Rambus Inc (RMBS) 2004 Q2 法說會逐字稿

Good afternoon, my name is Amanda and I will be your conference facilitator. At this time, I would like to welcome everyone to the Rambus second-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number two. Thank you. Mr. Eulau, you may begin your conference.

Thank you, operator, and welcome to our conference call. We are excited and pleased to provide you with information on our results for the second quarter and the Cadence relationship that we just announced. My name's Bob Eulau and I'm Rambus' Chief Financial Officer. With me today are Geoff Tate, our CEO and John Danforth, our General Counsel. In the first part of the call, Jeff will discuss our business results for the quarter, and then I'll provide a summary and analysis of the company's recent financial results and an update on the litigation timeline. Afterwards, Geoff, John, and I will be available for your questions. The press release for the results discussed here today has been filed with the SEC on Form 8-K. If you want a copy of the release, please visit our Website at www.rambus.com on the Investor Relations page under financial releases.

A replay of this conference call will be available for the next week at 800-642-1687. You can hear the replay by dialing the toll-free number and then entering ID number 8505606 when you hear the prompt. In addition, we are simultaneously Webcasting this call, and it can be accessed on our Website beginning at 5:00 p.m. Pacific time today. Before we begin, I need to advise you that the discussion today will contain forward-looking statements regarding our financial prospects, pending litigation, and demand for our products, among other things. These statements are subject to risks and uncertainties which are more fully described in the press release and other documents that we file with the SEC, including our 8Ks, 10Qs, and 10Ks, and these statements may differ materially from our actual results. So now, Geoff will make some comments on the business.

Thanks, Bob and good afternoon, everyone. We've got a lot to talk about today. I'd like to start my comments with an announcement we just made that comes out of our Logic Interface Division. Rambus and Cadence Design Systems today announced agreements to offer comprehensive solutions for the serial interface market. First, Rambus will acquire serial intellectual property from Cadence that we will add to our RaSer product line of serial linked cells. In total, we are acquiring 11 cells and 9 patents and patent applications. Please take a look at the RaSer family product pages on our Website to see the complete and expanded offering of cells we now have. This agreement calls for Rambus to pay Cadence $11 million this quarter and another $5 million subject to Cadence meeting certain milestones. Second, Cadence will exclusively resell Rambus foundry serial link cells. Cadence becomes our exclusive EDA industry reseller of Rambus Foundry serial linked cells. Foundries include TSMC, UMC, and other similar companies whose wafer fabs manufacture for many semiconductor customers. Third, Cadence has the option to license our portfolio of serial link sells for use by Cadence Engineering Services to deliver customized design solutions on an as-needed basis to their customers. These are unique designs for a single customer generally in a non-foundry process.

As a result of these agreements, Rambus will have a broader portfolio of proven foundry-based high-speed I/O cells, and a great opportunity to reach more markets and applications with our proven serial link technology through Cadence's world-class sales channels. Our foundry cell portfolio now includes modular switch backplanes, gigabit and 10 gigabit Ethernet, PCI Express, our newly announced Turbo PCI Express solution, XAUI, double XAUI, fibre channel, Sonette, and other 5 to10 gigabit per second serial interfaces. We see serial interfaces being designed into a wide range of high-volume applications. By working together with Cadence, we believe we can accelerate the trend towards outsource in serial link designs by chip insistence companies. Because Cadence is in their quiet period, we understand they may not be commenting on these agreements until after their earnings release sometime next week.

Continuing on with our logic interface business, we're also seeing momentum building in the area of PCI Express. With Intel saying that PCI Express is slated to become the pervasive bus architecture in the personal computing space. With this new interface protocol, PC designers are now faced with moving away from the existing PCI bus to the much faster 2.5 gigahertz PCI Express. Up to 40 times faster in some cases. This new high-speed interface is expected to make its way into the market later this year and into early 2005. We've announced several customers already for our PCI Express, including S3 Graphics, Toshiba, ALI, PLX, and Star GEM and we have many more deals in progress. As an example, ALI used our PCI Express PHY and became the first chipset company to publicly show a working PCI Express chipset in February earlier this year.

Additionally, we've been working with a number of logic layer partners to ensure that our physical layer interface products work seamlessly with the rest of the required system blocks. We have announced interoperability testing with logic layer partners Zucan in Japan, PLD applications in Europe and Mentor Graphics in the U.S. We are pleased to announce and report that our combined platforms have passed the rigorous PCI Express electrical compliance tests for jitter. As PCI Express continues to show momentum in the marketplace, we will continue to make our PHYs available to those who need them to transition to this high-speed serial link technology. In this and other areas related to high-speed logic interfaces, we have received and continue to apply for patent protection of our innovations. Continuing our leadership in serial interfaces, we recently announced our Turbo PCI Express platform, for those customers who want higher performance, 6 to 8 -- sorry, 5 to 6 gigabit per second operations, with backwards compatibility to 2.5 gigabit per second PCI Express.

Now moving on to our memory interface business. We made a significant announcement during the second quarter that I am personally pleased about. On May 10, we announced that we are now providing DDR memory controller interfaces to the marketplace. This launch was supported by a marketing campaign which includes print advertising and trade publications, including EE Times and EDN magazines and new on-line tool we developed to help design engineers determine the best solution they need in order to solve their challenging memory interface problems. This launch is significant because now we can provide memory interfaces to meet most all-market needs. Whether the need is for high-speed interface technology like our RDRAM memory interface, ultra high-speed needs like our XDR memory interface, or for those companies who need to attach to more commodity-type DRAMs through DDR. We now have a memory interface technology solution to meet almost any market demand. With the pending availability of DDR 2 memory, this allows us to help our customers provide the necessary bandwidth for multiple applications. Our customers were asking for help with their DDR interfaces, especially as the performance has been increasing, and this move into the DDR controller interface market expands our potential to pursue market opportunities that were not previously available to us.

Continuing on with our memory interface business, we announced a few weeks back that Elpida has extended and expanded their licensing agreement with us through March of 2008. This patent licensing agreement extends to a number of new memory types, including GDDR, DDR2, and FBDIMM, among others. This represents our first DDR2 DRAM and FBDIMM licensing agreement with a DRAM company. Now I'd like to spend just a few minutes to discuss marketing activities of the past quarter. I just returned from Tokyo, where we hosted our fifth annual Rambus developers' forum in Japan. Over 850 design engineers from Tokyo area and all of Japan attended to hear tutorials and technical presentations by engineers from Rambus and also from Sony, Matsushita, Toshiba, Adulent, and others about designing chips and systems using Rambus interface technologies. The presentations covered XDR, DDR, PCI Express and backplane serial links. The Rambus developer forum in Japan continues to be a very successful event for us and we look forward to hosting the design community in Taiwan, for a similar event in early November. Also as part of our global effort to support design engineers implementing high-speed interfaces in our -- their chip and system designs, we are continuing our regional design seminar series throughout the U.S. and Canada. Since the beginning of 2004, we have hosted over 400 attendees at these Rambus design seminars. During Q3, we will be extending the reach of our design seminars into China and Europe with marketing partners such Adulent and Mentor Graphics.

Finally, I'd like to close with a few comments about what we're hearing from our customers. We are hearing more and more that as on chip speeds climb ever faster, that designing the interfaces between the chips becomes much more difficult. There are numerous physical secondary effects that designers have only heard about briefly in their engineering courses. Things like skin effect, dielectric loss and other secondary effects really start showing up as problems as speeds climb over 3 gigahertz. Our engineers are familiar with these problems and since the interface is in many cases mission critical to chip design, we'll continue to focus our attention engineering resources to find new ways to address these effects and help the design community solve their most-challenging interface problems and get their important high-volume products to market on time. This concludes my prepared remarks and I'll turn it back to Bob.

All right. Thanks, Geoff. We are very pleased with the financial results this quarter because we achieved record revenue. Let me share some of the highlights with you. For the second quarter of 2004, our revenue was up 20% in comparison to the second quarter of 2003. Operating income almost doubled, up 99% in comparison to the second quarter last year and net income increased 84% over the second quarter of last year. Total costs and expenses were up just 2% over the most-recent quarter and the second quarter of 2003 respectively. Cash flow generated from operating activities remained solid at $6 million, and during the quarter we repurchased about 842,000 shares of our common stock as part of our ongoing long-term program. I'll discuss the balance sheet further in a few minutes.

First, I'll give you some additional information on revenue. Total revenue for the quarter was $35 million, up 20% over the second quarter of last year and up 7% on a sequential basis. Total royalties for the quarter were $29.6 million, up 16% over the second quarter of last year and up 8% sequentially. SDRAM and DDR royalties from memory devices and controllers were up 39% over the second quarter of last year and up 12% sequentially. If you exclude the Intel crop license agreement, the revenue from SDRAM and DDR, memory and controller royalties comprised 46% of our revenue for the second quarter. Overall, RDRAM interface royalties were down 10% from the second quarter of last year, but up 16% from the most-recent quarter. RDRAM royalties now represent less than 10% of our total revenue.

Moving on to contract revenues. These revenues are a good indicator of the adoption of our newer technologies. Contract revenues were $5.3 million this quarter, up 43% over the second quarter of last year and up 5% from last quarter. The increase in contract revenues in the second quarter of 2004 over the second quarter last year reflects the revenues that we're recognizing for XDR DRAM, Redwood and RaSer contracts. The increase in contract revenue in the second quarter of 2004 over the most-recent quarter reflects the revenues we're recognizing for RaSer serial links. Total costs and expenses for the second quarter were $24.4 million, this was up half a million dollars or 2% from the previous quarter and up 2% from the second quarter a year ago. Cost of litigation was up $600,000 or 14% from last quarter at $4.7 million and down 1.6 million when compared to the second quarter last year. Operating expenses, excluding costs of litigation, were flat when compared to last quarter. They were up 12% when compared to the second quarter of 2003. With the increase largely attributable to our planned ramp up in engineering for XDR DRAM, Redwood and RaSer interfaces.

Net income for the second quarter was $8.3 million, or 24% of revenues compared to 8.3 million in the previous quarter and 4.5 million in the second quarter last year. Net income benefited from the sale of the remaining 15% of our holdings in the stock of Tessera Technologies, and a gain on the proceeds from the letter of credit associated with our prior building that we had subleased. The benefit of these two items was about $600,000 after tax. Operating income was also strong, with an increase of 99% over the second quarter of last year. This continued profitability led to good cash flow for the quarter. Our cash, cash equivalents, short and long-term marketable securities during the second quarter were $232 million versus 239 million last quarter and 189 million as of December 2003. While this number is down $8 million from last quarter, we invested about $14 million in repurchasing shares of our common stock. The share repurchase program is an ongoing long-term program. Our goal is to at least partially offset the dilution from our employee stock-option program. Repurchases for the second quarter totalled 842,000 shares, our average purchase price for the quarter was $16.65. And we have a remaining authorization from the board to repurchase up to an additional 3 million shares over an undefined period of time. Volumes of purchases will vary by quarter based on the opportunity. And at the end of this quarter, we had average basic shares outstanding of 102 million and dilutive shares outstanding of 110 million.

Now I will give you some thoughts on what to expect in the third quarter of 2004. This guidance obviously has a lot of uncertainty associated with it, but it reflects our reasonable best guess at this point in time and our actual results could differ materially from what I am about to review. We estimate revenues to be in the range of between 36 and $39 million. And that our operating costs and expenses will be in the range of between 26 and 30 million dollars. Overall, spending is likely to be up primarily because of litigation spending, increased operational spending, and amortization of the intangible assets that we just purchased from Cadence. Litigation spending is always the most difficult to predict because we do not control the timelines and requests from the courts, nor do we control the actions that our adversaries may take which may cause us to incur additional expenses in any particular quarter. Evidence that is produced in hearings can also cause us to change our plans. Based upon this, we estimate that our litigation expenses will be in the range of between 4 and $6 million, but this range is very dependent on the ongoing activity. We are estimating net interest and other income to be between 1 and $1.5 million and, finally, we are estimating a tax rate of 35% for 2004. On the subject of litigation, I will update you on results since the last earnings call and review the major items in our litigation timeline.

Let me start with an update in the United States. With respect to the complaint from the Federal Trade Commission, we are in the midst of working on the appeals taken from the administrative law judges decision last February, which was overwhelmingly in our favor. The FTC complaint council has submitted their opening and reply briefs, the main briefing should be completed tomorrow when our reply brief is due on the one aspect of the case we appealed, which has to do with the legal argument that even though we prevailed before the ALJ, the FTC complaint council ought to have been held to a higher standard of proof. Oral argument is scheduled before the FTC commissioners on September 21st of 2004. Moving to the private litigation. The Infineon case is now back in Virginia on remand following the January 2003 decision of the federal circuit court of appeals favorable to Rambus. A retrial of certain claims and counterclaims in that case is currently scheduled to begin on October 5, 2004. And the trial is expected to last for two to three weeks.

The trial currently includes the Rambus assertion that Infineon's SDRAM and DDR SDRAM products infringe three claims in two of Rambus's patents. Infineon has countered with multiple defenses and counterclaims that remain in the case at the present time that among other things allege that Rambus violated the antitrust laws and engaged in unfair competition under section 17200 of the California statute. To date, the district court has ruled on some of these motions and the court's formal orders are posted on our website. A major concern we have had with these motions has been the extent to which the trial court on remand will attempt to retry issues related to JEDEC, or that were otherwise foreclosed by prior proceedings. Indications so far are that the retrial will include such issues, although we continue to maintain that these issues are outside the scope of what is left for the district Court to decide. We believe there remain avenues available to us before the retrial to seek to narrow the retrial to what we believe is its proper scope. If in any event these avenues are not fruitful, we believe Rambus will be left with strong arguments on appeal concerning Infineon's JEDEC-related counterclaims and defenses.

With respect to two recent Virginia orders, both related to the piercing of Rambus's attorney/client privileges, we have already filed challenges with the Federal Circuit. We did this on June 21, through what is called a petition for writ of mandamus. Infineon opposed Rambus's mandamus petition on July 7, although yesterday they were given leave to take more time and file another opposition on July 21. Rambus believes a decision is likely by late August. We do not believe our writ should interfere with the current October trial schedule. A second pending U.S. patent case, the litigation against Hynix is now set for trial on January 24th of 2005. In that case, the trial court in California held important hearings on March 23, and 24, covering proposed claim constructions. Those hearings also included both parties' summary judgment arguments, seeking decisions as a matter of law as to whether a subset of Rambus's patent claims are valid and infringed. The judge has not yet issued his decisions. Discovery remains ongoing in the Hynix case. In the patent litigation against Micron, there is nothing currently on the court's calendar, however, the Court recently initiated renewed activity in the case ordering that there be a joint status report submitted on July 20.

Moving on to Europe. On May 13, the Technical Board of Appeals of the European Patent Office issued its written decision with the reasons for its February revocation of Rambus's European patent. That patent related to an aspect of Rambus's patented technology called In Access Time Register. The EPR ruling does not apply to Rambus's other issued or pending U.S. patents. On June 18, Rambus dismissed the revoked patent from its infringement case against Infineon and Micron with their consent and added claims directed to their DDR products. Further proceedings in Manheim on this matter are currently stayed pending a final decision on the utility model appeal scheduled to begin on July 19. In other litigation, the independent purchaser class-action lawsuit filed by Holiday Matinee against Rambus was argued before a California State appellate court on May 11, and on May 27, the appellate court affirmed the district court's decision dismissing the case with prejudice.

On May 5, we filed an antitrust suit against Siemens, Infineon, Hynix, Micron and a number of independent defendants alleging, among other claims, violations of a number of antitrust and unfair competition laws. The case arises from what we believe was a concerted effort to reduce consumer choice and drive Rambus's RDRAM memory technology from the mainstream memory market. The case is just beginning, but all the parties have, to our understanding, now been served and their respective pleadings are due next week. Discovery is commencing. We have estimated that the possible damages to Rambus as in excess of $1 billion. While the litigation is very important, we are really pleased with our record revenue this quarter, and we're excited to work towards setting a new record next quarter. At this point, we're going to take questions and we're also going to respond to some questions that we've gotten in over the internet from some of our shareholders but I think we'll start with some of the questions from -- from folks out on the phone lines. Operator.

At this time, I would like to remind everyone. If you would like to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q & A roster. Your first question is from the line of Mike Crawford with B. Reilly and Co.

The first question relates to the Cadence agreement. How does that affect the drop-in interface cells that you already have at TSM and UMC and other places?

The drop in cells as you call them at TSMC and UMC for serial interfaces, are part of this agreement and Cadence is an authorized reseller of those cells to their customers, but only for the serial link cells.

Okay. And are customers at the foundries using these products yet?

Yes. You -- if you mean by these products, those foundry cells that we have, we have customers like we mentioned, ALI that's used our PCI Express cell that's available on the foundry in order to build and demonstrate a chipset earlier this year and we have other customers doing designs with cells today as well.

Okay. So, then, that -- a follow-up question on that is: Have you recognized any royalty revenue from this yet?

I'll respond, Mike, this is Bob. At this point, we haven't recognized royalties yet on serial links but we're still hopeful that we'll be able to recognize some royalties later this year.

Okay. Great. And then, turning to some of the litigation-related matters. How significant is the DOJ complaint in relation to your antitrust complaint, particularly, this matter before the ninth circuit regarding this former Samsung manager, Devin Cole who refused to turn over some range packed pricing documents.

This is John Danforth, hi. There's obviously overlap between some of the allegations that are in our antitrust complaint that's on file and what we understand to be the focus of the Department of Justice investigation. The interesting thing about this contempt proceeding, which as you probably know is -- is under seal and so all we have about it are press reports. But the interesting thing about it is that the -- is that the employee in question left Samsung before the period of time that -- that had been the DOJ's focus. And so he was an employee during the period of time which is, frankly, of more interest to us, suggesting there may be more overlap here than we had previously thought.

Okay. Great. And then regarding these -- the motions out of Judge Payne, what -- why would you not be asking for this judge's removal in what looks like -- at least an appearance of bias? Thank you.

Let me -- let me take that question kind of in a broader sense first and then answer the narrow question you've posed. The broader question really, which goes to the appearance of bias or fairness in the District Court is something I want to kind of address in the following way -- you know, I've been a lawyer for over 20 years, we are trained to rely on the integrity of the system as a whole. And for really our economy to work, we have to have that kind of faith in the system. It is not the norm to have the kind of concerns that you expressed about a District Court. I also don't think it is productive -- and I want to say this really to our shareholders in just a couple of sentences. I don't think it's productive to attack the District Court judge with some of the kind of language and claims that -- that I have seen. I would like to distance us from that. I don't think it's appropriate. I think it's counterproductive. Now, with respect to why didn't we ask for the remedy you’ve asked for, which is removal of the judge, you know, we have some specific issues that we've raised, we would like those to be addressed by the Court of Appeals. We've raised other broader concerns and the Court of Appeals may or may not decide to follow up on those with respect to this writ, but my approach to this litigation is let's take it one step at a time and let's continue to assume that the system will, as a whole, do the right thing.

Okay. Thank you.

Your next question is from the line of Daniel Amir with WR Hambrecht.

Yeah, hi, thanks. Great quarter, guys. I have a couple questions. The first thing is, where does the Company on the issue at DDR 2, you have the announcement of Elpida that you did this quarter -- kind of walk us through with what the timeline is or where you stand maybe in discussions with other of the DRAM manufacturers. In addition, another question is, a bit about the -- the momentum you're seeing in the Redwood family. I think you talked a bit about the -- the PCI stuff and I wanted to just get a bit more idea -- excuse me, on the Intel's front bus size and I wanted to see what you're thinking the momentum could be for the Redwood family this year or next year, thanks.

On -- on DDR2, obviously we believe that that utilizes our patents as the DDR but we're not really in a position to comment on details of negotiations. On Redwood we've got a fine product, which has some customer interest, but frankly, we do see much more customer interest on serial link technology. And to us it really doesn't matter which of the two the customer picks. So there definitely seems to be a stronger swell towards serial links and although people are still using parallel buses, the percentage is seeming to be shifting dramatically towards serial links as the preferred logic interface.

Okay. Thanks. Now, regarding the Cadence, I guess, you know, we talked a little about the issues of our recognizing royalty revenues, so I just wanted to reiterate, I think, Bob what you said. Basically you're expecting them by the year-end you should see royalty revenues coming from, you know, basically related to this agreement, is that how you read it.

I think, Daniel, it's Bob. My comment was really with respect to RaSer overall.

Okay, okay.

That we expect to have royalties hopefully by the end of the year and with Cadence they are -- they are now unable to resell all of our foundry-based serial-linked cells.

Okay. Thanks.

Thank you.

Again if you would like to ask a question, press star one on your telephone keypad. Your next question is from the line of Michael Cohen with Pacific American Securities.

Congratulations on the stellar financial results.

Thanks, Mike.

The question I have is for Geoff on the exclusivity of the Cadence agreement that was just announced.

Yes.

Is my understanding correct in that they are the only exclusive EDA provider but if somebody still wanted to license serial-link direct from you that they could go direct from you, or do they have to -- is Cadence basically the exclusive channel.

That's a good question. Cadence is not our exclusive channel. We continue to have our own sales force, in some parts of the world we have representatives as well. But the Cadence sales force is much much, much, much larger than ours. So -- but we're not exclusively committed to only sell through Cadence.

The exclusivity is -- they are the only EDA provider that can resell you and also there's exclusivity going the other way where they cannot represent anybody on the serial-link cells?

Correct. With respect to what we call foundry serial link cells, so, for example, a PC -- if Cadence has a customer which wishes to purchase a PCI Express cell for one of the UMC or TSMC processes, Cadence' exclusivity commitment is that they will only sell those available from us.

So people can just drop in your design through their software.

Right. And we have purchased their foundry cells that they had available, which expands our total library. So we think it's a good win-win. But that -- that exclusivity is on the foundry side. They have a separate operation, the design team, which does custom designs into customer-specific processes, non-foundry processes, and they will maintain that team and they will continue to do designs on their own but they have the option to purchase our databases for our cells that they can work from to accelerate those designs as well.

So in the customer arena they could use your serial link or someone else's, just as you could custom lease -- have other EDA providers.

On the customer side, they could use our serial links or more likely they would just use their own engineering resources. So they have an option. They can -- they can do what they have been doing or they have the option now to have us do all or part of it for them.

Okay. And the other question I have is probably for John Danforth, litigation related. Who would have expected that Judge White would have ruled already on the summary judgment for or against infringement? And I'm a little surprised that it's taken this long and I was wondering if you have any insight whatsoever in terms of what the timing or when maybe we could expect the timing to be.

There's not much I can -- hi, it's John. There's not much I can really share with you. Judge White is known -- you know, I practiced in the Northern District of California and did for many years and he's known to be a very thorough, careful jurist which in the long run is a great thing and of course we're all sitting around waiting for rulings from the March hearings but I can't give you much guidance as to when that'll happen, sorry.

Okay. Great. Thank you very much.

Thank you.

Your next question is from the line of Erach Desai with American Technology Research.

Hi, good afternoon, guys. The first question is on the Cadence deal, what -- is this a 2Q or a 3Q deal in terms of the first payment to Cadence.

Hi, Eric, it's Bob. We will make the initial payment to Cadence later this month, so it's a second -- I'm sorry, it's a third-quarter deal.

Great. And then on the royalty side this quarter it seems like sequentially your RDRAM royalties picked up seasonally, perhaps related to some gains, but your overall SDRAM and SDDR royalties also picked up. Could you -- and obviously from what you're guiding you're suggesting that that continues to grow, is this related to DRAM pricing?

Well, we had limited information on the reports that come in to us and we go through our own forecasting process looking at both the contract revenues and the royalties for the coming quarter and I don't know if there's a lot of extra insight I can give you, we -- you know, certainly are encouraged by the activity in the semiconductor industry right now and think that we'll benefit from -- benefit from that.

I think also there is some products which were designed in -- some time ago, which have now started to grow in sales, things like digital light projectors and digital TVs. That's part of it.

Okay. So I'm just curious. Do you guys -- since you don't break it out, do you -- do you internally break it out at all in terms of saying, okay, what's coming from sort of historical customers versus newer licensees?

Yeah. We have a fairly thorough process, it doesn't mean that we're always accurate but we make our best estimates and that's the basis for the guidance that we give you.

Okay. So let me ask it in another way. Going forward, the guidance that -- you are giving sequential revenue guidance that's much better than you've given in a couple of quarters and this is based on what you see in the pipeline for royalties, essentially from deals that have been licensed in the last year and a half, two years, is that fair?

Yeah. That's fair. And I also think you'll see an uptick in contract revenue next quarter that we're anticipating.

I -- I'd add a caution, though, that having been -- this is Geoff. Having been a long time ago now, in the chip business, you get much more insight because in the chip business people need you to build and deliver the chips. In our business we do the delivery work upfront and in the initial production ramp, and so, you know, we don't get that much day-to-day tactical insight, although we continue to have contacts with the customers, we're not really plugged into their week by week, month-by-month order flows. So it's just an estimate.

Okay. Thanks.

Thank you.

Thanks, Eric.

Your next question is from the line of Michael Cohen with Pacific American Securities.

Yeah, I have another follow-up question. The Inquirer recently put out a story that said that Sony's likely to come out with their Play Station III in I guess the May '05 time frame and my understanding is that Sony put out something that said they were going to debut it at E3 in '05 but that it would actually be '06 before it was available for the market, and so I was wondering if you could provide any clarification on the time frame of the Play Station III and the cell processor, would that be basically around May '06 time frame?

Well, I think the answer is no, we can't provide any clarification. You know, it's up to Sony to announce what they choose to announce and what they said publicly I think was limited to plans for E3 next spring and actually I just know that from what I read in the papers myself. And we can't say anything beyond that.

Got it. Okay. Thank you.

Thank you.

Okay. So at this point what I'd like to do is respond to a few questions that came in from our shareholders through our Website and I'll go ahead and respond to the first one. And what we did is we aggregated the questions, some of them had very common themes and so, the first one was as follows: It says in the past few quarters there seemed to be a lot of Rambus executive management stock sales occurring, are these sales an indication of uncertainty among the management team? So first of all, in my opinion this is by no means an indication of uncertainty from the executive team, we're all very motivated to work towards the success of the Company. And I think what you're seeing is really, primarily plans are put in place a while ago and it was an attempt to diversify individual holdings. The -- and all of the sales have been part of a long-term diversification strategy. The second thing you see sometimes is because we have a limited trading window, you'll see the opportunity is relatively narrow when insiders can actually sell. And so you'll tend to see a clumping of sales in those windows. And we saw that happen in the first quarter. And that was after a period of probably two and a half years where there were limited or no sales by insiders. And that was -- that was obviously a period of time where our stock had gone up about a thousand percent. And then finally, I think I want to remind our shareholders that our insiders still hold a fairly significant percentage of the Company, at least relative to most technology companies. The last time we reported that number it was around 11%. So there's still very much a vested interest by insiders to see the Company's stock price do well. So that's -- so the next question I'm going to ask John to respond to. And it is: Does Rambus have the ability to seek further preemptive writs for rulings made in Virginia prior to trial?

So as -- as Bob said in his formal comments, we have a writ on file now, and a response has been filed, there will be another response filed in a couple of weeks, we expect. With respect to the ability to seek further writs, having one on file doesn't obviously preclude a second, but, you know, I'd rather just give a general response to this question, which is of course we're always evaluating our litigation position and our options at various points in time. In terms of what we do and why we do it, we'd really prefer to have most of our talking being done by the legal papers that we file and we try to do a good job of posting those for you on our Website.

Okay. So John here's another question for you. It says: Do you have patents that read on the PCI Express standard? And, if so, what are you planning on doing with these patents and will you enforce them?

We -- we believe we do have patents that read on devices conforming to the PCI Express standard. Beyond that, we prefer not to comment further at this time about our patent position in this area.

Okay. And then another question. Will manufacturers to PCI Express chips be required to license your PCI Express PHY?

Well, at this point our response is not necessarily. The PCI Express specifications outlines certain requirements that must be met to meet the -- to make our device PCI Express compliant but the specification doesn't exact -- doesn't outline the exact implementation that needs to be used so you don't necessarily need to use our PHY.

Okay. And then I've got a question for Geoff. What -- what systems will Sony use XDR and Redwood in and when will those hit the market.

Yeah, thanks, Bob. I know there's a lot of interest in this, but to date Sony's statement is the same publicly as what it was when we announced January last year, which is their intention is to use these technologies in advanced broadband, consumer entertainment products. And I don't believe that they've provided any further details.

Okay. Well, great. Well, those were some of the -- the common questions we got. I'd like to thank everybody who submitted questions. We'll continue to try to respond to a set of those each quarter. And thanks everybody for listening in. Good-bye.

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