Rambus Inc (RMBS) 2008 Q1 法說會逐字稿

Good day, everyone. Welcome to this Rambus first quarter earnings conference call. Today's call is being recorded. At this time, I'd like to turn the conference over to Mr. Satish Rishi. Please go ahead, sir.

Thank you, operator. Welcome to the Rambus first quarter 2008 conference call. I'm Satish Rishi, Chief Financial Officer, and on the call today are Harold Hughes, our President and CEO, and Tom Lavelle, Senior VP and General Counsel. We also have with us Sharon Holt, Senior VP of Sales, Licensing and Marketing, for the Q&A.

The press release of the results that will be 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 and then entering ID number 3632485 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 PM EDT.

Before I 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 we filed with the SEC, including our 8-Ks, 10-Qs and 10-Ks. This forward-looking statements may differ materially from our actual results.

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

Good afternoon, everyone. In Q1, we achieved revenue of $39.7 million, which is at the high end of our guidance, but down slightly from last quarter's revenue. We did not sign any new patent licenses in Q1. Also, long-time customer Elpida's patent license expired at the end of March. We had hoped to be able to announce a new patent license of Elpida by the time of this call, but those negotiations are still ongoing.

However, in Q1, we achieved a very important result in the coordinated trial against the memory manufacturers. We were very happy with the unanimous jury verdict, which found we acted properly during Rambus' participation in JEDEC back in the 1990s. Just this week, we were again vindicated when the DC Court of Appeals vacated the FTC's order in a case against us. Completely consistent with the jury verdict in San Jose, the DC Appellate Court found that the FTC failed to demonstrate that we had acted improperly. Further, the court found that the FTC failed to demonstrate we had harmed competition, and it overturned the FTC's unlawful monopoly claim.

This was not a victory on technical grounds. To our reading, the court delivered a stinging repudiation of the FTC's central findings in this matter. I want to thank Tom, his in-house legal team, the folks at Munger, Tolles, [Rumer Hale] and our other outside counsel for their exemplary work in preparing for and putting on these cases.

Some may expect that on the heels of these decisive court victories our phones would be ringing off the hook with offers to settlement -- with offers of settlement from the DC manufacturers. Unfortunately, some would be wrong. Matters are far more complex. Based on statements and actions following the jury verdict, it appears certain parties intend to continue to pursue a strategy of delay. Ultimately it's a strategy which will be far more expensive than settling if we prevail. And we believe very strongly that we will prevail, and we will continue to commit the resources necessary to do so.

Waiting out the clock or wishing it would somehow go away is a forlorn hope. Our engineers and scientists continue to innovate and push forward the frontier of memory technology. At the end of Q1 we had 699 patents, with another 541 applications pending. Our commitment to innovation and technology leadership is unwavering.

As an alternative to a strategy of delay, we believe there's an opportunity for a win-win. Our leadership product strategy for products like XDR DRAM needs the support of licensed XDR DRAM manufacturers. We have three XDR DRAM licensees, including Qimonda and Elpida. We would welcome others.

Producing differentiable high value memory like XDR greatly benefits consumers by making possible new breakthrough product. And it is a far more attractive financial proposition than selling commodity markets in today's world. I can think of few financial propositions that are worse than doing that actually.

In February, the International Engineering Consortium recognized the XDR memory architecture with its 2008 Design Vision Award. The Design Vision Award acknowledge technologies, applications, products and services judged to be most unique and beneficial. The XDR architecture received the award for "exemplifying the highest level of innovation".

Also during the quarter, we announced that our XDR DRAM licensees had shipped over 50 million XDR devices to date. The PlayStation 3 drove the lion's share of this volume as it continues to gain momentum. As noted recently in BusinessWeek, Sony has been able to cut the bill of materials cost for the PS3 in half, reducing the cost from $800 at time of launch to $400 a little over a year later. We helped Sony in this effort through our series of die strengths, package and board redesigns.

It is a great demonstration of our dedication to customer success. With our royalty-based business model, we win when our customers win. As with Sony, we work very hard to get our customers' products into production, and then help them cost reduce their products to drive greater volume.

Also, development work is in full swing here at Rambus for Toshiba's HDTV chip, which we announced last December, which use the XDR architecture. Just this week we announced two new technology licenses. We'll be providing Spansion with engineering services to help it accelerate the time to market its high-volume MirrorBit Flash products.

Further, our two companies will collaborate on next generation Flash memory solutions, combining Spansion's leadership in NOR Flash and our renowned expertise in high-performance memory architectures. We will also during our own breakthrough innovations in Flash technology to bear. Products of this collaboration, and others we have been development, will help enable a new generation of powerful multimedia devices.

We also announced the license of IBM to provide an advanced multiprotocol SerDes cell for its state-of-the-art 45 nanometer SOI process. Operating at data rates of up to 6.4 gigabits per second, IBM will use this cell in a number of server, network and merchant ASIC applications.

As IBM said in the press release, this multiprotocol SerDes solution is in a flexible, single IP solution that simplifies design process, without compromising performance, power or silicon die area. In short, since our last quarterly report we have made continued progress on our strategy of developing and advancing technology in our four focused markets, being computing, gaming, HDTV and mobile.

Finally, I want to say a few words about Kevin Kennedy. Kevin, who has served on our Board of Directors since 2003, and has been our Chairman for the last two years, announced he will be leaving the Board on July 1, or it as early as a replacement can be found. I want to thank Kevin for his leadership and commitment to Rambus. Kevin and the other Directors dedicate a tremendous about of time to their Board duties. We're very grateful for the years of service Kevin has given the Company. Good luck, Kevin.

With that, I will turn in over to Tom who probably has a few things to say about the legal front. Thank you.

Good afternoon everyone. 2008 has obviously started as a very eventful year regarding our legal activities. On March 26 in Judge Whyte's court in San Jose, in the coordinated trial the jury returned an unanimous verdict exonerating Rambus of the anticompetitive and fraud charges alleged by the memory manufactures against Rambus. Hynix, Micron and Nanya participated in this trial, while Samsung agreed to be bound by the factual finding.

There are a number of post-trial motions and other issues still for Judge Whyte to decide. Further, Samsung will argue its additional claims in a bench trial before Judge Whyte in September of this year.

Nevertheless, as I said in our March 27 call, this verdict removes a shadow cast by allegations that Rambus has had to live with for far too long. Further, it clarifies what parties had hoped to obscure, that at its heart this case is about protecting -- actually all of these cases are about protecting the value of intellectual property and fostering innovation. No company can long invest in innovation if its inventions, its property, can be taken by others without compensation. With regard to that central issue, we already have a jury verdict that our patents are valid and infringed by Hynix' products. We're confident we will achieve that same result when it comes to the other manufacturers.

As a next step we intend to pursue a permanent injunction against Hynix' infringing products as we continue to pursue the balance of this case against Hynix and the other manufacturers. We have a Markman hearing coming up in a couple of months, and a patent infringement trial again Samsung, Micron, Hynix and Nanya currently slated for January 19, 2009.

Moving next to the Court of Appeals for the DC Circuit, we could not have hoped for a more positive result from the Appellate Court than its decision released this Tuesday. The deception of JEDEC is central to both the FTC's case, and the DRAM manufacturers' defense in our patent trial is effectively dead with the court's decision. The court's order is a further vindication of Rambus, is 100% consistent with the jury verdict in March, and validates our contention that we did nothing wrong at JEDEC.

The court concluded that the commission's failure to demonstrate that Rambus inflicted any harm on competition requires vacating of the commission's orders. And while the court contemplated the chance of further FTC proceedings on remand, the court expressed serious concerns about the strength of the evidence relied on to support some of the commission's crucial findings regarding the scope of JEDEC patent disclosure policies and Rambus' alleged violation of those policies.

The court when on to say the commission's findings are murky regarding what JEDEC disclosure policies were, and what within those mandates Rambus failed to disclose. As Harold mentioned, this was not a victory on some narrow technical grounds. This was a decisive victory for the Company, as it sweeps away many of the factual underpinnings of the allegations of misconduct used by both the FTC and the DRAM manufacturers with whom we are currently in litigation.

The DC Circuit Court of Appeals, the jury in San Jose, the Federal Circuit and the FTC's own ALJ came to the same conclusion given essentially the same set of facts.

With regard to the other cases, the price fixing case in San Francisco, there was a case management conference on April 15. During the conference Judge Kramer established a cut-off for discovery of August 29 of this year. While he did not set a firm date, he did indicate that the parties should plan on a February 2009 trial.

We are awaiting a decision from the Court of Appeals for the Federal Circuit regarding the Samsung matter arising from the case in the District Court for the Eastern District of Virginia.

We're still filing briefs in the U.S. District Court for the District of Delaware in regards to the first phase of the Micron trial, which was heard last November. A decision from the judge will of course follow the completion of briefing.

Now I will turn the call back over to Satish to review the financials.

As reflected in our press release today, we finished the quarter with revenues of $39.7 million, down 2% from the previous quarter and down 21% from the year ago quarter.

Royalty revenue was down by $3 million due to the completion of the first $50 million patent royalty payment from Qimonda in Q4 of 2007, offset by higher technology royalties in XDR and higher contract revenues. The decrease in revenue from a year ago was also due to a scheduled decrease in patent royalties from Fujitsu and Qimonda, offset in part by higher PS3 related royalties.

We continue to face challenges through our patent licensing efforts associated with the impact of the FTC orders, and have made some progress in the re-engaging some of our customers, however, we were not far enough along to book any royalty revenues.

Before I go further, let me address the issue of MARR, or the maximum allowable royalty rate, and the escrow. As you are aware, the FTC remedy order required that we not collect in excess of MARR, which was stipulated by the FTC. As Tom mentioned this week's decision from the DC Circuit of Appeals vacated the FTC orders, however, this does not translate into immediate revenue for us.

As of the end of March the amount held in abeyance pursuant to the SEC order had increased to $3.8 million. We believe that we will be able to recognize the amount as revenue sometime soon, but we still need to go through the legal process and wait until the DC Court of Appeals issues their final writ or mandate.

Operating expenses for the first quarter were $63 million, down 13% from the previous quarter, and up 2% from the first quarter of last year. Now these operating expenses include items like stock-based compensation, expenses related to the restatement, 409(a)-related payments made in early 2007. To provide a better comparison period over period, I'm excluding these expenses related to these activities from my discussions going forward.

Excluding stock-based compensation, restatement expenses and other adjusting items, adjusted operating expenses in this quarter at $51.5 million were down 2% from the previous quarter, and up 33% from the quarter a year ago. Adjusted engineering expenses were up 2%. SG&A excluding litigation was up [15%] due to compensation and payroll taxes. And litigation was down 18% from the previous quarter.

From the quarter a year ago, adjusted engineering expenses were higher by 8%, primarily due to headcount increases. SG&A excluding litigation was higher by 23% due to compensation, consulting for finance, consulting in other areas, and public company expenses. Litigation expenses were high by 168%.

Litigation expenses continue to be a significant portion of our operating expenses. Our recent victories in the Hynix trial and with the FTC demonstrate progress in our strategy to defend our intellectual property.

I want to remind you that the timeline for each of the many cases are difficult to predict, and each case has its own twists and turns. However, we stand committed to pursuing a strategy, and because of that, we expect the litigation cost to be significant and dynamic.

Our adjusted operating loss for the quarter was $11.8 million, no change from the previous quarter, and a change from a profit in the first quarter of 2007. Overall cash, defined as cash, cash equivalents and marketable securities, excluding the restricted cash, was $382 million, a decrease of approximately $59 million from the fourth quarter of 2007, and down $63 million from a year ago.

During the quarter we repurchased 1.4 million shares for approximately $25 million. Additionally, as a part of the agreement to settle the consolidated class-action lawsuit regarding stock option allegations, we transferred approximately $18.3 million into an escrow account, which pending final approval will be used to settle all claims. We also spent $6.4 million on EDA tools which contributed to the reduction in cash quarter over quarter.

Now I will give you some thoughts regarding the second quarter. This guidance reflects our reasonable estimate, and our actual results could differ materially from what I'm about to review. We expect first quarter [Sic] revenue to be between $32 million and $37 million. This does not include the amount that is held in abeyance. We expect operating expenses, excluding stock-based comp, to the between $43 million and $48 million. Excluding an estimate for litigation expenses of $7 million to $11 million, adjusted operating expenses are expected to be slightly down quarter over quarter.

As noted earlier, litigation expenses are difficult to predict because we do not control timelines and requests from the court, nor do we control the action that adversaries may take which may cause us to incur additional unplanned expenses in any particular quarter.

That concludes our prepared remarks. Operator, would you please open the call for questions?

(OPERATOR INSTRUCTIONS). Jeff Schreiner, Capstone Investments.

The first question I want to ask is, what is the timeframe, Tom, for the FTC to make a decision on re-examining the case?

They've got a little bit of time. We're looking probably at weeks, rather than months before they make a determination of what they're going to do, whether they are going to remand and go back for a Section 5 action or what else they might do.

Another question for you and we will move on. What is the cutoff date for filing an injunction? And can Rambus file an injunction request at any point up to that date?

An injunction following the jury verdict, you're talking about?

Yes, I'm sorry.

We have hearings scheduled, I believe it is on May 9. We have hearings coming up where we will be filing that brief on the proposal to get an injunction. That is coming up -- the briefing is going on now. It will be filed -- I don't know when the actual hearing is going to be, but sometime after that obviously.

I think they're coming to get you right now actually. This is for Satish. In regards to the guidance, it seems like the Elpida contract has rolled off and the Company is obviously negotiating. Will the Company potentially receive any reduced type of revenues from Elpida during the renegotiation period?

The Elpida contract expired as of March 31. Typically we get our royalties within 45 days from the end of the quarter, so the Elpida patent royalty is included in the guidance for Q2.

Meaning that we are optimistic that we will re-sign them?

Yes, and in the meantime we -- go ahead, Sharon.

As Harold mentioned in his remarks at the beginning, we're still negotiating with Elpida. We had hoped to have that done by now; we don't. But we remain confident that it will get done. And as Satish said, it has no impact to our Q2 revenues one way or the other because of the way the old contract was structured. The final payment we will receive from the old contract in Q2. And then we would expect the first payment from the new contract to hit in Q3. And we would recognize it as revenue at that time.

One last question. Harold, your comments regarding the litigation it is -- and the time that we have spent and talked about things, it seems like you are the most bullish I have ever heard in the vocal tone about these cases, and your willingness to be openly vocal about it. Could you talk a little bit about that for us, and where that comes from at this point?

With a great deal of trepidation, yes. Obviously, we have great -- we have made great strides on the legal front. One would conclude that is significant motivation for the other side to do something. We only get paid when we turn them into customers, as I have said many, many times.

As I also said in my prepared remarks, we believe that there is a win-win strategy, where they would in working with us actually make products that made a profit. So given that the legal pressure and what we believe to be the appeal of our product strategy, one would hope that we could make some progress here.

These negotiations are extremely complex, and we have to take into consideration the impact on other customers, but we remain optimistic that now is the time.

Michael Cohen, Pacific American Securities.

Congratulations on your recent court victories. So in that spirit, my first question is probably for Tom. It appears that you're going to be filing the motion for the injunction against Hynix on May 9. And then I believe the hearing is scheduled for June 18. My question is, has it been determined that Hynix' DDR2 products infringe your patent? And if so, will the injunction request include DDR2?

We certainly anticipate that the injunction request will include DDR2.

Excellent. My next question is, with regard to what is going on at the U.S. Patent and Trademark Office, can you give us an update on what has happened to date at the U.S. PTO regarding any re-examination, and which patents are currently subject to re-exam?

I'm not going to identify all the specific patents, but as you know, and thank you for the congratulations, we were very happy with the wins, of course.

What we're talking about here is there have been re-examination requests filed by certain parties to try to have the validity of a number of the patents in litigation re-examined by the U.S. Patent and Trademark Office. Those are -- have started. They will probably take some time. This is a pretty normal process in that it happens a lot.

The first thing that happens is the PTO looks at the claims, or looks at the statements of the other parties, and then makes a first action. That hasn't happened yet. Their first action may be to reject the claims, maybe to take them into account. Then at that point we would have a chance to rebut and go forward from there. So this is not going to happen in the next couple of weeks. This is going to take some time, if it precedes forward at all.

If we look at the Farmwald/Horowitz patents as sort of the Farmwald/Horowitz tree, is kind of the bottom of the tree potentially under re-examine?

The bottom of the tree?

Meaning the (multiple speakers) came from the 2008 application.

Certainly some of the significant claims are being asked to go in for re-examination. We did in fact get an Office action on one in one instance. Again, I want to say it is probably fair to say that some of the underlying claims that are fundamental to a number of the Farmwald/Horowitz patents are subject to re-examination. But I want to caution people. These patents have been tried in front of juries. They have gone in front of the Federal Circuit and been reviewed, and they have stood up as valid and infringed.

I'm not going to try to anticipate anything in the PTO, but as I say, they're going to try anything they can to stall and delay. This is part of that stall and delay tactic. We intend to win, and I believe we will on the re-examines as well.

That was the point of my questions there, as I realize in their desperateness that is probably the direction that they will likely be headed.

My next question is probably for Satish. I think you partially answered this in your prepared comment. What this be the first quarter that you are without the Qimonda payment from the settlement agreement that was announced on March 21 of 2005?

That is correct. Yes. The last payment from Qimonda, the last partial payment occurred in Q4 of 2007.

I believe November 15 of Q4 is what it said in the original press?

Yes, Q4 2007.

You also mentioned that you lost some revenue from Fujitsu. Could you tell us what that was related to?

What I mentioned from a quarter over quarter, if you look at our revenue pattern on the royalty side, the year-over-year from March quarter 2007 and 2008 the variance was related to Qimonda and also Fujitsu. So the Fujitsu payments that we have, they have not been and will not be linear. So when you look at year-over-year there was -- they paid higher royalty revenues in Q1 of 2007 versus 2008.

You may recall that the Fujitsu deal had back dues involved, and those where pretty much front-end loaded. Those have now been paid at more of a runrate level.

So now you are more of a running royalty from here forward looking?

That is my recollection.

My last question. It appears from information that I have seen that it looks like IBM may be coming out with a version of its Cell processor that uses DDR2. I was wondering if you can confirm that?

We certainly can't comment on IBM's product strategy. But certainly I think there has been some talk about this, and some things in the press about this over the last year.

The only comment that I would have is that if you look at a typical compute system architectures at different system -- different system types had different requirements from the memory subsystem. What might be a great memory subsystem for a PC might not be the same subsystem that you want in high-performance compute systems or servers, or for that matter in graphics.

So it is not unusual -- it would not be unusual for IBM as they're trying to broaden Cell in the market to try to address multiple points in terms of compute platforms to try to get Cell adopted as broadly as possible. That is all I will say, but I can certainly refer you to IBM's website to take a look at what they're doing with the product.

If they went forward with a version of the Cell for high-performance computing that did not include XDR, but did utilize Flex I/O, how would the licensing revenues from that be related? Would it still be the same amount as if they didn't use XDR, just for the processor itself, or would there be a loss there?

I really can't comment on the details of the technology license agreements that we have in place with IBM. But they certainly do have a technology license for the Rambus interfaces that they need for the Cell microprocessor.

Hamed Khorsand, BWS Financial.

Congratulations guys. My question is regarding the timeframe in getting the payment from Hynix that was put aside into escrow.

What is your question?

When would the timeline be for you to receive it?

I think that is for Tom to take you through that. Obviously, there is several interacting issues. Tom, are you still on the line?

Yes, I certainly am. It is difficult to predict what we need to do to release the funds that are being held -- is to get Writ of Mandate from the District of Columbia Court of Appeals. That is a process that takes a little bit of time. Remember, this is a legal procedure, so everything takes time, and usually takes more time than certainly any of us would like. But we're talking probably months, rather than days before that would occur.

A lot of that will depend -- a lot will depend on what the FTC decides it wants to do and how they decide to move forward. But I would say we're talking months before the Write of Mandate issues when the opinion goes into effect and the orders get vacated.

On the technology side for the products, when would the timeline be for Rambus with its own Flash memory and with Spansion's new Flash memory coming out?

That is Spansion's product, so we obviously wouldn't comment on that.

Wait a minute, this is [Tom Lavelle]. Could I go back and just correct something. You said Hynix, correct, on the escrow, or the withheld funds?

I was referring to Hynix.

Then I think there is a confusion. I answered the question based on the FTC case. And I'm not -- I don't know, I will have to turn that over to Satish as to whether Hynix has any funds that are being held. The Hynix situation is the damages in the jury verdict, which continue to accrue. Am I my getting that right?

Yes, that's the question.

Okay, I answered the wrong question. I apologize. The focus for Hynix is on the jury verdict, or the amount that was reduced to $133 million by Judge Whyte. We have finished now the third phase of that trial. That amount will have gone up because infringing products continue to ship. That number was through either late '05 or early '06. So the number will have gone up substantially. And that is also before interest is applied to it.

So when we get a final judgment from Judge Whyte in that case against Hynix, the number will be determined, and it will -- we suspect it will be way larger than $133 million. And again the timing on that depends on what happens and how quickly we get to final judgment from Judge Whyte. I apologize for interrupting.

Thank you. Back to the Flash memory, you made comments that you're pursuing your own Flash technology development. That is where I am more leaning towards is to understand where does Rambus stand with their Flash technology and where do you see it being used?

This is Sharon. I will take the question. We have talked about this a bit in the last several calls, and I certainly don't want to fuel a lot of speculation. As it is part of our business model to invest in technology development, in some cases the development of that technology is years before it shows up in product form. And so we're talking about a fairly long, long cycle here.

That being said, clearly we made the announcement this week about the work that we're doing with Spansion, which we are very excited about. As Harold said in his comments, we also have other efforts going on internally, but with respect to those other efforts, we're not yet ready to make any announcements. And as soon as we do have a tangible program underway, either for a new product or with another customer or partner, we will make an announcement.

[Phillip Guerra]. Algorithm Capital.

I had a couple of quick questions for Satish. Have you disclosed what type of securities your cash is invested in?

We did disclose that in our 10-Q and our 10-K, but typically our investment portfolio is very conservative. Most of the cash we have is short term. We don't have any auction rate securities or any impaired assets in our financial portfolio.

The other question was regarding the tax benefit rate for 2008, have you given guidance on where that might come in, because I noticed for this quarter it was 33% versus 45% in the first quarter of '07?

No, I haven't given guidance for the full year. We typically don't give guidance for the rest of the year. And the same thing goes for the tax rate, given the volatility we have in our business at this point in time, until we get a little more stability, I am loath to give out a full year guidance on the tax rate, because I would be changing it very quickly if I did.

Can you just give me a little color then as to why it did drop to 33% for this quarter?

Many of the issues that come in their relate to discrete items. So typically we start off with a tax rate of 35% for federal and about 4.85 for state. And then once you start from there, you take out all the other discrete items that could relate to employee stock options outside of the U.S., or any stock-based compensation (inaudible) of the U.S. for which you don't get a deduction. There could be other issues like R&D credits and so on. When you go through it there is a whole, long laundry list of reasons why there is a change in the effective tax rate from your normal tax pay rate.

Mike Crawford, Riley Investment Management.

My first question is on controllers. Could you help size the market opportunity for DRAM controllers, as differentiated from just the DRAM market itself?

I realize when we say DRAM controllers that could be confusing. Let me give you a couple of examples before I jump to the general. A system that most of us are familiar with is a typical PC. In a PC obviously you have a CPU, usually from Intel or AMD, that is either connected through a bridge or directly to memory. Whether it is the CPU or the bridge that is connecting directly to the memory, that device would include what we would call the DRAM controller. So it is basically some logic that helps transmit messages back and forth between the memory and the CPU.

In a PC system, that is what the architecture looks like. In other types of systems it could be an ASIC or some other kind of chipset that is talking to the memory. And in that case that ASIC or chipset would include a memory controller. Does that help?

Is there any way to put a TAM on that?

First of all, when we look at it, we're looking at certain types of memory devices. At a very high level, if you are looking at the market itself, it is quite large. As you know, the DRAM market is $30 billion a year. The controller market is multiple times that, much larger.

If you just add up in all the Intel microprocessors and all the AMD microprocessors, other chipsets and ASIC and other specialty devices that talk to memory, we're talking hundreds of billions of dollars. That is at the top level. Then, of course for us, the TAM would be some percentage of that, depending on the royalty.

That is helpful. Thank you. I do have one question regarding the FTC case. I think they reported spending about $2 million prosecuting this case. I think you spent like $27 million depending yourselves. We have seen -- back in 2004 it looked like there was a brief that looked like it had been stamped by Micron's law firm, Arnold & Porter. And it was put up on the FTC site before it was taken down.

In Judge Whyte's discovery in that trial there was some other billings that look like they were from (inaudible) to Micron. The question is this, can Micron pay for the FTC's work? Is that allowed?

This is Tom. I don't know any process where that would be allowed. I'm not in any position to say that that is anything at all what I believe happened.

Two other questions, just on your business that you have a couple other initiatives. One is this low-power transceiver. You had talked about hoping to announce some products this year regarding the low-power. And I know you demonstrated a 14 milliwatt transceiver. What is going on with that?

We obviously had some announcement last year about some new -- what we call technology ingredients -- kind of new ways to achieve high-performance signaling with low power. As is normal for our business model, the next step would be to take a look at how to incorporate those in a new memory architecture, and then to actually productize it and engage with customers.

We're moving to that next phase of actually looking at memory architectures that would incorporate that new low power technology, and dialoguing with potential customers and partners as we further refine the product definition.

Would that be a subset of the Terabyte Bandwidth Initiative, or is that something separate?

The low-power ingredients were developed separately, but as we look at future memory architectures there is no reason why we couldn't look at some of the very high-performance capabilities we announced with TBI and look at how to incorporate some of the low-power techniques to achieve very high-performance, very low-power.

[Jordan Wong], [Gruntal Capital].

Congratulations on the recent victories. Can you talk just a little bit on the fundamentals about the market and potentially transitioning to the DDR3 and your positioning there, please?

Are you talking about from a product perspective?

From a PC market and any other end market that you potentially see. I guess in Qimonda's press release and earnings they talked a little bit about validation with Intel. I think in a month they will be in a ramp, and I just wanted to hear your guy's thoughts on if and how the PC and any other market will transition to DDR3, and your positioning there?

Certainly, while I would say from a product standpoint, we tend to focus more on our leadership products like XDR. Obviously our partners are engaged with main memory commodity memory. And we look at all the same data that you probably also have access to. I think it is widely expected that DDR3 will pick up later this year. And over the next years -- over the next couple of years obviously, become the predominant commodity memory shipping in compute systems.

It appears there are no further questions at this time. I would like to turn the conference back over to Mr. Rishi for any additional or closing remarks.

Thank you everyone for attending our call. Thank you very much.

Ladies and gentlemen, that does conclude today's teleconference. We would like to thank you all for your participation. And have a great day.