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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2003

OR

For the transition period from              to             

Commission File Number: 000-22339

RAMBUS INC.

(Exact name of registrant as specified in its charter)

4440 El Camino Real, Los Altos, CA 94022

(Address of principal executive offices) (zip code)

(650) 947-5000

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x  No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  x  No  ¨

The number of shares outstanding of the registrant’s Common Stock, par value $.001 per share, was 96,942,890 as of April 14, 2003.

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RAMBUS INC.

FORM 10-Q

INDEX

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PART I — FINANCIAL INFORMATION

Item 1.    Financial Statements.

RAMBUS INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

See Notes to Unaudited Consolidated Condensed Financial Statements.

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RAMBUS INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

See Notes to Unaudited Consolidated Condensed Financial Statements.

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RAMBUS INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

See Notes to Unaudited Consolidated Condensed Financial Statements.

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1.    Basis of Presentation

The accompanying consolidated condensed financial statements include the accounts of Rambus Inc. (“Rambus”, “the Company”, “us” or “we”) and its wholly owned subsidiaries, Rambus K.K., located in Tokyo, Japan, and Rambus Deutschland GmbH, located in Hamburg, Germany. All intercompany accounts and transactions have been eliminated in the accompanying consolidated condensed financial statements.

In the opinion of management, the consolidated condensed financial statements include all adjustments (consisting only of normal recurring items) necessary to present fairly the financial position and results of operations for each interim period shown. Interim results are not necessarily indicative of results for a full year.

The consolidated condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. Certain information and footnote disclosures included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in these interim statements pursuant to such SEC rules and regulations. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto, for the twelve months ended September 30, 2002, included in Rambus’s 2002 Annual Report on Form 10-K.

On April 10, 2003, the Board of Directors of Rambus voted to change the fiscal year end of Rambus from September 30 to December 31, effective as of January 1, 2003. As a result of this change in fiscal year, the three-month period ended March 31, 2003 is now the first quarter of Rambus’s fiscal 2003. Rambus has filed a transition report on Form 10-Q for the transition period, which began on October 1, 2002 and ended on December 31, 2002.

On July 20, 2001, the Financial Accounting Standards Board (the FASB ) issued Statement of Financial Accounting Standards ( SFAS ) No. 141 Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 established new standards for accounting and reporting requirements for business combinations and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 established new standards for goodwill acquired in a business combination and eliminated amortization of goodwill and intangible assets with indefinite lives, replacing this with the requirement to periodically evaluate goodwill for impairment. Intangible assets with a determinable useful life will continue to be amortized over that period. Rambus adopted the provisions of SFAS No. 142 on October 1, 2002. As a result, Rambus has ceased amortization of the remaining goodwill of $0.6 million.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Rambus adopted the provisions of SFAS No. 144 on October 1, 2002, and the adoption did not have a material effect on its results of operations or financial position.

On October 3, 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30.

SFAS No. 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

2.    Recent Accounting Pronouncements (continued)

or fair value less cost to sell. Rambus adopted the provisions of SFAS No. 144 on October 1, 2002, and the adoption did not have a material effect on its results of operations or financial position.

In June 2002, the FASB issued SFAS No. 146, Accounting for Exit or Disposal Activities. SFAS 146 addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the EITF has set forth in Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002. Rambus does not expect the adoption of this statement to have a material impact on its financial statements.

In November 2002, the EITF reached a consensus on issue No. 00-21 Accounting for Revenue Arrangements with Multiple Deliverables (“EITF 00-21”) on a model to be used to determine when a revenue arrangement with multiple deliverables should be divided into separate units of accounting and, if separation is appropriate, how the arrangement consideration should be allocated to the identified accounting units. The EITF also reached a consensus that this guidance should be effective for all revenue arrangements entered into in fiscal periods beginning after June 15, 2003. Rambus does not expect the adoption of this statement to have a material impact on its financial statements.

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”) Guarantor’s Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee. However, the provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor’s obligations does not apply to product warranties or to guarantees accounted for as derivatives. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. Rambus does not expect the adoption of this statement to have a material impact on its financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Rambus is required to follow the prescribed format and provide the additional disclosures required by SFAS No. 148 in its annual financial statements for the year ending December 31, 2003 and must also provide the disclosures in its quarterly reports containing condensed financial statements for interim periods beginning with the quarterly period ended March 31, 2003. Rambus has included additional disclosures in accordance with SFAS No. 148 in Note 6.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”) Consolidation of Variable Interest Entities. Until this interpretation, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns. Disclosure of any newly created

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

2.    Recent Accounting Pronouncements (continued)

agreements after January 31, 2003 which apply under FIN 46 is required effectively immediately. By June 15, 2003, full consolidation of assets and liabilities of applicable entities is required. Rambus does not expect the adoption of this Interpretation to have a material impact to its results of operations or financial position. However, changes in Rambus’s business relationships with various entities could occur which may impact its financial statements under the requirements of FIN 46.

3.    Change in Accounting for Goodwill and Certain Other Intangibles

In accordance with SFAS No. 142, goodwill amortization was discontinued as of October 1, 2002. SFAS No. 142 prescribes a two-phase process for impairment testing of goodwill. The first phase screens for impairment; while the second phase (if necessary), measures the impairment. Rambus completed its first phase impairment analysis during the three months ended December 31, 2002 and found no instance of impairment of its recorded goodwill; accordingly, the second testing phase, absent future indicators of impairment, was not necessary upon adoption.

In accordance with SFAS No. 142, the effect of this accounting change is reflected prospectively. Supplemental comparative disclosure as if goodwill had not been amortized is as follows (in thousands, except per share amounts):

4.    Revenue Recognition

Rambus generates contract and royalty revenues from the following five types of agreements: (1) RDRAM licenses, (2) Yellowstone and Redwood licenses, (3) RaSer licenses, (4) the Intel cross-license and (5) SDRAM- and DDR- compatible licenses. We recognize royalties upon notification of sale by our licensees. The terms of the royalty agreements generally require licensees to give us notification and to pay us royalties within 60 days of the end of the quarter during which the sales take place.

RDRAM Licenses.    RDRAM licenses allow a semiconductor manufacturer to use our RDRAM memory interface and to receive engineering implementation services, customer support, and enhancements. We deliver to a new RDRAM licensee an implementation package, which contains the information needed to develop a chip incorporating RDRAM memory interface in the licensee’s process. An implementation package includes a specification, generalized circuit layout database software for the particular version of the chip which the licensee

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

4.    Revenue Recognition (continued)

intends to develop, test parameter software and, for memory chips, a core interface specification. Test parameters are the programs that test the RDRAM interface embedded in the customer’s product. Many licensees have contracted to have us provide the specific engineering implementation services required to optimize the generalized circuit layout for the licensee’s manufacturing process. The RDRAM licenses also provide for the right to receive ongoing customer support, which includes technical advice on chip specifications, enhancements, debugging and testing.

We recognize revenue on RDRAM licenses consistent with American Institute of Certified Public Accountants (“AICPA”) Statement of Position No. 98-9 (“SOP 98-9”), modification of SOP 97-2, “Software Revenue Recognition.” This SOP applies to all entities that earn revenue on products containing software, where software is not incidental to the product as a whole. Contract fees for the services provided under these agreements are comprised of license fees, engineering service fees and any nonrefundable, prepaid royalties. Contract fees are bundled together as the total price of the agreement does not vary as a result of inclusion or exclusion of services. Accordingly, the revenues from such contract fees are recognized ratably over the period during which the post-contract customer support is expected to be provided independent of the payment schedules under the contract, including milestones. We do not recognize revenue in excess of cash received by us on a contract if collectibility is not probable. We review assumptions regarding the post-contract customer support periods on a regular basis. If we determine that it is necessary to revise our estimates of the support periods, the total amount of revenue recognized over the life of the contract would not be affected. However, to the extent the new assumptions regarding the post-contract customer support periods were less than the original assumptions, the contract fees would be recognized ratably over an accelerated period. Conversely, if the new estimated periods were longer than the original assumptions, the contract fees would be recognized ratably over a longer period.

At the time we begin to recognize revenue under RDRAM licenses, the remaining obligations, as defined by the SOP, are no longer significant. These remaining obligations are primarily to keep the product updated and include activities such as responding to inquiries and periodic customer meetings. Part of these contract fees may be due upon the achievement of certain milestones, such as provision of certain deliverables by us or production of chips by the licensee. The remaining fees are due on pre-determined dates and include significant up-front fees. The excess of contract fees billed over revenue recognized is shown on the balance sheet as deferred revenue.

Yellowstone and Redwood Licenses.    Yellowstone and Redwood interface licenses currently provide for the payment of license fees and engineering fees, as well as royalties. We currently recognize revenue on Yellowstone and Redwood licenses using the percentage of completion method of accounting. We determine progress-to-completion using input measures based on labor hours incurred. A provision for estimated losses on contracts is made, if necessary, in the period in which the loss becomes probable and can be reasonably estimated. We review assumptions regarding the work necessary to complete projects on a quarterly basis. If we determine that it is necessary to revise our estimates of the work required to complete a contract, the total amount of revenue recognized over the life of the contract would not be affected. However, to the extent the new assumptions regarding the total amount of work necessary to complete a project were less than the original assumptions, the contract fees would be recognized sooner than originally expected. Conversely, if the new estimated total amount of work necessary to complete a project was longer than the original assumptions, the contract fees would be recognized over a longer period.

Part of these contract fees may be due upon the achievement of certain milestones, such as provision of certain deliverables by us or production of chips by the licensee. The remaining fees are due on pre-determined

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

4.    Revenue Recognition (continued)

dates and include significant up-front fees. The excess of contract fees billed over revenue recognized is shown on the balance sheet as deferred revenue. We do not recognize revenue in excess of cash received by us on a contract if collectibility is not probable.

RaSer licenses.    RaSer interface licenses provide for the payment of license fees, engineering fees and royalties. Revenues from license fees and engineering fees are recognized ratably over the period during which the post-contract customer support is expected to be provided, independent of the payment schedules under the contract. The excess of contract fees billed over revenue recognized is shown on the balance sheet as deferred revenue. We do not recognize revenue in excess of cash received by us on a contract. We do not recognize revenue in excess of cash received by us on a contract if collectibility is not probable.

Intel cross-license.    We recognize royalties from the Intel contract, signed September 2001, which grants Intel access to the Rambus patent portfolio, as the amounts are due and payable pursuant to the contract with Intel. This contract expires in September 2006.

SDRAM-compatible and DDR-compatible licenses.    SDRAM-compatible and DDR-compatible licenses generally provide for the payment of fees, which include compensation for use of our patents from the time we notify the licensee of potential infringement. Accordingly, we classify these fees as royalty revenues, which are recognized ratably over the five-year contract period. The current contracts will begin to expire in June 2005.

5.    Comprehensive Income

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments and unrealized gains and losses on marketable securities.

Comprehensive income is as follows (in thousands; unaudited):

6.    Employee Stock Option Plans

Stock Option Program Description

Rambus officers and employees are eligible to participate in the 1997 Stock Plan. Non-executive officer employees are also eligible to participate in the 1999 Stock Plan. The 1997 Stock Plan permits the Board of Directors of Rambus (the “Board”) or the Compensation Committee of the Board (“the Compensation Committee”) to grant stock options, stock purchase rights and Common Stock Equivalents to employees, including executive officers, on such terms as the Board or the Compensation Committee may determine. The 1999 Stock Plan permits the Board or the Compensation Committee to grant stock options to employees on such terms as the Board or the Compensation Committee may determine. The Compensation Committee has authority to grant and administer stock options to all Rambus employees.

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

In determining the size of a stock option grant to a new officer or other key employee, the Compensation Committee takes into account equity participation by comparable employees within Rambus, external competitive circumstances and other relevant factors. These options typically vest over 60 months and thus require the employee’s continuing services to Rambus. Additional options may be granted to current employees to reward exceptional performance or to provide additional unvested equity incentives.

Distribution and Dilutive Effect of Options

The following table illustrates the grant dilution and exercise dilution (in thousands, except percentages):

Note 1: The percentage for grant dilution is computed based on options granted less options canceled as a percentage of total outstanding shares of common stock.

Note 2: The percentage for exercise dilution is computed based on options exercised as a percentage of total outstanding shares of common stock.

The following table summarizes the options granted to the named executive officers. The named executive officers are Rambus’s Chief Executive Officer and the four other most highly paid executive officers whose salary and bonus for the twelve months ended September 30, 2002 were in excess of $100,000.

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

General Option Information

A summary of activity under all stock option plans is as follows:

The following table summarizes information about outstanding and exercisable options as of March 31, 2003:

As of March 31, 2003, a total of 34,217,653 shares of Common Stock were reserved for issuance under all stock option plans. As of March 31, 2003 and December 31, 2002, options for the purchase of 10,705,559 and 10,036,383 shares, respectively, were exercisable without being subject to repurchase by Rambus.

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

6.    Employee Stock Option Plans (continued)

The following table presents the option exercises for the three months ended March 31, 2003 and option values as of that date for the named executive officers:

Stock-Based Compensation

Rambus applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock plans. Stock options are generally granted with exercise prices equivalent to fair market value, and no compensation cost is recognized. If Rambus had recognized compensation expense based upon the fair value of stock option awards, including shares issued under the Rambus employee stock purchase plan (collectively called “options”), at the grant date consistent with the methodology prescribed under SFAS 123, “Accounting for Stock-Based Compensation,” Rambus’s net income (loss) and net income (loss) per share would have changed to the pro forma amounts indicated below:

The effects of applying SFAS 123 on the pro forma disclosures for the three months ended March 31, 2003 and 2002 are not likely to be representative of the effects on pro forma disclosures in future periods.

7.    Stockholders’ Equity

Warrants

In November 1996, Rambus entered into an agreement with Intel Corporation for the development of a new version of RDRAM interface. In January 1997, as part of this agreement, Rambus issued a warrant to purchase

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7.    Stockholders’ Equity (continued)

4,000,000 shares of Common Stock of Rambus at a purchase price of $2.50 per share (the “Intel warrant”). This warrant was to have become exercisable only upon the achievement of certain milestones by Intel relating to shipment volumes of RDRAM chipsets (the “Intel milestones”). In September 2001, this warrant was cancelled as part of contract negotiations which resulted in a new royalty-bearing contract with Intel.

In October 1998, Rambus’s Board of Directors authorized an incentive program in the form of warrants for a total of up to 1,600,000 shares of Rambus Common Stock (the “DRAM incentive warrants”) to be issued to various RDRAM licensees upon the achievement of certain product qualification and volume production targets. The warrants, to be issued at the time the targets are met, have an exercise price of $2.50 per share and a life of five years. They vest and become exercisable on the same basis as the former Intel warrant, which will result in a non-cash charge to the statement of operations based on the fair value of the warrants if and when the achievement of the Intel milestones becomes probable. As of March 31, 2003, a total of 1,520,000 of these warrants had been issued.

Contingent Common Stock Equivalents and Options

As of March 31 ,2003 there were 1,000,000 contingent unvested Common Stock Equivalents (“CSEs”) and 1,071,096 contingent unvested options, which vest on the same basis as the previously mentioned Intel and existing DRAM incentive warrants. If and when the achievement of the Intel milestones become probable, there would be an almost entirely non-cash charge to the statement of operations based on the fair value of these CSEs and options. These CSEs were granted to Rambus’s CEO and President in 1999. These options were granted to Rambus’s employees in 1999 and 2001 with an exercise price of $2.50.

Share Repurchase Program

In October 2001, Rambus’s Board of Directors approved a share repurchase program of Rambus Common Stock principally to reduce the dilutive effect of employee stock options. At that time, Rambus was authorized to purchase in open market transactions up to five million shares of outstanding Rambus Common Stock over an undefined period of time. Rambus repurchased 3.5 million shares at a cost of $20.5 million in the twelve months ended December 31, 2002. In October 2002, Rambus’s Board approved the purchase in open market transactions of up to an additional five million shares of outstanding Rambus Common Stock. Rambus repurchased 1.4 million shares at a cost of $14.7 million during the three months ended March 31, 2003. On March 31, 2003, there remained an outstanding authorization to repurchase another 4.7 million shares of outstanding Rambus Common Stock.

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

8.    Net Income Per Share

Net income per share is computed in accordance with SFAS No. 128, “Earnings Per Share,” which requires the presentation of basic and diluted net income per share. Basic net income per share is calculated using the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated using the weighted average number of common shares and common stock equivalents, if dilutive, outstanding during the period. Net income per share is calculated as follows (in thousands, except per share data; unaudited):

For the three months ended March 31, 2003 and March 31, 2002, there were approximately 11,297,868 and 15,298,428 anti-dilutive weighted shares, respectively, which were excluded from the calculation of diluted weighted average shares outstanding because the options’ exercise prices were greater than the average market price of the common shares for the period or the options were contingent upon the satisfaction of certain conditions that had not been met as of March 31, 2003 and 2002.

9.    Litigation and Asserted Claims

Infineon Litigation

On August 8, 2000, we filed suit in the U.S. District Court for the Eastern District of Virginia (the “Virginia court”) against Infineon Technologies AG (“Infineon”) and its North American subsidiary for patent infringement of two U.S. patents (USDC Virginia Civil Action No.: 3:00CV524). On September 25, 2000, Infineon filed counterclaims against us in the U.S. case seeking a declaratory judgment that the two asserted patents are invalid and not infringed and further claiming contributory infringement by us of two Infineon U.S. patents. In addition, Infineon also asserted breach of contract, fraud, RICO, and monopolization claims in connection with our participation in an industry standards-setting group known as JEDEC where Infineon has alleged that we did not disclose certain of our then-pending patents and patent applications (“JEDEC related claims”). The Infineon counterclaims sought compensatory and punitive damages, attorneys’ fees, injunctions to halt future infringement of the Infineon patents, and an award of a royalty-free license to the Rambus patents. In October 2000, we amended our complaint to assert infringement of two additional U.S. patents. In January 2001, Infineon amended its answer and counterclaims to include a request for a declaratory judgment that all four asserted Rambus patents are invalid and not infringed. In addition, Infineon withdrew all contributory patent infringement claims against us relating to Infineon’s U.S. patents.

Trial began in the Virginia case on April 23, 2001. On May 4, 2001, the Virginia court granted Infineon’s motion to dismiss our patent infringement case and granted our motion to dismiss Infineon’s breach of contract and monopolization claims. On May 9, 2001, the jury returned a verdict against us on the fraud claims and for Rambus on the RICO claims. The jury awarded Infineon $3.5 million in punitive damages, which was reduced to

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

9.    Litigation and Asserted Claims (continued)

$350,000 under Virginia law. On August 9, 2001, as a result of post-trial motions, the Virginia court set aside the constructive fraud verdict with respect to both SDRAM and DDR SDRAM standard setting. The actual fraud verdict with respect to DDR SDRAM standard setting was also set aside. Post-trial motions by Infineon resulted in the Virginia court awarding Infineon approximately $7.1 million in attorneys’ fees. In addition, on November 26, 2001, the Virginia court issued a permanent injunction prohibiting us from filing additional patent infringement actions against Infineon in the U.S. under certain of our U.S. patent claims with regard to JEDEC-compliant SDRAM and DDR SDRAM devices and (subject to certain conditions) successor JEDEC-compliant devices.

We appealed the rulings by the Virginia court relating to infringement, including the rulings on patent claim construction, which are known as “Markman rulings.” We have also appealed numerous liability rulings by the Virginia court with respect to the JEDEC related claims concerning SDRAM standard setting. We have also filed an appeal with respect to the permanent injunction ruling. Infineon appealed two rulings against it: that Rambus committed no fraud with respect to the JEDEC DDR SDRAM standard and that no injunction should reach patent enforcement actions in Europe. These appeals were consolidated by the U.S. Court of Appeals for the Federal Circuit (CAFC) (Appeal Nos. 01-1449, 01-1583, 01-1604, 01-1641, 02-1174, 02-1192). Briefing on all of the issues appealed was completed on an expedited schedule, and oral arguments were heard by the CAFC on June 3, 2002.

On January 29, 2003, a three judge panel of the CAFC issued its opinion in the Infineon appeal. On April 4, 2003, the panel denied a motion for rehearing and the entire CAFC denied rehearing en banc. In its opinion, the CAFC reversed the fraud judgment against us finding, inter alia, “staggering lack of defining details” in the JEDEC disclosure rules, that they could not support a finding of fraud and that, in any event, we had not, through any omission, communicated any false statement because none of our patent applications on file at the time we were a JEDEC member read on the JEDEC SDRAM standard then being considered. The panel also vacated the Infineon district court’s judgment of noninfringement based on what it found to be the district court’s erroneous interpretations of our patents, upholding the broader interpretations that we had urged. In addition, based on its holding, the panel determined that the injunction entered against us was moot, affirmed the district court’s denial of Infineon’s request to extend that injunction to foreign suits against Infineon as well as the district court ruling that no DDR fraud had occurred, vacated the attorneys’ fees award against us and remanded the case to Virginia for retrial of our infringement claims against Infineon. In the new trial the CAFC further ruled that the Virginia District Court may consider sanctions against us for litigation misconduct, but only if Infineon is found to be the prevailing party in such retrial. Retrial is to be based on the new patent claim constructions found by the CAFC.

On Infineon’s motion, the CAFC stayed issuance of its mandate on April 11, 2003. This stay prevents further proceedings in Virginia pending a ruling on Infineon’s petition for writ of certiorari to the U.S. Supreme Court. If such a writ is filed, the Court will likely decide whether to review the case by early October, 2003.

On August 7, 2000, we filed suit in the District Court in Mannheim, Germany (the “Mannheim court”) against Infineon for infringement of one European patent. A hearing was held on May 18, 2001, and on July 20, 2001, the Mannheim court issued an “order for evidence” requiring the appointment of an independent technical expert to evaluate certain technical aspects of our infringement claim. The Mannheim court subsequently appointed its independent technical expert, and, the expert delivered his report to the Mannheim court and the parties in early May 2002. After the completion of briefing by the parties in response to the expert report, the

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

9.    Litigation and Asserted Claims (continued)

validity of the same Rambus European patent was confirmed by the European Patent Office (“EPO”) in a hearing conducted on September 10 and 11, 2002. After reviewing extensive prior art asserted by Infineon and other Rambus litigation opponents, the EPO upheld the validity of our patent but required us to add additional language based on a conclusion that that language better reflected the scope of claims as originally filed in Europe by us. Under European patent law, unlike U.S. patent law, patent claims cannot generally be amended to expand their scope beyond that of the claims as initially filed. We have appealed the requirement that it include this additional language in its claim and, in the meantime, have sought to proceed in the Manheim court with our infringement case. That case is currently expected to proceed to a hearing on infringement by late summer or early fall, 2003. That infringement case will be based on the EPO patent without the new language now required by the EPO, although it is expected that an injunction will not issue until and unless the EPO reverses on appeal with respect to the new language. A hearing was held in March, 2003 at the Utility Model Division of the German Patent Office regarding a Rambus utility model that is similar in scope to the European patent at issue in the EPO. Based on the same reasoning of the EPO, the German Patent Office required us to add additional language to our utility model claim in order to preserve the utility model. However, in the utility model case, we rejected the particular additional language requested by the German patent office and the Utility Model was, for this reason and based on a prior art argument, revoked. We plan to appeal the decision although as a practical matter it has little or no bearing on our future patent rights as the prior art at issue has very limited scope and, in any event, German utility models have — compared to patents — very limited terms, which has already expired in our case.

Micron Litigation

On August 28, 2000, Micron Technology, Inc. (“Micron”) filed suit against us in the U.S. District Court in Delaware (USDC Delaware Civil Action No.: 00-792-RRM). The suit asserts violations of federal antitrust laws, deceptive trade practices, breach of contract, fraud and negligent misrepresentation in connection with our participation in JEDEC. Micron’s suit seeks a declaration of monopolization by us, compensatory and punitive damages, attorneys’ fees, a declaratory judgment that eight Rambus patents are invalid and not infringed and the award to Micron of a royalty-free license to the Rambus patents. In February 2001, we filed our answer and counterclaims, whereby we disputed Micron’s claims and asserted infringement by Micron of the eight U.S. patents. Both sides filed a number of potentially dispositive motions for summary judgment. On February 27, 2002, the court ruled on some of these motions, denying Micron’s motion for summary judgment on its claims of fraud. The Delaware court also postponed trial on all of the issues in the Micron case until after the CAFC reviews the judgments of the Virginia court in the Infineon matter. Limited discovery is ongoing in the Delaware action. Due to the resignation of Judge Roderick R. McKelvie, this case was assigned to a Magistrate Judge for all pretrial proceedings, and has since been assigned to the newly appointed Judge who has filled the vacancy left by Judge McKelvie. A hearing is scheduled for the Delaware Micron case on July 7, 2003.

In September 2000, we filed suit against Micron in the District Court in Mannheim, Germany (the “Mannheim court”), the Tribunal de Grande Instance de Paris in Paris, France (the “Paris court”), the High Court of Justice, Chancery Division, Patents Court at the Royal Courts of Justice in London, Great Britain (the “London court”) and the District Court in Monza, Italy (the “Monza Court”) for infringement of a European patent. Our German suit against Micron is, like our German suit against Infineon, in the Mannheim court, which issued an “order for evidence” on December 7, 2001 requiring the appointment of an expert. That appointed expert is the same expert as was appointed in the Infineon and Hynix cases in Germany. The expert issued his report in late 2002, and, as in the Infineon case, a hearing is expected in late summer or fall 2003. The French suit and the British suit have been temporarily stayed pending the validity determination of the EPO. On May 2,

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

9.    Litigation and Asserted Claims (continued)

2001, the independent experts appointed by the Monza court issued a report that confirmed the validity of the Rambus patent in suit and determined that Micron’s SDRAM products infringe the Rambus patent. On May 25, 2001, the Monza court declined to grant us a preliminary injunction due to its conclusion that the experts had not addressed one technical issue. We appealed the Monza court’s ruling, and on July 18, 2001, the Appeals Court rejected the appeal on jurisdictional grounds. The infringement suit against Micron in Italy on the first European patent has been stayed, but if it resumes, it will resume in the District Court of Milan rather than in Monza.

In December 2000, Micron filed a declaratory judgment suit of non-infringement of a second European patent against us in the District Court of Avezzano, Italy. In response, we asserted infringement of the second European patent in Milan, Italy. The actions on the second European patent in Italy have also been stayed. Further, we filed suit against Micron in Germany and Italy for infringement of a third European patent. Both of these additional suits have also been stayed.

Hynix Litigation

On August 29, 2000, Hyundai Electronics Industries Co., Ltd. (“Hyundai”) and various subsidiaries filed suit against us in the U.S. District Court for the Northern District of California (USDC Northern District of California Case No.: 00-20905 RMW). Since filing suit, Hyundai has changed its name to “Hynix Semiconductor Inc.” (“Hynix”). The suit asserts breach of contract in connection with our participation in JEDEC and seeks a declaratory judgment that eleven Rambus patents are invalid and not infringed by Hynix. In November 2000, Hynix amended its complaint to further assert violations of federal antitrust laws, deceptive trade practices, breach of contract, fraud and negligent misrepresentation in connection with our participation in JEDEC. Hynix seeks a declaration of monopolization by us, compensatory and punitive damages, and attorneys’ fees. In February 2001, we filed our answer and counterclaims, whereby we dispute Hynix’s claims and assert infringement of eleven U.S. patents. On November 21, 2001, the California court ruled that the claim construction applied in the Virginia case against Infineon should be applied in the case with Hynix, and, as a result, dismissed most of our claims of patent infringement against Hynix. In doing so, the California court relied on the principles of collateral estoppel and declined to decide whether, on the merits, the Virginia claim construction was correctly or incorrectly decided. The Virginia claim construction issue was one of the matters that will be reviewed as part of our appeal in the Infineon case. On December 14, 2001, the California court stayed the Hynix case until the CAFC decides the Rambus v. Infineon appeal. On May 10, 2002, Hynix filed a motion to lift the stay. Hynix also moved to file a second amended reply to add new affirmative defenses of estoppel and waiver to our counterclaims of infringement. We opposed the motion to lift the stay, but did not oppose Hynix’s motion to file the second amended reply. Argument on this motion was heard on June 14, 2002. On June 18, 2002, the Court denied Hynix’s motion to lift the stay, granted its motion for leave to file a second amended reply to counterclaims, and scheduled another case management conference for September 20, 2002. At that case management conference, Hynix renewed its motions to lift the stay, which were denied, except with respect to discovery that would not be affected by the CAFC decision in the Infineon case. At that same conference, the Court permitted us to move to amend our complaint to add new claims for patent infringement, and we filed that motion on October 4, 2002. A further case management conference occurred on November 22, 2002 at which point the Court considered proposed trial schedules. On March 14, 2003 the Court set the trial date for November 8, 2004. Summary judgment motions and a “Markman” claim construction hearings are likely to be heard later this year.

In September 2000, we filed suit against Hynix in the Mannheim Court, the Paris Court and the London Court for infringement of a European patent. The French suit included court-sanctioned seizure of documents and

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

9.    Litigation and Asserted Claims (continued)

samples from a Hynix facility. On December 7, 2001, in the German suit, an “order for evidence” calling for the appointment of an independent expert was issued by the Mannheim court. The appointed expert has not yet completed his report in the Hynix case. The French suit and the British suit have been temporarily stayed.

Shareholder Litigation

On August 10, 2001, following the trial results in the Infineon case, we were named as a defendant in a purported federal class action in the United States District Court for the Northern District of California, Toiv v. Rambus, et al., C01-CV-3112. That action was brought allegedly on behalf of a class of plaintiffs who purchased Rambus Common Stock between February 11, 2000 and May 9, 2001, inclusive, and asserted claims under Section 10(b) of the Exchange Act and Section 20(a) of the Exchange Act, as well as Rule 10b-5. The Complaint alleges that Rambus misled shareholders concerning its business and the status of its intellectual property in light of allegations concerning our involvement in JEDEC. Fourteen similar actions were filed in the Northern District of California, and one was also filed in the Eastern District of Virginia. On November 16, 2001, a lead plaintiff was appointed. All of these cases were consolidated on December 13, 2001, as In re Rambus, Inc. Securities Litigation, Case No. C-01-3112-MMC (Chesney, J.). A consolidated amended complaint was filed on March 22, 2002. The class period for the consolidated complaint runs from January 11, 2000 through May 9, 2001. On May 17, 2002, we moved to dismiss the consolidated complaint. On January 15, 2003, our motion to dismiss was granted and plaintiffs given leave to file an amended complaint within 45 days. Rather than file such a complaint by such date, on January, 29, 2003, plaintiffs stipulated that they would wait until after rulings on the Infineon motion for rehearing or rehearing en banc in the CAFC. Pursuant to that stipulation, class plaintiffs filed a motion for voluntary dismissal with prejudice of the securities class action on April 18, 2003. A hearing is scheduled for May 30, 2003.

On August 15, 2001, a purported shareholder derivative lawsuit, Boyadjian v. Davidow, et al., C.A. No. 19057, was filed in Delaware Chancery Court. We are a nominal defendant and our directors are defendants. Additional similar actions were filed, Anderson v. Davidow, et al., No. 19064-NC (filed August 17, 2001) and Lisle et al., v. Davidow, et al., No. 19122-NC (filed September 24, 2001). All of these cases were consolidated as In re Rambus Inc. Derivative Litigation, C.A. No. 19057-NC. The consolidated complaint was filed on November 12, 2001 and alleges that the individual defendants caused Rambus to engage in an improper course of conduct relating to JEDEC and its intellectual property beginning in 1992 and continuing through the Infineon trial in May of 2001. The complaint alleges breaches of fiduciary duty, misappropriation of confidential information for personal profit, and asks for contribution or indemnification from the named director defendants. We filed a motion to dismiss this complaint, which was granted, with plaintiffs given leave to file a motion seeking leave to replead the complaint. Plaintiffs filed that motion and an amended complaint on March 12, 2003. We opposed this motion on April 4, 2003. We intend to continue to vigorously defend ourselves in this action.

Similar derivative actions were filed in California Superior Court, Santa Clara County. They are Vista 2000 v. Davidow, et al., CV-800901, Taylor v. Tate, et al., No. CV 801266. The complaints assert claims for breaches of fiduciary duty and violation of California’s proscription against insider trading. The cases were consolidated as Vista 2000 v. Davidow, CV No. 800901 on November 9, 2001 by the court. The court on that date also granted defendants’ motion to stay the consolidated case in deference to the earlier filed Delaware actions described above. Rambus and plaintiffs in two subsequent cases brought on similar grounds, Bonds v. Davidow et al., CV

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

9.    Litigation and Asserted Claims (continued)

No. 802086, and Sujan v. Rambus, Inc., CV No. 803367, have agreed to stay those cases on similar terms. Plaintiffs agreed to consolidate all of these cases together by stipulation with defendants on or around July 3, 2002. On July 18, 2002, Judge Komar of the California Superior Court ordered this stay as stipulated by the parties. We intend to continue to vigorously defend ourselves in this action.

Memory Purchasers Class Action

On April 3, 2002, we were served with a complaint in an action entitled Holiday Matinee, Inc. v. Rambus, Inc. No. CV 806325, filed in California Superior Court, Santa Clara County. The complaint in that case purports to be on behalf of an alleged class of “indirect purchasers” of memory from January 2000 to March 2002. Plaintiff alleges that those purchasers paid higher prices for various types of dynamic random access memory (DRAM) due to our alleged unlawful use of market power in the various DRAM markets to coerce vendors of equipment using that technology to enter into supposed agreements in restraint of trade. Plaintiffs base their claims on our alleged anticompetitive actions in patenting and licensing various technologies relating to DRAM, which plaintiffs assert, occurred during our involvement at JEDEC in 1992 through 1996, as well as during our subsequent patent licensing and litigation efforts. The complaint alleges claims under (i) California Business & Professions Code § 16700 for allegedly having coerced “market participants” into entering supposedly unlawful licensing agreements in restraint of trade; (ii) California Business & Professions Code § 17200 for supposed “unfair business practices” that forced the public to pay “supra-competitive” prices for products incorporating DRAM technology; and (iii) a theory of unjust enrichment based on supposedly receiving “unearned royalties” from products that incorporated certain DRAM technology. Plaintiffs seek legal and equitable relief. We demurred to this complaint in its entirety on June 24, 2002 and a hearing on this demurrer occurred on August 27, 2002, at which point the court granted our demurrer, giving plaintiff leave to amend its complaint. Plaintiff filed an amended complaint on September 26, 2002. We filed a demurrer to the amended complaint and a hearing was held on this demurrer on December 3, 2002. The Court granted our demurrer and again gave plaintiff leave to amend its complaint. After Plaintiff filed its second amended complaint, we demurred successfully again and plaintiff moved to dismiss its complaint with prejudice, reserving however, their rights of appeal from the decisions against them. That motion was granted on April 17, 2003 when the complaint was dismissed with prejudice.

FTC Complaint and European Commission Competition Directorate-General Request For Information

On June 19, 2002, the Federal Trade Commission (“FTC”) filed a complaint against us. The FTC has alleged that through our action and inaction at JEDEC, we violated Section 5 of the FTC Act in a way that allowed us to obtain monopoly power in — or that by acting with intent to monopolize it created a dangerous probability of monopolization in — synchronous DRAM technology markets. The FTC has also alleged that our

action and practices at JEDEC constituted unfair methods of competition in violation of Section 5 of the FTC Act. On or about April 22, 2003, we received courtesy copies of requests for information from the European Commission Competition Directorate-General indicating that it had received complaints from Infineon and Hynix apparently making similar allegations.

On July 5, 2002, we moved to stay the FTC action until the CAFC issued a ruling in the Rambus v. Infineon appeal; this motion was denied, and we filed our answer to the complaint on July 29, 2002. Fact and expert discovery have been largely completed in the case. There has been substantial motion practice, including a motion filed by FTC complaint counsel seeking a default judgment based on alleged document destruction deriving from a 1998 Rambus document retention plan. The administrative law judge (“ALJ”) denied complaint

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

9.    Litigation and Asserted Claims (continued)

counsel’s motion, although he did enter certain rebuttable presumptions against us as sanctions for what the ALJ called our “gross negligence” in implementing our document retention plan and failing to keep an inventory of documents not retained. Among other motions, the Department of Justice (“DOJ”) successfully sought to intervene in the FTC action, and obtained a limit on certain deposition questioning by us pending completion of the DOJ’s criminal investigation of DRAM manufacturers for price- fixing. We have been informed that we are not a target of the DOJ investigation. The ALJ denied our motion for summary judgement and has entered rulings on pre-hearing motions in the action. The parties filed pre-hearing briefs on April 22, 2003. We expect to continue to vigorously defend ourselves. The administrative hearing is set to begin on April 30, 2003.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

This Form 10-Q contains forward-looking statements. These forward-looking statements include, without limitation, predictions regarding the following aspects of our future:

You can identify these and other forward-looking statements by the use of words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.

Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors.” All forward-looking statements included in this document are based on our assessment of information available to us at this time. We assume no obligation to update any forward-looking statements.

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Results of Operations

The following table sets forth, for the periods indicated, the percentage of total revenues represented by certain items reflected in our consolidated condensed statements of operations and the percentage change of such items between periods:

Revenues.    Total revenues for the three months ended March 31, 2003 increased 19.3% to $28.1 million over the comparable period in 2002.

Contract Revenues.    Contract revenues increased 89.7% to $3.3 million in the three months ended March 31, 2003. The increase in contract revenue for the three months ended March 31, 2003 compared to the comparable period in 2002 is due primarily to recognition of revenue associated with Yellowstone and Redwood interface technologies contracts. The first contract revenue for the Yellowstone interface technology was recognized in the three months ended December 31, 2002. The first contract revenue for the Redwood interface technology was recognized in the three months ended March 31, 2003.

Royalty Revenues.    Royalties in the three months ended 2003 were $24.8 million which represented a 13.8% increase over the comparable period in 2002. Our largest source of royalties continues to be the Intel cross-license agreement which was signed in September 2001. Royalties for this agreement were unchanged in the three months ended March 31, 2003 as compared to the comparable period in 2002. The next largest source of royalties relates to the use of Rambus patents and intellectual property in SDRAM and DDR-compatible products. Royalties increased for SDRAM and DDR-compatible products primarily due to increased royalties on shipments of DDR controllers and memory and of SDRAM controllers. For the three months ended March 31, 2003, the SDRAM and DDR-compatible royalties were recognized based on a percentage of the licensee’s revenue with the exception of two contracts that had been previously amended to allow for fixed quarterly payments until there is a favorable resolution to the pending litigation. As a result of the legal outcomes in the patent case on January 29, 2003 at the Court of Appeals for the Federal Circuit, the smaller of the two licensees who were paying a fixed amount has agreed to revert to variable royalties for payment commencing in the three months ending June 30, 2003. The smallest source of royalties is from licensees’ shipments of RDRAM memory devices and controllers that connect to RDRAM memory devices. RDRAM revenues in the three months ended March 31, 2003 represent a revenue decline when compared to the comparable period in 2002. The RDRAM royalty decline in 2003 is due to average selling price (“ASP”) and unit decline during the period. With respect to

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Intel, the current 850E chipset continues to be the last RDRAM chipset on Intel’s roadmap, which we expect means that 850E-driven RDRAM unit shipments and royalties are and will be declining until the ultimate end of life which is expected to occur in the next twelve months.

We anticipate that our potential to generate royalties in 2003 will be largely dependent upon Intel and system sales by PC manufacturers and Sony Corporation (“Sony”). Given the concentration of royalties from a limited number of sources, it is likely that royalties will continue to vary greatly from period to period. We expect to commence recognizing royalty revenues for the RaSer interface in 2003. We do not expect royalties for Yellowstone or Redwood in 2003.

Engineering Costs.    Engineering costs, consisting of cost of contract revenues and research and development expenses, were $10.5 million and $7.1 million, which represented 37.3% and 30.0% of revenues, in the three months ended March 31, 2003 and 2002, respectively. The increase in engineering costs in the three months ended 2003 was primarily a result of the hiring of additional engineering personnel as required to meet the milestones on the contracts signed for Yellowstone and Redwood.

Cost of Contract Revenues.    Cost of contract revenues increased to $3.2 million in the three months ended March 31 2003. This represents a 74.3% increase over the comparable time period in 2002. The increase in cost of contract revenues is due to the ramp in engineering headcount for Yellowstone and Redwood contracts. The cost of contract revenues will vary both in absolute dollars and as a percentage of revenue from period to period based on contractual requirements.

Research and Development.    Research and development expenses were $7.3 million in the three months ended March 31, 2003, which represented a 39.1% increase over the comparable period in 2002. Research and development expenses increased as a percentage of revenues in the three months ended March 31, 2003 by 3.7 percentage points as investment increased in the RaSer, Yellowstone and Redwood interfaces. This increase was partially offset by a reduction in the investment in RDRAM interfaces. We incurred a $0.5 million one-time charge for intellectual property licenses. Research and development expenses in the future will vary in both absolute dollars and as a percentage of revenue from period to period based on the nature, timing and number of research and development projects underway and the change in engineering headcount in any given period, as well as the rate of change in our total revenues.

Marketing, General and Administrative.    In the three months ended March 31, 2003, marketing, general and administrative expenses were $13.1 million which represents a 69.4% increase over the comparable period in 2002. The increase in marketing, general and administrative expenses during the three months ended March 31, 2003 was primarily the result of increased litigation spending. The increase in litigation costs was driven primarily by costs associated with preparing for the upcoming administrative hearing with the Federal Trade Commission. Litigation expenses are expected to vary from period to period, given the volatility of litigation activities. We expect such costs will increase in the twelve months ending December 31, 2003 relative to the comparable period in 2002 as we defend ourselves in the FTC action, prepare for private litigation, and protect our intellectual property rights. Marketing, general and administrative expenses in the future will vary in both absolute dollars and as a percentage of revenue from period to period based on the trade shows, advertising, legal and other marketing and administrative activities undertaken and the change in sales, marketing and administrative headcount in any given period, as well as the rate of change in our total revenues.

Interest and other Income, Net.    Interest and other income, net, consists primarily of interest income from our investments. For the three months ended March 31, 2003, Interest and other income, net was $3.0 million, which represented an increase of 78.8% same time period in 2002. In the three months ended March 31, 2003, Interest and other income includes other income of $1.7 million, resulting from the divestiture of Rambus’s investment in NurLogic, which was acquired during the quarter by Artisan Components, Inc. The divestiture resulted in the receipt of cash, stock and an intellectual property license, all with a total value of $5 million. We believe that due to the current interest rate environment, interest and other income will likely fluctuate in future periods due to the liquidation of investments and reinvestment at lower interest rates.

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Provision for (Benefit from) Income Taxes.    We recorded an income tax provision of $2.4 million for the three months ended March 31, 2003. This represents a $1.2 million decrease over the tax provision in the comparable period in 2002. Our effective tax rate of 32% and 35% for 2003 and for the comparable period in 2002, respectively, differs from the statutory rate primarily due to state taxes and research and development tax credits.

At March 31, 2003, we had included on our balance sheet gross deferred tax assets of approximately $41.9 million, primarily relating to the difference between tax and book treatment of depreciation and amortization, employee stock-related compensation expenses and deferred revenue, and research and development and foreign tax credit carryforwards. The gross deferred tax assets of $41.9 million, have been reduced by a valuation allowance of $3.5 million as of March 31, 2003. The net deferred tax assets of $38.4 million represents management’s estimate of the amount of the tax assets which it believes will more likely than not be realized.

The deferred tax asset valuation allowance is subject to periodic adjustment as facts and circumstances warrant. The ability to realize the deferred tax asset is dependant on sufficient levels of future taxable income and other factors. The valuation allowance decreased by $2.4 million in the three months ended March 31, 2003 due to the corresponding decrease in the deferred tax asset related to the tax benefit from the exercise of certain stock options and the realization or the termination of the tax benefit related to the exercise of those options.

Share Repurchase Program

In October 2001, our Board of Directors approved a share repurchase program of our Common Stock principally to reduce the dilutive effect of employee stock options. At that time, we were authorized to purchase in open market transactions up to five million of our shares of outstanding Rambus Common Stock over an undefined period of time. We repurchased 3.4 million shares at a cost of $20.5 million in the twelve months ended December 31, 2002. In October 2002, our Board of Directors approved the purchase in open market transactions of up to an additional five million of our shares of outstanding Rambus Common Stock. During the three months ended March 31, 2003, we repurchased 1.4 million shares at a cost of $14.7 million. On March 31, 2003, there remained an outstanding authorization to repurchase another 4.7 million shares of outstanding Rambus Common Stock.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to investments, income taxes, litigation and other contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

Rambus generates contract and royalty revenues from the following five types of agreements: (1) RDRAM licenses, (2) Yellowstone and Redwood licenses, (3) RaSer licenses, (4) the Intel cross-license and (5) SDRAM- and DDR- compatible licenses. We recognize royalties upon notification of sale by our licensees. The terms of

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the royalty agreements generally require licensees to give us notification and to pay us royalties within 60 days of the end of the quarter during which the sales take place.

RDRAM Licenses.    RDRAM licenses allow a semiconductor manufacturer to use our RDRAM memory interface and to receive engineering implementation services, customer support, and enhancements. We deliver to a new RDRAM licensee an implementation package, which contains the information needed to develop a chip incorporating RDRAM memory interface in the licensee’s process. An implementation package includes a specification, generalized circuit layout database software for the particular version of the chip which the licensee intends to develop, test parameter software and, for memory chips, a core interface specification. Test parameters are the programs that test the RDRAM interface embedded in the customer’s product. Many licensees have contracted to have us provide the specific engineering implementation services required to optimize the generalized circuit layout for the licensee’s manufacturing process. The RDRAM licenses also provide for the right to receive ongoing customer support, which includes technical advice on chip specifications, enhancements, debugging and testing.

We recognize revenue on RDRAM licenses consistent with American Institute of Certified Public Accountants (“AICPA”) Statement of Position No. 98-9 (“SOP 98-9”), modification of SOP 97-2, “Software Revenue Recognition.” This SOP applies to all entities that earn revenue on products containing software, where software is not incidental to the product as a whole. Contract fees for the services provided under these agreements are comprised of license fees, engineering service fees and any nonrefundable, prepaid royalties. Contract fees are bundled together as the total price of the agreement does not vary as a result of inclusion or exclusion of services. Accordingly, the revenues from such contract fees are recognized ratably over the period during which the post-contract customer support is expected to be provided independent of the payment schedules under the contract, including milestones. We do not recognize revenue in excess of cash received by us on a contract if collectibility is not probable. We review assumptions regarding the post-contract customer support periods on a regular basis. If we determine that it is necessary to revise our estimates of the support periods, the total amount of revenue recognized over the life of the contract would not be affected. However, to the extent the new assumptions regarding the post-contract customer support periods were less than the original assumptions, the contract fees would be recognized ratably over an accelerated period. Conversely, if the new estimated periods were longer than the original assumptions, the contract fees would be recognized ratably over a longer period.

At the time we begin to recognize revenue under RDRAM licenses, the remaining obligations, as defined by the SOP, are no longer significant. These remaining obligations are primarily to keep the product updated and include activities such as responding to inquiries and periodic customer meetings. Part of these contract fees may be due upon the achievement of certain milestones, such as provision of certain deliverables by us or production of chips by the licensee. The remaining fees are due on pre-determined dates and include significant up-front fees. The excess of contract fees billed over revenue recognized is shown on the balance sheet as deferred revenue.

Yellowstone and Redwood Licenses.    Yellowstone and Redwood interface licenses currently provide for the payment of license fees and engineering fees, as well as royalties. We currently recognize revenue on Yellowstone and Redwood licenses using the percentage of completion method of accounting. We determine progress-to-completion using input measures based on labor hours incurred. A provision for estimated losses on contracts is made, if necessary, in the period in which the loss becomes probable and can be reasonably estimated. We review assumptions regarding the work necessary to complete projects on a quarterly basis. If we determine that it is necessary to revise our estimates of the work required to complete a contract, the total amount of revenue recognized over the life of the contract would not be affected. However, to the extent the new assumptions regarding the total amount of work necessary to complete a project were less than the original assumptions, the contract fees would be recognized sooner than originally expected. Conversely, if the new estimated total amount of work necessary to complete a project was longer than the original assumptions, the contract fees would be recognized over a longer period.

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Part of these contract fees may be due upon the achievement of certain milestones, such as provision of certain deliverables by us or production of chips by the licensee. The remaining fees are due on pre-determined dates and include significant up-front fees. The excess of contract fees billed over revenue recognized is shown on the balance sheet as deferred revenue. We do not recognize revenue in excess of cash received by us on a contract if collectibility is not probable.

RaSer licenses.    RaSer interface licenses provide for the payment of license fees, engineering fees and royalties. Revenues from license fees and engineering fees are recognized ratably over the period during which the post-contract customer support is expected to be provided, independent of the payment schedules under the contract. The excess of contract fees billed over revenue recognized is shown on the balance sheet as deferred revenue. We do not recognize revenue in excess of cash received by us on a contract. We do not recognize revenue in excess of cash received by us on a contract if collectibility is not probable.

Intel cross-license.    We recognize royalties from the Intel contract, signed September 2001, which grants Intel access to the Rambus patent portfolio, as the amounts are due and payable pursuant to the contract with Intel. This contract expires in September 2006.

SDRAM-compatible and DDR-compatible licenses.    SDRAM-compatible and DDR-compatible licenses generally provide for the payment of fees, which include compensation for use of our patents from the time we notify the licensee of potential infringement. Accordingly, we classify these fees as royalty revenues, which are recognized ratably over the five-year contract period. The current contracts will begin to expire in June 2005.

Litigation

As of March 31, 2003, we are involved in certain legal proceedings, as discussed in Note 9 of our unaudited consolidated condensed financial statements, above, and in Part II Other Information, Item 1 (Legal Proceedings). Based upon consultation with outside counsel handling our defense in these matters and an analysis of potential results, we have not accrued any amounts for potential losses related to these proceedings. Because of uncertainties related to both the amount and range of loss on the pending litigation, management is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, we will assess the potential liability related to our pending litigation. We will record accruals for losses if and when we determine the negative outcome of such matters to be probable and reasonably estimable. Our estimates regarding such losses could differ from actual results. Revisions in our estimates of the potential liability could materially impact our results of operations and financial position.

Marketable Securities

We classify all of our marketable securities as available-for-sale. We carry these investments at fair value, based on quoted market prices, and unrealized gains and losses are included in accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity. Realized gains and losses are recorded in our consolidated statement of operations. If we believe that an other-than-temporary decline exists, it is our policy to record a valuation allowance to reduce aggregate investments to fair value and record the related charge as a reduction of interest income.

Income Taxes

As part of preparing our consolidated financial statements, we are required to estimate the income tax expense or benefit which relates to the pretax income or loss for the period. In addition, we are required to estimate the tax asset or liability to be included on the consolidated balance sheet as of the reporting dates.

This process requires us to estimate various items including permanent and temporary differences between the financial accounting and tax treatment of certain items of income and expenses items, differences between

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federal and state tax treatment of these items, the amount of taxable income reported to various states, foreign taxes and tax credits. The differing treatment of certain items for tax and accounting purposes results in deferred tax assets and liabilities, which are included on our consolidated balance sheet.

We assess the likelihood that our deferred tax assets will be recovered in the future through reductions of taxes that would otherwise be payable. This assessment is based in part on estimates of future taxable income and other factors. The actual taxable income realized in the future and the other factors which determine how much benefit we ultimately realize from the deferred tax assets could vary materially from our estimates. For the purposes of making this assessment as of March 31, 2003, we estimate that future taxable income will be sufficient to absorb temporary differences that reverse in the future and the amount and the source of our taxable income will allow us to benefit our tax credit carryforwards. Future net taxable income is impacted by many factors including the amount of financial accounting income before taxes, stock option exercises, etc.

To the extent we believe that recovery of a tax asset included on the balance sheet is not likely or uncertain, we must establish a valuation allowance. When we establish a valuation allowance or increase this allowance, we include an expense within the tax provision in the statement of operations or a charge to additional paid in capital on the balance sheet to the extent the increase in the valuation allowance resulted from the exercise of stock options for which no accounting expense was recorded. The valuation allowance as of March 31, 2003 of $3.5 million relates primarily to the tax benefit of the employee stock related compensation expense. When this asset was recorded on the balance sheet, the price of our stock was significantly higher than it was on March 31, 2003. We believe that the tax benefit that we ultimately realize when the options to which this asset relates are exercised will be less than the amount of the asset. Therefore, the valuation allowance was recorded. Certain tax credit carryforwards reported on the income tax returns we file are not recorded as assets on the consolidated balance sheet because these credits could be challenged by various tax authorities. At the time when it is more certain that a credit will potentially reduce future tax, the credit is included on the consolidated balance sheet and the appropriate tax benefit is recorded in the consolidated income statement or an increase to additional paid in capital is recorded depending on the facts under which the credit was generated.

Significant management judgment, based upon the advice of outside tax advisors, is required to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. As of March 31, 2003, we have recorded a valuation allowance of $3.5 million due to uncertainties related to our ability to recover our deferred tax assets. In the event that actual results differ from the estimates or we adjust in future periods the estimates upon which the valuation allowance has been determined, we may need to record additional valuation allowance, which could materially impact our financial position and results of operations.

As of March 31, 2003, we had net deferred tax assets of $38.4 million.

Liquidity and Capital Resources

As of March 31, 2003, we had cash and cash equivalents and marketable securities of $183.1 million, including restricted investments of $12.3 million and a long-term component of $105.9 million. As of the same date, we had total working capital of $46.5 million, including a short-term component of deferred revenue of $21.8 million. On April 16, 2003, the United States District Court for the Eastern District of Virginia removed restrictions on $7.7 million in investments. Deferred revenue represents the excess of billings to licensees over revenue recognized on license contracts, and the short-term component represents the amount of this deferred revenue expected to be recognized over the next twelve months. Excluding the short-term component of deferred revenue, working capital would have been $68.3 million at March 31, 2003.

Our operating activities provided net cash of $5.8 million and $8.0 million in the three months ended March 31, 2003 and 2002, respectively. Cash generated in the three months ended March 31, 2003 was primarily the result of net income adjusted for non-cash items, an increase of in the tax benefit of stock options exercised,

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and increases in accounts payable and other liabilities primarily due to unsettled stock repurchases and increased legal expenses. This was partially offset by a decrease in accounts receivable primarily due to increased billings for the new Yellowstone and Redwood contracts and decreases in prepaids, deferred taxes and other assets, primarily due to increased foreign withholding taxes paid on payments received from licensees. In the comparable period of 2002, net cash provided by operating activities consisted primarily of net income adjusted for non-cash items, an increase in the tax benefit of stock options exercised, prepaids, deferred taxes and other assets and accounts payable and other liabilities. This was partially offset by a decrease in accounts receivable and deferred revenue. The decrease in deferred revenue represents revenues recognized in excess of contract billings.

Net cash used in investing activities was $2.1 million in the three months ended March 31, 2003. Net cash provided by investing activities was $1.3 million in the comparable period of 2002. Investing activities have consisted primarily of net purchases and maturities of marketable securities, changes in restricted investments and purchases of property and equipment. Investing activities also included cash proceeds received on the sale of our investment in Nurlogic Design Inc.

Net cash used in financing activities was $10.9 million in the three months ended March 31, 2003 compared to $4.4 million used in the comparable period of 2002. Financing activities have consisted primarily of proceeds from the sale of Common Stock under our employee stock purchase and option plans and beginning in the three months ended December 31, 2001, the repurchase of shares of our outstanding Common Stock. In the three months ended March 31, 2003, we generated net proceeds of $3.8 million from the issuance of Common Stock and used cash of $14.7 million to repurchase Common Stock. In the comparable period of 2002, we generated net proceeds of $0.6 million from the issuance of Common Stock and used cash of $5.0 million to repurchase Common Stock.

We presently anticipate that existing cash balances will be adequate to meet our cash needs for at least the next 12 months.

Lease Commitments

We relocated our headquarters at the beginning of calendar year 2001, and entered into an agreement to sublease our previous Mountain View facilities through the end of the existing lease term in February 2005. In the three months ended March 31, 2002, we agreed to accept reduced rent payments from our sub-tenant in exchange for an increase in the letter of credit that serves as collateral for certain of the sub-tenant’s obligations under the lease.

We lease our present office facilities in Los Altos, California, under an operating lease agreement. As part of this lease transaction, we provided the lessor with a letter of credit restricting $2.5 million of our cash as collateral for certain of our obligations under the lease. The cash is restricted as to withdrawal and is managed by a third party subject to certain limitations under our investment policy. The letter of credit was reduced to $1.2 million on the first anniversary of rent commencement and was reduced to the current level of $600,000 on the second anniversary of rent commencement.

As of March 31, 2003, aggregate future minimum payments under the leases are (in thousands):