Rambus Inc (RMBS) 2006 Q2 法說會逐字稿

Good day, and welcome to this Rambus second quarter 2006 conference call. Today's call is being recorded.

At this time, I would now like to turn the call over to Mr.Satish Rishi. Please go ahead, sir.

Thank you, Operator, and welcome to Rambus' second quarter 2006 conference call.

I'm Satish Rishi, and with me today are Harold Hughes and Bob Kramer, who will provide the litigation update. The press release for the results that will be discussed here today have been filed with the SEC on form 8K.

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 [microphone inaccessible] 1112. You can hear the replay by dialing the toll-free number and then entering i.d.7012471 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 p.m. 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 the documents that we filed with the SEC including our 8K's, 10Q's, and 10K's, and these forward-looking statements may differ materially from our actual results.

Now, I'll turn the call over to Harold. Harold?

Thanks, Satish and good afternoon, everyone.

In Q2 we delivered all-time record revenue of 48.9 million, up a strong 22% from Q2 of last year. And topping our previous best, which we set last quarter. For the first half of 2006, we delivered revenues of over 96 million and continue a strong pace of year-over-year growth. The key to this growth story is signing licensing deals.

In this quarter we signed two important agreements with Toshiba and Matshusda, also known as Panasonic. The Toshiba and Panasonic agreement demonstrate our long term sustainability, as the Rambus' business model, and are recognized the value contribution of our patents and products.

Both Toshiba and Panasonic are repeat customers who have signed new five-year patent agreements and continue to depend upon Rambus to develop high performance interface solutions for their semi conductor and system products.

By re-signing repeat customers, we added a new and adding new patent license customers such as AMD and Fujitsu, announced in the first quarter, we are making great strides in realizing the full value of the tremendous innovations created by Rambus' scientists and engineers.

Another sign of the health of our business is the continued growth of our industry-leading patent portfolio. During the quarter we announced we had reached the milestone of 500 issued patents in the U.S. and other countries. In addition, we have nearly 500 pending worldwide.

New patents issued in reaching this important milestone include those covering our Flex Phase technology. Flex Phase is an important Rambus innovation which mitigates the negative effects of misaligned timing associated with high speed signalling over parallel busses. Flex Phase---Flex Phase circuits can be applied to all kinds of chip interconnects, whether they be logic or memory interfaces.

We first demonstrated flex phase along with another Rambus technology called Fly By Command Address, when we unveiled our XDR Deramp architecture all the way back in 2001. We believe both Flex Phase and Fly By Command Address will be the key enabling technologies used in DDR 3 Deramp, which is nearing industry standardization.

We're incredibly produced of our history of innovation and our ability to lead the industry to higher levels of performance. It's that ability to innovate years ahead of the market which is the key to development of our world-class patent portfolio.

Something else we are very proud of is our ability to attract some of the industry's best and brightest to our Rambus team and our board of directors. At the end of March, we announced that Sunlin Chou had joined our board.

Sunlin brings great operational expertise to our board including 34 years at Intel where the last position he held was that of President and General Manager of the Technology and Manufacturing group.

Last Friday, we announced that Penny Herscher had joined our board. Penny is President and CEO of First Ring and is a demonstrated leader in business and in marketing. Her expertise will greatly complement the board's strength in technology, finance, operations and legal matters. In addition, during the quarter, the board implemented a policy in which it will hold an annual election for the Chairmanship from among its members.

Kevin Kennedy was elected chairman while Geoff Tate, who had been Chairman. continues on the board. There have also been changes to the membership of the committees; the full details of these changes are available on rambus.com in the investor relations section.

Finally with regard to the board of directors, our Chairman, [Bill Davidow] our Chairman emeritus has retired from his emeritus function. I want to thank Bill personally for the instrumental role he played in the founding of Rambus and the tremendous leadership he displayed over the course of Rambus' 16-year history.

Next I'd like to talk about the independent investigation of historical option granting practices. As announced in May 30th, the Audit Community of the Board of Directors has retained an outside legal firm to conduct the investigation.

On June 27th, we announced that the audit committee had reached a preliminary conclusion that the actual measurement dates for certain stock option grants differed from the recorded grant dates for such awards. Today, we announced we expect to record additional noncash charges for stock-based compensation expense in prior periods.

Further, we believe these charges are material and we expect to restate our financial statements for the fiscal years 2003, 2004, 2005, and the first quarter of 2006. We do not believe, however, the restatement will have any impact on historical revenues. As the findings are preliminary, we have not yet determined the tax impacts that may result from this matter. And because the independent investigation is still ongoing, there may be additional years that need to be corrected.

Accordingly, the audit committee, pursuant to consultation with Management and discussion with its auditors on July 17, 2006, has concluded that the previously issued financial statements for the fiscal years 2003, 2004, and 2005 and the first quarter of 2006 should no longer be relied upon.

We intend to file our restated financial statements in the quarterly report for the period ending June 30, 2006, as soon as practicable after the completion of the independent investigation. Additionally, we believe our filing of the form 10K for the just-ended quarter will be delayed past the August 9, 2006 due date and the August 14, 2006, extended due date.

As a result of delay, sometime after the 14th, we expect to receive a notification from NASDAQ that we are not in compliance with the filing requirements for continued [microphone inaccessible] and that Rambus' common stock may be subject to the listing from the NASDAQ national market.

We intend to request a hearing and make our case to NASDAQ listing qualifications panel. Given the nature of this independent investigation, we cannot speculate on the status and additional findings and cannot determine at this point how long the investigation will take.

In the meantime, I and my team, will continue to move ahead smartly on achieving our strategic imperatives. We have great licensing momentum and we have an ongoing number of patent license negotiations in progress. We'll continue to work very hard to bring these to successful conclusions.

In addition, we continue to expand our product and technology engagements aimed at helping our customers bring great products to market. The most important thing we can do for stockholders is to ensure that we stay focused on delivering on the promise of our licensing business models.

The fact that many other technology companies find themselves in a similar predicament, relative to past stock option exercises, gives me no comfort. I share the frustration felt by stockholders, and I apologize to them. As has been the case with the many challenges the Company has faced in the past and those I have faced in taking over as CEO, we intend to overcome this one as well. We intend to overcome this one as well.

My team and I are no less committed to the goal of converting the spectacular innovations of Rambus' engineers and scientists [microphone inaccessible] to stockholder value. With that, I'll turn it over to Satish to discuss this quarter's financials to the extent we can. Thank you.

Thank you, Harold. Because of the ongoing independent investigation of the [star collapsing granting] practices I won't be able to discuss our full financial results for the quarter. I'll have to confine my remarks to revenue performance and cash balances and details of some extraordinary expense items. At the end, I'll provide revenue guidance only for the third quarter.

As Harold mentioned, we achieved record revenue for the second quarter, back-to-back with our first quarter record results. Total revenue of 48.9 million for the second quarter were up 22% over the second quarter of 2005. Total royalties for the first quarter were $41.7 million, up 21% over the second quarter of last year.

Most of the increase from the second quarter of 2005 were due to royalties as a result of the Infinion, AMD [strongly accented language] agreement partially offset by royalties associated former and current licensees. For the first half of the year, revenues were 96.1 million, a 17% increase over the same period last year. Clearly, we are moving in the right direction.

I am unable to discuss expense by line item because some or all of these may change when we have the full report from the investigation and a historical financial statements have been finalized. However, certain expense items are worthy of mention.

During the quarter, we made a $10 million special [performance payment to Monger, Solls, and Olsen]. They have been a lead counsel in many of the cases including the Hynix case. We have been very pleased with their work and we look forward to continue to work with them.

I want to emphasize that excluding this bonus, and setting aside any compensation-related expenses that we may record related to stock options list pricing, the total operating expenses were within the range of guidance I provided to you during the previous earnings call.

Our cash, cash equivalent and short-term and long-term marketable securities ended the quarter at 416 million as compared to 391 million in the prior quarter. Before I move on to revenue guidance for the third quarter, let me walk you through some of the anticipated sequence of events related to our press release this morning.

First, as we announced, we will not be able to file our 10Q on time or within the extension period; because we do not know what impact, if any, the correct accounting for the list priced options would have in this quarter, we cannot file as our financial results. After the extension period expires and the 10Q is not filed, our Company is in noncompliance with the marketplace rules for NASDAQ. This noncompliance triggers a delisting notice from NASDAQ to the Company.

The Company then has a hearing to appeal this notice, and the NASDAQ typically schedules a hearing four to six weeks after this request from the Company. We will do our best to remain listed on NASDAQ, but there's no guarantee that our team will prevail. The failure to file a 10Q on a timely fashion also constitutes a breach of covenant and a technical default on the outstanding 160 million of notes that we have.

If we do not give the default within 60 days of receiving a notice of default from the bond holders, the notes can be accelerated. We do not expect such acceleration to occur, but if it did, we are comfortable with our cash position to satisfy that obligation.

Now I'd like to give you some thoughts on what to expect in the third quarter of 2006 for revenue. This guidance reflects a reasonable estimate and our actual results could differ materially from what I'm about to review.

As we previously disclosed in our prior quarterly and annual SEC fillings, we completed recognizing revenue associated with the Intel patent cross license agreement during the second quarter of 2006. While we don't expect to renew or completely replace that significant source of revenue in the third quarter, we nonetheless expect that Q3 revenue will be within $42 million and $45 million.

With that, I'll turn it over to Bob for an update on litigation events. Bob?

Thank you, Satish. Rambus has made significant progress this quarter protecting its intellectual property from unauthorized use. Although mindful of the litigation risks, we are pleased with these accomplishments. I will update you on key results this is past quarter and review the major items in our litigation timeline.

With respect to the private patent litigations of the United States, we are gearing up for the third phase of the Hynix trial. As you'll recall on April 24th, the jury in the second phase of the trial found that Hynix's SDRAM, DDR and DDR2 products infringed valid Rambus patents and awarded damages amounting to $307 million for products sold in the United States.

Following this decision, Hynix moved for what is called -- sorry, called judgment as a matter of law seeking to overturn the decision of the jury, arguing that the evidence did not support a verdict, that the patents were not valid, or infringed.

Hynix also moved for a new trial on damages or in the alternative, remitter. That is, Hynix asked the court to reduce the amount of damages to what Hynix believes is the largest amount supported by the evidence, namely, $109 million, which it would calculate using Rambus' prelitigation royalty rates of 0.75% for SDRAM and 3.5% for DDR from the year 2000.

On July 14th, the court granted Hynix's motion, giving Rambus 30 days to choose between accepting the lower damages amount and retrying the damages issue. However, the court held that Rambus was entitled to roughly 133.5 million instead of the 109 million requested by Hynix. In so doing, the court held that the evidence supports that the 0.75% SDRAM and 3.5% DDR SDRAM rates are conservative. The court calculated this higher past due amount for Hynix's U.S. sales of infringing parts by multiplying the stipulated sales through the end of the year 2005 by a 1% royalty rate for SDRAM memory and 4.25% for DDR and DDR2 memory.

As part of this process, Rambus also expects to be compensated for both prejudgment interest and Hynix's 2006 U.S. sales, up through the entry of judgment although these amounts have not yet been determined.

As to the remaining Hynix motions, the court posed some questions to the parties in a June 23rd hearing that has not yet ruled on these motions. Looking forward, the third phase of the case is scheduled to begin on August 21st to address the anti-trust, unfair competition and fraud issues that Hynix has raised as defenses. As of earlier this week, the court has ruled on each of these motions.

In particular, on the 6th of this month, the court denied Rambus' summary judgment motion with respect to Hynix's equitable, [estoppel] defense, leaving the issue to be decided at trial. The next day, the court granted Rambus' motion for summary judgment with respect to Hynix's anti-trust and unfair competition claims to the extent that they are based on claims of already ram dominance or DDR suppression.

The court also granted Rambus' motion for summary judgment based on [Knorr Pennington] immunity in California civil code section 47b privilege, which protect the filing of lawsuits and prosecution of patents.

Earlier this week, the court granted in part and denied in part Rambus' final summary judgment motion. Specifically, it granted Rambus' motion for summary judgment relating to Hynix's two claims for breach of contract and its constructive fraud claim.

The court also granted summary judgment for Rambus that the [jetex] duty to disclose does not, among other things, extend to beliefs, hopes or intentions to file or amend patent applications and that a breach of any duty without more does not give rise to anti-trust liability. As part of the same order, the court left for trial the issues of whether disclosure was voluntary or mandatory, whether a duty extends only to necessary patents and whether any alleged breach causes injuries to Hynix.

The summary judgment decisions narrow the scope of the third phase of the trial although I cannot comment on the specifics of this at this time. The briefing and decisions to the extent we post them, can be found on our website. Rambus is also preparing for an October 21st trial in Delaware against Micron. Of particular note this past quarter, the Delaware court held, on June 15, that Micron did not make out a prima fascia case, that [jetex] policies required Rambus to disclose patents or applications to [jetex] members. This decision is consistent with a 2003 decision of the U.S. court of appeals for the federal circuit and a 2004 decision of the chief administrative law judge at the federal trade commission. A copy of this Micron order is on our website.

On the Samsung case in the eastern district of Virginia, we received final decision this morning closing the last remaining case in the eastern district and denying Samsung's motion for attorney's fees. Specifically, the court held that it had jurisdiction to determine whether sanctions should be imposed, that Samsung is the prevailing party, that the case is exceptional, but the court held that Samsung is not entitled to be compensated for its attorney's fees.

The decisions are very long. We just received them this morning, and they are posted on our website. A significant portion of one opinion is an unflattering account of the record in the Infinion and Hynix cases. We are pleased in the end that the court denied Samsung's motion for attorney's fees.

It is our initial view that the negative portions are not likely to have collateral [stopple] consequences. We don't know how others may try to use these decisions at this time and we are considering our options.

I will now provide an update on our anti-trust cases in the San Francisco court. This case is against Micron, Hynix and Samsung. You may recall that the San Francisco state court had previously denied motions to compel arbitration filed by both Samsung and Hynix.

In both cases, the court relied on its discretion to avoid multiple conflicting results and we believe this is a very strong basis for its decision. Both Hynix and Samsung have filed appeals. The briefing on those appeals should be complete on August 9th and we expect a resolution on those appeals late this year or early next year.

Turning next to regulatory agencies we have no update as to the pending investigation of the DRAM cartel by either the European commission or the U.S. Department of Justice. It continues to be our understanding from press reports that price fixing investigations against the DRAM industry are ongoing.

As you may have heard from press reports late last week, 34 state attorneys general appear to be filing suits against a number of DRAM manufacturers for fixing the price of DRAM.

We have no news with respect to the [FTC's] appeal to the full commission of its action against Rambus. We do not know when a decision will issue, but we continue to believe strongly that the administrative law judge has got it right by dismissing the [FTC] complain on multiple independent grounds.

Finally, on May 31st, the first of several derivative lawsuits were filed -- sorry, was filed in the northern district of California against Rambus and various current and former executive and board members. In addition on July 17th, the class-action suit was filed against Rambus and a number of our current and former officers and directors. All of these cases relate to the options issue Harold and Satish discussed earlier.

That concludes my comments and I'll hand it back to Satish.

Thank you, Bob. Operator, we are ready for Q&A.

All right. Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question comes from Mr.Daniel Amir of WR Hambrecht. Please proceed with your question, sir.

Thanks a lot. Just a few questions here. First of all, Satish, just a clarification on the legal expenses, law firm. Can you just expand that for a second and whether that was included in the OpEx guidance or not? I kind of missed that.

That was not included in the OpEx guidance we gave last quarter.

Okay. And how much was that amount again?

It was 10 million.

So it's basically a one-time fee?

Yes, it was a bonus we thought for a spectacular performance.

Okay. The second thing is, regarding the anti-trust in San Francisco, so just from a timeline perspective, you expect , I mean, what's the future developments I guess you expect in that case here in the next, few months or couple quarters?

Well, as we mentioned, Hynix and Samsung have appealed the decision that arbitration is not compelled. And we have to wait for the briefing to be done on that, which should be done in a few weeks. And then we have to wait for maybe an argument and a decision on appeal. We expect that to be late this year or early next year. Discovery is ongoing, I guess in the meantime. That's it.

Okay. And Harold, I guess if you look at your business right now, which is currently tracking along nicely with new licenses coming on board every quarter, I mean, what's your goals I guess for the next six months? Business-wise, Company-wise kind of, what is your top three things that you're looking at as you exit the year six months from now?

Well, read like to sign several more licenses, especially licensees that give us the ability to, should I say, entice the DRAM industry to work with us more closely. And not surprisingly, those are in things like graphics, et cetera. But we have expanded Sharon and her team substantially, licensing reach that we have. And we're engaged with several customers or several potential customers, I guess I should say.

None of these is likely to happen quickly. But several are in later stages and hopefully we can sign more of those. And naturally, we continue to use every means we have available obviously legal being one of them, to sign a licensing agreement with Hynix. We prevailed in court and we see reasons why they would benefit from working with us. We believe that certain of our licensees could see them as a good partner to a larger deal. I'd very much like to get that done this year.

Okay. And I guess the final question is more related to more the options issue. I mean, can you comment, when do you think you expect to resolve the issue on the financial repayment? Is there any timeline for that, or at the moment, it's just preliminary and there's too much --

Let me give you two contextual issues, which I think are important. The SEC, the justice department, the FASB, NASDAQ all takes these issues very, very seriously. And I think it's very important that we do this right the first time. I think our audit committee is operating very effectively. It is a slow process. Any company that's a technology company that's been in existence since 2000 probably issued an option just about every month to handle a new hire. Which means there are a large number of these, each of them have to be investigated.

We want to do this in a way that appear---that is completely independent of management and those people who may have been involved originally. So that when we do take it ultimately to the SEC to our outside accountants, even to NASDAQ, it will have been done very, very professionally.

I think the other key issue that makes it difficult for us to estimate as to when it will happen and as to what the amount would be, is the simple fact that the SEC hasn't really decided on a set of guidelines yet. Until they've done that, I don't think we're going to be able to even to calculate the number with great specificity. Although I very, very much want to do this.

Without saying for a second that we think that this was handled well, it is a noncash expense. And we'd like to get from just a booking standpoint that book so that we can move forward with the normal course of operations of the business. That was not to imply that we take this matter lightly. We believe that those things that happened are necessarily justified.

Okay. Thanks a lot.

Thank you, Mr.Amir. Our next question does come from Mr.Michael Cohen of Pacific American Securities. Please proceed with your question, sir.

Thank you. You guys, you had a previous license with [Alpida] which was reduced to a 6C, pending some threshold event. And I was wondering in regard to the win in phase two of the Hynix case, has that threshold now been reached?

Hi, Michael, this is Sharon Holt. I'm here helping to answer some questions.

Hi, Sharon.

Hi. So, without, there are a lot of details, the [Alpida] agreement is quite complicated. But I can tell you that the current state of the Hynix litigation has not triggered any change to the payments from [Alpida].

Okay. If you would win say three of the conducts could you tell us if that would trigger the threshold event?

It would not.

Okay. And my next question is regarding to the backdating issue. In the press release you issued this morning, you referred to it as correcting errors related to accounting for stock-based compensation. And my belief, and it's not just with Rambus, but with most technology companies that have backdating issues, that these aren't mere errors, but rather something that has been done intentionally to enrich management at the expense of shareholders. In light of that, are you doing anything to investigate who basically the wrongdoers are and are you going to do anything to pursue the wrongdoers to the protection of shareholders?

Michael, this is Satish. When -- I agree with you that this is well, under the option plans we have, we were allowed to grant options that were in the money, but with the list pricing of the dates, the grants were done incorrectly. That's why we called them an error. And we--we will do what it takes to make the Company whole. Right now, we have not found any intentionality in any of the findings from the independent investigations. And as Harold mentioned, the investigation is independent. So management is not very involved in the results. Until the investigation is complete, we will not be told in terms of what the actual dates were, what the actual intent was. But as of now, we have not been shown any proof or been told of any intent at this point in time.

Okay. In the event that your independent investigating team does discover that there was intent involved, what would you do if you were given that information?

Mike, I don't want to speculate on that at this point in time. But if we find any wrongdoing, we would definitely pursue. To the extent that we can.

Okay. And my next question is, Harold mentioned that DDR 3 may be infringing Rambus patents with regard to Flex Phase and other technologies. We've also previously heard that systems companies are likely infringing Rambus' patents. My next question is, have any letters of infringement been sent to any systems companies or in relation to DDR 3? And if letters have not been sent, why the delay?

Michael, it's not our policy to---to disclose whether or not we've sent letters out or contacted individual companies for potential licensing negotiations. That said, I'll point you to the DDR2 case that we have here in the northern district of California, filed about a year and a half ago. And that case includes some contentions that our patents are infringed by a company because of controllers or systems, products.

Okay. And my final question for at least this --

Michael, I just thought I would add something on this. The other comment I want to make is that the DDR3 spec is not complete and finalized and in the public domain, nor is anyone shipping devices or systems using DDR 3 yet. And so we certainly would not be making any, any claims in that regard until we actually have product in the market and a finalized spec.

Okay. And it would be more likely product in the market as opposed to a finalized spec being the more important of those two;

That's correct.

Okay. My next question is probably for Bob. In light of Judge White's offering you a new trial on damages; previously, you had elected to have willful infringement not included so that it could be bundled in and Judge White had some concern that if willful infringement was in, that some--- the evidence might be prejudicial to the issue of infringement. If you're having a separate trial, is it likely that that willful infringement could come back in?

Michael, I don't believe so. But we're considering our options at this point.

Okay. And would the same motion in [liminese] that prevented David [Tees] from really offering anything above--- or strong evidence supporting anything above 108.6, other than to show that his estimate was conservative--- would the motion in [liminese] potentially be different if you were to choose a new trial?

The answer is I just don't know at this point, Michael, whether that would be the case.

Okay. Thank you very much.

Thank you, more Cohen. [OPERATOR INSTRUCTIONS] Our next question comes from the Mr.Mike Crawford of Barrington Partners. Please proceed, sir.

Thank you. In a few weeks, it looks like there's scheduled to be an anti-trust case in the eastern district of Texas with [Trucera] and I think it's Micron and Infinion. I believe there's some relevant information in that case, including depositions maybe from the CEO of Micron to the FTC and the DOJ. And maybe some additional ADT documents that you might not have had access to. Do you have, do you have access to all of the documents in that case, in that case at this time?

We don't generally comment on other parties' litigation. We are full aware of the documents that we have, but we're not close enough to litigation of that matter to speak to that issue.

Okay. And if--- maybe you can't answer this, either. But hypothetically, if that case goes to trial, then if you would then likely be able to bring that into your Micron case in Delaware?

I guess it's possible that there are some consequences from that litigation that could reflect favorably in our litigation. But you really have to wait and see how that litigation plays out. And it's way too early to make that call at this point.

Okay. Thank you.

Thank you, Mr.Crawford. [OPERATOR INSTRUCTIONS] Our next question comes from Mr.Ted Wachtell of Millenium Partners. Please proceed, sir, with your question.

Yes. I just wanted to ask again about the options rants issue. Way back in May at this point, you outlined, you had a special committee looking at it. And then late June, and by the way, I believe in May you indicated they were principally looking at 2003 and prior. And then in June, late June, you indicated that there were, there may well be some materiality here and some restatements, without saying anything further as to the dates, and then today, you indicated that '04 and '05 are a problem.

And I'm just wondering, was there something learned in the interim between May, the May date, and the June date, and was there something learned in the interim between the June date and today, that caused you not in your disclosure, that caused you in late June disclosure to not say anything about '04 and '05 as years that presented potential restatements? Do you follow my question?

Yes. Yes, I do. Ted, let me explain the restatement. The restatement is for the latest 10K that we have on file. And that is as of December, 2005. In the 10K, we have the fiscal years 2005, 2004, and 2003. So you can only restate the last filing that you have.

So when we say we restate 2003, 2004, and 2005, technically, that is the only one we can restate because that's the latest filings. But feeding into 2003 will be any error that might be corrected in financial statements prior to 2003. So if there are issues of grants found in 1998, 1999, 2001, and as these follow through, the opening balances for 2003 will change. But that will be reflected ----all those years will be reflected in the restatement, but technically, we don't go restate or refile all the 10K's for the prior years.

Okay, maybe I wasn't clear with my question. Let me rephrase my question. Back in May, you said you were principally looking at years 2003 and prior. In the late June disclosure, you said nothing further to change that. Yet today, you disclose that you have restatements in '04 and '05. So my question is, why in the late June disclosure did you not make it clear that you were not just principally looking at years '03 and prior, but that there were also issues in years '04 and '05?

Ted, I don't know that there are issues in '04 and '05, but if we had issues in '03, automatically when we--- it will require us to restate our latest filing that we have, which is as of now.

Okay. I understand. So I guess my question then is was there a change in this option granting policy in '04 and '05 or do the same issues that existed in '03 and prior also exist in '04 and '05?

Well, ever since Sarbanes-Oxley was implemented the disclosure was reduced to two days for section 16 officers; prior to that was 40 days or so. So we follow the policy, so there was some changes in how we granted options.

But as Harold mentioned, we want to do this once and do it correctly. The independent investigators are looking at all the years until 2005. At this point in time, we have not been appraised of anything in 2004 or 2005. We only have an apprised of a very limited number at this point in time and the investigation is still ongoing. So as we get more information, we'll try and provide more color on the where we are at a particular point in time.

Okay. But at this point in time, the problems are, as you first indicated, in '03 and prior? It just causes a further restatement in--in additional years '04 and '05 because of the problems in '03 prior?

I can't emphatically say which years we have problems with because I'm not involved in the investigation. But the investigation is still ongoing. So, we could have problems in other years, also. But I don't know that for a fact.

Right. But to date, you don't see, you have not been appraised of problems in '04 and '05?

I have not.

Nor have I.

Great. Thank you. It took me a long time, but I think I got to the answer. [Laughter]

Thank you, Ted.

Okay.

Thank you, sir. Our next question comes from Michael Cohen of Pacific American Securities. Please proceed once again, sir.

Thank you. I have one more question. This one's probably for either Bob or Harold. I was in the import in the Hynix case when we heard Judge White ask both Hynix and you to have a mediated settlement discussion before Judge Seaborg. We've been patiently watching Judge [Tebor's] calendar and have not seen that pop up. I was wondering if the date has been set and, if so, if you can disclose that date.

We try to keep the, I know this will probably displease you, Michael, we try to keep the dates of mediation private.

Okay.

And the court prefers that, as well.

In light of that --

Judge Seaborg is setting the rules for those mediations.

Got it. In light of that, you're probably not going to answer my next question, but I'll go ahead and ask it anyway. I understand in the DDR2 case against Micron, there's also a settlement discussion. And I'm not aware of a settlement discussion with Samsung. Can you tell us if there's going to be any discussion---possible licensing discussion from the Samsung prior to phase three of the conduct trial? Conduct trial with Hynix, that is.

Let me address the premise of your question, which is that there are some mediation discussions with Micron related to DDR2. And we don't understand that to be the case. We know that not to be the case since I would likely know of it.

Okay. Well, that definitely clarifies something. Thank you.

If I could, Michael, let me contrast what goes on. The mediations are best done through the court venue and kept secret. That does not mean that we don't attempt through our technology relationships to have discussions with parties. Because we believe that that can be effective in producing resolutions as well. But we have continued technical discussions--- technology discussions, with Hynix and we intend to continue to do so. Please bear with us on the mediation issues. I'm aware only of the one ordered by Judge White under the aegis of Judge Seaborg. I am aware of no such mediation direction in the Micron case or in the Samsung case.

Thank you very much.

Prospectively. Obviously, you know that we had previous ones.

Yes, I'm aware of that. I'm---you're referring to going forward.

Yes, sir.

Okay. Thank you.

There appears to be no questions at this time, sir. I'd like to turn the call back over to you with the closing statements.

We'd like to thank everyone for your questions today and your continued interest in Rambus. Thank you very much.

Thank you. And this concludes the Rambus conference call. Thank you, everyone, for joining. You may now disconnect.