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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

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)

Registrant’s telephone number, including area code: (650) 947-5000

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 101,770,944 as of October 19, 2004.

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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 or the Company) 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, or 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 year ended December 31, 2003, included in Rambus’s 2003 Annual Report filed on Form 10-K with the SEC on February 13, 2004.

2.    Accounting Policies and Recent Accounting Pronouncements

Stock-Based Compensation

Rambus accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Stock options are generally granted with exercise prices equivalent to fair market value, and no compensation cost is recognized. When stock options are granted with exercise prices below fair market value, employee stock-related compensation expense is recognized accordingly. Rambus complies with the disclosure provisions as required under Statement of Financial Accounting Standards, or SFAS No. 123, “Accounting for Stock-Based Compensation.”

In December 2002, the Financial Accounting Standards Board, or FASB, issued SFAS No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure,” an amendment of SFAS 123. 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, Rambus’s net income (loss) and net income (loss) per share would have changed to the pro forma amounts indicated below (in thousands, except share data; unaudited):

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

2.    Accounting Policies and Recent Accounting Pronouncements (continued)

Note 1: If the pro forma disclosures result in a net loss, the diluted shares used in the pro forma per share calculations for diluted pro forma loss per share is the same as the basic shares. Using the actual diluted shares would be anti-dilutive.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The effects of applying SFAS 123 on the pro forma disclosures for the quarter and nine months ended September 30, 2004 are not necessarily indicative of the effects on pro forma disclosures in future periods.

Recent Accounting Pronouncements

In January 2003, FASB issued FASB Interpretation No. 46, or FIN 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, which addresses consolidation by business enterprises of variable interest entities, or VIEs, either: (1) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) in which the equity investors lack an essential characteristic of a controlling financial interest. In December 2003, FASB issued a revised Interpretation No. 46, which provides guidance on the identification of and reporting for VIEs. Interpretation No. 46 was effective for Rambus in the first quarter of 2004. The adoption of Interpretation No. 46 did not have a material effect on Rambus’s results of operations or financial position for the period reported.

In April 2004, the Emerging Issues Task Force issued Statement No. 03-06, or EITF 03-06, “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings Per Share.” EITF 03-06 addresses a number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends on its common stock. The issue also provides further guidance in applying the two-class method of calculating earnings per share, clarifying what constitutes a participating security and how to apply the two-class method of computing earnings per share once it is determined that a security is participating, including how to allocate undistributed earnings to such a security. EITF 03-06 was effective for fiscal periods beginning after March 31, 2004. The adoption of EITF 03-06 did not have a material effect on Rambus’s results of operations or financial position.

3.    Revenue Recognition

Rambus’s revenues consist of royalty revenues and contract revenues generated from the following five types of agreements with semiconductor and systems companies: (1) RDRAM^™ licenses, which are licenses for chips fully compatible with Rambus’s RDRAM memory interface, (2) XDR^™ and Redwood^™ licenses, which are licenses for chips fully compatible with Rambus’s XDR and Redwood interfaces, (3) RaSer^™ licenses, which are licenses for Rambus’s RaSer interface that licensees integrate into their logic semiconductors, (4) a patent cross-license with Intel Corporation, or Intel, and (5) SDRAM and DDR-compatible licenses, which are licenses that cover the use of Rambus’s patents and intellectual property in SDRAM and DDR memory chips and controllers which control such memory. Rambus does not recognize contract revenues in excess of cash received if collectibility is not probable. The excess of contract fees billed over revenue recognized is shown on the balance sheet as deferred revenue. Rambus recognizes royalty revenues upon notification of sale by its licensees if collectibility is probable. The terms of the royalty agreements generally require licensees to give Rambus notification and to pay Rambus royalties within 60 days of the end of the quarter during which the sales occur.

RDRAM Licenses.    RDRAM licenses generally allow a semiconductor manufacturer to use Rambus’s RDRAM memory interface and to receive engineering implementation services and customer support. Rambus delivers to a new RDRAM licensee an implementation package, which contains the information needed to

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

3.    Revenue Recognition (continued)

develop a chip incorporating Rambus’s RDRAM memory interface into 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. Some licensees have contracted to have Rambus 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.

Rambus recognizes revenue on RDRAM licenses in accordance with the American Institute of Certified Public Accountants, or AICPA, Statement of Position, or SOP, No. 97-2, and SOP 98-9, “Software Revenue Recognition.” These SOPs apply 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 and engineering service fees. Contract fees are bundled together as the total price of the agreement does not vary as a result of inclusion or exclusion of services and vendor specific objective evidence, or VSOE, for the undelivered element has not been established. Accordingly, the revenues from such contracts 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. At the time Rambus begins to recognize revenue under an RDRAM license, the remaining obligations 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 Rambus or production of chips by the licensee. The remaining fees are due on pre-determined dates and include significant up-front fees. Rambus reviews assumptions regarding the post-contract customer support periods on a regular basis. If Rambus determines that it is necessary to revise its estimates of the support periods, the total amount of revenue recognized over the life of the contract would not be affected. However, if the new estimated periods are shorter than originally estimated, the contract fees would be recognized ratably over a shorter period. Conversely, if the new estimated periods are longer than originally estimated, the contract fees would be recognized ratably over a longer period.

XDR and Redwood licenses.    XDR and Redwood interface licenses currently provide for the payment of license fees and engineering fees, as well as royalties. Rambus currently recognizes license and engineering fees on XDR and Redwood licenses using the percentage-of-completion method of accounting. Rambus determines progress-to-completion using input measures based on labor-hours incurred. A provision for estimated losses on fixed price contracts is made, if necessary, in the period in which the loss becomes probable and can be reasonably estimated. Rambus reviews assumptions regarding the work necessary to complete projects on a quarterly basis. If Rambus determines that it is necessary to revise its 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 are less than the work originally estimated, the contract fees would be recognized sooner than originally expected. Conversely, if the new estimated total amount of work necessary to complete a project is longer than originally estimated, the contract fees would be recognized over a longer period.

Part of these XDR and Redwood license contract fees may be due upon the achievement of certain milestones, such as provision of certain deliverables by Rambus or production of chips by the licensee. The remaining fees are due on pre-determined dates and include significant up-front fees.

RaSer licenses.    RaSer interface licenses provide for the payment of license fees, engineering fees and royalties. Generally, license and engineering fees are recognized ratably over the period during which the

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RAMBUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

3.    Revenue Recognition (continued)

post-contract customer support is expected to be provided, independent of the payment schedules under the contract. Revenue on one contract is being recognized 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 fixed price contracts is made, if necessary, in the period in which the loss becomes probable and can be reasonably estimated. Rambus reviews assumptions regarding the work necessary to complete projects on a quarterly basis. If Rambus determines that it is necessary to revise its 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 are less than the work originally estimated, the contract fees would be recognized sooner than originally expected. Conversely, if the new estimated total amount of work necessary to complete a project is longer than originally estimated, the contract fees would be recognized over a longer period.

Intel cross-license.    In September 2001, Rambus entered into a cross-license agreement with Intel that grants Intel a license to Rambus’s patent portfolio. Rambus recognizes revenue from this arrangement on a quarterly basis as amounts become due and payable. The agreement terminates in September 2006 and after that date Intel will have a paid-up license for the use of all of the patents that we own claiming priority prior to September 30, 2006 and for which Rambus owns applications as of that date. The final payment on this agreement is scheduled to occur in the second quarter of 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 Rambus’s patents from the time Rambus notifies the licensee of potential infringement. Accordingly, these fees are classified as royalty revenues, which are recognized ratably over the contract period, which is typically five years. The current contracts will begin to expire in June 2005.

Allowance for doubtful accounts.    Rambus’s allowance for doubtful accounts is determined using a combination of factors to ensure that Rambus’s trade and financing receivables balances are not overstated due to uncollectibility. Rambus determines its allowance for doubtful accounts based on a variety of factors. For the nine months ended September 30, 2004 and 2003, Rambus reported a balance of $0 in its allowance for doubtful accounts.

4.    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, net of any taxes. Other comprehensive income is presented in the balance sheet under accumulated other comprehensive income in stockholders’ equity.

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

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

5.    Employee Stock Option Plans

Stock Option Program Description

Rambus officers and employees are eligible to participate in the 1997 Stock Plan. Employees who are not executive officers are also eligible to participate in the 1999 Stock Plan. The 1997 Stock Plan permits the Board of Directors of Rambus or the Compensation Committee of the Board 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 Board or the Compensation Committee has authority to grant and administer stock options to all Rambus employees.

In determining the size of a stock option grant to a new officer or other key employee, the Board or 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 for retention. The method of vesting of additional options granted to current employees has and will vary over time based on the determination of the Board or the Compensation Committee.

In addition, under the 1997 Stock Plan, the Board, on October 15, 2003, delegated to two executive officers the authority to grant new hire options to non-executive officer employees. Each option granted to a new employee under this authority is subject to the following terms:

Distribution and Dilutive Effect of Options

The following table illustrates the grant dilution and exercise dilution of options granted and exercised during the periods presented (in thousands, except percentages; unaudited):

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

5.    Employee Stock Option Plans (continued)

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 December 31, 2003 were in excess of $100,000.

General Option Information

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

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

5.    Employee Stock Option Plans (continued)

The following table summarizes information about outstanding and exercisable options as of September 30, 2004:

As of September 30, 2004, a total of 31,557,060 shares of Common Stock (24,547,749 of which are outstanding and 7,009,311 of which are available for future grant) were reserved for issuance under all stock option plans. As of September 30, 2004 and December 31, 2003, options for the purchase of 11,851,319 and 11,866,481 shares, respectively, were exercisable without being subject to repurchase by Rambus.

The following table presents the option exercises for the quarter ended September 30, 2004 and option values as of that date for the named executive officers:

Note 1: Market value of the underlying securities based on the closing price of Rambus’s Common Stock on September 30, 2004 (the last trading day of the quarter ended September 30, 2004) on the Nasdaq Stock Market of $15.69 per share minus the exercise price per share.

6.    Stockholders’ Equity

Warrants

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 to be issued to various RDRAM licensees. The warrants, which were issued at the time certain targets were met, have an exercise price of $2.50 per share and a life of five years from the date of issuance. These warrants vest and become exercisable only upon the achievement of certain milestones by Intel relating to shipment volumes of RDRAM chipsets, which could result in a non-cash charge to Rambus’s statement of operations based on the fair value of the warrants if and when the achievement of the Intel milestones becomes probable. Since Intel has announced the phase-out of the 850E chipset, the likelihood that the unvested warrants will vest is considered remote. As of September 30, 2004, a total of 1,520,000 of these warrants had been issued and 1,400,000 remained outstanding. These warrants began

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

6.    Stockholders’ Equity (continued)

to expire in February 2004 and will all have expired by January 2006. The impact of these warrants has been excluded from the calculation of net income (loss) per share.

Contingent Common Stock Equivalents and Options

As of September 30, 2004, there were 1,000,000 contingent unvested Common Stock Equivalents, or CSEs, and 941,000 contingent unvested options, which vest upon the achievement of certain milestones by Intel relating to shipment volumes of RDRAM chipsets. These CSEs were granted to Rambus’s CEO and President in 1999 and the options were granted to certain Rambus employees in 1999 and 2001. The CSEs were granted with a term of 10 years and the options were granted with an exercise price of $2.50 and a term of 10 years. If and when the achievement of the Intel milestones becomes probable, there would be an almost entirely non-cash charge to Rambus’s statement of operations based on the fair value of the CSEs and options. Since Intel has announced the phase out of the 850E chipset, the likelihood that the unvested CSEs and options will vest is considered remote. The impact of these CSEs and options has been excluded from the calculation of net income (loss) per share.

Stock Repurchase Program

In October 2001, Rambus’s Board of Directors approved a stock repurchase program of Rambus Common Stock principally to reduce the dilutive effect of employee stock options. Since the beginning of the program, the Board has authorized the purchase in open market transactions of up to ten million shares of outstanding Rambus Common Stock over an undefined period of time. As of September 30, 2004, Rambus has repurchased 7.5 million shares of its Common Stock at an average price per share of $10.05. A total of 503,000 shares were repurchased at an average price per share of $15.16 and 1,345,000 shares were repurchased at an average price per share of $16.09 in the quarter and nine months ended September 30, 2004, respectively. As of September 30, 2004, there remained an outstanding authorization to repurchase 2.5 million shares of outstanding Rambus Common Stock.

7.    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):

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7.    Net Income Per Share (continued)

For the quarter and nine months ended September 30, 2004, there were approximately 11.1 million and 5.9 million anti-dilutive shares, respectively, which were excluded from the calculation of diluted weighted average shares outstanding. In contrast, for the quarter and nine months ended September 30, 2003, there were approximately 3.0 million and 8.1 million anti-dilutive shares, respectively, which were excluded from the calculation of diluted weighted average shares outstanding. These options’ exercise prices were greater than the average market price of the common shares for the period, or the options, CSEs or warrants, were contingent upon the satisfaction of certain conditions, as described in Note 6 under “Warrants” and “Contingent Common Stock Equivalents and Options” that had not been met as of September 30, 2004 and 2003.

8.    Litigation and Asserted Claims

Infineon Litigation

On August 8, 2000, Rambus filed suit in the U.S. District Court for the Eastern District of Virginia, or the Virginia court, against Infineon Technologies AG, or Infineon, and its North American subsidiary for patent infringement of two U.S. patents. On September 25, 2000, Infineon filed counterclaims against Rambus 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 Rambus of two Infineon U.S. patents. In addition, Infineon also asserted breach of contract, fraud, RICO, and monopolization claims relying principally on allegations concerning Rambus’s participation in an industry standards-setting group known as JEDEC (“JEDEC related claims”). The JEDEC related claims relied primarily on the allegation that Rambus did not disclose certain of its then-pending patents and patent applications. 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. On October 20, 2000, Rambus amended its complaint to assert infringement of two additional U.S. patents. On January 10, 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 Rambus 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 Rambus’s patent infringement case and granted Rambus’s motion to dismiss Infineon’s breach of contract and monopolization claims. On May 9, 2001, the jury returned a verdict against Rambus on the fraud claims and for Rambus on the RICO claims. The jury awarded Infineon $3.5 million in punitive damages, which were reduced to $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 Rambus from filing additional patent infringement actions against Infineon in the United States under certain of Rambus’s U.S. patent claims with regard to JEDEC-compliant SDRAM and DDR SDRAM chips and (subject to certain conditions) successor JEDEC-compliant chips. Rambus appealed rulings by the Virginia court relating to infringement, including rulings on patent claim construction, which are known as “Markman rulings.” Rambus also appealed numerous liability rulings by the Virginia court with respect to the JEDEC related claims concerning SDRAM standard setting. Rambus 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.

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

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

8.    Litigation and Asserted Claims (continued)

CAFC reversed the fraud judgment against Rambus. In so doing it stated, inter alia, that the JEDEC disclosure rules suffered from a “staggering lack of defining details” and that, in any event, Rambus had not, through any omission, communicated any false statement because none of Rambus’s patent applications on file at the time it was a JEDEC member read on the JEDEC SDRAM standard then being considered. The panel concluded that Infineon had introduced no evidence of any actionable breach of duty by Rambus. The panel also vacated the Virginia district court’s judgment of non-infringement based on what it found to be the district court’s erroneous interpretations of Rambus’s patents, upholding, in substantial part, the broader interpretations that Rambus had urged. In addition, based on its holding, the panel determined that the injunction entered against Rambus 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 Rambus and remanded the case to the Virginia court for retrial of Rambus’s infringement claims against Infineon. In its opinion, the CAFC further ruled that the Virginia court may consider sanctions against Rambus for litigation misconduct, but only if Infineon is found to be the prevailing party in such retrial. Retrial is to be based on the CAFC’s patent claim constructions.

On Infineon’s motion, the CAFC stayed issuance of its mandate on April 11, 2003. This stay prevented further proceedings in the Virginia court pending a ruling on Infineon’s petition for writ of certiorari to the U.S. Supreme Court. On October 6, 2003, the Supreme Court denied Infineon’s petition for certiorari, without record of any dissent. Jurisdiction for the case has passed back to the trial court, which originally set the date for the trial to begin on May 10, 2004.

In pre-trial proceedings for the Virginia retrial, Infineon has raised further and/or expanded allegations of litigation misconduct, including allegations of document spoliation, based on claims that Rambus’s 2000-2001 document production to Infineon was inadequate. Infineon also contends that Rambus’s 2000-2001 document production did not include certain later discovered documents that Rambus later produced to other parties, at least some of which would have been produced to Infineon had they been discovered earlier. Infineon also repeated an earlier charge to the effect that Rambus had allegedly committed document “spoliation” by, among other things, implementing a corporate document retention plan when it anticipated or should have anticipated litigation. The Virginia retrial date has been delayed several times and has most recently has been moved back to February 10, 2005 to accommodate additional discovery on this issue of spoliation.

In two discovery rulings on May 18, 2004, the trial court in the Infineon case found evidence supporting Infineon’s claims of “spoliation” and issued two orders piercing Rambus’s attorney-client and work product privileges and ordering the production of approximately 50 documents related in some manner to the creation and implementation of the Rambus document retention policy. Underlying the May 18th orders were rulings by the trial court that Rambus had waived certain privileges relating to its document retention policy and that, in any event, such privileges were vitiated as to the same group of documents by the “crime/fraud” exception to privilege, which the trial court concluded could be applied under the circumstances it called “spoliation.” On June 21, 2004, Rambus filed a petition with the U.S. Court of Appeals for the Federal Circuit seeking a writ of mandamus to overturn these orders. This petition was denied by a panel of the Court of Appeals over a strong dissent (and with the majority stating that the issue might still be valid on appeal) on August 18, 2004. On September 27, 2004 the full Court of Appeals denied Rambus’s request for rehearing en banc. Rambus has since produced the requested documents to Infineon and has participated in limited additional discovery by way of depositions of current and former Rambus employees and counsel. That additional discovery is expected to be complete by mid-December 2004. Infineon has indicated that it expects to file a motion for spoliation sanctions at that time. These May 18th orders and Infineon’s follow-on motion, which is currently scheduled for December 13, 2004, may lead to collateral requests or orders in the private patent cases and may lead to a partial reopening

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8.    Litigation and Asserted Claims (continued)

of the record in the Federal Trade Commission, where the FTC staff has recently made a motion to this effect. Among other sanctions, Infineon may, in its October 21st motion, seek further orders terminating Rambus’ patent lawsuit or may seek a variety of adverse inferences or preclusion orders. Although Rambus believes imposition of such sanctions would be legally and factually without merit, such rulings may have impact beyond the Infineon case itself if other courts treat them as persuasive or binding until and unless such rulings are overturned on appeal.

In other pre-trial rulings, the district court has confined the parties to the expert reports previously on file and new ones necessitated by the appellate decision or by new documents. The district court permitted Infineon to take discovery related to its litigation misconduct allegations, and permitted Infineon to amend its counter claims to add a new legal theory (under California Business and Professions Code §17200) to pursue, among other things, Infineon’s allegations against Rambus of JEDEC misconduct, of purportedly different, newly-asserted forms of deceit, of document spoliation and of litigation misconduct. On June 30 and July 1, 2004, the Virginia court heard the parties’ motions for summary judgment. The court denied Rambus’s motions for summary judgment on Infineon’s monopolization counter-claim, relying on its finding that there would be “manifest injustice” if Infineon were held to be bound during the retrial to an issue it had previously litigated and lost in the original trial. The trial court also denied summary judgment motions by Rambus seeking dismissal of Infineon’s affirmative patent defenses of indefiniteness, written description and enablement. The court granted Rambus’s motions for summary judgment that spoliation and mail/wire fraud cannot be used in this case as the basis for one prong of Infineon’s section 17200 unfair competition counter-claim. The court also granted Rambus’s motion for summary judgment on Infineon’s patent defense of inequitable conduct before the patent office. The court denied both parties’ motions for summary judgment regarding the validity and infringement of the patent claims, except as to U.S. Patent No. 5,954,804 (the “’804 patent”). On July 12, 2004, the court granted Infineon’s motion for summary judgment of non-infringement of the ’804 patent. The court has thus limited Rambus’s infringement case to three patent claims in two of the four patents on which Rambus initially sued Infineon.

On July 13, 2004, the court denied Rambus’s motions for summary judgment on the fraud prong of Infineon’s section 17200 counterclaim and on Infineon’s counterclaim for equitable estoppel. On July 23, 2004, the court rejected in significant part Rambus’s motion to dismiss the newly asserted Infineon claim under California Business and Professions Code section 17200. Rambus believes that many of these and other pre-trial rulings in the Infineon retrial are in error and that the issues to be tried in the Infineon re-trial should be focused on the infringement and validity of the patents in suit and the remedies, including damages, to which Rambus is entitled. On August 19, 2004, Rambus filed a second petition seeking a writ of mandamus from the U.S. Court of Appeals for the Federal Circuit directing the district court to respect the appellate court’s mandate and dismiss Infineon’s 17200 counterclaim, its the monopolization counterclaim and its equitable estoppel defense. That petition was denied on October 22, 2004 in a manner that preserves the same issues for appeal. Rambus will continue to vigorously defend itself from whatever Infineon counterclaims are allowed to proceed to trial and to vigorously pursue its remaining patent claims.

On August 7, 2000, Rambus filed suit in the District Court in Mannheim, Germany, or the Mannheim court, against Infineon for infringement of one of Rambus’s European patents, European Patent No. 0525068 (the “’068 patent”), which deals with one Rambus technology involving use of an access time register in DRAM. Infineon then challenged the validity of the ’068 patent in the European Patent Office, or EPO. On February 12, 2004, the EPO Technical Appeals Board issued a ruling revoking the ’068 patent, which it explained in written findings on May 13, 2004. This ruling does not address or serve to revoke any of Rambus’s other issued or pending patents. On June 18, 2004, Rambus added claims to the Infineon lawsuit from other Rambus patents and directed at Infineon’s DDR products and then, with Infineon’s consent, dismissed the revoked ’068 patent from

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the case. Further proceedings in Mannheim on the Infineon matter are currently stayed pending a final decision with respect to a related “utility model” patent.

German utility models have shorter terms than patents. Because the term of Rambus’s utility model had already expired, this German proceeding concerned only past royalties with respect to German Utility Model G 91 17 296.9 (296.9 utility model), which was similar in scope to the ’068 European patent. At a hearing on July 19, 2004, an appellate division of the German patent court revoked the 296.9 utility model without providing its reasoning. A written decision is expected, after which Rambus has a right of appeal and expects resolution of that appeal some time within the year following the written decision.

Micron Litigation

On August 28, 2000, Micron Technology, Inc., or Micron, filed suit against Rambus in the U.S. District Court in Delaware. The suit asserts violations of federal antitrust laws, deceptive trade practices, breach of contract, fraud and negligent misrepresentation in connection with Rambus’s participation in JEDEC. Micron’s suit seeks a declaration of monopolization by Rambus, 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, Rambus filed its answer and counterclaims, whereby Rambus 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 reviewed 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 Judge Kent A. Jordan who has filled the vacancy left by Judge McKelvie.

On September 29, 2004, Rambus filed a motion to lift the stay imposed by Judge McKelvie on February 27, 2002 as a condition for delaying trial on the case until after the appeal from the Infineon trial in Virginia. This stay currently prevents Rambus from filing new patent litigation against Micron throughout the world on certain Rambus patents and Micron products. It also required that the parties stay certain other litigations in Germany, Italy, France and the United Kingdom. In a hearing on October 12, 2004 the Micron trial date was reset to February 21, 2006 to accommodate scheduling conflicts. At that same hearing the court indicated that a motion to lift the stay will be heard at a date later this year. The Markman claim construction hearing is scheduled for September 9, 2005.

On September 11, 2000, Rambus filed suit against Micron in the Mannheim court, the Tribunal de Grande Instance de Paris in Paris, France, or the Paris court, the High Court of Justice, Chancery Division, Patents Court at the Royal Courts of Justice in London, Great Britain, or the London court, and the District Court in Monza, Italy, or the Monza court, for infringement of a European patent. Rambus’s German suit against Micron is, like Rambus’s German suit against Infineon, in the Mannheim court. The relevant patent in the Micron case—the ’068 —was subject to the same EPO Technical Appeals Board revocation ruling described above with respect to Infineon, whose written opinion was issued on May 13, 2004. On June 18, 2004, Rambus dismissed the revoked patent from its infringement case against Micron, with its consent. Further proceedings against Micron in Mannheim, including claims from other Rambus patents directed to Micron’s DDR products, are—as in the Infineon proceedings—currently stayed pending a final decision with respect to the utility model patent. Meanwhile, the French suit remains stayed and the British suit has been, in effect, dismissed based on the same

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EPO Technical Appeals Board opinion. On April 8, 2004, Micron requested that Rambus pay Micron’s costs for the British suit. While the amount remains in dispute, an interim payment of £135,000, approximately $256,000, was awarded to Micron on July 30, 2004 for attorneys’ and court fees. A final award will be determined by the court unless the parties resolve this matter by mutual agreement.

On May 2, 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 Rambus a preliminary injunction due to its conclusion that the experts had not addressed one technical issue. Rambus 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 Rambus in the District Court of Avezzano, Italy. In response, Rambus asserted infringement of the second European patent in Milan, Italy. The actions on the second European patent in Italy have also been stayed. Further, Rambus 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., or Hyundai, and various subsidiaries filed suit against Rambus in the U.S. District Court for the Northern District of California. Since filing suit, Hyundai has changed its name to “Hynix Semiconductor Inc.,” or Hynix. The suit asserts breach of contract in connection with Rambus’s participation in JEDEC and seeks a declaratory judgment that eleven Rambus patents are invalid and not infringed by Hynix.

On October 17, 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 Rambus’s participation in JEDEC. Hynix seeks a declaration of monopolization by Rambus, compensatory and punitive damages, and attorneys’ fees. On February 5, 2001, Rambus filed its answer and counterclaims, whereby Rambus disputes Hynix’s claims and asserts 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 Rambus’s 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. On December 17, 2001, the California court stayed the Hynix case until the CAFC decided 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 Rambus’s counterclaims of infringement. Rambus 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 Rambus to move to amend its complaint to add new claims for patent infringement, and Rambus filed that motion on October 4, 2002. A further case management conference occurred on November 22, 2002 at which point the California court considered proposed trial

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schedules and fully lifted the stay. On March 14, 2003 the California court set the Hynix trial date for November 8, 2004. On April 2, 2003 and following the CAFC’s construction of the appealed patent claim terms, the court set the pretrial schedule. Pursuant to that schedule, Rambus filed and won a motion to vacate a previous collateral estoppel summary judgment order in the case. Accordingly, Rambus’s patent infringement claims that were subject to this earlier ruling have been reinstated into the case. That same April 2, 2003 pre-trial schedule set forth dates for summary judgment motions and for a “Markman” claim construction hearing.

On January 12, 2004, both of the parties filed summary judgment motions related to the patents in suit. Rambus filed for summary judgment of infringement on multiple claims in seven of the patents in suit. Hynix filed on a variety of issues relating to alleged invalidity and non-infringement on a subset of Rambus’s asserted claims. Hearings on the proposed claim constructions and on both sides’ motions for partial summary judgment were heard on March 23 and 24, 2004. An order from the court is expected at any time. In light of any collateral order that may result from the May 18th orders of the Virginia court in the Infineon matter ordering production of Rambus privileged documents and subsequent discovery, the parties asked the California court to delay the Hynix trial. The trial has been rescheduled to January 24, 2005. On October 1, 2004, Hynix filed a motion to dismiss Rambus’s patent claims as a default judgment based on the findings of spoliation that had been entered by the trial court in the Infineon case in Virginia. In the alternative, Hynix has asked that the California district court apply the Virginia court’s spoliation decisions by way of collateral estoppel and permit Hynix access to the same documents. A hearing is tentatively scheduled on this issue for November 5, 2004.

Rambus believes that Hynix is not entitled to the “spoliation” discovery it is seeking. Rambus also believes that Hynix has improperly attempted to expand the scope of its California case to include allegations of misconduct relating to Rambus’s 1996 license with Intel regarding RDRAM. Hynix’s complaint did not set forth this cause of action and adding it now by way of seeking leave to amend would, Rambus believes, be barred by the statute of limitations. Rambus has appealed to the district court a discovery master’s order permitting broad discovery on these and other issues. The district court has, for the time being, stayed responses to these new Hynix discovery requests. On September 3, 2004, Rambus also submitted a motion arguing that if Hynix is permitted to make these new arguments and seek related discovery this close to the January 24, 2005 trial, the trial should be bifurcated so that the patent infringement and validity issues would be tried in January, with Hynix’s defenses and counterclaims to be tried at a later date. This bifurcation motion was tentatively granted on October 15, 2004.

On September 4, 2000, Rambus 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 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. After the completion of briefing by the parties in response to the Mannheim court’s expert report, as mentioned above with respect to Infineon and Micron, the validity of the same Rambus European patent was confirmed by an opposition board of the EPO, in a hearing conducted on September 10 and 11, 2002. Subsequently, the relevant patent in the Hynix case was subject to the same EPO Technical Appeals Board revocation ruling described above with respect to Infineon and Micron, which written opinion was issued on May 13, 2004. The Hynix lawsuit in Mannheim and the French suit have been stayed. In the British suit, Rambus paid Hynix £195,250, or approximately $369,000, to fully and finally resolve this matter.

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

On June 19, 2002, the Federal Trade Commission, or FTC, filed a complaint against Rambus. The FTC has alleged that through Rambus’s action and inaction at JEDEC, Rambus violated Section 5 of the FTC Act in a

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way that allowed Rambus 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 Rambus’s action and practices at JEDEC constituted unfair methods of competition in violation of Section 5 of the FTC Act. As a remedy, the FTC has sought to enjoin Rambus’s right to enforce patents with priority dates prior to June 1996 as against products made pursuant to certain existing and future JEDEC standards.

On July 5, 2002, Rambus moved to stay the FTC action until the CAFC issued a ruling in the Rambus v. Infineon appeal; this motion was denied, and Rambus filed its answer to the complaint on July 29, 2002. There was 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, or ALJ, denied complaint counsel’s motion, although he did enter certain rebuttable presumptions against Rambus as sanctions for what the ALJ called Rambus’s “gross negligence” in implementing Rambus’s document retention plan and failing to keep an inventory of documents not retained. Among other motions, the Department of Justice, or DOJ, successfully sought to intervene in the FTC action, and obtained a limit on certain deposition questioning by Rambus pending completion of the DOJ’s criminal investigation of DRAM manufacturers for price-fixing. Rambus was informed that it is not a target of the DOJ investigation. The ALJ denied Rambus’s motion for summary judgment and entered other rulings on pre-hearing motions in the action. On February 17, 2004, the FTC ALJ issued his initial decision dismissing the FTC’s complaint against Rambus on multiple independent grounds. Complaint counsel filed their opening appellate brief on April 16, 2004. Rambus opposed this brief and filed its own cross-appeal on June 2, 2004. Briefing to the five FTC Commissioners on this appeal was concluded on July 16, 2004. A technical presentation by the parties was presented to the commissioners on September 21, 2004 and an oral argument has been scheduled for December 9, 2004. Rambus intends to continue to vigorously defend itself in this matter.

On or about April 22, 2003, Rambus 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. Rambus answered those requests on June 16, 2003. Rambus obtained a copy of Infineon’s complaint to the EU in late July, and on October 8, 2003, at the request of the Directorate, filed its response. Rambus has not heard from the EU on this matter since that date. On June 18, 2004, Rambus requested that the EU investigate the collusive activities of Infineon, Hynix, Micron and Siemens, as described in Rambus’s complaint filed in San Francisco Superior Court on May 5, 2004.

Collusion Case

On May 5, 2004, Rambus filed a lawsuit against Micron, Hynix, Infineon and Siemens in San Francisco Superior Court seeking damages for conspiring to fix prices (California Bus. & Prof. Code §§16720), conspiring to monopolize under the Cartwright Act (California Bus. & Prof. Code §§16720), intentional interference with prospective economic advantage, and unfair competition (California Bus. & Prof. Code §§17200). Damages are estimated to exceed $1 billion dollars. This lawsuit is based on evidence—some endorsed in the fact findings that are part of the FTC ALJ’s February 17, 2004 initial decision—indicating that there were concerted efforts beginning in the 1990’s to deter innovation in the DRAM market and to boycott Rambus and/or deter market acceptance of Rambus’s RDRAM product. Defendants have not yet answered the complaint or responded to Rambus’s discovery requests. Defendants moved the court for a change of venue to Santa Clara county on October 5, 2004. The judge has tentatively denied defendants’ motion, but has given the parties further time to brief the issue. A further case management conference is scheduled for January 21, 2005.

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Potential Future Litigation

In addition to the above, the DRAM and controller markets continue to adopt Rambus technologies into various products. Rambus has notified many companies of their use of Rambus technology and continues to evaluate how to proceed on these matters. There can be no assurance that litigation related to these various additional products, if brought, will be successful.

9.    Acquisition of Intellectual Property

On July 15, 2004, Rambus completed the acquisition of certain serial link intellectual property from Cadence Design Systems, or Cadence, for $11.0 million in cash. As a result of this acquisition, Rambus acquired intellectual property to be incorporated into Rambus’s RaSer product line of serial link cells. In addition, if Cadence achieves certain milestones by a pre-determined time, Rambus has the option, but not the obligation, to purchase additional serial link intellectual property from Cadence for $5.0 million in cash, which intellectual property would also be incorporated into Rambus’s RaSer product line of serial link cells. Cadence Engineering Services will gain access to Rambus’s portfolio of serial link cells to deliver customized design solutions as needed. Cadence will be the exclusive EDA industry reseller of Rambus’s foundry serial link cells and will exclusively sell only Rambus foundry serial link cells off-the-shelf. The technology is valuable for currently available products and continues to be the basis for products under development.

As a result of the acquisition, Rambus reported $11.1 million in purchased intangible assets, including transaction costs. The valuation and useful lives of the acquired intangible assets were allocated based on estimated fair values at the acquisition date. Management estimates were used to determine the useful lives of the assets. The income approach, which includes an analysis of the cash flows and risks associated with achieving such cash flows, was the primary technique utilized in valuing the acquired patented technology. Key assumptions included estimates of revenue growth, cost of revenues, operating expenses and taxes. The discount rates used in the valuation of intangible assets reflected the level of risk associated with the particular technology and the current return on investment requirements of the market. These assets will amortize over their useful lives of four to seven years. Amortization expense of these purchased intangible assets was $589,000 for the quarter and nine months ended September 30, 2004.

The components of purchased intangibles assets are as follows (in thousands):

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General

This Form 10-Q contains forward-looking statements that are based upon certain assumptions that, if they do not fully materialize or prove to be incorrect, could cause our business or results of operations to differ materially from those expressed or implied by such forward-looking statements. These forward-looking statements include, without limitation, our predictions regarding the following:

You can identify these and other forward-looking statements by the use of words such as “may,” “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.

The risks, uncertainties and assumptions referred to above that could cause our results to differ materially from those express or implied by such forward-looking statements as a result of various factors, including, but not limited to, those set forth under “Risk Factors” in this document and the risks, uncertainties and assumptions discussed from time to time in our other public filings and public announcements. 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.

Overview

We create a broad range of chip interface technologies that boost the time-to-market, performance, and cost-effectiveness of our customers’ semiconductor and system products. These solutions are used in a broad range of computing, consumer electronics and communications applications. Our interface solutions can be grouped into two major categories: memory interfaces and logic interfaces. Our memory interface solutions provide an interface between memory chips and logic chips. Our logic interface solutions provide an interface between two logic chips. These solutions are currently covered by more than 360 U.S. and international patents, and we currently have over 350 patent applications pending. These patents and patent applications cover important innovations in memory, logic and serial interfaces, in addition to other technologies. We believe that our advanced and proprietary chip interface solutions reduce the time spent, effort expended and risk incurred by our customers in developing alternative chip interface solutions themselves, thereby improving the time-to-market of their products. In addition, our solutions increase the data transfer rate between semiconductor chips, improving performance and reducing systems costs.

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We license our patented inventions to semiconductor and systems companies who incorporate them into interfaces of their own design and pay us royalties. Also, we license our intellectual property to semiconductor and systems companies who incorporate our interface technologies into their semiconductors and systems, for which we receive royalty payments or other revenues. In addition, we offer engineering services to companies to help them successfully integrate our interface technologies into their chip and system products.

Royalties represent a substantial portion of our total revenue. The remaining part of our revenue is contract revenue which includes license fees and engineering services fees. Amounts invoiced to our customers in excess of recognized revenue are recorded as deferred revenue. The timing of these invoices and the amounts invoiced to customers can vary significantly depending on specific contract terms and can have a significant impact on deferred revenues in any given period.

In the quarter and nine months ended September 30, 2004, revenues from our top five licensees accounted for approximately 75% and 76% of our revenues respectively. In the quarter ended September 30, 2004, revenue from Intel, Toshiba Corporation, or Toshiba, and Elpida Memory, Inc., or Elpida, each accounted for greater than 10% of our total revenues. Our revenue from companies based outside of the United States accounted for 70% of our total revenues for the quarter and 68% for the nine months ended September 30, 2004. We expect to continue to have significant revenues from companies based outside the United States for the foreseeable future.

For the last four years, we have been involved in significant litigation stemming from the unlicensed use of our inventions. Our litigation expenses have been high and difficult to predict during this time and we anticipate future litigation expenses to continue to be significant, volatile and difficult to predict. If we are successful in the litigation and/or related licensing, our revenue could be substantially higher in the future; if we are unsuccessful, our revenue would likely decline.

Results of Operations

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 (unaudited):