Rambus Inc (RMBS) 2005 Q2 法說會逐字稿

Good day everyone and welcome to this Rambus second quarter 2005 conference call. Today's call is being recorded. At this time I would like to turn the call over to Mr. Bob Eulau, please go ahead sir.

Thank you operator and welcome everyone to our conference call. We are pleased to provide you with information on our results for the second quarter that we just announced. My name is Bob Eulau and I'm Rambus' Chief Financial Officer. With me today is Harold Hughes, our CEO and Bob Kramer a member of our legal team. In the first part of the call Harold will discuss our business and second quarter accomplishments. Then I'll provide a summary and analysis of the Company's recent financial results. Then Bob will provide a brief update on litigation. Afterward Harold, Bob 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 888-203-1112. You can hear the replay by dialing the toll free number, then entering ID number 5462558 when you hear the prompt. In addition, we are simultaneously Webcasting this call and a replay can be accessed on our Website beginning today at 5:00 Pacific Time.

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 other documents - - in documents that we filed with the including our 8-K's, 10-Q's and 10-K's. And these statements may differ materially from our actual results. So now, let me introduce Harold Hughes our Chief Executive Officer.

Thanks Bob and good afternoon everyone. I'm happy to announce that we achieved record revenue, $40 million for the second quarter of 2005. Which is up 14% over the second quarter of last year and up 1% over Q1 of this year. As Bob said, he will review the detailed financial results later in the call. Record revenue is great news and a great credit to performance of the Rambus team. But for balance I want to acknowledge that we have some challenges ahead in the second half, particularly in the current quarter. More on that when Bob reviews future guidance. For my part I would like to spend the bulk of my time reviewing the business achievements in the quarter. I'm pleased with the progress we're making on many fronts and at the end I'll have a few comments on the Samsung litigation.

I would like to begin with Rambus' continued contribution in the latest state-of-the-art applications. Specifically, we are proud and gratified to be such an integral part of Sony's PlayStation 3. PS3 had its premiere in May at the E3 Conference in Los Angeles. As you know, the PS3 uses the Cell processor, which incorporates two key Rambus technologies, our XDR memory interface and our FlexIO processor bus. Which in turn provides the unprecedented bandwidth necessary to unleash the power of the Cell processor. The graphics and computing power of the PS3 will be incredible. I know I speak for a lot of folks who can't wait to get their hands on a PS3 when it is introduced to the market some time next year.

In mid-June, we announced that IBM has signed a license to our XIO interface. This allows IBM to provide their ASIC customers with the ability to interface with XDR memory in their design. This is an important license as it helps broaden the application base of XDR DRAM memory. We believe we will see more such deals, XDR deals, as systems companies adapt this technology for the increasingly demanding performance of their computing, communications and consumer electronics products.

While XDR continues to build momentum in the market we continue to push the technology envelope further. Last week we announced the latest iteration of our XDR family, the XDR2 memory interface. This new memory interface technology starts at 8GHz. Let me repeat that. It starts at 8GHz. To put that in perspective, today's best of class graphics memories are running around 1.6GHz. Our technology enables speeds five times faster than the best Gddr3 parts.

XDR2 incorporates our recently announced micro-threading technology. Micro-threading allows for more efficient memory access. This is particularly important in graphics intensive applications where you want to access small chunks of memory for smaller triangles to produce higher resolution images, for example. For such applications, XDR will enable new levels of graphics performance. Last week we announced the XDR2 technology at our annual Rambus Developer Forum Japan. RDF Japan was a tremendously successful event. We had 900 engineers in attendance learning how to design and develop products using Rambus technologies. We also had an impressive list of executives from our customers and partners speaking of their experience in working with Rambus engineering teams. These include speakers from Sony, Toshiba, Elpida, NEC and Renesas

RDF Japan also keynoted - - also featured a keynote from our newly appointed Chief Scientist, Dr. Mark Horowitz. We're very pleased to have Mark, who was one of our co-founders, back leading our engineering teams in determining Rambus' future technology direction. With Mark's help we will continue our tradition of innovation and invention in the area of high-speed interface design. Also regarding Japan, I just no announced this morning that Eric Ries has joined Rambus as Managing Director of our Japan Office. Eric has an impressive resume that includes solid semiconductor experience couple with impressive knowledge of our Japanese markets. We're happy to have Eric join the Rambus team, help expand our customer base and for additional opportunities for revenue growth in the region. As a testament to our history and innovation, during the quarter, we surpassed the milestone of our 400th issued patent. The strenth of our patent portfolio continues to grow thanks to the hard work and diligence of our Rambus engineering teams. In addition to our over 400 issued patents, we have another 425 currently pending in process.

And our innovations extend beyond the domain of memory interfaces to those of logic, including naturally PCI Express. Through PCI Express, Rambus plays a leadership role in solutions for the mainstream PC markets. As PCI Express continues to ramp a number of our customers are now shipping their PCI Express based chips. And we expect to see systems reach the market in coming months with Rambus PCI PHY and logic layer IP's. PCI Express includes rigorous compliance testing process to make sure chips and systems meet the standards. We have announced a number of our customer solutions passing compliance testing, using our PHY's. Achieving five entries on the PCI-SIG Integrators' List.

One such entry is the compliance of our PHY solution along with digital controller IP we purchased from GDA Technologies in April. This is significant because it allows us to offer a complete solution to the market. Eliminating need for customers to manage different partners within their PCI Express implementation. We now have 70 serial link licenses in place, with 38 specific to PCI Express. We also have 18 digital controller licenses as a result of the GDA acquisition, 13 of which are PCI Express. This level of penetration in high volume markets, like PC's, is important as we continue to grow our business in logic interface solutions.

Let me now turn to the status of our patent license renewals. As you know, we have a number of renewals that need to be negotiated in order for customers to avoid infringements by their currently shipping products that use our IP. While I obviously cannot comment on the specifics of these negotiations, I would like to say that we are actively engaged with our licensees up for renewal. I'm optimistic that we will sign patent renewals in the appropriate timeframe and on the appropriate terms.

As I say this I know many of you are thinking about the Samsung situation. You would be right to assume that negotiations with Samsung did not go as we had hoped. We reluctantly had to take legal action against Samsung because we did not reach an agreeable solution. Let me restate something I said in the last conference earnings call. And that is that the Infineon deal we signed back in March is not a template for deals moving forward.

I'd also like to clarify some quotes from me in the press that may seem inconsistent with the actions we have taken with regard to Samsung. As I've said in the press it is my goal as CEO to provide - - to move beyond litigation and resolve the outstanding issues we have before us. However, I will not do so at the expense of sacrificing the value of intellectual property produced through 15 years of hard work and invention. We owe it to our stockholders and our employees to expect our IT.

Now, having said that, I would like nothing better than to resolve all outstanding legal disputes and sign licenses instead. I have many signatures left. But sometimes we need to avail ourselves of the legal system in order to obtain fair compensation for our innovations and inventions. Fully recognizing that that is oftentimes a long process. And while I can't speak for Samsung we remain committed to working with Samsung and others to provide worldclass XDR DRAM solutions for our customers. Now, let me turn it back to Bob to review in greater detail our financial results for the quarter.

Thanks Harold. Let me share some of the highlights of our financial results for the second quarter of 2005 with you. As Harold mentioned, our second quarter increased 14% over the same quarter in 2004, resulting in record quarterly revenues of $40 million. Our operating income and net income decreased 47% and 36% respectively when compared to a strong second quarter of 2004. Operating income was down primarily due to increased litigation costs. Net income did not decline by quite as much as the decline in operating income because of higher interest income on our significantly increased cash balances.

Cash flow generated from operating activities remains solid at $12.7 million for the quarter. Total cash and marketable securities were up 10.5 million from March. I'll discuss the balance sheet and cash again shortly. First I'll give you additional information on revenue. Total revenue was a record again, the third time in the most recent four quarters. Total royalties for the quarter were strong at $34.6 million, up 17% over the second quarter of last year and up 5% sequentially. DRAM and DDR royalties from memory devices and controllers were up 35% over the second quarter of last year and up 6% sequentially. If you exclude the Intel cross-license agreement, the revenue from DRAM and DDR memory and controller royalties comprised 55% of our revenue for the second quarter of 2005.

I would like to make a couple of comments on the new licenses and license renewals that we hope to execute this year. As Harold said, we're in very active discussions with a number of patent licensees, including a number of licensees who need to renew. If you look at last year's total royalties, which totaled $120 million, 66% of the dollar value of those contracts is under contract through 2005. The amounts they pay may fluctuate. But I mention this so that you can get a better picture of the risk and opportunity for the rest of the year.

Moving on to contract revenues. Contract revenues were $5.4 million this quarter, up 1% over the second quarter of last year and down 18% from last quarter. The decline from last quarter was primarily a result of reduced work carried out on XDR DRAM and FlexIO for the PlayStation 3 program with Sony. With regard to cost and expenses, total cost and expenses for the second quarter were $34.4 million. This is up 41% from the second quarter a year ago or $10 million. And down 1% or $300,000 from the previous quarter. Cost of litigation was up $5.2 million compared to the second quarter of 2004 and down 1.2 million on a sequential basis. This increase reflects, among other things, the preparation for the Hynix and Micron and antitrust trial, which Bob will discuss in a moment. A significant amount of our litigation costs came from the recovery and review of documents from the newly discovered backup tapes. This work will, we hope, be reduced considerably at the end of this month.

Operating expenses excluding costs of litigation were up 24% when compared to the second quarter of 2004 and up 4% compared to last quarter. The increase in operating expenses, excluding costs of litigation, over the second quarter of last year, was largely attributable to increased investment in the engineering area. Including our Bangalore design teams, patents and other intellectual property and an increase in expense in the marketing general, administrative area. The increase in expense in the marketing, general and administrative area was largely associated with the restricted stock grant to our CEO that was awarded in the first quarter of 2005.

Our tax rate was adjusted up to 40.6% for the quarter and 39% on a year-to-date basis. The tax rate increased because of a change in our projected pretax income and the fact we do not believe we will be able to deduct most of the expense associated with the restricted stock grant, I just mentioned, for tax purposes. We completed the acquisition of certain assets from GDA Technologies on April 15. This helps us to increase our presence in Bangalore and allows us to offer a broader and more complete array of solutions. We now have a total of 40 employees in India. We view the ongoing and increased investment in this design center as an important step in lowering our cost structure over the long term.

Net income for the second quarter was $5.4 million or 13% of revenue, compared to 8.3 million in the second quarter last year and 4.4 million in the previous quarter. This continued profitability led to solid operating cash flow, which was $12.7 million for the quarter. Our cash, cash equivalents, short and long-term marketable securities ended the second quarter at $471 million, versus 460 million as of March, 2005. Our cash, cash equivalents, short and long-term marketable securities were up 10.5 million from last quarter primarily due to cash generated by operating activities. Looking ahead, the first item I want to mention is the vesting of Harold's restricted stock grant on July 19. The vesting of the stock creates a personal tax liability for Harold. He has indicated to the Company that he intends to sell enough shares to cover his tax liability. And that he will retain the remainer of the 125,000 shares that were granted to him.

Now, I will give you some thoughts on what to expect for the financials in the third quarter of 2005. 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'm about to review. The second half of the year is very difficult to forecast given the number of licensing and renewal discussions that we are currently having. We expect that the third quarter revenue will be down. But we are confident that the fourth quarter will recover with the beginning of the quarterly royalty payments of $5.85 million from Infineon. Specifically, we estimate that revenue in the third quarter will be between $32 and $35 million. We expect that our operating costs and expenses will be in the range of $31 to $34 million.

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 $8 and $10 million. But this range is very dependent on the activity of our ongoing litigation. We are estimating net interest and other income to be between $3 and $4 million. And finally, the tax rate is estimated to be in the range of 38% to 40% next quarter. So, now I'll turn it over to Bob Kramer to review our litigation.

Thanks Bob. Let me start with the private litigation. This quarter we saw a delay in the patent cases against Hynix and Micron due to the recent discovery by Rambus of old electronic backup tapes. That effect was felt most immediately in the Hynix case, which had been scheduled for hearings starting in April and May and continuing through October. Rambus and Hynix, are we believe, very close to agreement as the backup tapes Rambus will review following the hearing before the Hynix court on Tuesday. Throughout this delay Rambus has been producing documents backed up on these tapes in the mid-1996 to early 2000 timeframe to Hynix, Micron and the FTC. And we anticipate this production to be complete by the end of July.

During the second quarter we estimate that we spent in excess of $3 million producing and reviewing these documents. And we expect to spend roughly another 1 million in Q3. In part based on the ongoing production, the Hynix court in San Jose has set the following trial dates for the three phases of the Hynix trial. The hearing on uncleaned hands is scheduled for October 17, 2005, and the patent and conduct trials are scheduled for January 30 and May 15, 2006 respectively. Also this quarter, the Hynix court considered and denied Hynix' motion to dismiss Rambus' patent claims. Hynix argued that Rambus should be barred by collateral estoppel for unclean hands following the Virginia court's oral decision in the Infineon matter. We are heartened that the Hynix court declined and that we can now try these issues on their merits in California.

For similar reasons the Micron case in Delaware was taken off calendar in our last hearing in April. As we speak there's a hearing in Delaware on a number of issues, including the trial dates. Also discussed at this hearing was Rambus' motion to lift the stay imposed in that case in early 2002. That stay prevents Rambus from filing certain new lawsuits against Micron. This quarter, Rambus asked the Delaware court to permit Rambus to amend its counterclaims against Micron in that action, to assert four additional patents and to bring it more in line with the Hynix case in San Jose on DRAM and DDR DRAM. Rambus has also asked the Delaware court to permit Rambus to file a patent infringement lawsuit against Micron for its DDR2 and certain graphics DDR parts. That suit would be similar to the one Rambus filed against Hynix, Nanya and Inotera earlier this year. We don't know the results of that hearing.

Also this quarter, on June 6, Rambus terminated Samsung's license for DRAM and DDR products due to an ongoing, uncured breaches. Following this termination, RAMBUS filed a lawsuit for patent infringement, in Federal Court in Northern California against Samsung for its manufacture of DRAM and DDR part. At the same time Rambus also amended its DDR2 lawsuit to include Samsung as a defendant. A day later, Samsung filed a lawsuit against Rambus in the Eastern District in Virginia seeking a declaration that four Rambus patents are not infringed, invalid and unenforceable. On June 15, Rambus added Samsung into its antitrust case in San Francisco's State Court alongside Micron and Hynix.

On June 23, Samsung filed a lawsuit against Rambus, in Delaware Chancery Court, seeking a decoration that certain Rambus patents are unenforceable against Samsung because of an alleged breach fiduciary relationships. Samsung answered Rambus' patent related complaints in California. And Rambus is in the process of answering Samsung's complaints and counterclaims this week and next. We believe Samsung's allegations lack merit and we look forward to resolving them at the appropriate time.

Let me turn now to the various government and antitrust proceedings. First, I have an update on the FTC case involving Rambus. As you know the FTC staff has taken an appeal from an Administrative Law Judge's decision last year, which was overwhelmingly in our favor and absolved us of charges by the FTC relating to our 1992 to 1995 participation in the JEDEC standard setting group. All substantive briefing and argument was completed in the staff's appeal on December 9 of last year. Recently, the Commission granted in part a motion for a limited reopening of the record so that it could consider the relevance of evidence submitted by both parties in the Virginia Infineon hearing related to unclean hands. Briefing on this should be completed by the end of this month.

Finally, with respect to the collusion case Rambus filed in San Francisco Superior Court last year, the Court denied the defendants [demurs] and resolved some protective order issues in April and May. This permitted Micron and Hynix to produce to Rambus many of the documents it had already produced to the Department of Justice and class action plaintiffs. On June 15, 2005 Rambus added Samsung as a defendant in this case. Most recently on Tuesday, this week, the court heard Hynix' motion seeking to compel Rambus' claims to be arbitrated in Korea rather than in San Francisco. The trial court denied Hynix' arbitration plan. Rambus expects Hynix to appeal this decision.

As our discovery efforts and our complaint made clear, we believe there is significant overlap between the criminal antitrust activity the Department of Justice has been actively investigating and our own antitrust case against certain DRAM manufacturers. Therefore we continue to watch, with any interest, any develop in the criminal cases. One key development this quarter, following Infineon's guilty plea and Micron's admission of cooperation with the DoJ last year, is that Hynix pled guilty in May to criminal price fixing for the period between 1999 and 2002. The same period of time our DRAM and DDR were competing in the market place. As a result of its guilty plea, Hynix agreed to pay a fine of $185 million, the new second highest price fixing fine in the history of U.S. antitrust enforcement.

Also as we speak there is a hearing in Federal District Court in San Francisco where we understand the Court is hearing a further request by the DoJ, to continue until December 15, the stay of certain discovery in the class action suit against the DRAM manufacturers. However, we understand that that request for stay of discovery is more limited than what the DoJ has previously requested. We anticipate further developments with the DRAM companies and the DoJ in the foreseeable future. At this point I'm turning it back over to Robert Eulau.

Okay. Thanks Bob. And at this point we're going to take some questions and also respond to a couple of questions that came in from stockholders over the Internet. So operator, if we could take some questions?

At this time we will conduct an electronic telephone question and answer session. [OPERATOR INSTRUCTIONS] We will go with our first question from Gary Mobley of B. Riley & Company.

Hi guys.

Hi Gary.

I just had a couple questions on some important legal dates. To review it sounded as if the next important one relates to the Hynix case for unclean hand argument on their part on October 17. And then followed did up by January 30. Is that pretty much the only thing on the calendar right now that seems to be permanent or tangible?

For the Hynix trial it's those two dates. And then there's a May 15, 2006 date for the - - what we're calling the conduct trial in that case.

Okay. All right. And Bob Eulau, if you can talk about the drop in revenue? Obviously Samsung is not going to be paying royalties as this case goes on, is that the primary reason for the drop? Is that pretty much the only reason?

Well, it's certainly a contributor. But we had other agreements as well and we're trying to be fairly conservative in terms of where we set our range right now.

Okay. How many renegotiation attempts are there still ongoing right now?

I actually don't know the specific number. But I can tell you our team is gone most of the time out negotiating with our potential licensees.

It's fair to say that - - relicensees in large part there's one that's most significant, Toshiba. We have additional licensees, new licensees under negotiation. So, as a result our negotiating team is racking up a lot of miles right now.

Okay. And can you give us a little more background on the probable form for the Samsung case? I know you guys are really working hard to try to get the best one.

This is Bob Kramer. We currently have four for the Samsung cases. If you're asking where it will - - if there's one or two cases that will go forward where it will end up. I guess I don't care to speculate specifically about whether it stays in Virginia or comes back here. I don't think we can really speculate on that right now.

All right. Great. I will hop back in the queue, thanks guys.

As you might imagine we are working hard to keep it here.

Sure.

Thanks Gary.

We will go to our next question from Daniel Amir with WR Hambrecht & Co.

Hi guys. A couple questions. First, if you can expand a bit on the - - what are the major difficulties you're having in the licensing renewals? I know for each one it's a case by case basis. But maybe the general trends, or the lessons from Samsung that you are trying maybe not to repeat here with other potential customers. And the other thing is a bit maybe on the general trends you're seeing here in the next six to nine months that would help your business grow just beyond the current licensings that you're negotiating. I mean clearly the fall off here on the revenues is pretty significant here this quarter. So how do you rebound and get to the levels that you were in Q2 in the 40 million range?

Well, with regard to the first question, there is reasons for parties to disagree as to the value of our patents coming from previous negotiations and previous law cases. That is why we are very, very focused on the patent case of Hynix in January. Many of our plans in renegotiating licenses were built around the assumption that those - - that that case would already have taken place. But the discovery of the tapes unfortunately pushed out that. We believe that we have a very strong case there and that will be an important piece of evidence as we go forward licensing not only DRAM companies, but potentially other users of our patents. And it's with regard to both that we would expect to increase significantly our royalties, our royalty income.

Okay. And the second question?

The second question is more or less answered by my last comment in the first question. Many people - - many levels of integration use our technology, not only at the DRAM level, but at the controller level and system level. And arguably in areas outside of the PC world where we are currently focused. So from all of those we see potential revenue.

Do you expect that Q4 revenues would be at the level of Q2 considering you're getting the 5.1 million from Infineon.

First order of approximation, yes.

Okay, thanks.

We will take our next question from Mike Crawford with Barrington Partners.

There's been some speculation that Judge White is prime candidate for the CAFC Court in Washington DC. So what would be the repercussions of that move toward your timetable in the Hynix case?

I'll defer to Bob on that.

It's impossible to predict. There's certainly lots of speculation. There's no specific understanding of a particular judge retiring from the Federal Circuit at that time. So we can't really speculate. Of course it wouldn't matter when he leaves, we think he is a great judge and would support his candidacy. But we can't speculate beyond that.

Okay. And then regarding your own civil antitrust case, now your attorney is also the attorney for the class action case against substantially the same companies. And - - can you give us an update on what you might know of the status of those proceedings?

I can give you an update as to what I know, it has nothing to do with our outside law firm also representing plaintiffs in the class action lawsuit. There's no communication there between the lawyers of that firm working on the two different cases. I can tell you there was a hearing today before Judge Hamilton in San Francisco. I don't know the result of that hearing because it's going on right now.

And that's regarding the stay from the DoJ, the stay request?

Yes, the DoJ has asked for a stay of certain discovery related to - - some issues related to that particular case. We understand that they have asked for a more limited stay going forward until December 15. We don't know much more about the specifics of that

Then when will the public be able to see some of this JAR document discovery that the DoJ finally turned over to counsel?

The JRA issue is in our Hynix case. The DoJ is investigating the DRAM manufacturers for price fixing, not necessarily having a joint defense or joint representation agreement against Rambus. So as when we're likely to see documents or when you're likely to see documents from the DoJ investigation, I can't really say. We have, as I reported, started to get some documents from Micron and Hynix in our own lawsuit, the civil lawsuit in San Francisco. Those documents are governed by protective orders. And so as soon as those documents are no longer protected or to the extent they're not protected, and they're filed as attachments to briefs and so forth they will start showing up starting whenever that briefing comes out.

Okay, thank you.

Thanks Mike.

We will go back to a question from Gary Mobley with B. Riley & Co.

I was hoping you can give us an update on where you stand with respect to XDR and serial growth, is it still nonexistent?

I - - Could you restate the second part of that Gary?

Any ramp or sign of a ramp in XDR and serial link royalties?

So, this is Bob, I'll respond. On XDR we have gotten some very small royalties as a result of samples that have been shipped. And we're hopeful that towards the end of the year we will begin to see some volume production and some royalties. But it's fully dependent on our customers ultimate schedules. In terms of the serial link business, we continue to get fairly modest royalties there. I think this quarter was something in the 1% to 2% range of our overall royalties.

Okay. And the XDR license agreement with IBM, is that to allow IBM to produce chips incorporating the XDR in IBM's foundry or is that more of a captive relationship?

No, it's adding the XDR interface to their ASIC sell in short. So that someone using an IBM ASIC part would be able to use an XDR interface to XDR memory. Someone else would produce the XDR memory, one of our other licensees.

Okay. Of the $6.5 million sequential revenue decline forecasted for the third quarter, that can't all be Samsung. Samsung I don't think historically has been near that high. Is it fair to assume that we will also see a large drop-off in license revenues?

So in license revenue, if you're referring to what we call contract revenue, which is both license and nonrecurring engineering, we actually think it's probably going to be a bit up in the third and fourth quarters. And in terms of a drop-off in revenue it's, as I said there's more than one player there. You're right, Samsung is not all of it. Okay. Great, thanks guys.

Yes, thank you.

[OPERATOR INSTRUCTIONS] We will go next to Jeff Schreiner of MS capital management.

Good afternoon gentlemen. Mr. Hughes, I was just wondering you had made a comment about new licensees. And then obviously made comments about the various integration levels where you might find Rambus products or integration of Rambus patents. Could you give us a little bit more color in terms of maybe the - - directionally where some of these new licensees or new negotiating licensees that you may be negotiating with are coming from, system level, control level, maybe graphic players? Anything you could give us there would be appreciated.

All of those plus more I guess is a good way to answer. The - - one of the frustrations we have is the protracted period involved in actually signing licenses with the DRAM companies. We have good customer relationships with many system level and actually growing relationships with graphics companies. It would be - - we're working very hard to extend those relationships beyond simple technology licenses to patent licenses as well. Secondly, I would point out that for some of our older technology in the DRAM and the DDR, some of that technology is making its way into many other types of applications such as cell phones for example. Now, all this needs to be worked out in greater detail, but we have - - our patents are extremely valuable outside of just the PC world.

Okay. Just one final question. Wondering where the Company may be in its design efforts for a low power or low voltage maybe a mobile - - we will it a mobile version of XDR? One of the problems possibly in the past is when RDRAM came out, the mobile version of RDRAM might not have been comparable in terms of power consumptions and voltage to the DDR alternative. How is the Company progress with XDR and maybe change that in looking to position XDR in the future in mobile applications?

Well, without commenting specifically on XDR power, we have people had who look at ways reducing power overall by significant margins. But I wouldn't commit as to when that would be available in the market.

All right, thank you very much gentlemen.

It has occurred to us though that requires a lot of power, as does many parts of the PC. So focusing on power is one of the things we're doing more of.

Thank you very much.

My pleasure.

I think at this point I'll ask a couple of the questions that came in over the Internet to Harold. The first one is what impact will the options expensing rule have on Rambus' executive options plan, if any?

I think again with the last part of that sentence, we really don't have an executive option plan. Rambus, since its inception has offered options to just about every employee we have and we spread those I think reasonably effectively. Stock options are extremely valuable in attracting the talent we need. We focus on extremely complicated things. There is a relatively small number of capable people to do it. Having the ability to issue options to them is the life blood of the Company and something with shareholder approval we will continue to do in the future. As relates to the actual expensing of stock options, I could spend an hour talking about it and probably no one wants to listen. I'm not much of a fan of the expensing rules. I don't think they make a great deal of sense.

Okay. And then the second question, this is the way the question came in, "I'm very concerned about the continued litigation that has gotten even more complicated with the addition of the cases involving Samsung. Will the termination of the contract with Samsung have on future revenue?"

Well, we as well are concerned about litigation. I would have to say that unfortunately it's become a core competency. We are in the technology creation business and a large portion of the value of that comes from the process of licensing. Licensing is not necessarily easy. We spend a lot of time talking about how we can license companies. I would estimate my staff spends ten times as much time talking about how we can figure out ways to license as opposed to with whom we might litigate.

We would like to find ways to make the acceptance of our patent process easier. For example linking it to really world class engineering and finding ways of incorporating our technology into a licensee's product. Or helping a licensee who licensed our technology and improve the yields of their product, which should be very important to a DRAM company. Or even providing tools so that licensees can incorporate the technology into their products even faster. It is a great focus - - it is important focus for us. One where we continue to look for innovative ways to reduce the barriers to patent licensing. But net/net we simply have to protect the value of the patents or it simply defaces completely the value of the Company. And the result of that is unfortunately a lot of cases going on and it does get complicated.

Great, thanks Harold. And we would like to thank everyone for joining us today. We really appreciate your questions and appreciate your ongoing interest in Rambus. Have a nice afternoon.

And once again this will conclude the Rambus second quarter 2005 conference call. Your participation is appreciated. You may disconnect at this time.