The audio of the 6/1/2006 Rambus Analyst Meeting was sampled at 8,000 Hz, which is about the quality of old analog telephones. Some words are indistinguishable as a result. A higher sampling rate, perhaps 12,000 Hz, would have made the audio more intelligible at the price of increased network bandwidth. It is ironic that Rambus, with its massively high chip-to-chip bandwidth, lacks audio bandwidth in its recordings. The Internet needs Rambus-caliber bandwidth. Perhaps Rambus could explore using multicasting, if Rambus does not already use multicasting. Multicasting is an Internet specification for broadcasting information over the Internet in an efficient way. My understanding is that Rambus stock is somehow traded in Germany, and non-native English speakers might have difficulty in understanding low-fidelity English audio. The low-fidelity audio also reduces the effectiveness of the communication to native English speakers and will likely result in fewer people investing in Rambus, because they do not understand what is being said, or because the low audio quality reflects poorly on the company. If it is infeasible to do a webcast with high audio quality, then perhaps a high quality recording could be made at the same time for later posting on the Rambus web site, where interested people could download the high quality audio recording. I recommend to the Rambus officers that in the future that they avoid using English idioms such as, "killer app," and, "batting one thousand," and acronyms such as, "IP," which stands for, "intellectual property," but which can also be misinterpreted as, "Internet Protocol," which is a more common usage outside of the legal world. I created the transcript of the 6/1/2006 Rambus Analyst Meeting because it is so time-consuming to review the audio. It is much faster to review a transcript, and the transcript is easier to understand than the low-fidelity audio. There are likely inaccuracies in the transcription due to the low fidelity of the audio and general likelihood of inaccuracies. If you are an investor reading this, then please do your own due diligence in evaluating the transcript and Rambus as a company. 6/1/2006 Rambus Analyst Meeting ( RAM :-) Satish Rishi: Good afternoon everybody, and welcome to our financial analyst meeting -- wonderful to see all of you here, and I see some familiar faces, a lot of new faces, too. So, welcome to our meeting. Before I start, I'd like to remind you that this presentation will contain forward-looking statements regarding our financial prospects, demand for our products and product development, among other things. Such forward-looking statements are based on current expectations, estimates, and projections of the company's industry and management belief and assumptions. These statements -- These statements are subject to risks and uncertainties which are more fully described in the documents that we filed with the SEC including the 10K, 10Qs, and 8Ks, and these statements may differ materially from our actual results. Before I begin with the -- with the formal presentation -- just give you a couple of basic facts about Rambus. We were founded in 1990. We went public in 1997 and have been trading in the Nasdaq since then. Our headquarters are in Los Altos. We have about 365 employees as of end of last year. We have offices in North Carolina, Japan, India, Taiwan and Germany. North Carolina, India, Los Altos we have offices that are design centers, whereas Japan, Taiwan, Germany are primarily sales and some application engineers. Our revenue last year ending December was 157 million dollars, net income of 34 million dollars. We expect this year to be a lot better, and we have said we expect this year to be a record year. Our revenue in Q1 [quarter one] was .7, .2 million dollars, and I will spend more time going over the details of the quarter, and with the agenda for today. Harold will talk about our business strategy followed by Laura who will talk about patent and product strategy. John will give you an update on litigation, and I'm sure most of you are interested in knowing -- knowing more about some of the news that came out today, and I'll give you a financial update, and then we'll open up for Q&A. Harold? Harold Hughes: Thank you, Satish. Good afternoon, everyone. Thanks for joining us today. It's great to have a chance to share with you our vision for the future. Given the positive developments since our last analyst meeting in November, I'm more confident than ever about our ability to realize the tremendous opportunities ahead. Before talking about these developments, let me set the context with a review of who we are. We are one of the world's premier technology licensing companies. Premier, because we are a pioneer of the IP [intellectual property] licensing model, and because our technology leads the world. Our technology is foundational -- virtually all electrical -- digital electronic devices. As all electronic systems take on compute functions, our innovations in high-speed interfaces are crucial to their success. And we invent critical chip interface technologies and architectural solutions years ahead of anticipated market needs. We define state-of-the-art, high-performance, chip interfaces. Our mission is to continue to dramatically advance the state of the art. Our advances in chip interface technology will enable our customers to deliver unprecedented performance in computing, communications, and consumer electronics. This is a very exciting industry, and we're very excited about the role we play in it. And importantly, we're finding success recruiting new adherents for this mission on almost a daily basis. A bit on the business model. The foundation of our business model is our core technology development or our advanced research program. From core technology, we produce both our world-class patent portfolio and our technology products. Our technology product portfolio includes leadership products, such as XDR and XDR2, and industry standard products such as DDR and PCI Express. ... spend a few moments talking about how we are different from other companies in the industry and certainly from other IP [intellectual property] country -- companies. As defined in our business model, our strength comes from delivering value in the marketplace to both our patents and our products, but we manage our patents as a business, much as a product company would manage its products. We have structured our organization around a model where patent licensing is under Sharon Holt. Sharon is here today, not speaking, but she's here today, who runs our sales force; and both our product and patent management are under Laura Stark who is here today as well, and she is speaking. Our engineering is structured with Kevin Donnelley managing core technology development that contributes both the creation of patents, and Kevin is also responsible for the first-time creation of a product; and Samir Patel, heading our product development and production to take the strong portfolio inventions that we have, formulate those into products our customers can integrate into their chip and system solutions. So, much like a standard product company is how we've structured our patent management. Inherent in this report -- in this -- in this approach, are some key benefits. First of all, this structure takes the I -- takes IP [intellectual property] out of the legal realm and puts it into traditional business process flows of engineering process and sales. As such, we have been able to engage significantly higher numbers of potential licensees all at the same time. This is a process that we've begun about 6 months ago. It's going well, and we intend to -- intend to expand it. Secondly, a second advantage, it allows us to deliver value via technology whether it is manifested as products or patents so as to help our customers advance performance of their chip and system products. As we've seen, this leads to strong and lasting bonds with our customers, and, we believe, will allow for far easier relicensing when that time comes. Thirdly, by creating a platform division under Laura, we have been able to provide customers with system-level services, optimizations, and analysis and debug tools. As experts in interfaces, we are at home in dealing with the complex problems that arise as complex semiconductors interact with one another at the board and system level. These ... abilities, often supported by Rambus trade secrets and proprietary tools, have been our -- have been a key in our ability to win customers and find licensees -- is especially powerful when dealing with platform leaders such as Sony and AMD. These are the differentiators we have in how we've organized ourselves. These are significant changes that we've made over the last year. We believe these please -- these pieces are in pace -- in place and operating well, and we look forward to better results in future. To execute on the opportunities ahead of us, we've laid out a set of strategic imperatives for Rambus. Number one, not surprisingly, we must remain the uncontested leader in high performance chip interfaces. Without a doubt, this is where our expertise is, and this is where we will continue to invest and develop core technologies. Under pressure from customer demand in 2005, we believe that we had more engineering working outside of core technology development than we should. We have addressed this problem in 2006. We're adding back into the core technology headcount, and we're -- have a pretty significant recruiting effort going on, and I've been playing an increasing -- an increasing role in signing up really skillful scientists, creative people. So far, I'm still batting a thousand [100% success] on people that I've addressed. And, finally, we need to build our world class patent and litigation management practices. Being an IP [intellectual property] licensing company, world class patent management practice is fundamental to our success. Further, litigation management is a necessary capability to insure that we can protect our patent rights and be fairly compensated for our inventions. We have seen a great deal of progress in fulfilling these strategic imperatives since we set the company's new direction in 2005. We have demonstrated tremendous -- tremendous tactical leadership with the innovation such -- with innovations such as applying micro-threading to a DRAM core. Also, with the introduction of XDR2, we maintain our leadership position of delivering the world's fastest memory architecture, starting at 8 Ghz [where data can be transferred 8 billion times per second], when today's best-of-class industry standard solution's still running at 1,600 Mhz [1.6 Ghz]. And our contribution to the Cell processor remains an important proof point of the strong value contr -- contribution of Rambus to state-of-the-art solutions. On the licensing front, we've seen great momentum in our ability to sign patent licensing deals with some of the industry's leading companies. The signing of the patent license with AMD demonstrated our ability to sign memory controller licenses, and the Fujitsu patent license is important, because it our -- it is our first system licensee which includes significant incentives whereby Fujitsu can reduce the amount they pay us to the extent that they buy DRAM licensed from Rambus. We achieved, as Satish pointed out, we achieved record -- record revenue in Q1 2006 -- 6 thanks in part to these new licenses, and we have guided year-on-year revenue in 2006 for the entire year. We believe that the processes that we just defined will allow us to sign additional controller and systems licenses and meet those revenue targets. Secondly, we will broadly license our technology and patents to both system and semiconductor companies. The patent licenses we signed with AMD and Fujitsu demonstrate our success on this front. We need to remain deeper engaged with a select group of leading customer -- industry-leading customers. As Satish says, we are a relatively small company of only 370 people, mostly engineers, and it's critical that we focus on providing value to key strategic customers that we can help. Not only is it the leaders who can demonstrate the greatest value of our technology, PlayStation 3 being a good example, but the industry leaders provide the feedback that we can take to our innovators in core technology to work on problems for the future. One of the critical success factors for accomplishing this is our ability to scale in an effective manner as we -- as our customer grace -- base grows. We will scale the company the right way by employ -- employing tools and techniques that drive engineering productivity and expand our capacity to support customers, not by adding armies of engineers. Rambus innovation have revolutionized the performance of electronic systems. Now we'll employ the same innovative spirit to revolutionize how chip interface products are designed and implemented. We add value to our customers by our core technology development team looking far in the future before the value is realized by the market. This gives us the ability to stay far in front and to continue to design the world's fastest and most efficient interface systems. So, where are we relative to licensing DRAM companies in addition to our current licensees, Elpida and Infineon? First, we've made good progress on the legal front in demonstrating the validity of our patents. In addition, we've demonstrated with XDR DRAM, through our engineering engagements, we can help DRAM licensees develop high-performance, high-value solutions to the market, arguably a value far beyond what they would pay us as a license rate. As we expand our controller and system licenses, we help to pull -- we help pull our licensed DRAM suppliers' products into those sockets. Ultimately, we believe, we will -- it will be the confluence of these forces, success in litigation, delivery of value-added solutions like XDR DRAM, and the creation of market pull that will enable us to license successfully the other DRAM companies. Our engagement with industry leaders, such as STI [Sony, Toshiba, IBM] -- such as the STI team on the development of the Cell processor on the PlayStation 3, is a great demonstration of the value we can bring to bear at the chip and system levels to enable breakthrough performance. At E3 [Electronic Entertainment Expo], Sony firmed up the launch dates for the PS3 [PlayStation 3], announcing a November 11th launch in Japan, and November 17th launch in the U.S. and Europe. Laura will give some more details in her section about what's publicly available, announcing the relative performance -- relative the relative performance in futures the PS3. XDR DRAM is one of the key memory solutions employed in the PS3. In March, Elpida announced the availability of 512 Megabit XDR DRAM devices in sample quantities. The new devices operate at 4 Ghz data rate, providing an industry-leading data transfer rate of 8 Gigabytes per second. Our partnership with Elpida makes the world's fastest memory solutions available to designers of high performance digital consumer electronics. And we signed an XDR memory controller and FlexIO interface direct license with IBM for Cell-based applications beyond PlayStation 3. Finally, and as I've highlighted in our strategic imperatives, our ability to protect our inventions is cru -- is crucial to our success. We have been making continued progress in the litigation front. In the Hynix case, 10 of 10 of our patent claims were found valid and infringed, and the jury awarded damages of 307 million dollars. We've now prevailed in the first two phases of the trial, and the scope of the third phase will still be determined. John will provide far better detail than I could in hi -- in his update. Market access is ultimately about availability of supply, the PC main memory market still being the largest consumer of DRAM. These markets are already served through solutions like DDR DRAM that incorporate Rambus innoventions [innovative inventions], but we can add even greater value. As we increase the number of licensed DRAM manufacturers, we can provide Rambus architected solutions to markets with greater and greater volume requirements, moving up this chain. We have demonstrated success in the gaming area with our DRAM in Sony PlayStation 2 and now with XDR DRAM in PlayStation 3. As we execute our licensing plans and engage with an increasing number of controller and memory companies, we can move up this chain to high -- to the higher volume segments by both creating pull-through controller companies, enabling supply-through DRAM companies. This is the essence of our business strategy. So, the opportunities ahead of us are indeed great. As I've discussed, we're making strong progress towards these goals. And with that, I'll turn it over to Laura -- give you more details on our efforts in technology development and our patent and product businesses. Laura. Laura Stark: Good afternoon, everyone. Thank you for joining us. Pleasure to have the ability to speak with you today. As Harold talked about before, our business model is built upon a strong foundation of core technology development, and what I'd like to share with you today is our overall business strategy that starts with core technology development and produces both our product portfolio as well as our patented inventions. Technology development is really the engine that powers the Rambus business model. Rambus has had a long history of innovation, and this is really a small sampling of the key innovations that have been produced by our core technology development teams. For example, the technique of micro-threading in a DRAM can be used to elegantly solve the problem of generating ever increasing numbers of smaller and smaller triangles which are really needed for realistic 3D gaming applications. Applying micro-threading to a DRAM for such applications can improve memory bandwidth efficiency of up to 5 times as compared to traditional approaches. Another important Rambus innovation is continuously adaptive equalization of signals at a receiver. This technology is implemented in Rambus's advanced backplane serial link product line. The technology consists of sampling a signal at the receiver and optimizing the equalization process to provide the best possible signal quality. For purposes of illustration, I'd like to do a deep dive into a couple more of these innovations. First is dynamic point-to-point. It's an innovation which enables memory module upgrades with point-to-point signaling while delivering constant system bandwidth in all module configurations. This approach allows a main memory system to benefit from the enhanced signal integrity characteristics of point-to-point signaling without sacrificing bandwidth or memory module upgrades. And we're very proud that EDR Magazine recognized this invention as innovation of the year in the IT category in April of this year. Our core technology teams worked very hard at trying to bring new innovations to the market, and it's really rewarding to have a respected industry publication recognize our efforts with this award. The next innovation I'd like to highlight is FlexPhase. Controlling tiny errors in parallel buses is critical to increasing frequency, and, hence, performance of the system. And FlexPhase is a Rambus innovation which mitigates the negative affects of misaligned timing associated with high-speed signaling. Allowing each data pin to have an adjustable transmit and receive phase offset, FlexPhase circuits can minimize the systematic timing errors which can occur in typical parallel interconnects, such as memory systems. And these timing errors can be produced by a number of sources including process variations, differing system configurations, PCB [Printed Circuit Board] trace length mismatches, and standing waves on the clock. This an -- animation illustrates how FlexPhase works in a memory system. So, you can see -- I'll wait 'til the picture transitions here. When the controller's writing to a DRAM in this case, it -- the bits are transmitted offset from the controller chip in order to reach the DRAM chip without any offset, and in this case -- see, you can see here how they're arriving exactly at the same time even though they're transmitted differently. On the read case, which is this case, the DRAM chip transmits its information with no phase offset, but the controller has FlexPhase circuits which actually will adjust or correct to insure that the data bits are latched correctly when they are received at the controller. So, FlexPhase circuits can be applied to all types of chip interconnects. We show the memory interconnect here, but it is also applicable to logic buses as well. Another innovation that I'd like to show is that of fly-by-command address signaling, and this innovation enables speed scalability of the -- the command address path in a memory subsystem. So, fly-by combined with the previous innovation, called FlexPhase, is a technology that's very useful for wide, parallel buses. In traditional memory systems, several clocks are usually sent to insure proper timing of the DRAM. With fly-by, a single clock is transmitted -- and you can see that in red on this animation -- from the controller and distributed to all the DRAM chips on the module in a daisy-chain manner. In order for the DRAM chip to capture the respective bits of data with the right timing, it's important for the data lines to launch their data bits with the right phase offset, and this is where the Rambus FlexPhase technology comes in. When you combine it with the proper levelization logic, it can be used to ensure that all of this happens correctly in the system. So, FlexPhase ensures that the intra-cycle phase offset [timing shorter than 1 clock cycle] is correct for optimal data latching, and levelization is gonna take care and adjust for skews of those that span more than 1 bit time. So, Rambus innovations have been foundational for the development of DRAM products. We've had -- we've long been leading the industry with innovations driving memory bandwidth performance. In 1994, Rambus introduced RDRAMs. It was a memory standard which used groundbreaking new technologies to deliver an unprecedented performance of 500 Mhz data rate, and it was used in many computing -- computing and consumer applications. And RDRAM has since scaled to a performance of 1,600 Mhz data rate which demonstrates the robustness of this memory architecture. From 1996 to 1999, other industry standards such as SDRAM and DDR SDRAM made use of some of the advanced technologies which were introduced in RDRAM back in 1994, and tho -- those products achieved data rates ranging from 66 Mhz to 400 Mhz. In 2001, Rambus introduced XDR and, once again, implemented new innovations such as FlexPhase and fly-by-command address to provide a compelling road map for future generations of DRAM memory. DDR2 followed and further made use of some of these technology advances. And last year, we introduced XDR2. It was the world's first memory product to make use of adaptive timing and micro-threading in a DRAM core, and it provides an unprecedented performance of over 8 Ghz signaling data rate. And looking to the future, we believe that DDR3 is likely to employ both FlexPhase and fly-by-command address, two of the innovations which I highlighted earlier, that were first introduced in XDR in 2001. So, Rambus has had a long history of delivering innovations in leadership products years ahead of the development of industry standards. We're incredibly proud of that history. And as we've talked about, that ability to innovate years ahead of the market is key to the development of our world ca -- class patent portfolio. So, to touch base on the market. Our innovations have applicability to a very large market space across the semiconductors and systems. By 2008, the semiconductor market should be close to 325 billion dollars. Computing driven largely by the PC segment is forecasted to remain the largest consumer of semiconductor products. But there is a trend occurring. As compute functionality of computer -- consumer electronics and mobile phones increases, those two segments combined will rival that of computing, and by 2008, they should consume about 125 billion dollars in semiconga -- semiconductors. Harold talks about our goal to broadly license our technology at first the semiconductor and the system level. The electronic systems market reaches 1.5 trillion dollars in 2008, and competing consumer and mobile alone will exceed 1 trillion dollars. The Fujitsu agreement we announced earlier this year was our first system-level patent agreement. It also covers Fujitsu semiconductor products. Further, that agreement has incentives for Fujitsu to purchase Rambus-licensed DRAMs from their semiconductor suppliers. This aligns the interests of our system customers with our interest to move the industry to the use of Rambus-licensed DRAM. The next ... This is a great example of how consumer electronics are increasingly driving the leading edge of technology. 3D gaming really is the new "killer app" [compelling application]. It's driving memory pin bandwidth with the highest performance PCs in an increasingly powerful generation of game consoles. The pursuit of real-time, interactive, move-quality, 3D visualization and media content continues to require seemingly impossible memory bandwidth. Over the last 2 decades, a very predictable trend has occurred. Every 5 years, the memory bandwidth in the game platforms increases by approximately an order of magnitude, or 10 tens times over that of previous generation, and later this year, the combined bandwidth of XDR and GDDR3 in the memory systems in the PlayStation 3 will provide 50 Gigabytes per second of memory bandwidth to the Cell processor and the graphics chip. This is more memory bandwidth than any PC shipping today. Moving forward, we expect this trend to continue, resulting in multiple Terabytes [trillion bytes] per second of memory bandwidth being required within the next decade. Note also that as the quality of the PC graphics subsystem catches up to the game console, it will drive the need for high performance memory bandwidth and will also drive the need for high performance PC Express interconnect between the PC's chipset and the graphics card. Rambus is well positioned to provide both the high-performance memory solution and PC Express solutions to these applications. So, another interesting trend is that technology developed for high-end applications ultimately proliferates across the breadth of personal electronics applications, and not only do all personal electronics grow in compute functionality, but the economies of scale make the technology affordable to be used on a very broad basis. An illustration of this migration of technology across personal electronics applications is mobile phones. DRAM has long been employed across the board in game consoles, PCs, and digital TVs, but it's only just beginning to gain momentum in the mobile phone market, and the concentration is really beginning in high-end smart phones. In 2004, 65 million, or less than 10%, of the mobile phones used DRAM. However, as compute functionality increases, the percentage containing DRAM is projected to climb sharply. By 2009, 575 million mobile phones will -- are projected to contain DRAM, which is nearly 60% of the billion phones forecasted to be built that year. So, not only do innovations from our technology development efforts lead to great products, but they're also the fuel for our patent portfolio, and that's what I'll discuss now. So, there's no better illustration for the power of our business model than the strong synergy between patent and product development. As you can see from this chart, our years of ... value creation coincide with the development of our leadership products, like RDRAM, XDR, and XDR2 with micro-threading. And thanks to our continued investment in creation of leadership products, we reached another important milestone. We announced this morning that we have received our 500th issued patent, and that's an average of 2 patents for every engineer at Rambus. And since the announcement of our 400th issued patent last year, we've received patents for such important innovations as our FlexPhase technology, which I discussed earlier. We're very proud of this milestone. It really is a proof-point that innovation is a part of the company's DNA. Rambus has had a very strong and growing patent portfolio that has expanded as we have grown as a company. In addition to the 500 issued patents, we have another 480 pending patent applications and over 25 new claims which span our patent portfolio. So, returning to the business model, we incorporate many of the innovations from technology development into our leadership products and industry-standard products. And as we've pointed out, we're focused in two key areas from a product-development point of view: Our leadership products and industry-standard products. XDR and FlexIO, which are used in the Cell processor in PlayStation 3, and our recently announced XDR2 interface are great examples of our leadership products. Since we've developed many innovations which are now used in industry standard products, Rambus has been -- a unique position to bring standard ... products to market, such as DDR controller interfaces and PCI Express. These leadership and standard ... product offerings enable us to provide total solutions to our customers. An example of providing total solutions to our customers is the work that we have done on the cell processor. As most of you are aware, Sony, Toshiba and IBM introduced the word-revolutionary Cell processor, and we've been extremely honored to work with Sony and their partners in the development of Cell. Rambus provided all of the IO [Input / Output] technology on this processor: the XDR DRAM memory interface, and the Cell's processor bus, called FlexIO. The XDR interface is 72 bits wide and is capable of operating at 3.2 Ghz. When you work that out, it is close to 25 Gigabytes per second of total memory bandwidth. And the FlexIO processor bus is capable of signaling up to 6.4 Ghz data rate. In combination, these interfaces provide the unprecedented bandwidth needed to bring the power of Cell processor to consumer applications. The flagship consumer application is the Sony PlayStation 3, and the Cell processor is at the heart of Sony's next generation game console. And as Harold mentioned, Sony has stated that they will launch PlayStation 3 worldwide in November. And we're very excited to have two of the key ingredient technologies part of this highly anticipated game console. The power of PS3 will enable ultra-rich graphics for totally new levels of overall user experience, and I want to read to you a quote from Gamespot: "The PS3 will be able to simulate cloth and fluid, as well as large-scale rigid-body interactions with hundreds and thousands of objects colliding on screen. Today's PCs in comparison will need a physics add-on card or find a way to tap the GPU for physics processing to run PS3-level physics effects." And the PS3 is going to come loaded with features, including a Blu-ray optical drive, which is backwards-compatible with CD and DVD formats, a 60 or 20 GB hard drive, USB 2.0, Bluetooth 2.0, Gigabit Ethernet, 802.11b/g WiFi connectivity -- you name it, it's in there. The PS2 will be able to support up to 7 controllers using Bluetooth -- and very important -- displaying gorgeous images in HDMI output that can support top end of the H -- at the high definition TV resolution. And all of this is possible by combining the Cell processor with the graphics processor from Nvidia, and that'll bring the gaming world one step closer to reality. So, to switch gears a little bit here, speeds can be measured in 2 important ways, performance and time-to-market, and Rambus delivers in both these dimensions. Our technologies and innovations are undisputed leaders in the area of performance, providing industry with the highest level of bandwidth. Rambus has been focused on developing the world's fastest interface products since our inception 16 years ago, and we have no intention of stopping. Time-to-market is also a critical factor when you are dealing with various moving parts in order to get your product to market on time. The manufacturability, test capabilities, and our system analysis all contribute to helping our customers deliver products to the market on time and in volume. You know, we frequently observe companies struggle to ramp their product in volume which demonstrates how challenging this issue can be in delivering leading-edge products. And, finally, to be the best in our -- in the world in our field, and to deliver on the promise of speed, Rambus must demonstrate leadership in a broad range of technology disciplines, including chip architecture, analog and digital circuit designs, in the strength of our patent portfolio, and the performance of our leadership products. And because chip interfaces are also critical to system implementation, it requires expertise in system architecture, signal integrity, system engineering, and package design. We bring value through all these disciplines -- technology, patents, products -- combining all of this with system integration support, validation and verification to offer our customers a total solution. So, with that, I'll turn it over to John, who will give you an update on the legal front. John Danforth: Thank you, Laurie. I learned a long time ago that the only way I'm gonna keep myself in any kind of time frame is to take my watch off and put it right there. I'm gonna [going to] spend some time with you today -- next slide please -- going through kind of what is the standard background of our litigation and what you can foresee, and I'm gonna try to go through that quickly, because I want to reserve some time at the end to talk about today's news developments. I want to add my thanks to -- to the rest of our team for those of you who are -- came today. Particularly, I want to thank the long-timers who've kind of held on with us through a volatile time. For those of you who are new to Rambus, I'm gonna give you some background about some of our core intellectual property and then some background about some fairly complicated litigation for the last 5 or 6 years and then my case update. Again, I'm gonna move pretty quickly. > From Laura's talk just now -- next slide, please -- and the slides that > you've seen before, you know that Rambus has ... innovated in core areas that > are critical to future chip-to-chip communications, and we think that > advantage is gonna with us for some time to come -- but I think that to > understand where Rambus is today and what the promise is in the short term, > you also have to understand its past innovations, and, so, I want to talk > about that. Very briefly, we believe we own fundamental technology that is critical to all modern DRAMs [Dynamic Random Access Memories] and DRAM controllers. They make up a market of 25 to 30 billion dollars on the DRAM side alone. The priority dates of this Rambus IP [intellectual property] goes back very early, beginning in 1990 and continuing to mid to late '90s. We have hundreds of patent claims and scores of patents in this area of DRAMs and DRAM controllers. Most were issued after we submitted to the patent office the prior art that our litigation opponents have used against us. Many were issued over other challenges to validity. So, a little side note. I know that some of you in the audience actually attended part of the trial we recently had with Hynix. I believe it is a very effective thing when opposing counsel come up with a pile of prior art, present it to the jury, and say, "Gee, we think all of this anticipates Rambus," and we're able to show in the list of prior art in our patents where we presented all of that to the patent office. They created a check list of it. They went down that check list, examined it all, and concluded that, no, our innovations were still novel over and above that prior art. I think that was a very powerful part of the trial we just had. Of the hundreds of DRAM-related patents, 19 have now been found to be infringed by essentially ALL of the Hynix product line, SDRAM [Synchronous Dynamic Random Access Memory], DDR DRAM [Double Data Rate Dynamic Random Access Memory], and DDR2 DRAM [second generation Double Data Rate Dynamic Random Access Memory]. They obviously -- the Hynix parts are standardized parts, and ... you can extrapolate from those results to the rest of the industry. All 10 patent claims presented to the Hynix jury in the recent trial were held as valid against the vast prior art that Hynix put on the table -- vast amount of prior art that Hynix [put] on the table -- and all the other challenges that they could muster. At the end of that 3 week trial, the jury awarded Rambus $307 million dollars in back dues for past U.S.-only shipments, DRAM shipments. We expect interest to be added, and that will be decided at a hearing on June 27th. Of the 37 questions presented to the Hynix jury, ALL were answered in Rambus's favor. They're, we believe, no cost-effective workaround or set of workarounds to this IP [intellectual property]. That is, alternative technologies either do not work or cost more than the royalties that we have historically charged. That was the conclusion of the Federal Trade Commission's Chief Administrative Law judge after a 3 month trial that we won decisively in an opinion published in early 2004. Next slide, please. To give you a sense of how our IP [intellectual property] resides in industry standard products, I wanted to show you this chart which I've used in the past. You can really think of our patented technology as simply packaged in differing formats -- differing delivering formats. On the one hand are our leadership products, where we capture really what we think is the best solution, with trade secrets mixed in, but we're the best way to solve the problem. On the other hand are industry standard products like those shown in a kind of a quick schematic form here on this slide. So, this chart shows how each of the successive JEDEC promulgated standards included more and more of our technology as the industry wanted to go faster and faster or have more and more bandwidth, or both -- and recall the opening arguments at the Hynix trial. One of our key trial presentations was, "Need more speed, use more Rambus inventions," and that has been the history that we've seen. So, the key thing from a litigator's perspective here as well, is that because the industry is simply carrying over OLD features and adding to them with new patented features, once we prove up infringement for example of -- by SDRAM -- of access time register -- and I'm giving you some sample patent numbers that cover access time register. Once we prove up that, that same proof is applicable to DDR, and then to DDR2, and then, we believe, to DDR3, GDDR2 [second generation Graphics Double Data Rate memory, used in 3D graphics accelerator cards], GDDR3 [third generation Graphics Double Data Rate memory]. Next slide, please. So, what are the other proof points for the importance of our IP [intellectual property]? Well, again our -- our leadership products had very important early wins in the '90s. We continue to have wins today, the Nintendo, PlayStation 2, were places where RDRAM [Rambus Dynamic Random Access Memory] really shows its stuff, but also in discovery -- and you have to forgive me as a kind of not really recovered ex-litigator -- in discovery, we find all these documents where our litigants -- our opponents in litigation -- write very nice things about us. So, here's a sample that I continue to think is useful to point to. This is Infineon right in the 1994. They said, "One day, all computers will have to be built like this --" this is in a discussion of our technology -- "but, hopefully, without the royalties going to Rambus." The importance of our technology also is shown by awards to our innovators, and one was mentioned earlier. Another one was highlighted at trial, and that was the IEEE [Institute of Electrical and Electronics Engineers] award recently to Dr. Mark Horowitz. Next slide, please. And I particularly like, and I keep using, this 1997 document from JEDEC. This is from the JEDEC senior council which is the highest organiz -- kind of group -- within JEDEC, and it went out to, as far as we can tell, most of the key members, and what does it say? Well, the part you can't read -- but this document's available -- you can't read says, gee, our memory industry -- our memory subcommittee has been working really slowly and has been criticized for not keeping up with industry needs -- this is JEDEC complaining about their own memory subcommittee --- and what's happened? What's been the result of that? Well, one result is that competing groups, including Rambus, which is named as a competing group, have come up and thankfully done the work for us or done the work before us -- and then, they go on to say, the recent result of this -- this is JEDEC talking now -- the recent result of this is that the work of these competitive groups, which expressly includes Rambus, has been taken and adopted by JEDEC as our standards. Next slide, please. I want to turn now to a quick overview for those of you are new to the story of the three major hurdles that we've encountered and we think we've largely overcome over the last years of litigation. The first is a very narrow interpretation of our patent claims by the Eastern District of Virginia in the Infineon case back in 2001. That interpretation, which is sometimes called the claim construction or Markman ruling, was reversed on all key points that -- points that we challenged, and the reversal is incorporated in a 2003 Court of Appeals decision in the Infineon case. The second hurdle is the JEDEC issue, and what is that? You would think there would be no JEDEC issue, given the document I just showed you, but there is. The JEDEC issue was this and still is this: it's a theory that somehow, through our non-disclosures at JEDEC, we somehow allegedly tricked JEDEC into unwittingly adopting our technologies into their standards -- again, kind of tough argument to make given the document I've shown you, but we hear it again and again. That theory has been rejected many times. The Court of Appeals for the Federal Circuit rejected it in its 2003 Infineon decision. The FTC [Federal Trade Commission], after a 3 month trial, rejected it in a 334 page decision in 2004. Most recently, in the Micron case, the discovery master, appointed for discovery purposes in Micron, rejected that theory, and we think that recent evidence, including the memo I showed you, makes the theory all the weaker. But new parties get to raise it again, and in the FTC, our victory there is on appeal, as probably most of you know, so this JEDEC issue still lingers. I'll talk about it a bit more in a bit. We're asking Judge Whyte in the Hynix case to reject the JEDEC theory for a thir -- fourth time, and that's something we think he will do and believe he will do as a matter of law sometime before we begin the third phase of that trial in August. My best guess is it comes out in the next 2 to 3 weeks, but that's just a guess. The third hurdle that we faced was the theory of document spoliation and related unclean hands defense, and that theory was also rejected by the FTC administrative law judge, who found that no documents "material" to the outcome of this case were missing. However, the Eastern District of Virginia [Judge Robert Payne] in the Infineon case concluded differently and barred us from pursuing our patent claims against Infineon in early 2005. We then settled that case with Infineon agreeing to pay us between 50 and a 150 million dollars. This year, the Infineon result from Virginia was found to have no collateral estoppel effect in other cases, and then, after a trial, a bench trial in October, the spoliation defense was rejected once again. We did that with more live witnesses in California where we tried it again. We had a better record. We had more documents, we'd gotten an exhaustive review of some backup tapes, and all of that showed that nothing was missing that was material and that we had acted in good faith. Next slide, please. I wanna briefly address the FTC chronology for a couple of reasons. First of all, because this is a place where the JEDEC issue still lingers while that case is on appeal to the full FTC commission, and also because this is, I think, a place where you can expect to see summary development in the fairly near future. Speaking of chronology, the case is now quite old, and it's been almost -- what -- it's been over 2 years, since the issuance of the initial decision in our favor, so I think we're -- that we're due to see something here. News reports say, by the way, that the case goes back even further than 2002. News reports at the time had Micron and Hynix essentially bragging to the press that they urged the FTC to bring this case beginning in 2000, which is an interesting date during today's news, because 2000 was in the middle of their admitted price-fixing conspiracy, and it was also the beginning of their coordinated patent litigations against Rambus, which Micron and Hynix separately filed one day apart in August 2000. Next slide, please. I'm gonna move quickly through this one. This is a list of reasons that we believe -- that we believe will cause the FTC ALJ [Federal Trade Commission Administrative Law Judge] to be affirmed either by the ALJ [FTC] itself or, if necessary, on appeal. The key take-away I want you to take from this slide is this: That the -- the ALJ's decision on JEDEC rested to a significant extent on credibility determinations that he made after looking personally at witnesses over a 3 month trial. Many of those key findings are even stronger with respect to DDR, DDR2 and other more advanced memory types. For example -- I know these memory types are -- now dominate the market -- for example, not a judge anywhere, even in the Eastern District of Virginia, has ever found that we -- we violated any duty of care with respect to DDR or any later memory type. There've been 6 judges who addressed that issue, including the Virginia judge and the dissenting judge in the Court of Appeals. All of them said no duty breeched with respect to DDR. Also, the knowledge of Rambus's patent position or potential patent position can be documented as increasing over the years, and of course, by year 2000, we were out -- what -- suing people, so it was pretty obvious by then, and that was before DDR was well established in the marketplace, and it was before DDR2, which is becoming dominant, was even standardized. DDR2 was standardized in 2003. Next slide, please. Another thing I wanted to highlight, and again, I'm trying to be quick, is this: The Solicitor General this last month, in May, filed a brief in the U.S. Supreme Court in a case called Schering-Plough. The premise of the brief should be well-established, but it was important to see it articulated again in an FTC case that's up before potential Supreme Court review. What does the Solicitor General say? He said that the credibility and other factual framings by an ALJ [Administrative Law Judge] are part of the record that have to be considered on appeal. What does that mean? That means if something goes wrong ... the FTC at the full commission level will have the benefit of all of those 334 pages and 1,600 separate fact findings in our favor when we go up on appeal. And I think, frankly, that the FTC also is quite aware of that, because they've been following the F -- the Schering-Plough case closely. Next slide, please. I wanna turn briefly to our pending cases. This is the schedule for the Hynix case. We're down to Phase II. We won the spoliation case. We won the patent case. We're now onto what's called the conduct trial, the main portion of which again is that wonderful old JEDEC theory. They've added to that an allegation that we somehow defamed DDR and impeded its introduction into the marketplace (and if we did that, we did ... a terrible job). We're also alleged to have cooperated with Intel in some kind of nefarious way, and then there's a, "other DRAM," clause that I won't trouble you with right now, but there's a variety of other claims they've got in there. My suspicion is and my belief is this: I believe this case will be significantly trimmed down before it gets to trial and that we will not see JEDEC as part of that case. Next slide, please. This is our other -- this is a schedule of other patent cases that are coming up and the trial dates that we now have, and I just want to quickly point out to you that these are what we currently know. They may or may not change, but the next dates that we have coming up on the right is in Delaware. It's a repeat of the spoliation hearing that we did in the Hynix case. Again, that may or may not change. Next slide, please. So, now I want to get to a time line for you, and now I'm switching over to the antitrust issues and to today's news. I wanted this time line to give you some context for some of the documents you saw in the Wall Street Journal, and in Bloomberg, and in BusinessWeek this morning, because I think the context is important, and I want to specifically answer the claim that we somehow have bootstrapped the DOJ [Department of Justice] investigation to support our claims or that we've somehow taken the documents -- and we didn't take them, the Wall Street Journal took 'em, we gave it to them, they took 'em and they published them, and they interpreted the way they interpreted them -- but they then argued that we took them out of context, so I'm gonna give you some context. Here it is: If you go back to the Federal Trade Commission's initial decision, around page 78 to page 84, right around there, you'll find a detailed description quoting industry documents, quoting testimony from the trial, establishing the first data point here, which is that between 1997 and 1999, there were many many communications and meetings among DRAM people, industry members, where they were urged to, "Say, 'NO TO RAMBUS,'" to slow down their Rambus production, to not be first to market, to lie to Intel about their input -- output so that Intel could be fooled, to lie to their customers about that output, to get their stories straight as to what they would say to the press about the cost structure for building RDRAM. Well documented. I urge you to take a look at the initial decision of the FTC. That occurred between 1997 and 1999. How's that for context? Next, in early 2000, it's well documented -- documented that the PC OEMs [Personal Computer Original Equipment Manufacturers], Dell, Compaq, etc, signaled to the DRAM industry that they really were indeed gonna switch over to RDRAM for main memory. That's what they told them. We need RDRAM. We need you to make it in volume. We can buy all you can make. There's testimony at the FTC trial reflected in the initial decision establishing this point. Next, in May of 2000, Dell with great candor, said, gee, you guys aren't lowering your RDRAM prices, and we really need RDRAM to be the main memory, but if you can't make it in volume at lower prices, we're not gonna be able to do the switchover and we'll be forced to go back to SDRAM and DDR. Gee, throw me in the briar patch. So, what happened next? Well, what happens a month later is -- you'll recall that during this -- maybe you won't recall ... remember that during the same time frame that Intel was investing in the DRAM companies to encourage them to make RDRAM, and they put $500 million dollars for that purpose into Micron. They also talked to Hynix about putting $500 million dollars into Hynix around the same time period, and so for a while, Hynix backed off the RDRAM bashing, but in this same time period, one Hynix executive [Farhad Tabrizi, Vice President of Worldwide Marketing] wrote to the Hynix president, saying, look, if the Intel deal doesn't go through, if they don't invest in us, I hope you'll let me go back to my old mode of RDRAM killing, and then he goes onto say, I was really close to achieving my result. This was in June of 2000. ["If Intel does not invest in us, I really want to ask you to let me go back to my old mode of RDRAM killing. I think we were very close to achieving our goal until you said we were absolutely committed to this baby." (p. 28, http://investor.rambus.com/downloads/050504pr3_civilcomplaint.pdf)] Next slide, please. A year goes by. Guess what, we have a Micron email which appeared in the papers today written by the Vice President of International Sales*, Linda Turner, and she's responding to reports that DDR prices are low, and people say that's really scary did you hear prices are low? And she responds, "No problem --" next slide, please. She responds, "No problem! We want DDR to explode into the marketplace --" so far so good. Right? Any manufacturer is entitled unilaterally, by themselves, to price their product to make it explode into the marketplace, so far so good -- "so have actually been requesting Infineon, Samsung and Hynix to lower their DDR prices [pricing] to help it become a standard --" Oops. You can't actually request your competitors to do something with their pricing, and then, "to help it become a standard (and drive Rambus away completely)." I'll read it again, "and drive Rambus away completely." Double oops. [* Director of International Sales might have been the correct title for Linda Turner. Michael W. Sadler was the Vice President of Worldwide Sales for Micron around the time of Linda Turner's email according to Micron's old web site on http://www.archive.org . Mike Sadler is mentioned in a Hynix email as calling Hynix personnel to discuss price fixing, but he apparently was not stupid enough to send the request in writing (p. 5, http://investor.rambus.com/downloads/DocumentsFromAntitrustLawsuit.pdf).] Can I back up to the last slide? So here's some more context. By late June. In October, many of you know IDF is the Intel's Developer Forum has every October. In October, Intel drops RDRAM from the main memory road map completely. Victory. What happens? A month later, another Micron executive, the famous Kathy Radford memo appears. Kathy Radford writes an email and says, "There's now a consensus --" oops -- "among the DRAM manufacturers to raise prices. This time, if Micron moves forward, we'll all make it stick."** That was in November of '01. [** "The consensus from all suppliers is that if Micron makes the move, all of them will do the same and make it stick." (http://www.taborcommunications.com/dsstar/04/0316/107631.html)] Over the next 4 months, DDR prices go back up 300%, and I have time to do a little drawing, and I apologize for those of you who are not here live. I'll describe it as I draw it. So what happened in the marketplace is that the DRAM manufacturers decided that they would introduce RDRAM [I think he actually meant DDR DRAM] -- collectively decided, I think -- at a low price. SDRAM is down here, and they said, we're gonna introduce RDRAM [I think he actually meant DDR DRAM] at a really low price so that it will explode into the marketplace. And so from like '99 or 2000 when it began competing with DDR [I think he actually meant RDRAM] -- both of them were competing in the exact timeframe by the way, spelled out by the Department of Justice criminal indictments and plea agreements, '99 to 2002. ... DDR even though it was more expensive product to make and much more functionality, much closer to Rambus's leadership product, ... price point right near SDRAM, and they pretty much, with some variation, kept it there until, oops, 11/01, and then it goes up 300%. That's when Michael Dell calls the Department of Justice and says something is wrong here. So, between 11/01 and 4/02, there's a 300 to 400% increase in the price of DDR. Guess where RDRAM was this entire time. The RDRAM pricing was somewhere up around here. There are obviously variations over time, but RDRAM is right about there, about the level that they pushed the DDR pricing up to, but by the time they got DDR pricing up this high, RDRAM was already off of the Intel road map and was sort of history -- right? -- as far as future systems were concerned. Ironically -- and I love this fact -- I'm looking at Laura when I say it -- ironically, they did this, they raised the prices, they thought they were home free, and lo and behold, what happens? The demand for the old Intel chipset, the 850 chipset, goes up, because RDRAM is the better solution, and all of a sudden it had price parity, or at least close enough. ... in the documents that we will be releasing on our web site and that had been written about in the papers, you'll see that the -- the committee then panicked again. And they said, oh my goodness ... we've got to do something about that, we could lose this again, and they started to talk about how to fix their prices again, and Dell started to make noises, and then the worldwide vice president of sales responding to some Dell threat about pricing makes a joke out of it, and he says, gee, you know, if Dell really wanted to pack some punch, "To really pack some punch, however, they should have shown an RDRAM revival somehow tied to DDR price premiums [Michael Sadler, p. 18, http://investor.rambus.com/downloads/DocumentsFromAntitrustLawsuit.pdf ]," and that was in January 23rd, 2002, as this price parity starts to get closer and closer. So, where does that take us? I'm coming to the end of my time. I think it takes us to -- next slide, please. Next slide, please. I think it takes us to the $54,000 question, although really the value of that question is worth a lot more than $64,000. The question is when do we get to put these documents -- and there are many more of them than you've seen and many more than the press has seen -- when do we put -- get to put these documents in front of a San Francisco jury? When does that happen? Well, we asked for a December 2006 trial date in the last case management conference. We didn't get it. That was a little ambitious. But the court said it would set a trial date soon after the resolution of a pending motion in the appellate courts, because the -- two of the parties had arbitration clauses, and their effort to compel arbitration was denied at the trial court level, but they have a right to an expedited appeal ... to appellate court to have that arbitration issue decided, and while that's happening, the trial case slows down, right? And a trial can't be set. So, what the court has said is, when that comes back to me, I'm setting the trial date quickly. So, when will that happen? You know, we won't know until we know more about the briefing schedule in the appellate court, but right now, the brief should be done by July 27th, they put out some extension of a month or two, July 27th, and we'll see when the hearing is set. That could be set within as early as a month, maybe as late as 4 months, so one day we will have a case management conference this year at which the court will set a trial date, and I'm hopeful that trial date is very soon you know, 7, although we have to wait and see how this plays out, but I gotta tell you, we feel as though we don't need much more time to take this case to trial ... some depositions. There are millions of documents that are still owed to us, some of which were ordered produced just this week. We want to get those, but we're ready to go without too much more work, and we're looking forward to it. Thank you very much, and I will hand the podium back to Satish. Satish Rishi: Thank you, John. ... I'll walk you very briefly through the financial history of the company starting with Q1 and going over a couple of other quarters and trend lines and then talk about, you know, the investment pieces for why should you be interested in Rambus as a stock you would recommend or hold. Last quarter was a great quarter, a record quarter, as I mentioned before. Revenue grew 14% sequentially as recorded the revenue -- as recorded the revenue from AMD and the Fujitsu deal that we closed in the last 2 quarters. Operating income, excluding stock option expenses, also grew from 7.3 million dollars to 7.9 million dollars. [Unintelligible.] ... revenue this quarter because we have been increasing our investment in engineering including our India design center as well as investing in additional G&A infrastructure within the company. We will continue to and have been cash flow positive quarter for quarter cash flow from operations was up by 8 million dollars from 11 million dollars to 19 million dollars. Looking at some longer term trends -- next slide, please -- we have been steadily increasing our revenue from licensing as we add more customers to the list. Our customers continuing -- continue to engage us in engineering projects ... related to our patents and for expertise in relevant technology. Next slide, please. I'm going -- I'm going this quickly, because most of this is historical information. I'd like to go to the Q&A session and also talk about the investment pieces. The ... if you look at the net income, we have significant leverage in our business model. Incremental licensees and royalties drop to the bottom line very quickly. In the last quarter, without the impact of stock option expensing, net income would have been 7 million dollars instead of 2 million as shown here on the GAAP, as compared to 9 million a quarter ago. As I mentioned, we continued to invest in engineering in India and also in some G&A [General and Administrative] infrastructure, hence the decrease in operating income, although we had increase in revenue. Next slide. We have a strong balance sheet, and, quarter for quarter, our cash grew by 36 million dollars. With a strong balance sheet, we have the ability to support our product innovation, growth strategies, and also weather any storms that come along the way. Cash from operations -- as you could see, we have consistently demonstrated that we can generate cash from profitable operations, and this cash generation has allowed us to buy back shares under the share repurchase program. Our share -- share repurchase program allows us to align our interests with ... shareholders, and, over time, we have repurchased about 15.2 million shares at an average price of $13.95. ... In terms of future outlook, no change to outlook, we expect our current quarter to be between 48 and 51 million in revenue and about 39 to 42 million in operating income. So ... information. Next slide, please. You might say, "So, what? Why should I be interested in Rambus?" Let me summarize a few points. First one, with our strong patent position, as Laura mentioned, you would find the patents for by ten fifty engineers. That is unprecedented, and with 480 patents pending, we have an incredible patent position in the semi and semiconducting -- semiconducting systems market, and we are not static. You know, we continue to invest in the development of new technology in these areas through our CTD group, as Laura mentioned with the organization structure that we have in place, and we continue to invest in our engineering talent. Second, our products can and do compete with the best-in-class, and in many instances set the bars -- set the bar for others. Products like XDR and the XDR2, which is performing at data rates in excess of 8 Ghz -- they lead the world in performance. In terms of helping industry leaders, successes such as Sony PlayStation, Cell processors, are just a few ... examples of Rambus providing technology expertise to its customers and ... successful products to market on time. In terms of financial leverage, every dollar that we collect from a new licensee drops to the bottom line. Not many companies can demonstrate this type of financial leverage. We've a strong balance sheet with almost 40 million dollars in cash. We will continue fund new investments in technology and engineering and infrastructure to be success for the long haul. And, finally, our patent management and litigation practices are geared to the long term success of the company. We want to be fairly compensated for our innovations, and we have demonstrated we have the capabilities and determination to litigate when necessary. So with that, I'll open up the Q&A. [Inaudible exchange.] Laura Stark: OK, great. So ... if you could talk into the microphone, it would be appreciated. Person: Sorry. Person 1: Yeah, a couple questions here. First of all, Hal, maybe you can comment a bit about when could we expect Sony to be maybe a 10% customer of yours, and second, can you a bit -- highlight a bit the licensing strategy in the future here? You've commented a bit on the past about companies potentially taking a license, and where do we stand there? And then, I have another question on litigation side of that. I'll wait for Harold to respond. Harold Hughes: Help me, Laura, bit. I don't know if we ever expect Sony -- I mean, hopefully they are, because PlayStation 3 totally explodes, but that has a certain royalty rate, and obviously we're -- they're competing against multiple other customers, so I duly don't expect to get to 10% of revenue. I would take your input if you want to contradict me in public. [Short laugh.] Laura Stark: I think it's important to note that Sony has a larger ecosystem. The revenue -- this is not working. Harold Hughes: It is. Laura Stark: Sony is supported by a larger ecosystem of multiple semiconductor manufacturers. So, revenue -- it'll be driven by Sony-related products. We'll -- you know [inaudible] a chunk of our revenue stream. You know, we don't use public projections about how any particular customer or their product fits into our overall revenue. Harold Hughes: Could you restate the second question regarding licensing going forward? Person 1: Yes ... Harold Hughes: With regard to types of companies or with regard to our strategy? Person 1: Types of companies and the strategy, timeline that we should expect, you know, companies ... Harold Hughes: Well, timelines, I wouldn't want to give you anything specific. After all, you need to analyze these things, but the process is important. Previously, we were able to engage with a relatively small number. Under Sharon's structure, we're able to engage with a significant number, literally in the dozens, quite frankly. And much of what we do is to use the 3 processes that we discussed. The litigation process, which John described very ably, is moving well. That is obviously focused primarily at DRAM companies and your guess is is -- and you can listen to John and stuff when he expects something to happen there, but we also work with that interaction of existing DRAM companies and their ability to make higher performance products incorporating our technology so as to talk -- so as to entice, if you will, controller companies to see the advantages of those functions, as they themselves have to compete. And, as we win those, we try to go further up the chain of platforms. We've established, I think, a very good position in games. We're moving forward in digital television. Obviously, one of the rungs on the ladder is PC graphics. There there are obviously two suppliers, two incumbents [ATI Graphics (ATYT) and Nvidia (NVDA)], and multiple suppliers, and ultimately up to that. Now, when will that happen? I couldn't possibly commit. Do we engage with them? Certainly. Sharon? Sharon Holt: [Inaudible.] Harold Hughes: Yes. Sharon Holt: If your question was relative to the patent licensing strategy in particular, as Harold mentioned, we are -- we have been ramping pretty steadily over the last year our ability to have more deals going on at a particular time. It does take quite a bit of time from the initial engagement with the customer to when we close the deal, so as Harold said, the predictability of -- of when revenue will hit is always -- is always a challenge for us, but we have ramped significantly our ability in terms of the number of engagements that we can handle, and I think you've seen with the closure of the AMD deal and the Fujitsu deal the beginning of the results, and we certainly expect to be able to over time have more deals closing. In terms of the strategy, we are talking to a number of controller companies, so a broad range of semiconductor manufacturers as well as system companies, so we will be pursuing more patent licenses like the one that you saw us complete with Fujitsu a few months ago. Michael Cohen: Michael Cohen from Pacific American Securities. Since 2000, we've pretty much just seen the licensing focused on DRAM and controllers, and then the first time the investors got a glimpse of the system level licensing was with the Fujitsu deal and we've seen increasing disclosure on that, and now you're talking about a 1.5 trillion dollar TAM [Total Available Market] on the systems side. My question is: Since the patents were in place really since 1990, why is the systems level licensing strategy coming now? And have any of the systems companies been notified that they are infringing? And just maybe provide a little bit more context around the whole systems level licensing strategy. Sharon Holt: Michael, thanks for the question. So, yes, we are in discussions, as I mentioned, with a -- with a number of system companies. Obviously, we were capacity-constrained no only in engineering but also in our ability to take on new licensing engagements, so we have prioritized both by markets where there is large impact as well as companies within those markets where the revenue involved is significant. So we do have a number of folks that we have notified and we are in discussions with and -- and we will be continuing to add more as we are able to. John Danforth: Let me just correct, Michael, something you said. Patents have not been in place since 1990. The application and the specification was, but the patents which have really had the force that we've seen in this last trial, you know, were filed in the late '90s and issued '99, 2000, and we're still getting those patents out. So, first of all, let's put the time frame correct, and then, secondly, the thing I would -- the ... is that until we got past some of these hurdles, our efficacy in licensing -- was reduced. Now with a patent verdict under out belt, our efficacy should improve. Michael Cohen: Then so the reason for the timing of it, why it's happening now, as opposed to in the year 2000 when the patents were in place and the original DRAM companies were notified? John Danforth: Well, I think none of us -- none of us involved in this part of the business were here in 2000, but I can tell you that if you look back to the litigation history and you see what happened in 2001 with that very adverse Infineon result that we later reversed, you can ki -- and the FTC bringing its action based on the Infineon result -- you can kind of see why we needed to clear those hurdles before we could move forward in a broader way. Harold Hughes: The chances [for] an effective dialog were pretty low. Sharon Holt: Yeah. I would also add that the -- although John is correct, we were -- we weren't here at the time. I think there was a hope, obviously, to resolve issues with the DRAM suppliers, which was the primary focus at that time. So, and as you know, by the details Harold's revealed on the Fujitsu deal, the interplay between the use of licensed components and the additional royalty that would be owed to us. There is an interplay there, and given where we are with the DRAM industry at this point, clearly, going out to talk to the system companies is of high importance. Person 3: John, question about the FTC. You -- You're wording like there was it a -- may appeal a decision of the ALJ [Administrative Law Judge]? I'm just trying to understand how that process works. I thought they could unilaterally overrule the ALJ [Administrative Law Judge]. Is it actually an appeal process? John Danforth: Yes, it's an appeal process. The statute gives the full commission -- so that the complaint counsel can take the case -- they lost it at the ALJ [Administrative Law Judge], but now they're gonna appeal it back to the full commission, which they did right after that verdict. And then the full commission can rule. Now the full commission, however, has, in the past, issued rulings which say, well even though we get to act as fact finder, which is kind of like what you're saying too -- you get to be a blank slate. The fact of the matter is that we should look in the past to constrain that. So, even their own rulings say we have to pay attention to credibility determinations where, for example, we conclude that someone is telling the truth now in a way which is consistent with the contemporaneous documents. And there's pretty good FTC authority even in their own case law which says where the contemporaneous documents line up with the trial judge, the ALJ's [Administrative Law Judge's], direct observations of credibility, then those credibility determinations need to be given significant weight even by the commission. And the news of today is the Solicitor General has come in and said, based on Supreme Court precedent, well wait a second. Not only does the commission have to give deference, but the reviewing court down the road is gonna look at the whole totality of the record, including all of those ALJ [Administrative Law Judge] findings. Person 3: It's not a clean slate. So, the full -- so it is being appealed to the full commission, and we expect the full commission to rule -- to rule. They will rule. John Danforth: We expect so, shortly. Person 3: So -- but if they give deference -- I mean -- at all to that 300+ page document. John Danforth: 334. Person 3: 334 pages. I mean -- Do you -- do you have a way that they could rule against Rambus given the strength of that document? John Danforth: My view is that where it matters to us, which is DDR and more advanced memories -- right? -- that there are multiple reasons why the ALJ ruled in our favor. There were multiple reasons which were based on credibility determinations and contemporaneous documents that supported us, and that all of those reasons are even stronger for DDR where no duty existed than for the earlier -- so that's where the money is, and that's where I have the most confidence. Person 3: OK. Thank you. Person 4: Harold, you alluded to engagement with the graphics memory companies, and is that just regarding systems licenses or have they been put on notice for producing -- for GDDR itself? Harold Hughes: Setting the legal issues aside -- John can talk about that -- obviously, there's a reason for us to want to embed the features that we've created for the PlayStation 3 into a PC-based graphic part that then works with a graphics controller produced by the incumbents. So, that would be the primary business reason for talking to 'em. Person 4: And, with respect -- maybe John -- to GDDR who's been put on notice for GDR -- GDDR infringement? John Danforth: We pretty carefully follow the process of not disclosing our negotiations with potential licensees, and I think that's kinda consistent with it, but if you look at -- let's see -- you may -- you may want to take a look at the Samsung cases for an answer to that question, for a partial answer to that question. Person 4: On -- on a different subject, Laura, I think you were quoted in trade press about some efforts in the flash area and flash controller area. Could you just expand upon those -- what your ideas are there? Laura Stark: Actually, I think it was Sharon -- Person 4: Oh, sorry. Laura Stark: -- who was quoted, but I can certainly respond to that. So, you know, we're looking at it as an initial -- we have a deep investment in core technology development, and we're looking at not only the future of high performance DRAM but also how to impact systems and semiconductors with multiple different types of technologies. Flash is one area where we have invested some research and development areas to see just -- you know -- what the future of flash -- we think it will look like, what it could look like with a little bit of innovation and invention, and that -- that speaks to Sharon's comments that was brought out in that article. Person 5: John, I have a couple of questions on the litigation side. Can you give me just a quick update where the Samsung case stands right now? Because, I guess we didn't see anything on the slide, and, second, should we expect more documents being released in the price fixing case or pretty much now we're just -- you know -- sifting through it, or -- or where -- where's it stand? John Danforth: OK. So, let me answer the last part of that first, and if I forget to answer the first part of it, you just tell me. There are really more documents that'll be available. We plan to put the 11 on our web site so the public has access to those as the press has. Expect to do that tomorrow morning in all likelihood. Secondly, we are getting more documents produced to us. We have no formal plan announced -- I can recall -- no formal Samsung production to us yet, and we know that they have a million documents they produced to the DOJ that they are stalling producing -- producing to us, and -- and they've been ordered to produce them, and so and Micron and Hynix also have documents that they owe us that they've been ordered to produce that hasn't yet gotten to us, so that's -- that's second part of your question. The first part of your question was about Samsung cases. So, all that remains of the Samsung case in Virginia is a very very small part which we don't think the court has jurisdiction to decide, which is in that case, we sued -- we countersued Samsung in that case -- was that an exceptional case because we sued Samsung on the same 4 patents that had been involved in the Hynix case, and that same judge had drawn us out on those 4 patents before? And that's their theory. In other words they say, "This is an exceptional case. We should get attorneys' fees because you, Rambus, choose to ... on these 4 patents." And there's a very complicated story, but the bottom line of it is, we don't think the court has jurisdiction anymore, if they ever did, to decide that issue. We also don't think the court in Virginia has any kind of record because it looked at the record or borrowed the record from other cases, the Hynix case and earlier Infineon case, but it has NO record in the Samsung case to make any decisions whatsoever. So, we don't think that's gonna go anywhere, and we also think that they will have no collateral estoppel effect even if that court issues a ruling. I do think that court is still working on something in that exceptional case area. That's the exceptional case part. The other parts are divided. The patent issues for Samsung now all reside in Northeastern California, and they've been assigned as related cases to Judge Whyte, who's the same judge who just did the Hynix trial. That's the patent cases. The -- There's one other Samsung case where they accuse us of luring away one of their lawyers to work for us at a time he was still working for us and that case is in Delaware Chancery court, and I think that a lot of the evidence about that case was aired in the Hynix patent case, believe it or not, because these lawyers all work together, and the lawyer took the stand and he was asked these questions, and I frankly think the evidence that came out in the Hynix case should blow away that Delaware Chancery court issue, but it's still there and it'll be tried or there'll be summary judgment motions. Did I get 'em all? OK. Michael Cohen: OK. Quick legal question for John, and then I have a question for Harold. John, in litigation, can damages be awarded for an infringing product prior to the date of notification of infringement? Is -- a potential? John Danforth: I -- I'm going to -- I'm going to say that my understanding, and I'm looking at a better patent lawyer than me, but my understanding is, yes? No. My answer is, "No." OK. [Laughter. Someone says something indiscernible.] John Danforth: What's important in the DRAM cases and in a lot of the controller cases is these guys have all been on notice since 2000 -- a lot of the major controller cases. In the Hynix case in particular, we now have not only a notice but adjudicated to have no validity defense, no infringement defense -- right? -- and, so, my view is that Hynix is now risking -- facing the risk of treble damages going forward -- right? -- and it could treble the royalty rate that the jury found, which would be huge. Michael Cohen: So, under the hypothetical litigation -- whatever expands to systems level companies -- basically, when we're trying to figure out what damages should be, it would just be to the date of notification. John Danforth: I ... the date of notification, and -- and the better patent lawyer in this room is telling me that I'm right about that. Michael Cohen: OK. My next question is for Harold. The company seems to be in really the best legal position that it's ever been in. When there was, you know, the bullet points out of S -- within Siemens, now Infineon, make-it-public-domain joint Sync DRAM -- that was the early 1990s, you know. The industry has basically been trying to rip off the IP [intellectual property] of this company for many years, and I realize there's a precarious position in terms of the litigants are also your potential customers. What do you think is the proper, really, stance to take? Do you think it's the stance of escalating force or ... ? Harold Hughes: I -- I -- I do believe that I addressed it in my presentation. We have no intention of stopping the litigation train that John is ably driving, but also, it's in recognition of the point you pointed out. We would like to have someone making our point -- our product so as to allow us to license more controller companies. We present ourselves on the technology side to the engineers of a Hynix, saying, "We can help you make higher performance, higher margin products. We believe that the value of that is amount greater than what you would pay us in the license. Why do I continue litigating? By the way, you're not doing very well." So, that's basically how we would approach a relationship with Hynix. But, quite frankly, I don't care which one wins, I just want to win. And the third part, just to finish my -- my thought, as we sign controller companies, enlisting them to incorporate the features that we think are fundamental to their success, we then have the ability also to be more -- to -- to be more effective in our negotiations with unlicensed DRAM companies. For obvious reasons, we're gonna work with licensed DRAM companies. We've -- You've seen the impact that we've had working with Elpida on their ability to make a truly perf -- a truly remarkable product, the XDR running at 4 Gigahertz [4 billion times per second]. Other people should start take notice of that. I suspect we'll do the same with Infineon. So, Hynix has got many things that they have to consider to come to, I think, the right conclusion, hopefully soon. Satish Rishi: He will take one last question, please. Person 6: So that last comment. Do you think Elpida alone has sufficient ability or capacity or intent to supply enough XDR to meet the demands from PS3 and other applications? Harold Hughes: Well, as you know Sony -- Samsung is also a manufacturer. So, I can't answer the question. I think it's somewhat hypothetical, because rarely do you -- does anyone allow themselves to be sole-sourced of any semiconductor supplier -- possible, but ... because someone failed to make something. Person 6: Phrased differently. If Samsung relations were to sour to a point where there was minimal interaction between the two companies, do you think they would still be able to make good XDR or would -- would they be severely hindered in that aspect ...? Harold Hughes: Let me ask Laura. She knows the capacity of Elpida better than I. Laura Stark: Yeah. I think Elpida is gonna be a sole source supplier, but as Harold said, you know, Samsung is very pragmatic business people and we anticipate that their support for products which, you know, are -- are profitable for them will continue. Person 6: The -- the final part of that is: Did you also say that you thought Infineon did start making XDR? Harold Hughes: No, I'm simply saying that as a licensee we have the ability to work with Infineon to move them to more of our proprietary or leadership products so as to allow us to induce more controller companies. So, I think we've developed a pretty good interaction here. How exactly we'll work out, I can't tell ya. Whether the chicken or the egg wins, I can't tell you. We just hope to have a good meal, as it were. Satish Rishi: Well, thank you. Thank you, all of you who are present here physically and for everybody in the webcast. Thank you for your interest in Rambus.