, what he said is that discovery in our antitrust case is going forward at least to the extent that the defendants would have to be giving up discovery as though they were third party witnesses, which, frankly, means a lot. And the defendants stood -- stood back and said, "Oh, gee, that would be awful, because then our people would be deposed, and we couldn't get depositions from Rambus," and he said, "Well, that's really your tough luck. You're the ones who wanna stand on your arbitration rights, and if you wanna keep appealing that issue," which is now under appeal, by the way, and I think that the briefing on the appeal will be done at the end of July, with some hearing after that, deposition after that, "but if you wanna continue with that process, then you can't propound discovery, but you will be required to answer it." And, so, one of the orders you've seen recently, which has lead to some confusion, deals with, for example, Samsung having to produce to us a million documents, which are the Department of Justice documents the Department of Juggle [Justice] got from -- released from the antitrust price-fixing case. That's one set of documents. There's another much smaller and really interesting set of documents which are the 12. [O]K? You haven't yet seen Judge Kramer's order on the 12. You will. He indicated 2 weeks ago that he would get it out -- couple weeks ago. My sense is we'll see it any day now. I was actually checking my emails during earlier presentation, because I wanted to see if I had any news for you on that. I don't. There is not yet an order from Judge Kramer to start the 20 day clock ticking on the 12. If and when he issues an order requiring that the 12 be essentially relieved of any confidentiality restrictions, that we can do with them what we -- what we will. If and when he does that, then there will be a 20 day time period during which Micron and Hynix -- because it's their emails, right? We call them the Samsung demurrer documents, the 12, but these are Micron and Hynix documents about Samsung, right, email, that we can't yet disclose. When he issues that, they will have -- Micron and Hynix will have 20 days to go to the appellate court and seek some further protection from these documents being released in any way that is appropriate to us. That 20 day period hasn't started yet, and you'll know it's started when you see the order posted on our web site, which I hope will be very shortly. Harold Hughes: Thank you for that clarification. Any other questions? One more question. Two more questions. I guess -- are we losing? OK. Mark: Thanks. My name's Mark. Don't worry, it won't be anything related to options. I think John, here, expressed our frustrations about that. Thanks for that, John. My question has more to do with the events that will trigger the, as I currently understand, Elpida paying us fixed quarterly rate, royalty rate, and also the Infineon, the extra 100 million dollars. What events, specifically, will trigger the Elpida reverting back to a sales royalty rate, and what will trigger the additional 100 million from Inf? Harold Hughes: The additional 100 million from Infineon requires, number one, to get to the first 50. We licensed 2 of the 3, and the last one, the last 50, or the total of 150, requires a license. Right now we -- right now we do -- we pay the quar -- we see the quarterly amounts up to 50 million dollars. We -- That payment will then be suspended until such time as we have signed 2 more, at which point it would go to an aggregate of 100. In our signing the third would allow that same payment to continue until 150 million had been reached. Any 2 -- um, sorry, yes, any 2. And then El -- Elpida -- I'm not sure if I understood the question or if I know the answer to be perfectly honest. Please. John Danforth: Let me also confess ignorance about the exact details of the Elpida -- Elpida agreement. It's fairly complicated, and I think the more material issue on the horizon is the Infineon cap which are at 50, 100, 150. We are under the 50 cap now, but the payments towards that cap won't hit that cap until something like Q3 [third quarter] of '07 [2007], so we have a bit of time to sign up 2 more of the 3 majors, right? 2 of the 3. When we hit 2 of the 3, that cap then goes to a 100. When we've got all 3, it goes to 150. Hope that's clear. Infineon has a quarterly payment which is, I think, in our disclosures, and that -- those quarterly payments go towards the cap, and they will hit their cap, I believe, in about Q3 of '07. Really have until -- until then to sign up 2 more of 3 big outstanding ones. If we don't sign up 2 more, what Harold was saying is then they simply stop paying until such time as we do sign up the 2, and then they start paying again towards the 100. Harold Hughes: Well, thank you for coming. Sorry for the emotion on stock options. Apparently, it's an issue that we'll get to discuss once or twice the future. Without further ado, appreciate seeing you here. Hope to see you again next year with even better news. Thank you.