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Rambus (NASDAQ:RMBS)

Special Update Conference on Price Fixing Case

November 16, 2011 5:00 p.m. ET

Executives

Satish Rishi - SVP and CFO

Harold Hughes - President and CEO

Tom Lavelle - SVP and General Counsel

Sharon Holt - SVP and General Manager, Semiconductor Business Group

Analysts

Michael Cohen - MDC Financial

Paul Coster - JP Morgan

Mike Crawford - B. Riley & Co.

Steve Johnson - San Jose Mercury News

Operator

Good day, ladies and gentlemen, and welcome to the Rambus special conference call. [Operator instructions.] I would now like to introduce your host for today’s conference, Mr. Satish Rishi. You may begin.

Satish Rishi

Thank you operator, and thank you for joining us for this special conference call regarding today’s decision in the price fixing case against Hynix and Micron. I’m Satish Rishi, CFO, and on the call today are Harold Hughes, our president and CEO; Tom Lavelle, senior VP and general counsel; and Sharon Holt, senior VP and general manager of the semiconductor business group.

The press release regarding today’s discussion has been filed with the SEC on Form 8-K. A replay of this conference call will be available for the next week at 855-859-2056. You can hear the replay by dialing the toll free number and then entering ID number 29014719 when you hear the prompt. In addition, we are simultaneously webcasting this call, and the replay can be accessed on the website beginning today at 5 p.m. Pacific time.

I need to advise you that discussion today will contain forward-looking statements regarding our financial prospects, pending and current litigation, and demand for our technologies, among other things. These statements are subject to risks and uncertainties, which are more fully described in the documents we filed with the SEC, including our 8-K, 10-Q, and 10-Ks.

These forward-looking statements may differ materially from our actual results, and we are under no obligation to update these statements. You can find more information on our website at www.rambus.com on the Investor Relations page.

Now, I’ll turn the call over to Harold.

Harold Hughes

Thanks Satish, and good afternoon everyone. As I’m sure you are all aware, today we received a decision in the price fixing case we brought against Hynix and Micron, and the jury found against us. By a poll of the jury, the vote was nine to three that Rambus did not meet the burden of proving our case against the two defendants.

We filed this case in 2004, so it has taken several years to reach this conclusion. It has been a long and difficult process in getting this case to trial, with a lot of detours along the way. The passage of time since the filing of our case has had a number of impacts. The delays tended to limit people’s recollection of events, and ultimately allowed for issues not central to the case to slowly creep in.

The trial itself ran just over three months, with the opening arguments back on June 20. The Rambus RDRAM story has finally had its full hearing in court. So in the end, we believe the jury came to the wrong conclusion regarding the existence and impact and the conspiracy of Hynix and Micron to exclude RDRAM from the market.

RDRAM, which demonstrated its technical merits in a number of electronic systems including Sony’s very successful PS2 would have enjoyed far wider commercial success but for the actions of Hynix and Micron to exclude it from the market.

Many will wonder where we go from here. From a tactical standpoint, we are reviewing our options for appeal. We believe very strongly in our case, and intend to explore all of our options as long as we have channels available to us.

Despite this setback, we must continue to focus on the future by growing the breadth of our innovations and solutions for semiconductors, by bringing revolutionary lighting and display technologies to market, and by delivering unmatched security for electronic systems with our cryptography research technology.

In fact, we plan to continue to diversify into new technology areas consistent with our mission that can benefit from the world-class platform for technology development and licensing we’ve built at Rambus. Our mission is to continuously enrich the consumer experience of electronic systems and that’s what our Rambus engineers and scientists live by every day.

Tom is available for questions. He is off site, so excuse any quality we have with the line. And with that, I’ll open it to Q&A. Thank you.

Question-and-Answer Session

Operator

[Operator instructions.] Our final question comes from Michael Cohen from MDC Financial. Your line is open.

Michael Cohen - MDC Financial

I was there when the jury was read, and by my calculations from the time the jury came in today to the time that the bailiff knocked at the door, and when it appeared that they may have a verdict, it was only 18 minutes after being gone for a week and then also Monday and Tuesday the following week. Do you have any ability of detecting any irregularities in terms of if people made decisions while they were not deliberating, or any ability to find out about things like that as possible avenues going forward?

Tom Lavelle

No, we have no evidence of that whatsoever. The jury listened to the case, as you well know, for months. It took many, many days of deliberations. For a variety of reasons didn’t have time to deliberate over the last ten days or so, and came in with what looked like a quick verdict today. One can speculate as to whether they may have had a verdict the last day they had come together, and then there was an illness on the jury as you know. So there’s a lot of speculation, but there’s no reason for us to think anything inappropriate has taken place in any way at this point.

Michael Cohen - MDC Financial

It appeared when the jury left that they weren’t willing to talk to any of the parties. Are you aware of any of the jurors that were willing to talk?

Tom Lavelle

No, as Harold indicated, I am not on site, so I was not in the courtroom today, and no, I didn’t observe anything. So I’m not in a position to give you any input on that at all.

Michael Cohen - MDC Financial

In trying to gauge your ideas for appealable issues, one obvious one is that it seemed that you have plenty of transcript testimony that they were alleging that Samsung was not part of any conspiracy, and then the jury was not shown the guilty plea, that Samsung pled guilty to price fixing on RDRAM, and that was never shown to the jury. In addition to that, what other things pop into your mind that you think were perhaps wrong decisions that may have influenced an outcome that you may raise on appeal?

Tom Lavelle

Well, we’re looking at a lot of things, Michael. That’s certainly one of them. We’re also looking at the ruling on this price fixing case being held as a rule of reason case rather than a per se case. A lot was made of that during the trial. But I’m not in the position to say what, if any, grounds we’re going to appeal on at this point. But those are two of the things that we’re certainly going to be looking at.

Michael Cohen - MDC Financial

Probably last question at this point is what are the next steps before the appeal that will still be done with either Judge McBride or Judge Kramer that you’re aware of?

Tom Lavelle

I’m sure we’re going to ask for reconsideration. There’s a lot of post-trial motions, as you well know, that have been filed on both sides. Those have to be sorted out and ruled upon and what we do in having the judge possibly reconsidering or overturning the jury verdict, I can’t even begin to speculate at this point. As I said, I’m not on site. I’m well off-site.

Operator

Our next question comes from Paul Coster from JP Morgan. Your line is open.

Paul Coster - JP Morgan

Does this adverse decision have any impact on the other legal cases that are underway at the moment?

Tom Lavelle

No, it really doesn’t have any implication at all. This was, as you well know, a price fixing, antitrust case. The other cases that we have really involved patent infringement cases and defenses to patent infringement. So there’s no direct correlation here whatsoever. It’s obviously a major disappointment to us, don’t get me wrong, and we disagree with the verdict, as Harold indicated, but we do respect the court and we respect the legal process itself, and we actually thank the jury for a very long trial and a lot of work that they put in. We just disagree with the outcome. But it doesn’t have any direct impact on any of the other patent-related cases that we have.

Paul Coster - JP Morgan

Does the outcome have any impact on the ongoing licensing revenues that you see from Samsung? And can you also in passing just tell us what the term of that licensing agreement with Samsung is?

Tom Lavelle

The license agreement with Samsung was signed at the beginning of 2010. That runs for five years, and will therefore expire near the beginning of 2015. And no, it doesn’t have any direct implication whatsoever with respect to the Samsung patent licensing agreement.

Paul Coster - JP Morgan

There’s no grounds for them to sort of break the contract and seek a lower [unintelligible].

Tom Lavelle

There’s no legal grounds for them to do that, no.

Paul Coster - JP Morgan

And then last question I’ve got is in the event that you do not proceed with an appeal, what happens to your legal expenses and in the event that you do appeal, what happens to your legal expenses? I’m just trying to figure out whether they’re going to come down or not immediately or whether the appeal process will cause them to remain at this elevated level.

Tom Lavelle

The reality is that an appeal is a much less expensive undertaking than the trial has been, just as the trials in the ITC and the northern district of California are much more expensive than any of the appeals that would follow them. So the real question is what other trials are there going forward, and as of right now there are the northern district cases against Memory Control defendants that are companion cases to the ITC cases. There is the Hynix case in front of Judge White, which is probably going to be done on the basis of motions and pleadings rather than a whole new trial. And the same thing with respect to Judge Robinson in Delaware.

So predicting legal expenses in 2012 is not something that I’m going to undertake now. I know Satish has given you his best guess at it, but the one thing we’ve learned over time is that whatever we guess on our legal expenses we’re going to be wrong, because so much of them are controlled by what the other side does and makes us do in response. So I really can’t give you a really good estimate on whether that’s going to increase or decrease. But as I said, the appeals are less expensive by far than the trials themselves.

Operator

[Operator instructions.] Our next question comes from Mike Crawford from B. Riley & Co. Your line is open.

Mike Crawford - B. Riley & Co.

I was hoping to get a bit more color on when you might expect to be able to get this to the appellate court in California. How long do you think post-trial motions, sorting out, occurs?

Tom Lavelle

Given a case as complicated as this, as long as this case has taken, as many motions as there are, I don’t realistically think there’s going to be a whole lot that happens to get it to the appellate court until probably mid next year. And that’s a guess. You’ve got to play out the whole set of motions that have already been undertaken and do all the other post-trial activities in the San Francisco Superior Court before you take it to the appellate court.

Mike Crawford - B. Riley & Co.

And I suppose the odds that Judge McBride would say he erred by not letting two coconspirators who confessed to price fixing RDRAM be seen by the jury and overruling the jury, that would be what? Possible but highly unlikely?

Tom Lavelle

I don’t want to give guidance to Judge McBride as to what’s likely or not, but that certainly seems to be the right thing to do. Whether in fact he changes his mind, I think, is probably highly questionable whether he would do that.

Mike Crawford - B. Riley & Co.

And then just to be clear, on the timeframe of these remaining cases, the companion cases in San Jose to the ITC cases, could you just go through maybe those timeframes?

Tom Lavelle

Well, they’re going to be a little bit vague, but let’s separate. There’s the patent cases involving the DRAM manufacturers, namely the Micron case in Delaware in front of Judge Robinson, which was remanded to her by the federal circuit. And the companion case to that is the Hynix case that was remanded back to Judge White.

Both of those are moving pretty quickly. I would expect rulings out of each of those trial court judges sometime in relatively early 2012. What happens after that, does it go back to the federal circuit, now we’re getting into speculation and how long it will take for all that process to work itself through. But in terms of getting decisions out of judges Robinson and white respectively, I do think that will be relatively quick by all the actions they’ve taken to date.

Separate that from the ITC, two cases, the one that just went in front of the ITC with the hearing that was just recently completed. At the present time the ITC ALJ is expected to issue is initial decision on January 4. Could that be pushed out by Judge Essex? Yes it could. He has, in fact, pushed out a couple of other cases. Has not pushed ours out. So he could issue an initial decision as early as January 4 of 2012 subject to, as I said, the possibility that he may push that out.

The companion cases that I referred to to those ITC memory control cases are the ones in the northern district and recent activity there is they’re still moving along relatively slowly, although motion to consolidate NVIDIA in to the Broadcom case was denied. So those will stay under separate tracks for right now at least. And there is no trial date for the northern district cases involving those memory control respondents in the ITC who are defendants in the northern district of California.

Mike Crawford - B. Riley & Co.

And then last question is we know that you do have some $160 million or so in net cash. You have this cryptology business that you bought for $342 million. How would you try to put parameters on your LED family of IP and your business there between what you’ve acquired, what you’ve developed, and what you’ve achieved with GE and anyone else?

Harold Hughes

Parameters in terms of cash flow? Profitability?

Mike Crawford - B. Riley & Co.

Things that would help someone help guide toward what the value of those assets might be.

Harold Hughes

At a high level of, I think I spoke on the last conference call, the lighting business has at least three components. One is the licensing of the use of the existing technology in back light and in keyboards, and that goes forward apace, but nothing to announce now. The use of the technology in creating LED fixture lights, GE being the first customer, we believe we have a very exciting bulb offering that will go forward sometime in the middle to latter part of 2012.

Mike Crawford - B. Riley & Co.

Have you stated the number of patents you have in your LED families of patents? Families and or numbers?

Harold Hughes

The exact number I don’t have off the top of my head. My recollection is that Jeff Parker himself has 200 patents, roughly that number.

Operator

Our next question comes from Steve Johnson from San Jose Mercury News. Your line is open.

Steve Johnson - San Jose Mercury News

Tom, it’s been a while since I’ve tracked this. I just want to clarify two things if I can. In the case in San Francisco where we got the jury verdict today, as I’m understanding it you had been seeking four point something billion dollars in direct damages but that could be trebled. Is that correct? So ultimately it could have been awarded up to $12-13 billion? Is that right?

Tom Lavelle

Close, Steve. In fact, it was $3.95 billion that were the damages that we thought we could prove. And those could have been trebled, yes.

Steve Johnson - San Jose Mercury News

It would have been trebled, or it could have been trebled?

Tom Lavelle

Well, yeah, whatever was proven and accepted by the jury would have been trebled in that cause of action.

Steve Johnson - San Jose Mercury News

And the other question, I don’t quite understand what is still pending, what portion of this, under the California Business and Professions code, is still pending before Judge McBride, and just how significant that is.

Tom Lavelle

Well, I’d like to think it’s significant, but in fact, given the jury coming in nine to three saying no on whether the price fixing actions of the various defendants in fact caused the downfall of RDRAM, which is essentially what they were asked to decide upon, and two, the decision that they found nine to three there was not illicit interference in the business relationship between Rambus and Intel that caused the relationship and the failure of the product, whether Judge McBride acts differently with respect to the equitable claim under California section 17200, that’s speculative at this point.

Steve Johnson - San Jose Mercury News

I’m sorry, what is the equitable claim? How is that different?

Tom Lavelle

It would take a long time to explain. Section 17200 is kind of a catch-all provision under California law for various kinds of inequitable or inappropriate conduct, and it was added into our cause of action in addition to the price fixing, in addition to the interference with the contractual relationship between Rambus and Intel, which is the second case of action. So it’s related but not 100% the same.

Operator

This ends our question and answer session. I will turn the call back to Harold Hughes.

Harold Hughes

Thank you for your continued interest and support. As we’ve shown in the past, we are resilient, and we expect to go forward. And we look forward to speaking to you soon. Thanks.

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