Rambus Inc (RMBS) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to this Rambus Second Quarter Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Satish Rishi. Please go ahead, sir.

Thank you, Operator, and welcome to the Rambus Second Quarter 2009 conference call. I am Satish Rishi, Chief Financial Officer, and on the call today are Harold Hughes, our President and CEO; Tom Lavelle, Senior VP and General Counsel; and also Sharon Holt, Senior VP of Licensing and Marketing.

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 888-203-1112. You can also hear the replay by dialing the toll free number and then entering ID number 9541599 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 PM Pacific Time.

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 technologies amongst other things. These statements are subject to risks and uncertainties, which are more fully described in the documents we file with the SEC, including our 8Ks, 10Qs, and 10Ks. These forward-looking statements may differ materially from our actual results.

Now, I will turn the call over to Harold. Harold?

Thank you, Satish, and good afternoon, everyone. As we finish up the first half of 2009, I'm increasingly convinced that we have the Company on the right track. Our engineers and scientists continue to develop breakthrough innovations that advance performance and power efficiency of computing and consumer electronic products. We've demonstrated the benefits of our innovations and the continued momentum of our leadership products into our market focused initiatives. In a down market we have the financial strength to take advantage of some of the very attractive acquisition opportunities, acquisitions that can both complement our strong patent portfolio and add to our team of world-class innovators.

We had a successful bond offering during the quarter which raised capital to retire maturing debt, fund our continued innovation efforts, and to pursue strategic acquisitions as I just described. This funding also strengthens our ability to protect our intellectual property and further ensures that our staying power to pursue our legal cases to conclusion.

In addition, we've successfully put aside the costly distraction of the FTC and have agreed to a preliminary settlement with the EC and have overcome innumerable delaying tactics on the part of the DRAM manufacturers and are now set to start the price fixing case trial this fall. There's much to do in the weeks and months ahead but I'm very optimistic given the progress we've made on so many fronts so far.

Nevertheless, the current business climate is obviously very challenging. We're in the midst of a worldwide dislocation that has touched every sector of the economy. In electronics, consumer-centric markets which are the focus of Rambus have fared better than business-oriented ones. But even here, our customers have seen a pretty dramatic falloff in demand. The decline we see in our volume-based royalty revenues this quarter reflected these market conditions.

Moving on to some of the key highlights during the past quarter, we introduced a set of innovations that can advance dramatically the performance of computing main memory beyond the capabilities of DDR3. Using Rambus innovation such as FlexPhase and Flex Clocking Technology, we showed how future main memory can advance and, excuse me, achieve 3.2 gigabits per second, twice the top speed of DDR3. We also showed innovations that could cut power usage by 40%, provide 50% higher memory throughput and enable two to four times greater memory capacity. All these factors -- speed, power, throughput, and capacity, have to be addressed in the next generation of main memory and it's a tribute to the work of Rambus engineers that have developed innovations to tackle all these issues. We have a white paper on Rambus.com entitled "Challenges and Solutions to Future Main Memory" which provides further details of our innovation.

Also this quarter we demonstrated the growing performance in power efficiency leadership of the XDR memory architecture. At MemCon we showcased a silicon demonstration of a complete XDR memory system running at data rates of up to 7.2 gigabits per second with superior power efficiency. The silicon demo consisted of Elpida's one gigabit XDR DRAM device and XIO memory controller. The XIO memory controller uses less than a third of the power of a GDR5 memory controller for an equivalent level of performance. For a given power budget, the XDR memory system can provide up to twice the bandwidth of a GDR5 base system. This demo also showcased how an XIO memory controller can support both XDR and XDR2 DRAM, offering customers a seamless path for future upgrades.

Our architects and engineers have created the world's fastest and most power efficient memory platform in the XDR architecture. Our XDR licensees have now shipped over 100 million XDR devices. The winning application is Sony's PlayStation 3 so XDR DRAM is also used in DLP projectors, image processing solutions, and thin, pliant PC-over-IP products. Our focus on creating innovations which enable world-leading memory performance and power efficiency has resulted in 814 issued patents and another 567 applications pending as of the end of June of this year.

In addition to the technical accomplishments I just spoke about, we've made a great deal of progress on the legal front. Tom will give you details in a moment but I wanted to say a few years regarding recent legal events.

First, the FTC. After seven years of having to defend the Company against the FTC's now dismissed allegation at a cost of many millions of dollars and unconscionable delay in our licensing efforts, we can say that this case is finally behind us. The FTC, which took "an aggressive interpretation of rather weak evidence" announced in May that it will no longer pursue claims again Rambus. Also during the quarter we reached a tentative settlement with the European Commission. We've passed the 30 day marks for comments by third-parties and we are working with the commission staff, looking forward to bring this matter to a close.

And with that, I'll turn the call over to Tom.

Thanks, Harold, and good afternoon, everyone. As Harold mentioned, we have made much progress on the legal front. As we announced in June, we reached a tentative settlement with the European Commission. We have committed to offer attractive royalty rates for five year worldwide licenses for DRAMs and for memory controllers the particulars of which we disclosed back in June. All royalty rates are applicable to future shipments only and do not apply to unlicensed use prior to entering the license agreement. In accordance with EU rules, the Commission invited interested parties to submit comments on the tentative settlement for a period of not less than 30 days. We reached this 30 day mark on July 13 and interested parties submitted their comments. We are now in discussions with the EC staff to finalize this matter largely consistent with the proposed commitment that we made.

As we upheld throughout this process, we believe that the rules of standard setting organizations must be written and clear and that there should be consequences if such clear, written rules are violated. We did not violate the rules during our participation in the JEDEC Standard Setting Organization as demonstrated in multiple court victories. It is our hope that resolution provides a new platform where all parties can move forward by licensing our patented innovations for future use in their products rather than engaging in costly litigation. That being said, we will continue to pursue claims for past infringements as the agreement with the EC is for forward-looking shipments only.

Moving now to the patent cases, in the Hynix I matter, Hynix has posted the $250 million bond as ordered by Judge Whyte following the $397 million judgment against Hynix for infringing our patents. The remainder of the judgment is to be provided in the form of a lien on Hynix property in South Korea until such time as we have succeeded upholding that decision in the Federal Circuit. We continue to work on perfecting that lien. As to the compulsory license royalties that Hynix must pay, we're in the process of setting up the escrow account to collect the funds that are owed to us. Once that fund is established and monies are deposited, we will report the amounts paid into the escrow as part of our quarterly update. Note, however, that these will not be accrued as revenues pending the outcome of the appeal in the Federal Circuit. As expected, Hynix has filed its appeal of this matter with the Court of Appeals for the Federal Circuit.

Additionally, we have filed our opening brief and our appeal of Judge Robinson's decision in the Micron Delaware case. We hope that both of these matters will be reviewed at the same time by the Federal Circuit. As a matter of fact, today a motion was filed jointly by Hynix and Rambus to have these cases consolidated or coordinated in the Federal Circuit. The coordinated cases in front of Judge Whyte remain staid pending these appeals.

On a related but separate matter, Judge Whyte issued his ruling pertaining to the Samsung contract claims. The consequence of this ruling is that Samsung is entitled to its most favored customer clause benefits only through the term of the original contract which expired four years ago on June 30, 2005 and not past that date and Judge Whyte agreed with us that contrary to Samsung's contention, the license did not cover DDR2 and future generation products. Judge Whyte also found that Rambus negotiated the renewal of the license in good faith. Judge Whyte has yet to rule regarding Samsung's spoliation claims.

As we look ahead, we have two major cases currently scheduled to begin soon. I'll start with the evidentiary hearing with the International Trade Commission. Following the Markman hearing that took place earlier this year, Judge Essex has adopted virtually all of our recommendations for claim construction. We remain confident in the strength of our claims as we proceed towards the hearing. Just this morning we received an order indicating that the docket of administrative law Judge Essex is very full and he has now moved the evidentiary hearing to run October 13 of this year through October 20 of 2009 with the final initial determination to be due no later than January 22, 2010.

As a reminder, our complaint names NVIDIAas a respondent, as well as a number of companies whose products incorporate accused NVIDIA products that were imported into the United States. We are seeking an exclusion order barring the importation, sale for importation, or sale after importation of products that infringe our patent claims. The accused products include NVIDIAproducts that incorporate DDR, DDR2, DDR3, LPDDR, GDDR, GDDR2, and GDDR3 memory controllers including graphics processors and media and communications processors. This represents the great majority of NVIDIAproducts.

During the quarter we filed a motion to terminate some of the claims from the original complaint. Such motions are fairly common with ITC actions and we did so to help streamline the hearing and help simplify the evidence that will be presented at the evidentiary hearing now scheduled for October. NVIDIA has been actively trying to discredit our patent position with the U.S. Patent and Trademark Office through a series of press releases claiming victory in the reexamination process. As is typical in a U.S. PTO response to a request for a reexamine, U.S. PTO on reviewing only the challenger statements regarding the patent typically takes an initial position that the patent claims at issue merit review.

To put it into context, the filings by NVIDIAand the initial responses by the U.S. PTO are the first steps in a very long process of challenging patents. It typical takes more than five years for the legal system to resolve a challenge and we intend to defend and retain the patents which were already reviewed and issued by the U.S. PTO. During the pendency of these challenges to our issued patent claims, the claims remain fully valid and enforceable. Therefore, NVIDIA's press releases are at best pre-mature.

In a very real sense, these announcements of a reexamined U.S. PTO are equivalent to Rambus announcing that it has filed a patent application and therefore has won a patent infringement finding. We do not issue press releases about patent applications that we believe will read on certain products. Nor does it make any sense for our litigation opponents to announce victory based on a procedural step of the U.S. PTO re-exam process. To be clear, we do not intend to engage in press release wars.

As we've said in the past and as I would like to reiterate now, our overriding goal in our communications to the market is accuracy. Our focus is on outcomes rather than on process. What's happening with regards to re-exams is, as I've just explained, the beginning of a very long process. Meanwhile, our patents being challenged remain fully valid and enforceable and the trial at the ITC begins in less than three months.

I'd like to close with just a few quick updates regarding the price fixing case currently schedule to begin on September 28, 2009 in Judge Kramer's court in San Francisco. Judge Kramer has limited our damages in this case to those caused by acts occurring after May 4, 2000 based on the statute of limitations but he has left open the possibility that we would argue that the manufacturer should be stopped from asserting the statute or that evidence prior to May 4, 2000 is nonetheless admissible. Judge Kramer has also set a date to hear additional spoliation arguments prior to the September trial. That hearing will take place beginning August 31, 2009 and is expected to last through September 2. It is clear to us that Judge Kramer wants to keep this case on track and thus has been reluctant to move the date as requested by the defendants.

Now I will turn the call back to Satish.

Thanks, Tom. As reflected in our press release today, we finished the second quarter with revenues of $27 million, down 1% from the previous quarter and down 24% from the year-ago quarter. As compared to the previous quarter, royalties were lower due to lower variable patent revenues associated with lower shipment volumes. Excluding these expenses, adjusted operating expenses in the quarter at $41.9 million were down 14% from the previous quarter and up 1% from the quarter a year ago. The decrease from the previous -- excuse me.

Operating expenses for the second quarter were $49.3 million, up 13% from the previous quarter and down 6% from the second quarter of last year. These operating expenses include a credit of $0.4 million related to reimbursement from an insurance provider associated with a cost of restatement and approximately $7.9 million of stock-based compensation. Last quarter included a credit of $13.6 million related to reimbursement from insurance providers and former executives associated with the cost of restatement and approximately $8.4 million of stock-based compensation. To provide a better comparison period over period, I'm excluding expenses and credits related to stock-based compensation and investigation from my discussion.

Excluding these expenses, adjusting operating expenses in this quarter at $41.9 million were down 14% from the previous quarter and up 1% from the quarter a year ago. The decrease from the previous quarter was primarily due to lower compensation and litigation expenses and the increase from the quarter a year ago was primarily due to higher litigation expenses. Excluding litigation expenses, our adjusted operating expenses at $26.9 million were down 13% from the previous and down 17% from a year ago.

Adjusted engineering expenses at $14.7 million were down 13% from the prior quarter and SG&A, excluding litigation, at $12.1 million was also down 13% due to lower compensation related expenses. And litigation at $15 million was down 16% from the prior quarter. As compared to the quarter a year ago, adjusted engineering expenses were lower by 32% primarily due to the reduction in force. SG&A excluding litigation was higher by 12% due to higher allocated IT and facility expenses and litigation was higher by 65%.

Our adjusted operating loss for the quarter was $14.9 million or 31% lower from the previous quarter and higher than the second quarter of 2008. Overall cash defined as cash, cash equivalents, and marketable securities excluding restricted cash was $480 million, an increase of $132 million from the first quarter of 2009. In June 2009, we issued $150 million in unsecured convertible five year notes which raised $146 million in net proceeds. In addition, we received $1.9 million as reimbursement from an insurance carrier associated with the cost of restatement.

Regarding the financing, the opening of the convertible markets gave us an opportunity to further strengthen our cash position. Given that litigation expenses are unpredictable, we always want to be in a position of excess liquidity and this was one of the reasons for raising money at this time. In July, after the quarter ended, the underwriters exercised their overallotment option for an additional $22.5 million in face value notes which - to the Company's cash position in July to over $0.5 billion.

Now, I will give you some thoughts regarding the second quarter. This guidance reflects our reasonable estimate and our actual results could vary materially from what I'm about to review. We expect third quarter revenue to be between $22 million and $25 million. We expect operating expenses excluding stock-based compensation to be between $44 million and $49 million which includes our estimate for litigation expenses of $14 million to $18 million. Litigation expenses are difficult to predict because we do not control timelines and requests from the courts nor do we control the actions that our adversaries may take which may cause us to incur additional unplanned expenses in any particular quarter.

Before we open the call for questions, I would like to address a few inquiries we've received from shareholders via e-mail on to our website. The first question is what is the size of the memory controller market opportunity for Rambus?

I'll take that one, Satish. Let me say at the outset this is going to be a long answer because it needs some set up. I will first talk about what memory controllers are and where they are implemented in electronic products. In a memory system, you have devices that store data, say a DRAM, for example. You also have a device that manages the writing and reading of data to and from the DRAM and that's the memory controller. So, anywhere you find DRAM in PCs, game consoles, mobile phones, digital TVs, or other consumer electronic products, you'll find a complementary memory controller.

In PCs, there's one memory controller that communicates to many DRAM devices but in many applications, a memory controller might connect to just one or two DRAM devices. In the classic Intel architecture, the Northbridge chip was the memory controller. Intel is now transitioning to the Nehalem architecture where the memory controller is integrated into the CPU. In fact, with greater integration in semiconductors, today's memory controllers are usually a functional block that is part of a larger processor chip or SOC.

In PCs, the memory controller function is implemented in CPUs and graphics processors. In mobile phones, it's in media processors and baseband processors. In HDTVs, you'll find memory controller in MPG decoder chips and in image processors. So, if you look at market research data, you won't find a category called "memory controllers" because memory controllers are imbedded in chips, as I just mentioned.

When we license our patents for memory controllers, we typically do so at a royalty rate that is applied against the price of the chip that contains the memory controller. We have a number of licensees who sell chips containing memory controllers. Toshiba, Panasonic, NEC Electronics, and Renaissance are some of our memory controller licensees. So is AMD. And Intel's license rights are a bit more complicated. The Intel license is a special case in that they have a paid up license for patents with priority dates through September 2006. But for patents with later priority dates or newly acquired patents, Intel would need a new license.

On an earlier call, I stated that the size of the market for chips with memory controllers, CPUs, GPUs, media processers, et cetera, was several times larger than the DRAM market itself. In 2010, the size of the market for chips with memory controllers is projected to be about $46 billion. But as I've already mentioned many of the manufacturers for chips with memory controller are already licensed. So, in sizing the opportunity for Rambus, we consider those companies using our patented innovations in their chips with memory controllers that are not currently licensees.

Excluding current licensees and excluding Intel, the size of the remaining market for chips with memory controllers is projected to be between $15 billion and $20 billion in annual sales this year. Just as a reference point, the DRAM market is forecasted by industry analysts to be about $17 billion this year, recovering to be between $20 billion and $24 billion in 2010.

Thanks, Sharon. The next question is "Has NVIDIAever had a patent license from Rambus? When did the products start allegedly infringing Rambus patents?"

Satish, this is Tom. I'll take that one. The only license agreement that NVIDIAhas ever had with Rambus relates to the manufacture and sale of certain RDRAM compatible products. NVIDIAhas never had a license under Rambus' patents to produce or ship the infringing products named in the suits. We tried to negotiate a license with NVIDIAfor more than six years before filing the complaint for patent infringement. The patents that we are asserting in the infringement case in California were issued by the U.S. PTO in 2001 and later. The patents we are asserting in the ITC case were issues by the U.S. PTO in 2002 and later. All of the latter patents are also asserted in the California case. We believe that NVIDIA have infringed the asserted patents since issuance of those patents and we believe that nearly all of NVIDIA's products continue to infringe these patents today.

Thanks, Tom. On behalf of the management team, I'd like to thank those who submitted questions to us during the course of the quarter and we plan to continue addressing questions from stockholders on a periodic basis at this forum. Operator, we are now ready to open the call for questions.

Thank you. (Operator Instructions) We'll go to Jeff Schreinerwith CapStone Investments.

Good afternoon, everyone. Thanks for taking a couple of my questions here today. These will be for Tom most likely on the questions I have on the conference call. Tom, I'm just wondering about timing in regards to Rambus filing, what requests it's going to make for damages in the antitrust case and alongside that, a lot of investors are becoming increasingly concerned about what impact of bankruptcy of possibly two defendants in the antitrust case could that have on the potential damage award and the correctability, given its joint defender liability?

Hi, Jeff. It's Tom. Let answer the second one first. That is the bankruptcy issue. As you already pointed out, the three defendants in the case, assuming there is found to be liability at the end of the trial, have what's known as you've just described, joint and several liability. So, whoever has sufficient funds to pay the damages ultimately will be in the position of paying those funds. I'm maybe not quite as pessimistic as some out there. I think Micron and Hynix are both in decent shape and as the economy recovers over time, I think all three of them will be around and in a position to pay the damages as they are identified by a jury.

The amount of the damages, as you may already know, there's a public disclosure that we have asked or prayed for is the term in California state court, $4.3 billion is the number. And a question that may be associated with that is what if anything did Judge Kramer's ruling do to that number in light of the limitation he put in place? We haven't gotten the final number, the answer for that, and we haven't made our final statement of what our damages are going to be that we actually asked for in front of a jury. But the reduction will be very, very small against that $4.3 billion and what we finally asked for I'm not in a position to tell you. And remember, that $4.3 billion is prior to tripling.

Okay. In prior conference calls, Tom, you've alluded that Rambus was looking into or you and your team are looking into maybe the crossover in damages there could be between the anti-trust trial and other patent trials involving similar defendants. Given recent commentary from Judge Kramer and what his belief is that maybe each of these are going to be individual acts and will be viewed separately. Should we be viewing antitrust damages as incremental to potential damages that someday down the road could be in fact won in the patent infringement cases?

I'm afraid, Jeff, that's a little more complicated than that. I think some of them will be fully additive. Others, there will likely be some credit, if you will, for patent damages actually paid which is another question we have to be looking into over time. But ultimately, the damages in San Francisco relate to the killing of or the attempt to kill our DRAM and therefore the lost sales and profits on our DRAM are what's at stake as opposed to the patent cases which are patent infringement cases where the shipment of infringing products is at stake. And, yes, there is, as mentioned, an overlap. It's not 100% overlap at all and we're not anywhere close to having an answer to how much of an overlap and how much credit there is that happens.

Okay. Just a couple more quick questions here. Has Rambus filed a motion which is going to start to ask for a review of the pre-2000 evidence based just on a different set of circumstances than the last briefing that the Company just went through before Judge Kramer.

Have we filed? No. We have not. Will we? Stand by.

Okay. And final question from me. Could you just talk, Tom, a little bit about the importance of possibly an ITC victory over NVIDIAand what that would mean? And would the Markman that the ITC derived which is obviously, as you said, very much in line with what Rambus had been asking for in terms of the scope and definition of the claims, would that be used in other future cases that would involve claims from the Barth patents? And finally, on the ITC here, was the final mediation hearings scheduled with NVIDIA, I believe it's July 13, was that held?

Let me go back to the beginning and address your first question which I can't remember what it was anymore now.

I'm sorry. Just the overall importance of an ITC victory at the ITC?

The importance of the case in the ITC as opposed to the Northern District case against NVIDIA, as I mentioned in the script, the NVIDIAITC action involves post-2000 and later patents. That is, there are no Farmwald-Horowitz patents in that case whatsoever. They are much newer patents and will have substantial life going forward in time against any other memory controller non-licensed infringers when we get to that point. So, we think it's a pretty important case from that point of view. Yes, I am pleased with the Markman ruling that Judge Essex has made in the case. It's a good thing for Rambus, I believe. And how will we use it in the future? Well, certainly it's something we find very important that a judge has found construction of those patent claims similar to what we think they should've been. And so we will of course take that same position if we are in a position where it will be decided at some point in the future that we will be suing anybody else in the memory controller space.

And just finally before I jump off, was the mediation hearing, I believe it was the final one on the schedule, was that held with NVIDIA? I believe it was on July 13?

That mediation hearing was in fact held. Yes.

Thank you very much, gentlemen.

Thanks, Jeff.

Next we'll hear from Michael Cohen with MDC Financial Research.

Yes. My first question is for Tom. At the European Commission, what's the process an approximate timeline to finalize an agreement now that the comment period is over?

I can't tell you specifically. We are discussing with the Commission and its staff where that case is and what we do going forward. I guess my best answer is I would expect this will be done within the next couple of months at the most.

Okay. Do we know if any comments were received or which other parties supplied comments?

Yes and yes and I'm not at liberty to disclose those to you under the rules of the EC.

Got it. If the consent agreement is consummate with the European Commission, are you bound to sign a license with anyone who wants one at the agreed rates? Or could Rambus still retain the right to decline a forward-looking license to a current litigant?

We would be bound under our commitment to enter into a forward-looking license pursuant to the terms and conditions and the rates that we committed to, assuming this goes final.

Okay. And congratulations on a great result with the claims construction at the International Trade Commission. You mentioned that the investigative hearing has now been postponed. I was wondering if you could repeat the new hearing dates and also tell us when the decision to postpone took place?

It took place this morning. I'm looking at the order that was issued today by Judge Essex on the 23rd of July. The new date is October 13 through October 20. His words. Yes, that's only a week. We don't know whether there's a typo in that or if that's accurate but it had been scheduled for two weeks starting August 31. It's now according to the order ten -- October 13 through October 20 of this year.

Okay. And it appears that you've pulled the Barth II patents from the ITC investigation. I was wondering if you could tell us the patent expiration dates for the Barth I patents and also for the Ware patents?

I would have to get that. I don't have the data in front of me as to the expiration dates on those. But I can certainly get back to you on that.

Okay. Yes. If you could supply that maybe at the next call or something that would probably be valuable. Or even at a time before that. I guess my next question would be for Sharon. We haven't heard about flash memory for a little while from you. I was wondering if you could give us a little bit of an update about anything on the flash memory front?

I can't say too much about that, Michael. But a couple of things I will tell you, we have been continuously ramping our internal development efforts for looking at next generation solutions for flash memory. You are aware that over the past couple of years, prior to their filing for bankruptcy, we had been working with Spansion on some high-speed solutions in the NOR flash space. We've had internal developments going on in the NAND flash space. And we are in dialogue with some potential partners but nothing has evolved to the point yet that we can announced anything. We'll keep you posted.

Okay. And I guess my last question is going back to Tom. It seems like the three most important writs you've already were denied by the appeals court. There's two remaining writs on summary judgment motions there and I was wondering if you have any idea when they'll be decided or have you heard anything that you could share with us on that front.

No. We haven't heard anything. These are the writs, I believe you're talking about, in front of the court of appeal in California. We haven't heard anything on those. As soon as we hear anything, we will let everybody know.

Okay. Great. Thank you very much for taking my questions.

Thank you, Michael.

(Operator Instructions) Next we'll hear from [Robert Scott] with Axiom Partners.

Hi. Good afternoon. Congratulations on the great progress that you're making on the legal fronts. I have just two quick questions relating to the antitrust case. The first is assuming the case starts September 28, how long do you expect the trial to last for in general? I understand there can be slippage. But in general?

Hi, Robert. This is Tom. We expect it will go to around the time of Thanksgiving. And gets started on time.

Got it. And with respect to the hearing on spoliation issues from August 1 to September 2, can you just give us a little color on what that's going to entail and would that -- would the effect of that essentially really be to limit certain evidence? In other words, it couldn't -- it's not going to potentially result in the case going away? It's more limited in its focus than what went on in the federal courts? Is that right?

I think that's probably fair and Judge Kramer has expressed some concern about the ability to keep the progression of the trial in an orderly fashion if spoliation becomes an issue in the trial which so far it's an issue on both sides. His suggestion -- it wasn't a ruling by any stretch of the imagination, so I don't want to lead anybody to believe it was, but his suggestion in open court was that it might be better for everybody if nobody raised spoliation because it's not just one party who has an issue with it. That's not what's been ruled. Again, I don't want to have anybody believe that's what he ruled because he did not. But it is very complicated as to how it would effect the trial, what if any claims might be affected on either side, what defenses of the defendants might be effected and I don't think I can give any more color than that. It will be very messy if it goes forward in the trial and we're prepared to deal with it if that's how it works.

Thank you.

Our next question comes from Hamed Khorsandwith BWS Financial.

Hi. Just a few questions here. One on the EC settlement. Now that it's ongoing and it's about to be filed, do you guys have a certain number of potential targets that you're looking for to settle with you?

This is Tom. I'll speak the marketing side of that one. We like to look at them as potential customers. Yes, we think anybody who is using those patents and selling product that infringed are potential customers, licensees of ours. So, we're looking at this as an opportunity to acquire more customers of ours and Sharon and her team will probably be working, as they have been, to increase our customer base with a little bit of enticement by these attractive royalty rates that are now going to be offered.

Okay. And then as far as guidance went, the reasoning for the decline? You're going into - usually when manufacturers do place orders for the third and fourth quarters right now and you're guiding down?

As we said for the previous quarter, I think the bulk of the reduction in royalties came from a reduction in variable royalties from some of the customers primarily in Japan. As you know, the weakness in Japan continues. I think we are being conservative and we are incorporating that expected downturn into our guidance that we've given for the current quarter.

One thing I would add to that is when we receive and recognize those running royalty payments is a quarter after the shipments occur. So, in terms of looking at the cyclical nature, particularly in the consumer electronics market, when you see that show up in our numbers is a quarter behind the actual shipment of product.

Okay. And then --

And as we all know the second quarter in Japan was very weak. I think the guidance is appropriate.

And then one other thing on this situation with the patents is ongoing, are you going to look at -- try to settle issues as to what's been going on in the courts or are you just looking as to new potential customers and not really looking at the DRAM guys?

I'll try to tackle that one. I'm not sure exactly what you mean by the situation with the patents. We're an IP licensing Company. Clearly we have a lot of focus as Tom has talked through in the call here today on various ongoing litigation efforts. We obviously want to drive those through to resolution and in some cases we're working hard to see whether there's a possibility of a good settlement to be done. Aside from that, we have many ongoing efforts outside of all of that litigation tied to development of new technology and trying to drive that technology into the market and ongoing licensing efforts. All of those things continue not only from now forward but they have been continuing over the past several years as well. We have to keep moving the Company forward and we have to continue to develop new technology to be viable for several years out in the future and we will absolutely continue to do that. But it's very important for us to see the current cases that we have through to a successful conclusion either in the courts or through settlement because the Company worked very hard since 1990 developing very valuable technology that's being used to enable products around the world and we need to recognize the value for that.

Then lastly you mentioned your intention to use some cash for acquisitions. Could you explain that a little bit? Is that going to become a big issue going forward as to you guys making acquisitions?

I guess it depends upon how you determine "big". This is a unique time. There are many, if you will, distressed companies which have what we think to be valuable technology that compliments not only our existing patent positions but will allow us to, if you will, branch out into related areas. I have spoke previously about the wireless area. So far as we can do these deals with relatively small amounts of money, we obviously will. But also as we discussed during the raising of the money, we are looking at some relatively large deals, relatively large for a Company of Rambus' size. But having said all that, we believe that $0.5 billion in cash we have right now will not be, should we say, significantly cut back to the point that we would be nervous. We do feel real comfortable and I think one of the reasons that we got interested in raising the money was not only to pay off the maturing debt, but simply to take advantage of the distressed situation on the part of many companies.

Okay. When you say "relatively large" are we talking about possibly your cash balance eroding by $100 million, $200 million? Are you looking at all options?

Those are very large numbers. Let's put it that way. We are a relatively small Company undertaking a pretty difficult task here. Our cash is very important to us. We've made it a focus. We can never be in a position where the other side believes that we could run out of cash and would be forced to negotiation from a position of weakness. That applies not only to our willingness to raise new money but to the extent to which we would spend that money on acquisitions.

Okay. Thank you.

Sure.

We'll now go to [Phillip Zaire] with [Agorsum] Capital.

Yes. Good afternoon. I have a couple of questions for Tom.

Alright.

As usual, Tom is popular.

Go ahead. I'm here.

Regarding the earlier question on the possibility of the defendants in the antitrust case going bankrupt, can you comment on liability of the systems companies if their DRAM supplier went bankrupt?

Let me just make sure I'm understanding what you're asking. Are you asking whether a system Company would take over the liability of its DRAM supplier under a price-fixing case? Is that what you're asking?

Or actually any one of the cases, if any one of the DRAM suppliers went bankrupt.

Let me just stay with the antitrust question. The answer to the antitrust question is simply "No". Only the defendants in an antitrust case or a torte-like case would have liability. So, were one of the existing defendants to unfortunately declare bankruptcy which, again, I'm not predicting at all and I don't have any reason to believe that's going to happen. But were they to do that, the remaining liability would be with the remaining defendants in the case, not with anybody else.

As to -- you asked a more expansive question and that is what if one of the DRAM defendants went out of business, went bankrupt or whatever with a liability for patent infringement? The patent law is very different in the sense that infringement can occur by either the person that manufactures and sells it or by somebody who actually uses an infringing part. So, theoretically, anybody using infringing parts can be found to be infringing the patents. We have not made those claims. Our claims are focused on the designer-manufacturers, and that's our hope and belief that that's how we go forward and that's what all of our cases are about.

My other question is regarding the EU's proposed framework, how does one reconcile the proposed royalty rate of, say, 1% to 1.5% with the compulsory royalty rate of 4.25% that Hynix entered into?

They're different, obviously. One is ordered by a court in the U.S. addressing infringements involving the U.S. infringements. That would be Judge Whyte's rates in that case. The other is an agreed upon proposal to enter into a patent license agreement with a large variety of companies on a worldwide basis not limited to the U.S.

I realize that. So, in the United States then, let's just say for the rest of 2009 through April 2010, then what would be the royalty rate then for Hynix?

It's the compulsory rate. That's what they've been ordered to pay.

Very good.

But again those are U.S. infringements by Hynix that are affected by the order in the Hynix patent infringement case.

So, Hynix could conceivably, if they participate in the EU framework, then they would pay the lower rate outside of the United States, correct?

No. They would get to pay the total rate worldwide for all of the effected products going forward. It wouldn't in any way effect the $400 million judgment that's already been entered --

Yes. That I realized. I just meant going forward.

Yes. Going forward, they theoretically could enter into a worldwide license agreement with us assuming this goes forward and I think it probably will. They could take that forward-looking rate as their forward-looking settlement.

Very good. Thank you.

And that's all the questions we have that we have at this time. I will turn things back to Harold Hughes for additional or closing remarks.

Thank you, Operator. As stated in our opening remarks, we're on the right track with some long-awaited legal events just a few months away. As always, we appreciate the patience and support of our shareholders. We look forward to talk to you soon. Thank you.

Thank you.

Thank you.

Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation.