Rambus
RMBS
#1777
Rank
ยฃ8.86 B
Marketcap
ยฃ81.99
Share price
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

(Mark One)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the fiscal year ended September 30, 1999

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

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RAMBUS INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
Delaware 94-3112828
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>

2465 Latham Street, Mountain View, CA 94040
(Address of principal executive offices) (zip code)

(650) 944-8000
(Registrant's telephone number, including area code)

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Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 Par Value
(Title of Class)

----------------

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Aggregate market value of the registrant's Common Stock held by non-
affiliates of the Registrant as of November 30, 1999 was approximately $1.3
billion based upon the closing price reported for such date on the Nasdaq
National Market. For purposes of this disclosure, shares of Common Stock held
by persons who hold more than 5% of the outstanding shares of Common Stock and
shares held by officers and directors of the Registrant have been excluded
because such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

The number of outstanding shares of the Registrant's Common Stock, $.001 par
value, was 23,796,308 as of November 30, 1999.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant's next Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.

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PART I

This Annual Report on Form 10-K and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to
the provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates and
projections about the Company's industry, management's beliefs, and certain
assumptions made by the Company's management. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," variations of
such words and similar expressions are intended to identify such forward-
looking statements. These statements are not guarantees of future performance
and are subject to certain risks, uncertainties and assumptions that are
difficult to predict; therefore, actual results may differ materially from
those expressed or forecasted in any such forward-looking statements. Such
risks and uncertainties include those set forth herein under "Factors Affecting
Future Results" on pages 6 through 13, as well as those noted in the documents
incorporated herein by reference. Unless required by law, the Company
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. However,
readers should carefully review the risk factors set forth in other reports or
documents the Company files from time to time with the Securities and Exchange
Commission, particularly the Quarterly Reports on Form 10-Q and any Current
Reports on Form 8-K.

Item 1. Business

Rambus Inc. ("Rambus" or the "Company") designs, develops, licenses and
markets high-speed chip-to-chip interface technology to enhance the performance
and cost-effectiveness of computers, consumer electronics and other electronic
systems. The Company licenses semiconductor companies to manufacture and sell
memory and logic ICs incorporating Rambus interface technology and markets its
solution to systems companies to encourage them to design Rambus interface
technology into their products. The Company's technology cost-effectively
increases the data transfer rate, or "memory bandwidth," allowing semiconductor
memory devices to keep pace with faster generations of processors and
controllers and thus supports the accelerating data transfer requirements of
multimedia and other high-bandwidth applications.

Rambus was incorporated in California in March 1990 and reincorporated in
Delaware in March 1997.

Background

The performance of a computer or other electronic system is typically
constrained by the speed of its slowest element. In the past, that element was
the logic IC that controlled the system's specific functions and performed
calculations--the microprocessor. In recent years, however, new generations of
microprocessors and controllers have become substantially faster and more
powerful, and increasingly the bottleneck in system performance is becoming the
component that stores the instructions and data needed by the microprocessors
and controllers--the DRAM.

Since 1980, the typical operating frequency of mainstream microprocessors
has increased from 5 MHz (million cycles per second) to over 700 MHz. During
this same period, the typical operating frequency of a standard DRAM has
increased only to 100 MHz. This growing disparity between the frequency of
microprocessors and DRAMs is termed the "Performance Gap."

While microprocessors have undergone both manufacturing and architectural
improvements, significant innovations for DRAMs have generally only occurred in
the manufacturing area. DRAM manufacturers have been successful in increasing
DRAM "density," or storage capacity, from roughly 1 Kbit (thousand bits) to 128
Mbits (million bits) per chip, thereby reducing the number of DRAMs required
for a given amount of memory. However, corresponding architectural improvements
necessary to increase DRAM data transfer rates to keep pace with increasing
microprocessor speeds have not occurred.

Rambus Technology

Rambus has created a revolutionary chip-to-chip interface architecture,
which allows data to be transferred through a simplified bus at significantly
higher frequencies than permitted by conventional technologies.

1
Rambus has focused the application of its interface technology on the
Performance Gap and licenses its interface technology to memory and logic
semiconductor manufacturers, which incorporate this interface technology into
their IC designs to supply systems companies with Rambus ICs. The key elements
of the Rambus interface are Rambus-based DRAMs ("RDRAMs"), Rambus ASIC cells
("RACs") and the interconnecting circuitry known as the "Rambus Channel." While
Rambus technology can be used to address a wide variety of chip-to-chip data
transfer requirements, the largest immediate application is to connect logic
circuits to memory in home video games, PCs, workstations and other electronic
systems.

The latest generation of Rambus interface technology allows data transfers
of up to 1.6 gigabytes per second between a logic IC and RDRAMs by transferring
data at a frequency of 800 MHz over a two byte wide bus. System performance can
be further enhanced by applying Rambus interface technology to multiple
channels on a logic IC. For example, a Rambus-based logic IC can utilize four
channels to achieve data transfer of up to 6.4 gigabytes per second. There can
be no assurance that this latest technology will result in products suitable
for mass production. See "Factors Affecting Future Results- No Assurance of
Adoption of Rambus Technology as an Industry Standard; Cost of Rambus
Technology", "--Dependence upon PC Main Memory Market Segment and Intel" and
"--Rapid Technological Change; Reliance on Fundamental Technology; Importance
of Timely New Product Development."

Target Markets and Applications

The high-speed interface technology Rambus has developed is applicable to
data transfer between most semiconductor chips. The Company has chosen to
concentrate the application of its technology on the interface between logic
ICs and memory devices because of the acute performance needs and the relevant
market sizes. While Rambus interface technology is useful in providing
increased memory bandwidth in any electronic system, the Company believes that
the systems which will best utilize the high bandwidth provided by current
Rambus technology are the relatively high-volume, low-cost systems in which
maximum performance is desired at a reasonable cost. To date, the principal
applications for the Company's technology have been in video game and PC
systems. Other applications include various consumer and workstation multimedia
markets. These areas accounted for the sale of approximately $266 million, $495
million and $447 million of Rambus ICs by Rambus licensees in calendar 1998,
1997 and 1996, respectively.

In November 1996, Rambus entered into a development and license contract
with Intel. The contract provided for the parties to cooperate in the
development of a specification for next-generation Rambus technology to be
targeted at the PC main memory market segment. To date, Intel has developed and
begun producing two Rambus controllers as part of new chipsets. One, designed
for use with RDRAMs in workstations, was released on schedule. The other
chipset, meant for use in the much larger desktop PC segment, was delayed prior
to release due to technical problems. There can be no assurance that such
problems have been completely solved or that the Intel chipset and Rambus
technology will be successful in penetrating the market segment for PC main
memory.

Another major application for the second generation of Rambus interface
technology is in the next version of the Sony video game system known as
PlayStation 2. This system is scheduled to be introduced in Japan in March 2000
and in the U. S. and Europe later in the year. Other applications for the
Company's technology include inkjet and laser printers, consumer products such
as digital televisions and networking equipment such as high-speed Ethernet
switches. There can be no assurance that sales of such products will be
meaningful.

Rambus Business Model and Strategy

In order to establish Rambus interface technology as an industry standard,
the Company has adopted an innovative business model in which it neither
manufactures nor sells semiconductors incorporating the Company's technology.
The Company licenses its technology on a nonexclusive and worldwide basis to
semiconductor companies which manufacture and sell RDRAMs and logic ICs
containing RACs to systems companies which have adopted Rambus technology.
Systems companies are not required to obtain a Rambus license to incorporate
Rambus ICs into their products. However, an important part of the Company's
strategy is to maintain close ties to these systems companies in order to
encourage the adoption of Rambus technology.

2
Rambus provides licenses to both DRAM manufacturers and logic IC
manufacturers, who can license Rambus interface technology for use in producing
RDRAMs and/or logic ICs containing RACs. At September 30, 1999, Rambus had a
total of 31 licensees for the newest generation of Rambus technology. Rambus
licensees include fourteen DRAM manufacturers which collectively accounted for
over 95% of worldwide DRAM sales in calendar 1998: Fujitsu, Hitachi, Hyundai
Electronics, IBM, Micron Technology, Matsushita, Mitsubishi, NEC, Oki Electric
Industry, Samsung Electronics, Siemens, Toshiba, Vanguard and Winbond. At
September 30, 1999, five of these licensees were shipping RDRAMs. Rambus logic
licensees include Advanced Micro Devices, Compaq, Hewlett-Packard, IBM, Intel,
LSI Logic, Matsushita, NEC, S3, Texas Instruments and Toshiba. At September 30,
1999, seven logic licensees were shipping logic ICs which include RACs.

The Rambus business model and strategy are designed to promote Rambus as an
industry standard, target leading systems companies in markets that the Company
believes represent the greatest potential for Rambus IC sales, provide systems
companies with multiple sources for RDRAMs, share research and development
efforts with licensees, maintain technology leadership, pursue a system-level
approach and generate revenue through a combination of contract fees and
royalties.

Contract fees have provided the majority of the capital needed to date by
the Company to develop its fundamental technology, and the Company believes
that its business model is well suited to continue funding future development.
However, there is no assurance that the Company's current partner licensees
will generate revenue, or that the Company will be able to add new license
contracts in the future, at levels sufficient to provide significant funding
for further development activities.

Royalties, which are generally a percentage of the revenues received by
licensees on their sales of Rambus ICs, are normally payable by a Rambus
licensee on sales occurring during the life of the Rambus patents being
licensed. For a typical systems application of Rambus technology, the Company
receives royalties from the sale of both logic ICs containing RACs and RDRAMs
as they are shipped by Rambus licensees. Royalty rates range up to a maximum of
approximately 2.5% for RDRAMs and a maximum of approximately 5% for logic ICs,
and in some cases may decline based on the passage of time or on the total
volume of Rambus ICs shipped. The exact rate and structure of a royalty
arrangement with a particular licensee depend on a number of factors, including
the amount of the license fee to be paid by the licensee and the marketing and
engineering commitment made by the licensee.

Design and Manufacturing

Rambus interface technology has been developed to allow semiconductor
companies to use familiar, widely-available design tools and conventional
techniques when designing their Rambus-enabled chips. A new Rambus licensee
receives an implementation package from the Company which contains all the
information needed to develop a Rambus IC in the licensee's process. There are
separate implementation packages for RDRAMs and for RACs. An implementation
package includes a specification, a generalized circuit layout database for the
particular version of the RDRAM or RAC which the licensee intends to develop,
test parameter software and, for RDRAMs, a DRAM core interface specification.
Many licensees have contracted to have Rambus produce the specific
implementation required to optimize the generalized circuit layout for the
licensee's manufacturing process. In such cases, the licensee provides specific
design rules and transistor models which Rambus designers use to integrate
RDRAM or RAC circuits into the licensee's process. However, Rambus anticipates
that as licensees become more familiar with the Rambus technology, they will be
able to do more of the implementation work without Rambus' assistance.

Rambus has developed its technology to be manufacturable using familiar,
industry-standard CMOS semiconductor processes. For this reason the Company
believes that the wafer fabrication yields of RDRAMs and logic products
containing RACs in mass-production volumes will be consistent with those for
similar products in the same manufacturing facility. However, it is likely that
for some initial startup period the newest generation of RDRAMs will have a
lower than normal yield to the full 800 MHz specification, and some parts will
have to be sold at a lower price based on a 700 MHz or even a 600 MHz
specification. There can be no

3
assurance that a market for such downgraded RDRAMs will develop. In addition,
because of the extra Rambus interface circuitry and other features, an RDRAM
chip is somewhat larger than a standard DRAM. Therefore, a manufacturer will
generally produce fewer RDRAMs than standard DRAMs for a given wafer size and
an RDRAM chip will be somewhat more expensive than the standard version. Also,
RDRAM manufacturers are responsible for their own manufacturing processes and
Rambus has no role in the manufacture of RDRAMs. For example, Rambus has no
influence on decisions in regard to any process changes or on whether or when
to "shrink" or otherwise change a design to reduce the cost of the chips.

In the latest implementation of Rambus technology, RDRAMs use newer-
generation chip scale packaging ("CSP") and require high-speed testers for a
portion of the test procedure. While the Company feels that packaging and
testing costs for RDRAMs in mass production volumes will be no greater than for
current standard DRAMs, additional capital equipment will be required and
startup costs will be incurred by the manufacturers producing these newest
Rambus DRAMs. In addition, for PC main memory applications memory modules
(called "RIMMs"), connectors and clock chips must be produced by multiple
vendors and available in volume. There is no assurance that such changes in the
manufacturing processes and infrastructure of the DRAM industry will be
accomplished in sufficient time and at a sufficiently competitive price to
allow the development of a mass market for Rambus technology.

Research and Development

The ability of the Company to compete in the future will be substantially
dependent on its ability to advance its interface technology in order to meet
changing market needs. To this end, Company engineers are involved in
developing new versions of the Rambus interface technology which will allow
chip-to-chip data transfer at higher speeds as well as provide other
improvements. The Company has assembled a team of highly skilled engineers
whose activities are focused on further development of Rambus interface
technology as well as adaptation of current technology to specific licensees'
processes. Because of the complexity of these activities, the design and
development process at Rambus is a multi-disciplinary effort requiring
expertise in computer architecture, digital and analog circuit design and
layout, DRAM and logic semiconductor process characteristics, packaging, PCB
routing and high-speed testing techniques.

As of September 30, 1999, Rambus had 114 employees in its engineering
departments. Approximately two thirds of these employees have advanced
technical degrees. In fiscal 1999, 1998 and 1997, research and development
expenses were approximately $8.1 million, $9.6 million and $9.8 million,
respectively. In addition, because the Company's license agreements often call
for engineering support by Rambus, a substantial portion of the Company's total
engineering costs has been allocated to cost of contract revenues, even though
these engineering efforts have direct applicability to Rambus' technology
development. The Company expects that it will continue to invest substantial
funds in research and development activities. There can be no assurance that
new versions of the Rambus interface technology can be developed and introduced
by the Company's licensees in a timely fashion or that such new technology will
be accepted by the market. Moreover, the end markets for the Company's
technology are subject to rapid technological change and there can be no
assurance that as such markets change the Company's interface technology will
remain current and suitable.

Competition

The semiconductor industry is intensely competitive and has been
characterized by price erosion, rapid technological change, short product life
cycles, cyclical market patterns and increasing foreign and domestic
competition. Most major DRAM manufacturers, including Rambus licensees, produce
higher-frequency versions of standard DRAMs such as SDRAMs (synchronous DRAMs)
which compete with RDRAMs. These companies are much larger and have better
access to financial, certain technical and other resources than Rambus.

The Company believes that its success in establishing a new high-speed
memory interface has been due in part to the systems approach it has taken to
solving the application needs of companies in home video game,

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PC and other electronic systems businesses. However, the Company believes
competitors have begun to take a similar approach. The Company believes that
its principal competition may come from its licensees and prospective
licensees, many of which are evaluating and developing products based on
alternative technologies. Some DRAM suppliers have begun to produce Double Data
Rate ("DDR") SDRAMs, aimed at doubling the memory bandwidth from SDRAMs without
increasing the clock frequency. In addition, a consortium including both large
DRAM manufacturers and systems companies is developing an extension of DDR
known as DDR-2. To the extent that these alternative technologies provide
comparable system performance at lower or similar cost than RDRAMs, or are
perceived to require the payment of lower royalties, the Company's licensees
and prospective licensees may adopt and promote the alternative technologies.
There can be no assurance that the Company's future competition will not have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, certain semiconductor companies are now
marketing ICs which combine logic and DRAM on the same chip. Such chips, called
"embedded DRAM," eliminate the need for any chip-to-chip interface and are
primarily being used for graphics applications. Embedded DRAMs are well suited
for applications where component space saving and power consumption are
important, such as in the graphics subsystems of notebook PCs. There can be no
assurance that competition from embedded DRAMs will not increase in the future.

Patents and Intellectual Property Protection

The Company has an active program to protect its proprietary technology
through the filing of patents. At September 30, 1999, the Company held 62
United States patents on various aspects of its technology, with expiration
dates ranging from 2010 to 2019 and had applications pending for an additional
approximately 90 United States patents. The Company's United States patents do
not prevent the manufacture or sale of Rambus-based ICs abroad. At September
30, 1999, the Company held ten foreign patents and had an additional 36 foreign
patent applications pending in Taiwan, Korea, Japan and various other
jurisdictions. In addition, the Company attempts to protect its trade secrets
and other proprietary information through agreements with licensees and systems
companies, proprietary information agreements with employees and consultants
and other security measures. The Company also relies on trademarks and trade
secret laws to protect its intellectual property.

Rambus believes that it is important to develop and maintain a uniform RDRAM
memory interface standard. The Company's contracts generally prevent a licensee
from using licensee-developed patented improvements related to Rambus
technology to block other licensees from using the improvements or requiring
them to pay additional royalties related to their use of Rambus interface
technology. Specifically, the contracts generally require licensees to grant to
Rambus a royalty-free cross-license on patented licensee intellectual property
related to the implementation of Rambus interface technology, which Rambus
sublicenses to other licensees which have entered into similar arrangements.
Not all licensees have granted Rambus cross-licenses and there is no assurance
that such a blocking arrangement will not occur in the future.

Sales and Marketing

Consistent with the Company's business model, sales and marketing activities
are focused on developing relationships with potential licensees and on
participating with existing licensees in marketing, sales and technical efforts
directed to systems companies. In many cases, Rambus must dedicate substantial
resources to market to and support systems companies. The Company's sales and
marketing efforts include applications engineering and other technical support
for systems companies, as well as trade shows, advertising and other
traditional marketing activities.

Employees

As of September 30, 1999 the Company had 166 employees, including five in
Japan. Of this total, 114 were in engineering, 34 were in marketing and sales,
and 18 were in finance and administration. Overall, approximately three
quarters of the Company's employees have technical degrees, and more than half
of the

5
Company's employees have advanced technical degrees. The Company's future
success will largely be dependent on its ability to attract, retain and
motivate highly qualified technical and management personnel who are in great
demand in the semiconductor industry. The Company's employees are not
represented by any collective bargaining agreements and the Company has never
experienced a work stoppage. The Company believes that its employee relations
are good.

Factors Affecting Future Results

Unpredictable and Fluctuating Operating Results. Because many of the
Company's revenue components fluctuate and are difficult to predict, and its
expenses are largely independent of revenues in any particular period, it is
difficult for the Company to accurately forecast revenues and profitability.
Historically, contract revenues have represented the largest portion of the
Company's revenues. The Company recognizes contract revenues ratably over the
period during which post-contract customer support is expected to be provided.
While this means that contract revenues from current licenses are generally
predictable, changes can be introduced by a reevaluation by Company management
of the length of the post-contract support period. The initial estimate of this
period is subject to revision as the Rambus IC being developed under a contract
nears production, and such revision will result in an increase or decrease to
the quarterly revenue for that contract. In addition, accurate prediction of
revenues from new licenses is difficult because the development of a business
relationship with a potential licensee is a lengthy process, frequently
spanning a year or more, and the fiscal period in which a new license agreement
will be entered into, if at all, and the financial terms of such an agreement
are difficult to predict. Contract revenues also include fees for engineering
services, which are dependent upon the varying level of assistance desired by
licensees and, therefore, the revenue from these services is also difficult to
predict. Adding to the complexity of making accurate financial forecasts is the
fact that certain expenses associated with a particular contract may not be
incurred evenly over the contract period, whereas contract fees associated with
that contract are recognized ratably over the period during which the post-
contract customer support is expected to be provided.

Royalties accounted for 18% of total revenues in fiscal 1999. The Company
believes that royalties will represent an increasing portion of total revenue
in the future. Increasing royalty revenues will add to the difficulty in making
accurate financial forecasts. Such royalties are recognized in the quarter in
which the Company receives a report from a licensee regarding the shipment of
Rambus ICs in the prior quarter, and are dependent upon fluctuating sales
volumes and prices of chips containing Rambus technology, all of which are
beyond the Company's ability to control or assess in advance. The Company
believes that its continued success will be substantially dependent upon
royalties increasing at a rate which more than offsets decreases in the
recognition of deferred revenue under existing contracts as their recognition
periods expire, as well as the Company's ability to add new licensees and to
license new generations of its technology to its existing licensees. Because a
systems company can change its source of Rambus ICs at any time, and because
the new Rambus license source could have a considerable nonrefundable prepaid
royalty balance as well as different royalty rates, any such change by a
systems company, particularly one which accounts for substantial volumes of
Rambus ICs, could have a sudden and significant adverse effect on the Company's
revenues.

The Company's business is subject to a variety of additional risks which
could materially adversely affect quarterly and annual operating results,
including market acceptance of the Company's technology; systems companies'
acceptance of Rambus ICs produced by the Company's licensees; market acceptance
of the products of systems companies which have adopted the Company's
technology; the loss of any strategic relationships with systems companies or
licensees; announcements or introductions of new technologies or products by
the Company or the Company's competitors; delays or problems in the
introduction or performance of enhancements or future generations of the
Company's technology; fluctuations in the market price and demand for DRAMs and
logic ICs into which the Company's technology has been incorporated;
competitive pressures resulting in lower contract revenues or royalty rates;
changes in the Company's and system companies' development schedules and levels
of expenditure on research and development; personnel changes, particularly
those involving engineering and technical personnel; costs associated with
protecting the

6
Company's intellectual property; changes in Company strategies; foreign
exchange rate fluctuations or other changes in the international business
climate; and general economic trends and other factors.

Volatility of Stock Price. The trading price of the Company's Common Stock
has been subject to wide fluctuations which may continue in the future in
response to quarterly variations in operating results; progress or lack of
progress in the development of Rambus-based ICs by licensees or Rambus-based
products by systems companies; announcements of technological innovations or
new products by the Company, its licensees or its competitors; developments
with respect to patents or proprietary rights and other events or factors. The
trading price of the Company's Common Stock could also be subject to wide
fluctuations in response to the publication of reports and changes in financial
estimates by securities analysts, and it is possible that the Company's actual
results in one or more future periods will fall short of those estimates by
securities analysts. In addition, the equity markets have experienced
volatility that has particularly affected the market prices of equity
securities of many high technology companies and that often has been unrelated
or disproportionate to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock.

Dependence upon Limited Number of Licensees. The Company neither
manufactures nor sells devices containing its interface technology. Rather, the
Company licenses its technology to semiconductor companies, which in turn
manufacture and sell Rambus ICs to systems companies which incorporate Rambus
technology into their products. The Company's strategy to become an industry
standard is dependent upon the Company's ability to make its technology widely
available to systems companies through multiple semiconductor manufacturers,
and there can be no assurance that the Company will be successful in
maintaining its relationships with its current licensees or in entering into
new relationships with additional licensees. The Company faces numerous risks
in successfully obtaining licensees on terms consistent with the Company's
business model, including, among others, the lengthy and expensive process of
building a relationship with a potential licensee before there is any assurance
of a license agreement with such party; persuading large semiconductor
companies to work with, to rely for critical technology on, and to disclose
proprietary manufacturing technology to, a smaller company such as Rambus;
persuading potential licensees to bear certain development costs associated
with Rambus technology and to make the necessary investment to successfully
produce Rambus ICs; and successfully transferring technical know-how to
licensees. In addition, there are a relatively limited number of larger
semiconductor companies to which the Company could license its interface
technology in a manner consistent with its business model. The Company believes
that its principal competition may come from its licensees and prospective
licensees, many of which are evaluating and developing products based on
alternative technologies.

Dependence upon Systems Companies. Although sales of Rambus ICs to systems
companies which have adopted the Company's technology for their products are
not made directly by the Company, such sales directly affect the amount of
royalties received by the Company. Therefore, the Company's success is
substantially dependent upon the adoption of the Company's interface technology
by systems companies, particularly those which develop and market high-volume
business and consumer products such as home video games and PCs. The Company is
subject to many risks beyond its control that influence the success or failure
of a particular systems company, including among others competition faced by
the systems company in its particular industry; market acceptance of the
systems company's products; the engineering, sales and marketing and management
capabilities of the systems company; technical challenges unrelated to Rambus
technology faced by the systems company in developing its products; and the
financial and other resources of the systems company. The process of persuading
systems companies to adopt the Company's technology can be lengthy and, even if
adopted, there can be no assurance that the Rambus technology will be used in a
product that is ultimately brought to market, achieves commercial acceptance or
results in significant royalties to the Company. Rambus must dedicate
substantial resources to market to and support systems companies, in addition
to supporting the sales and marketing and technical efforts of its licensees in
promoting Rambus technology to systems companies. Even if a systems company
develops a Rambus-based product, success in the market will depend in part on a

7
supply of ICs from Rambus licensees in sufficient quantities and at
commercially attractive prices. Because the Company does not control the
business practices of its licensees, it has no ability to establish the prices
at which its technology is made available to systems companies or the degree to
which its licensees promote Rambus technology to systems companies.

No Assurance of Adoption of Rambus Technology as an Industry Standard; Cost
of Rambus Technology. An important part of the Company's strategy to become an
industry standard is to penetrate new markets by targeting leaders in those
markets. This strategy is designed to encourage other participants in those
markets to follow such leaders in adopting Rambus technology. Should a high
profile industry participant adopt Rambus technology for one or more of its
products but fail to achieve success with those products, other industry
participants' perception of Rambus technology could be adversely affected. Any
such event could reduce future sales of Rambus ICs. Likewise, were a market
leader to adopt and achieve success with a competing technology, the Company's
reputation and sales could be adversely affected. In addition, some industry
participants have adopted, and others may in the future adopt, a strategy of
disparaging the Rambus solution adopted by their competitors. Failure of the
Company's technology to be adopted as an industry standard would have a
material adverse effect on the Company's business, financial condition and
results of operations.

One important requirement for the Company's technology to be adopted as an
industry standard is for any premium in the cost of Rambus memory over
alternatives to be reasonable in comparison to the perceived benefits of the
technology. However, there can be no assurance that the cost premium for RDRAMs
over standard memory can be reduced sufficiently to allow the development of
Rambus as an industry standard. It is likely that for some initial startup
period the newest generation of RDRAMs will have a lower than normal yield to
the full 800 MHz specification, and some parts will have to be sold at a lower
price based on a 700 MHz or even a 600 MHz specification. There can be no
assurance that a market for such downgraded RDRAMs will develop or that yields
to the full 800 MHz specification will reach satisfactory levels. In addition,
because of the extra Rambus interface circuitry and other features, an RDRAM
chip is somewhat larger than a standard DRAM. Therefore, a manufacturer will
generally produce fewer RDRAMs than standard DRAMs for a given wafer size and
an RDRAM chip will be somewhat more expensive than the standard version. Also,
RDRAM manufacturers are responsible for their own manufacturing processes and
Rambus has no role in the manufacture of RDRAMs. For example, Rambus has no
influence on decisions in regard to any process changes or on whether or when
to "shrink" or otherwise change a design to reduce the cost of the chips.

In the latest implementation of Rambus technology, RDRAMs use newer-
generation chip scale packaging ("CSP") and require high-speed testers for a
portion of the test procedure. While the Company feels that packaging and
testing costs for RDRAMs in mass production volumes will be no greater than for
current standard DRAMs, additional capital equipment will be required and
startup costs will be incurred by the manufacturers producing these newest
Rambus DRAMs. In addition, for PC main memory applications memory modules
(called "RIMMs"), connectors and clock chips must be produced by multiple
vendors and available in volume. There is no assurance that such changes in the
manufacturing processes and infrastructure of the DRAM industry will be
accomplished in sufficient time, nor that the cost of Rambus technology can be
reduced sufficiently, to allow the development of a mass market.

Dependence upon PC Main Memory Market Segment and Intel. An important part
of the Company's strategy is to penetrate the market segment for PC main
memory. Rambus believes that PC main memory currently accounts for more than
one-half of all DRAMs sold. In November 1996, Rambus signed a development and
license contract with Intel Corporation which provided for the parties to
cooperate in the development of a specification for an extension of the RDRAM
optimized for PC main memory applications. The initially-anticipated
development period for the new RDRAM technology was three years. During 1999,
the scheduled date for release of the initial Intel chipset incorporating a
Rambus memory controller was twice delayed due to a number of technological
issues which needed to be successfully resolved prior to implementation. There
can be no assurance that Intel's chipsets designed for use with RDRAMs will
meet

8
market requirements. In addition, there can be no assurance that the market for
high bandwidth PC main memory products, as anticipated by Intel, will develop
at all or that RDRAMs will be built by the Company's licensees and purchased by
PC manufacturers in sufficient quantity to become a standard for PC main
memory. Under the contract, Intel can terminate its relationship with Rambus at
any time. The Company established an earlier relationship with Intel several
years ago, but Intel did not at that time pursue development relating to Rambus
technology. There can be no assurance that Intel's current emphasis or
priorities will not change in the future, resulting in less attention and fewer
resources being devoted to the current Rambus relationship. Although certain
aspects of the current relationship between the two companies are contractual
in nature, many important aspects depend on the continued cooperation of the
two companies. There can be no assurance that Rambus and Intel will be able to
work together successfully over an extended period of time. In addition, there
can be no assurance that Intel will not develop or adopt competing technologies
in the future.

Revenue Concentration. The Company is subject to revenue concentration risks
at both the licensee and the systems company levels. In fiscal 1999, 1998, and
1997, revenues from the Company's top five licensees accounted for
approximately 47%, 49% and 63% of the Company's revenues, respectively. In
fiscal 1999, 1998, and 1997 NEC accounted for approximately 11%, 22% and 29% of
revenues, respectively. Also in fiscal 1999, two other licensees accounted for
11% and 10% of revenues. In fiscal 1997, one other licensee accounted for 10%
of revenues. Because the revenues derived from various licensees vary from
period to period depending on the addition of new contracts, the expiration of
deferred revenue schedules under existing contracts and the volumes and prices
at which the licensees have recently sold Rambus ICs to systems companies, the
particular licensees which account for revenue concentration have varied from
period to period. These variations are expected to continue in the foreseeable
future although the Company anticipates that revenue will continue to be
concentrated in a limited number of licensees.

The royalties received by the Company are a function of the adoption of
Rambus technology at the systems company level. Systems companies purchase
semiconductors containing Rambus technology from Rambus licensees, and
generally do not have a direct contractual relationship with the Company. The
Company's licensees generally do not provide detail as to the identity of, or
volume of Rambus ICs purchased by, particular systems companies. As a result,
the Company faces difficulty in analyzing the extent to which its future
revenues will be dependent upon particular systems companies. However, the
Company believes that sales from its licensees to Nintendo have accounted for a
substantial portion of royalties in the past but are unlikely to continue at
such a rate in the future. In fiscal 2000 it is likely that sales by licensees
to Sony and to PC manufacturers will account for the majority of the Company's
royalty revenues. All these systems companies face intense competitive pressure
in their markets, which are characterized by extreme volatility, frequent new
product introductions and rapidly shifting consumer preferences, and there can
be no assurance as to the unit volumes of Rambus ICs that will be purchased by
these companies in the future or the level of royalty-bearing revenues that the
Company's licensees will receive from sales to these companies. There can be no
assurance that a significant number of other systems companies will adopt the
Company's technology or that the Company's dependence upon particular systems
companies will decrease in the future.

Reliance upon DRAM Market; Declines in DRAM Price and Unit Volume per
System. To date, a majority of the Company's royalties has been derived from
the sale of logic ICs incorporating RACs. If the Company is successful in its
strategy to penetrate the PC main memory market, the Company expects that
royalties from the sale of RDRAMs will eventually account for the largest
portion of royalties. Royalties on RDRAMs are based on the volumes and prices
of RDRAMs manufactured and sold by the Company's licensees. The royalties
received by the Company therefore are influenced by many of the risks faced by
the DRAM market in general, including constraints on the volumes shipped during
periods of shortage and reduced average selling prices. The DRAM market is
intensely competitive and generally is characterized by declining average
selling prices over the life of a generation of chips. Such price decreases,
and the corresponding decreases in per unit royalties received by the Company,
can be sudden and dramatic. Compounding the effect of price decreases is the
fact that, under certain of the Company's license agreements, royalty rates
decrease as a function of time or volume. With the introduction of each new
generation of higher density RDRAMs, the

9
Company generally expects higher prices resulting in higher royalties per
device, but with correspondingly fewer devices required per system. There can
be no assurance that decreases in DRAM prices or in the Company's royalty rates
will not have a material adverse effect on the Company's business, results of
operations and financial condition. There can be no assurance that the Company
will be successful in maintaining or increasing its share of any market.

Rapid Technological Change; Reliance on Fundamental Technology; Importance
of Timely New Product Development. The semiconductor industry is characterized
by rapid technological change, with new generations of semiconductors being
introduced periodically and with ongoing evolutionary improvements. Since
beginning operations in 1990, the Company has derived all of its revenue from
its interface technology and expects that this dependence on its fundamental
technology will continue for the foreseeable future. Accordingly, broad
acceptance of the Company's interface technology is critical to the Company's
future success. The introduction or market acceptance of competing technology
which renders the Company's interface technology less desirable or obsolete
would have a rapid and material adverse effect on the Company's business,
results of operations and financial condition. The announcement of new products
by the Company could cause licensees or systems companies to delay or defer
entering into arrangements for the use of the Company's technology, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.

The Company's operating results will depend to a significant extent on its
ability to introduce enhancements and new generations of its interface
technology which keep pace with other changes in the semiconductor industry and
which achieve rapid market acceptance. The Company must continually devote
significant engineering resources to addressing the ever-increasing need for
memory bandwidth associated with increases in the speed of microprocessors and
other controllers. Technical innovations of the type that will be required for
the Company to be successful are inherently complex and require long
development cycles, and there can be no assurance that the Company's
development efforts will ultimately be successful. In addition, these
innovations must be completed before changes in the semiconductor industry have
rendered them obsolete, must be available when systems companies require these
innovations, and must be sufficiently compelling to cause semiconductor
manufacturers to enter into licensing arrangements with Rambus for the new
technology. There can be no assurance that Rambus will be able to meet these
requirements. Moreover, significant technological innovations generally require
a substantial investment before their commercial viability can be determined.
There can be no assurance that the Company will have the financial resources
necessary to fund future development, that the Company's licensees will
continue to share certain research and development costs with the Company as
they have in the past, or that revenues from enhancements or new generations of
the Company's technology, even if successfully developed, will exceed the costs
of development.

Competition. The semiconductor industry is intensely competitive and has
been characterized by price erosion, rapid technological change, short product
life cycles, cyclical market patterns and increasing foreign and domestic
competition. Most major DRAM manufacturers, including Rambus licensees, produce
higher-frequency versions of standard DRAMs such as SDRAMs which compete with
RDRAMs. These companies are much larger and have better access to financial,
certain technical and other resources than Rambus.

The Company believes that its principal competition may come from its
licensees and prospective licensees, many of which are evaluating and
developing products based on alternative technologies and are beginning to take
a systems approach similar to the Company's in solving the application needs of
systems companies. Some DRAM suppliers have begun to produce DDR SDRAMs, aimed
at doubling the memory bandwidth from SDRAMs without increasing the clock
frequency. In addition, a consortium including both large DRAM manufacturers
and systems companies is developing an extension of DDR known as DDR-2. To the
extent that these alternative technologies provide comparable system
performance at lower or similar cost than RDRAMs, or are perceived to require
the payment of lower royalties, the Company's licensees and prospective
licensees may adopt and promote the alternative technologies. There can be no
assurance that the

10
Company's future competition will not have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
certain semiconductor companies are now marketing ICs which combine logic and
DRAM on the same chip. Such chips, called "embedded DRAM," eliminate the need
for any chip-to-chip interface and are primarily being used for graphics
applications. Embedded DRAMs are well suited for applications where component
space saving and power consumption are important, such as in the graphics
subsystems of notebook PCs. There can be no assurance that competition from
embedded DRAMs will not increase in the future.

Limited Protection of Intellectual Property; Likelihood of Potential
Litigation. While the Company has an active program to protect its proprietary
technology through the filing of patents, there can be no assurance that the
Company's pending United States or foreign patent applications or any future
United States or foreign patent applications will be approved, that any issued
patents will protect the Company's intellectual property or will not be
challenged by third parties, or that the patents of others will not have an
adverse effect on the Company's ability to do business. Furthermore, there can
be no assurance that others will not independently develop similar or competing
technology or design around any patents that may be issued to the Company.

The Company attempts to protect its trade secrets and other proprietary
information through agreements with licensees and systems companies,
proprietary information agreements with employees and consultants and other
security measures. The Company also relies on trademarks and trade secret laws
to protect its intellectual property. Despite these efforts, there can be no
assurance that others will not gain access to the Company's trade secrets, or
that the Company can meaningfully protect its intellectual property. In
addition, effective trade secret protection may be unavailable or limited in
certain foreign countries. Although the Company intends to protect its rights
vigorously, there can be no assurance that such measures will be successful.

Rambus believes that it is important to develop and maintain a uniform RDRAM
memory interface standard. The Company's contracts generally prevent a licensee
from using licensee-developed patented improvements related to Rambus
technology to block other licensees from using the improvements or requiring
them to pay additional royalties related to their use of Rambus interface
technology. Specifically, the contracts generally require licensees to grant to
Rambus a royalty-free cross-license on patented licensee intellectual property
related to the implementation of Rambus interface technology, which Rambus
sublicenses to other licensees that have entered into similar arrangements. Not
all licensees have granted Rambus cross-licenses, and there is no assurance
that such a blocking arrangement will not occur in the future.

The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights. While the Company has not
received formal notice of any infringement of the rights of any third party,
questions of infringement in the semiconductor field involve highly technical
and subjective analyses. Litigation may be necessary in the future to enforce
the Company's patents and other intellectual property rights, to protect the
Company's trade secrets, to determine the validity and scope of the proprietary
rights of others, or to defend against claims of infringement or invalidity,
and there can be no assurance that the Company would prevail in any future
litigation. Any such litigation, whether or not determined in the Company's
favor or settled by the Company, would be costly and would divert the efforts
and attention of the Company's management and technical personnel from normal
business operations, which would have a material adverse effect on the
Company's business, financial condition and results of operations. Adverse
determinations in litigation could result in the loss of the Company's
proprietary rights, subject the Company to significant liabilities, require the
Company to seek licenses from third parties or prevent the Company from
licensing its technology, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations.

In any potential dispute involving the Company's patents or other
intellectual property, the Company's licensees could also become the target of
litigation. While the Company generally does not indemnify its licensees, some
of its license agreements require the Company to provide technical support and
information to a licensee which is involved in litigation involving use of
Rambus technology. The Company is bound to

11
indemnify certain licensees under the terms of certain license agreements, and
the Company may agree to indemnify others in the future. The Company's support
and indemnification obligations could result in substantial expenses to the
Company. In addition to the time and expense required for the Company to supply
such support or indemnification to its licensees, a licensee's development,
marketing and sales of Rambus ICs could be severely disrupted or shut down as a
result of litigation, which in turn could have a material adverse effect on the
Company's business, financial condition and results of operations.

Risks Associated with International Licenses. In fiscal 1999, 1998 and 1997,
international revenues constituted approximately 60%, 73% and 80% of the
Company's total revenues, respectively. The Company expects that revenues
derived from international licensees will continue to represent a significant
portion of its total revenues in the future. All of the revenues from
international licensees have to date been denominated in United States dollars.
However, to the extent that such licensees' sales to systems companies are not
denominated in United States dollars, any royalties that the Company receives
as a result of such sales could be subject to fluctuations in currency exchange
rates. In addition, if the effective price of Rambus ICs sold to the Company's
foreign licensees were to increase as a result of fluctuations in the exchange
rate of the relevant currencies, demand for Rambus ICs could fall, which in
turn would reduce the Company's royalties. The Company does not use derivative
instruments to hedge foreign exchange rate risk. In addition, international
operations and demand for the products of the Company's licensees are subject
to a variety of risks, including tariffs, import restrictions and other trade
barriers, changes in regulatory requirements, longer accounts receivable
payment cycles, adverse tax consequences, export license requirements, foreign
government regulation, political and economic instability and changes in
diplomatic and trade relationships. In particular, the laws of certain
countries in which the Company currently licenses or may in the future license
its technology require significant withholding taxes on payments for
intellectual property, which the Company may not be able to offset fully
against its United States tax obligations. The Company is subject to the
further risk of the tax authorities in those countries recharacterizing certain
engineering fees as license fees, which could result in increased tax
withholdings and penalties. The Company's licensees are subject to many of the
risks described above with respect to systems companies which are located in
different countries, particularly video game and PC manufacturers located in
Asia and elsewhere. There can be no assurance that one or more of the risks
associated with international licenses of the Company's technology will not
have a direct or indirect material adverse effect on the Company's business,
financial condition and results of operations. Moreover, the laws of certain
foreign countries in which the Company's technology is or may in the future be
licensed may not protect the Company's intellectual property rights to the same
extent as the laws of the United States, thus increasing the possibility of
infringement of the Company's intellectual property.

Dependence on Key Personnel. The Company's success depends to a significant
extent on its ability to identify, attract, motivate and retain qualified
technical, sales, marketing, finance and executive personnel. Because the
future success of the Company is dependent upon its ability to continue
enhancing and introducing new generations of such technology, the Company is
particularly dependent upon its ability to identify, attract, motivate and
retain qualified engineers with the requisite educational background and
industry experience. Competition for qualified engineers, particularly those
with significant industry experience, is intense. The Company is also dependent
upon its senior management personnel, most of whom have worked together at the
Company for several years. The loss of the services of any of the senior
management personnel or a significant number of the Company's engineers could
be disruptive to the Company's development efforts or business relationships
and could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company generally does not enter into
employment contracts with its employees and does not maintain key person life
insurance.

Management of Expanded Operations. The Company is not experienced in
managing rapid growth. The Company may not be equipped to successfully manage
any future periods of rapid growth or expansion, which could be expected to
place a significant strain on the Company's limited managerial, financial,
engineering and other resources. The Company's licensees and systems companies
rely heavily on the Company's technological expertise in designing, testing and
manufacturing products incorporating the Company's interface technologies.

12
Relationships with new licensees or systems companies generally require
significant engineering support. As a result, any increases in adoption of the
Company's technology will increase the strain on the Company's resources,
particularly the Company's engineers. Any delays or difficulties in the
Company's research and development process caused by these factors or others
could make it difficult for the Company to develop future generations of its
interface technology and to remain competitive. In addition, the rapid rate of
hiring new employees could be disruptive and adversely affect the efficiency of
the Company's research and development process. The rate of the Company's
future expansion, if any, in combination with the complexity of the technology
involved in the Company's licensee-based business model, may demand an
unusually high level of managerial effectiveness in anticipating, planning,
coordinating and meeting the operational needs of the Company as well as the
needs of the licensees and systems companies. Additionally, the Company may be
required to reorganize its managerial structure in order to more effectively
respond to the needs of customers. Given the small pool of potential licensees
and target systems companies, the adverse effect on the Company resulting from
a lack of effective management in any of these areas will be magnified.
Inability to manage the expansion of the Company's business would have a
material adverse effect on its business, financial condition and results of
operations.

Impact of Year 2000. To the extent permitted by law, the disclosure included
in this paragraph is intended to constitute Year 2000 readiness disclosure
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
As part of the transfer of technology to its licensees, the Company provides
information in the form of implementation packages which include
specifications, circuit layout databases, test parameter software and, in the
case of RDRAMs, core interface specifications. Such information is not date
sensitive and therefore not subject to Year 2000 problems. Since the Company
does not sell any other kind of product, internal Year 2000 issues are confined
to its engineering design and administrative systems. The Company has assessed
the readiness of its internal computer systems and outside services for
handling the Year 2000. The remediation process is underway and will be
complete in all material respects by year-end. The Company believes that its
internal computer systems and outside services will be Year 2000 compliant and
that the risk of major disruption from these systems and services due to Year
2000 issues is minimal. Through September 30, 1999, the Company has not
incurred any significant costs to ensure its internal computer systems and
outside services are Year 2000 compliant, other than software purchases and
upgrades which were purchased in the Company's normal course of business. The
Company does not expect the cost of implementation for its internal computer
systems and outside services to have a material impact on the Company's
financial position or results of operations. However, the Company could be
negatively affected to the extent that Year 2000 problems at its licensees or
their customers could affect the shipment of Rambus ICs and the payment of
royalties to the Company. Such effects on its licensees or their customers
could cause the Company to miss quarterly analysts' estimates of its revenue
and profits. The Company has no way of analyzing the probability of Year 2000
problems at its licensees or their customers, and therefore, there can be no
assurance that the Company's licensees or their customers will be Year 2000
compliant or, in any event, that the Company will not be negatively affected
from Year 2000 issues.

Item 2. Properties

The Company leases approximately 42,000 square feet in one building in
Mountain View, California for its U.S. engineering, marketing and
administrative operations. The principal lease expires in 2005, with an option
to extend the lease for an additional five years. In August 1999 the Company
signed a lease for a 96,000 square-foot building to be constructed in Los
Altos, California. The lease has an initial term of ten years, with options to
extend the term for two periods of five years each. The Company anticipates
moving its U.S. operations to this new building upon its completion, scheduled
for late 2000. The Company also leases space in Tokyo for an office which
provides sales and technical support to systems companies in Japan. The Company
believes that it will not have difficulty in securing additional facilities if
required.

13
Item 3. Legal Proceedings

The Company has no current or threatened legal proceedings or claims.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1999.

14
PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Company's common stock is listed on the Nasdaq National Market under the
symbol "RMBS." The quarterly high and low prices as reported by Nasdaq are
included in the table "Consolidated Supplementary Financial Data" on page 45 of
this Report 10-K.

As of November 30, 1999, there were 461 holders of record of the Company's
common stock. Because many of the shares of the Company's common stock are held
by brokers and other institutions on behalf of stockholders, the Company is
unable to estimate the total number of stockholders represented by these record
holders. The Company has never paid or declared any cash dividends on its
common stock or other securities and does not anticipate paying cash dividends
in the foreseeable future.

Item 6. Selected Consolidated Financial Data

<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Operations:
Total revenues.................... $ 43,370 $ 37,864 $26,015 $11,270 $ 7,364
Operating income (loss)........... 9,499 7,967 1,954 (4,568) (6,053)
Net income (loss)................. 8,718 6,788 1,981 (4,415) (7,020)
Net income (loss) per share-
assuming dilution................ $ 0.35 $ 0.28 $ 0.09 $ (0.78) $ (1.33)
Financial Position (at year end):
Total assets...................... $115,773 $110,987 $87,878 $12,868 $18,307
Total debt (capital lease
obligations)..................... -- 130 512 1,297 1,616
Stockholders' equity (deficit).... 61,564 41,792 26,661 (12,144) (7,936)
</TABLE>

15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following discussion contains forward-looking statements, including
without limitation the Company's expectations regarding revenues, expenses and
results of operations. The Company's actual results may differ significantly
from those projected in the forward-looking statements. Factors that might
cause future actual results to differ materially from the Company's recent
results or those projected in the forward-looking statements include, but are
not limited to, those discussed in "Factors Affecting Future Results" and
below. The Company assumes no obligation to update the forward-looking
statements or such factors.

Overview

Since its founding in 1990, Rambus has been engaged in the development of
high-speed chip-to-chip interface technology which can be used to enhance the
performance and cost-effectiveness of consumer electronics, computer systems
and other electronic systems. The Company neither manufactures nor sells
semiconductors incorporating the Company's technology. Rather, the Company
licenses its technology on a nonexclusive and worldwide basis to semiconductor
companies which manufacture and sell RDRAMs and logic ICs containing RACs to
systems companies which have adopted Rambus technology. Systems companies are
not required to obtain a Rambus license to incorporate licensed Rambus ICs into
their products.

Revenues. The Company's revenues consist of contract fees and royalties.
Contract fees are comprised of license fees, engineering service fees and
nonrefundable, prepaid royalties, and represented approximately 82% of the
Company's revenues in fiscal 1999, 76% in 1998, and 78% in 1997. The Company's
contracts generally require a licensee to pay a contract fee to Rambus
typically ranging from a few hundred thousand dollars for a narrow license
covering a single logic product to millions of dollars for a license with broad
coverage of Rambus technology. Part of these 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. All contract fees are
nonrefundable.

In a few cases, the Company has received nonrefundable, prepaid royalties
which offset the earliest royalty payments otherwise due from the licensee. As
of September 30, 1999, $3.7 million of such nonrefundable, prepaid royalties
had offset initial royalties, and the Company had a balance of $2.6 million
remaining to be offset against future royalties.

Substantially all of the license fees, engineering service fees and
nonrefundable, prepaid royalties are bundled together as contract fees because
the Company generally does not provide or price these components separately.
The contracts also generally include rights to upgrades and enhancements.
Accordingly, Rambus recognizes contract revenues ratably over the period during
which post-contract customer support is expected to be provided. The excess of
contract fees received over contract revenue recognized is shown on the
Company's balance sheet as "deferred revenue." As of September 30, 1999, the
Company's deferred revenue was $49.8 million, substantially all of which is
scheduled to be recognized in varying amounts over the next four years.

Royalties, which are generally a percentage of the revenues received by a
licensee on its sales of the Company's ICs, are normally payable by the
licensee on sales occurring during the life of the Company's patents being
licensed. For a typical application of the Company's technology, the Company
receives royalties from the sale of both RDRAMs and logic ICs containing RACs.
Royalty rates range up to a maximum of approximately 2.5% for RDRAMs and a
maximum of approximately 5% for logic ICs, and in some cases may decline based
on the passage of time or on the total volume of the Company's ICs shipped by a
licensee. The exact rate and structure of a royalty arrangement with a
particular licensee depend on a number of factors, including the amount of the
contract fee paid by the licensee and the marketing and engineering commitment
made by the licensee.

Rambus recognizes royalties from a licensee in the quarter in which it
receives the report detailing shipments of Rambus ICs by such licensee in the
prior quarter. The Company believes that royalties will

16
become an increasing portion of revenues over the long term. To date, a
majority of the Company's royalties has been derived from the sale of logic ICs
incorporating RACs. If the Company is successful in its strategy to penetrate
the PC main memory market segment, the Company expects that royalties from the
sale of RDRAMs will eventually account for the largest portion of royalties.

As of September 30, 1999, the Company had 31 licensees. Because all of the
Company's revenues are derived from its relatively small number of licensees,
the Company's revenues tend to be highly concentrated. In fiscal 1999, 1998,
and 1997, revenues from the Company's top five licensees accounted for
approximately 47%, 49% and 63% of the Company's revenues, respectively. In
fiscal 1999, 1998, and 1997 NEC accounted for approximately 11%, 22% and 29% of
revenues, respectively. Also in fiscal 1999, two other licensees accounted for
11% and 10% of revenues. In fiscal 1997, one other licensee accounted for 10%
of total revenues. The Company expects that it will continue to experience
significant revenue concentration for the foreseeable future. However, the
particular licensees which account for revenue concentration may vary from
period to period depending on the addition of new contracts, the expiration of
deferred revenue schedules under existing contracts, and the volumes and prices
at which the licensees sell Rambus ICs to systems companies in any given
period.

The royalties received by the Company are also a function of the adoption of
Rambus technology by systems companies and the acceptance of the systems
companies' products by end users. The Company generally does not have a direct
contractual relationship with systems companies, and the royalty reports
submitted by the Company's licensees generally do not disclose the identity of,
or unit volume of Rambus ICs purchased by, particular systems companies. As a
result, it is difficult for the Company to predict the extent to which its
future revenues will be dependent upon particular systems companies.

In fiscal 1999, 1998, and 1997, international revenues constituted 60%, 73%
and 80% of the Company's total revenues, respectively. The Company expects that
revenues derived from international licensees will continue to represent a
significant portion of its total revenues in the future. All of the revenues
from international licensees to date have been denominated in United States
dollars.

Expenses. Since the Company's inception in 1990, its engineering costs
(which consist of cost of contract revenues and research and development
expenses) and marketing, general and administrative expenses have continually
increased as the Company has added personnel and ramped up its activities in
these areas. Engineering costs and marketing, general and administrative
expenses generally have decreased as a percentage of revenues throughout this
period due to the relatively rapid revenue base expansion which the Company
experienced as it began entering into license agreements. The Company intends
to continue making significant expenditures associated with engineering,
marketing, general and administration, and expects that these costs and
expenses will continue to be a significant percentage of revenues in future
periods. Whether such expenses increase or decrease as a percentage of revenues
will be substantially dependent upon the rate at which the Company's revenues
change.

Engineering costs are allocated between cost of contract revenues and
research and development expenses. Cost of contract revenues is determined
based on the portion of engineering costs which have been incurred during the
period for the adaptation of Rambus interface technology for specific licensee
processes. The balance of engineering costs, incurred for general development
of Rambus technology, is charged to research and development. In a given
period, the allocation of engineering costs between these two components is a
function of the timing of development and implementation cycles. As a
generation of technology matures from the development stage through
implementation, the majority of engineering costs shifts from research and
development expenses to cost of contract revenues. Engineering costs are
recognized as incurred and do not correspond to the recognition of revenues
under the related contracts.

Marketing, general and administrative expenses include salaries, travel
expenses and costs associated with trade shows, advertising, finance and other
marketing and administrative efforts. Costs of technical support for systems
companies, including applications engineering, are also charged to marketing,
general and

17
administrative expense. Consistent with the Company's business model, sales and
marketing activities are focused on developing relationships with potential
licensees and on participating with existing licensees in marketing, sales and
technical efforts directed to systems companies. In many cases, Rambus must
dedicate substantial resources to the marketing and support of systems
companies. Due to the long business development cycles faced by the Company and
the semi-fixed nature of administrative expenses, marketing, general and
administrative expenses in a given period generally are unrelated to the level
of revenues in that period or in recent or near-term future periods.

Taxes. The Company reports certain items of income and expense for financial
reporting purposes in different years than they are reported in the tax return.
Specifically, the Company reports contract fees and royalties when received for
tax purposes, as required by tax law. For financial reporting purposes, the
Company records revenues from contract fees over the period post-contract
support is expected to be provided. Thus, the Company recognizes revenue
earlier for tax than for financial reporting purposes. Accordingly, the
Company's net operating loss for tax purposes may be more or less than the
cumulative operating deficit recorded for financial reporting purposes.

Results of Operations

The following table sets forth, for the fiscal years indicated, the
percentage of total revenues represented by certain items reflected in the
Company's consolidated statements of operations:

<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenues:
Contract revenues........................................ 81.5% 75.9% 77.6%
Royalties................................................ 18.5 24.1 22.4
----- ----- -----
Total revenues......................................... 100.0% 100.0% 100.0%
===== ===== =====
Costs and expenses:
Cost of contract revenues................................ 28.2 23.7 21.1
Research and development................................. 18.7 25.5 37.7
Marketing, general and administrative.................... 31.2 29.8 33.7
----- ----- -----
Total costs and expenses............................... 78.1 79.0 92.5
----- ----- -----
Operating income........................................... 21.9 21.0 7.5
Other income, net.......................................... 10.0 8.9 5.2
----- ----- -----
Income before income taxes................................. 31.9 29.9 12.7
Provision for income taxes................................. 11.8 12.0 5.1
----- ----- -----
Net income................................................. 20.1% 17.9% 7.6%
===== ===== =====
</TABLE>

Revenues. Revenues were $43.4 million, $37.9 million and $26.0 million in
fiscal 1999, 1998 and 1997, respectively. Contract revenues increased 42.3% to
$28.7 million in fiscal 1998 and increased 23.1% to $35.4 million in fiscal
1999 primarily as a result of the Company's entering into contracts with new
licensees and additional contracts with current licensees for new developments.
In addition, fiscal 1999 contract revenues include approximately $500,000 of
previously deferred income from cancellation of a contract by Rambus due to
nonperformance of a licensee, and approximately $3.3 million of previously
deferred income due to a change in management's estimate of certain contract
revenue recognition periods. Such periods are initially estimated based on
management's judgment of the time over which the Company has an obligation to
support its licensees. As the new generation of RDRAMs goes into production, a
more accurate estimate of remaining support can be made. To the extent the new
estimated period is less than the original estimate there will be a temporary
increase in the amount of deferred revenue recognized. In general, the Company
expects that contract revenues will decline over time due to the expiration of
the period for revenue recognition on contracts

18
booked previously, and also due to the Company's past success in signing
licensees which reduces the potential number of new licensees. However, in the
short term contract revenues may temporarily increase due to accelerated
revenue recognition based on a combination of changes in management's estimate
of contract revenue recognition periods and pending mergers and product
abandonments in the DRAM industry which could result in additional contract
terminations.

In fiscal 1998, royalties increased 56.8% to $9.1 million or 24.1% of total
revenues. Royalties were primarily from NEC and, the Company believes, were
largely based on sales of Rambus ICs for use in the Nintendo 64 home video game
system. In fiscal 1999, royalties decreased 12.3% to $8.0 million or 18.5% of
total revenues. The Company believes that this decrease was a result of
declining sales and/or prices for the Rambus ICs used by Nintendo as well as
steep price declines in the DRAM market. The Company anticipates that its
potential to generate royalties in fiscal 2000 will be largely dependent on
system sales by PC manufacturers, Sony and, to a decreasing degree, Nintendo.
All of these companies face intense competitive pressure in the PC and home
video game markets, which are characterized by extreme volatility, seasonal
fluctuations, frequent new product introductions and rapidly shifting consumer
preferences, and there can be no assurance as to the unit volumes of Rambus ICs
which they will purchase in the future or the level of royalty-bearing revenues
that the Company's licensees will receive. None of these companies is under any
obligation to continue using Rambus technology in their current products or to
incorporate Rambus technology into future products.

Engineering Costs. Engineering costs, consisting of cost of contract
revenues and research and development expenses, were $20.4 million, $18.6
million and $15.3 million which represented 46.9%, 49.2% and 58.8% of revenues,
in fiscal 1999, 1998 and 1997, respectively. The increase in engineering costs
was due primarily to an increase in engineering personnel, and the decrease as
a percentage of revenues was primarily the result of the Company's growth in
revenues.

Cost of Contract Revenues. Cost of contract revenues were $12.2 million,
$9.0 million and $5.5 million, which represented 28.2%, 23.7% and 21.1% of
revenues, in fiscal 1999, 1998 and 1997, respectively. In fiscal 1998, cost of
contract revenues increased 63.7% to $9.0 million, and increased as a
percentage of revenues, primarily due to the beginning of the transition of the
Company's next generation technology from the design to the implementation
stage. In fiscal 1999, cost of contract revenues increased 36.1% to $12.2
million, and increased as a percentage of revenues, as the Company focused its
engineering resources on the ramp of its next generation technology into the PC
main memory market. The Company believes that the level of cost of contract
revenues will continue to fluctuate in the future, both in absolute dollars and
as a percentage of revenues, as new generations of Rambus ICs go through the
normal development and implementation phases.

Research and Development. Research and development expenses were $ 8.1
million, $9.6 million, and $9.8 million, which represented 18.7%, 25.5% and
37.7% of revenues, in fiscal 1999, 1998 and 1997, respectively. In fiscal 1998,
research and development expenses decreased 1.7% compared to 1997, and
decreased as a percentage of total revenues, as the major portion of design
work on the next generation of Rambus technology was completed and engineering
focus moved to implementation activities. Similarly, in fiscal 1999 research
and development expenses decreased 15.8% compared to 1998, and decreased as a
percentage of total revenues, as additional engineering resources were
transferred to the support of Intel, RDRAM licensees, PC OEMs and
infrastructure providers on the ramp of Rambus technology into the PC main
memory market. The Company expects research and development expenses to
increase over time as it enhances and improves its technology and applies it to
new generations of ICs. The rate of increase of, and the percentage of revenues
represented by, research and development expenses in the future will vary from
period to period based on the research and development projects underway and
the change in engineering headcount in any given period, as well as the rate of
change in the Company's total revenues.

Marketing, General and Administrative. Marketing, general and administrative
expenses were $13.5 million, $11.3 million and $8.8 million, which represented
31.2%, 29.8% and 33.7% of revenues, in fiscal 1999, 1998 and 1997,
respectively. The increase in absolute dollars in fiscal 1999 and 1998 and the

19
increase in marketing, general and administrative expenses as a percentage of
revenues in 1999 was primarily due to a buildup of the marketing and sales
teams in both the U.S. and Japan as well as increased costs associated with
applications engineering and other technical support provided to systems
companies. The decrease in marketing, general and administrative expenses as a
percentage of revenues in 1998 reflects the increased revenue base. The Company
expects marketing, general and administrative expenses to increase in the
future as the Company puts additional effort into marketing its technology and
assisting systems companies to adapt this technology to new generations of
products. The rate of increase of, and the percentage of revenues represented
by, marketing, general and administrative expenses in the future will vary from
period to period based on the trade shows, advertising and other sales and
marketing activities undertaken and the change in sales, marketing and
administrative headcount in any given period, as well as the rate of change in
the Company's total revenues.

Other Income, Net. Other income, net consists primarily of interest income
from the Company's short-term cash investments, offset by interest expense on
leases and other equipment financing. Other income, net was $4.3 million, $3.4
million and $1.3 million, which represented 10.0%, 8.9% and 5.2% of revenues,
in fiscal 1999, 1998 and 1997, respectively. The increase in absolute dollars
was due to interest on higher average marketable securities, cash and cash
equivalent balances, offset by interest associated with leased equipment. The
Company expects net other income to increase in the future due to additional
interest income on higher cash balances.

Provision for Income Taxes. The Company recorded a provision for income
taxes of $5.1 million in fiscal 1999, $4.5 million in fiscal 1998 and $1.3
million in fiscal 1997. The estimated federal and state combined rate on income
before income taxes was 40% for the 1997 and 1998 provisions and 37% for the
1999 provision. The Company's effective tax rate differs from the statutory
rate due to timing differences related to the recognition of contract revenues
for tax and financial reporting purposes.

At September 30, 1999 the Company had gross deferred tax assets of
approximately $27 million, primarily relating to the difference between tax and
book treatment of deferred revenue. The Company has established a partial
valuation allowance against its deferred tax assets due to the uncertainty
surrounding the realization of such assets. The deferred tax assets of
approximately $27 million, net of the valuation allowance of $21 million, as of
September 30, 1999 represents management's estimate of those tax assets which
it believes will more likely than not (a probability of just over fifty
percent) be realized. The deferred tax asset valuation allowance is subject to
periodic adjustment as facts and circumstances warrant.

Contingent Warrants

In January 1997 the Company granted a warrant to Intel Corporation for the
purchase of 1,000,000 shares of Rambus common stock at an exercise price of
$10.00 per share. The warrant will become exercisable only upon the achievement
of certain milestones by Intel relating to shipment volumes of Rambus-based
chipsets. At the time that the achievement of the milestones becomes probable,
a charge will be made to the statement of operations based on the fair value of
the warrant.

In October 1998, the Company's Board of Directors authorized an incentive
program in the form of warrants on a total of up to 400,000 shares of Rambus
common stock to be issued to various Rambus Direct DRAM partners upon the
achievement of certain product qualification and volume production targets. The
warrants, to be issued at the time the targets are met, will have an exercise
price of $10.00 per share and a life of five years. They will vest and become
exercisable on the same basis as the Intel warrant, which will result in a
charge to the statement of operations based on the fair value of the warrants
at the time the achievement of the Intel milestones becomes probable. As of
September 30, 1999 a total of 30,000 of these warrants had been issued.

20
Liquidity and Capital Resources

As of September 30, 1999 the Company had cash and cash equivalents and
marketable securities of $95.3 million, including restricted cash of $2.5
million and a long-term component of $5.7 million. As of the same date, the
Company had total working capital of $61.8 million, including a short-term
component of deferred revenue of $32.3 million. Deferred revenue represents the
excess of cash received from 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. Without the
short-term component of deferred revenue, working capital would have been $94.1
million at September 30, 1999.

The Company's operating activities provided net cash of $4.1 million, $16.3
million and $31.9 million in fiscal 1999, 1998 and 1997, respectively. Cash
generated by operations in fiscal 1997 and 1998 was primarily the result of
increases in deferred revenue and net income adjusted for non-cash items,
offset by net payments, provisions and adjustments relating to income taxes.
The increase in deferred revenue for both years was due to new billings on
license contracts in excess of revenues recognized thereon. In 1999 deferred
revenue decreased due to the recognition of contract revenues in excess of new
billings, but this was more than offset by cash generated from net income
adjusted for non-cash items and adjustments relating to income taxes.

Net cash used in investing activities was $19.8 million, $14.4 million and
$47.2 million in fiscal 1999, 1998 and 1997, respectively. Investing activities
have consisted primarily of net purchases of marketable securities and
purchases of property and equipment.

Net cash provided by financing activities were $4.7 million, $3.4 million
and $35.2 million in fiscal 1999, 1998 and 1997, respectively. Net cash
provided by financing activities in fiscal 1997 was primarily due to completion
of the Company's initial public offering of its common stock. Net cash provided
by financing activities in fiscal 1998 and 1999 was primarily due to proceeds
from the sale of common stock under the Company's Employee Stock Purchase and
Option plans.

The Company presently anticipates that existing cash balances will be
adequate to meet its cash needs for at least the next 12 months.

Impact of Year 2000

To the extent permitted by law, the disclosure included in this paragraph is
intended to constitute Year 2000 readiness disclosure within the meaning of the
Year 2000 Information and Readiness Disclosure Act. As part of the transfer of
technology to its licensees, the Company provides information in the form of
implementation packages which include specifications, circuit layout databases,
test parameter software and, in the case of RDRAMs, core interface
specifications. Such information is not date sensitive and therefore not
subject to Year 2000 problems. Since the Company does not sell any other kind
of product, internal Year 2000 issues are confined to its engineering design
and administrative systems. The Company has assessed the readiness of its
internal computer systems and outside services for handling the Year 2000. The
remediation process is underway and will be complete in all material respects
by year-end. The Company believes that its internal computer systems and
outside services will be Year 2000 compliant and that the risk of major
disruption from these systems and services due to Year 2000 issues is minimal.
Through September 30, 1999, the Company has not incurred any significant costs
to ensure its internal computer systems and outside services are Year 2000
compliant, other than software purchases and upgrades which were purchased in
the Company's normal course of business. The Company does not expect the cost
of implementation for its internal computer systems and outside services to
have a material impact on the Company's financial position or results of
operations. However, the Company could be negatively affected to the extent
that Year 2000 problems at its licensees or their customers could affect the
shipment of Rambus ICs and the payment of royalties to the Company. Such
effects on its licensees or their customers could cause the Company to miss
quarterly analysts' estimates of its revenue and profits. The Company has no
way of analyzing the probability of Year 2000 problems at its licensees or
their customers, and therefore, there can be no assurance that the Company's
licensees or their customers will be Year 2000 compliant or, in any event, that
the Company will not be negatively affected from Year 2000 issues.

21
Recent Accounting Pronouncements

In December 1998, AcSEC released Statement of Position 98-9 or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition." SOP 98-9 amends SOP
97-2 to require that an entity recognize revenue for multiple element
arrangements by means of the "residual method" when (1) there is no vendor-
specific objective evidence ("VSOE") of the fair values of all the undelivered
elements that are not accounted for by means of long-term contract accounting,
(2) VSOE of fair value does not exist for one or more of the delivered
elements, and (3) all revenue recognition criteria of SOP 97-2 (other than the
requirement for VSOE of the fair value of each delivered element) are
satisfied. The provisions of SOP 98-9 that extend the deferral of certain
paragraphs of SOP 97-2 became effective December 15, 1998. These paragraphs of
SOP 97-2 and SOP 98-9 will be effective for transactions that are entered into
in fiscal years beginning after March 15, 1999. Retroactive application is
prohibited. The Company is currently evaluating the impact of the requirements
of SOP 98-9 and the effects, if any, on its current revenue recognition
policies.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that
exists. In July 1999, the Financial Accounting Standard Boards issued SFAS No.
137, or SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133." SFAS 137 deferred
the effective date of SFAS 133 until the first fiscal quarter beginning after
June 15, 2000. The Company does not currently hold derivative instruments or
engage in hedging activities. The Company is continuing to evaluate the impact
of the requirements of SFAS 133 and SFAS 137 will have on its financial
statements and related disclosures.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company places its
investments with high credit issuers and by policy limits the amount of credit
exposure to any one issuer. As stated in its policy, the Company will ensure
the safety and preservation of its invested funds by limiting default risk and
market risk. The Company has no investments denominated in foreign country
currencies and therefore is not subject to foreign exchange risk.

The Company mitigates default risk by investing in high credit quality
securities and by positioning its portfolio to respond appropriately to a
significant reduction in a credit rating of any investment issuer or guarantor.
The portfolio includes only marketable securities with active secondary or
resale markets to ensure portfolio liquidity.

The table below presents the carrying value and related weighted average
interest rates for the Company's investment portfolio. The carrying value
approximates fair value at September 30, 1999.

<TABLE>
<CAPTION>
Average Rate
of Return at
September 30,
Carrying Value 1999
-------------- -------------
(in thousands) (annualized)
<S> <C> <C>
Marketable securities:
Cash equivalents................................. $12,415 5.3%
Corporate notes and bonds........................ 23,528 4.0%
Municipal notes and bonds........................ 29,297 3.5%
United States government debt securities......... 24,991 5.1%
-------
Total marketable securities.................... $90,231
=======
</TABLE>


22
Item 8. Financial Statements and Supplementary Data

See Item 14 of this Form 10-K for required financial statements and
supplementary data.

Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure

None.

23
PART III

Certain information required by Part III is omitted from this Report on Form
10-K since the Registrant will file its definitive Proxy Statement for its next
Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended (the "Proxy Statement"), not later than 120
days after the end of the fiscal year covered by this Report, and certain
information to be included in the Proxy Statement is incorporated herein by
reference.

Item 10. Directors and Executive Officers of the Registrant

The information required by this item concerning the Company's directors and
executive officers is incorporated by reference to the information set forth in
the sections entitled "Executive Officer Compensation--Executive Officers of
the Company" in the Company's Proxy Statement for the 2000 Annual Meeting of
Stockholders to be filed with the Commission within 120 days after the end of
the Company's fiscal year ended September 30, 1999.

Item 11. Executive Compensation

The information required by this item regarding executive compensation is
incorporated by reference to the information set forth in the sections entitled
"Proposal One--Election of Directors--Director Compensation" and "Executive
Officer Compensation" in the Company's Proxy Statement for the 2000 Annual
Meeting of Stockholders to be filed with the Commission within 120 days after
the end of the Company's fiscal year ended September 30, 1999.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Share Ownership by Principal
Stockholders and Management" in the Company's Proxy Statement for the 2000
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the end of the Company's fiscal year ended September 30, 1999.

Item 13. Certain Relationships and Related Transactions

The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Certain Transactions with Management" in the Company's
Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with
the Commission within 120 days after the end of the Company's fiscal year ended
September 30, 1999.

24
PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) (1) Financial Statements

<TABLE>
<CAPTION>
Page
----
<S> <C>
The following consolidated financial statements of the Registrant and
Report of
PricewaterhouseCoopers LLP, Independent Accountants, are included
herewith:
Report of PricewaterhouseCoopers LLP, Independent Accountants............ 28
Consolidated Balance Sheets as of September 30, 1999 and 1998............ 29
Consolidated Statements of Operations for the years ended September 30,
1999, 1998, and 1997.................................................... 30
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1999, 1998, and 1997...................................... 31
Consolidated Statements of Cash Flows for the years ended September 30,
1999, 1998, and 1997.................................................... 32
Notes to Consolidated Financial Statements............................... 33
Consolidated Supplementary Financial Data................................ 45

(a) (2) Financial Statement Schedules

Schedule II--Valuation and Qualifying Accounts........................... 47
</TABLE>

This financial statement schedule of the Company for each of the years ended
September 30, 1999, 1998 and 1997 is filed as part of this Form 10-K and should
be read in conjunction with the Consolidated Financial Statements, and related
notes thereto, of the Company. All other financial statement schedules have
been omitted because the required information is not present or not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the consolidated financial statements or
notes thereto.

25
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)

(a) (3) Exhibits

<TABLE>
<CAPTION>
Exhibit Number Description of Document
-------------- -----------------------
<S> <C>
3.1(3) Amended and Restated Certificate of Incorporation of Registrant filed May 29, 1997.
3.2 Amended and Restated Bylaws of Registrant dated October 20, 1999.
4.1(1) Form of Registrant's Common Stock Certificate.
4.2(1) Amended and Restated Information and Registration Rights Agreement, dated as of
January 7, 1997, between Registrant and the parties indicated therein.
4.3(1) Form of Preferred Shares Rights Agreement dated April 1, 1997.
4.4(1) Common Stock Purchase Warrant dated January 7, 1997.
10.1(1) Form of Indemnification Agreement entered into by Registrant with each of its
directors and executive officers.
10.2(1) (2) Semiconductor Technology License Agreement, dated as of July 4, 1991, between
Registrant and NEC Corporation.
10.2.1(1) (2) Amendment No. 1 to Semiconductor Technology License Agreement, dated as of
April 28, 1995, between Registrant and NEC Corporation.
10.2.2(1) (2) Supplement No. 1 to Semiconductor Technology License Agreement, dated as of
February 25, 1993, between Registrant and NEC Corporation.
10.2.3(1) (2) Supplement No. 2 to Semiconductor Technology License Agreement, dated as of
July 28, 1994, between Registrant and NEC Corporation.
10.2.4(1) (2) Supplement No. 4 to Semiconductor Technology License Agreement, dated as of
August 31, 1995, between Registrant and NEC Corporation.
10.2.5(1) (2) Supplement No. 5 to Semiconductor Technology License Agreement, dated as of
November 14, 1994, between Registrant and NEC Corporation.
10.2.6(1) (2) Supplement No. 6 to Semiconductor Technology License Agreement, dated as of
December 27, 1994, between Registrant and NEC Corporation.
10.2.7(1) (2) Supplement No. 8 to Semiconductor Technology License Agreement, dated as of
September 27, 1996, between Registrant and NEC Corporation.
10.2.8(1) (2) Supplement No. 9 to Semiconductor Technology License Agreement, dated as of
September 10, 1996, between Registrant and NEC Corporation.
10.2.9(1) (2) Supplement No. 10 to Semiconductor Technology License Agreement, dated as of
February 27, 1997, between Registrant and NEC Corporation.
10.2.10(1) (2) Supplement No. 11 to Semiconductor Technology License Agreement, dated as of
March 4, 1997, between Registrant and NEC Corporation.
10.2.11(3) TRAC Addendum to Supplement No. 11 to Semiconductor Technology License
Agreement, dated as of April 23, 1997, between Registrant and NEC Corporation.
10.2.12(3) Supplement No. 12 to Semiconductor Technology License Agreement, dated as of
September 26, 1997, between Registrant and NEC Corporation.
10.2.13 Supplement No. 13 to Semiconductor Technology License Agreement, dated as of
February 16, 1999, between Registrant and NEC Corporation.
10.4(1) (2) Semiconductor Technology License Agreement, dated as of November 15, 1996,
between Registrant and Intel Corporation.
10.4.1(4) Amendment No. 1 to Semiconductor Technology License Agreement, dated as of
July 10, 1998, between Registrant and Intel Corporation.
</TABLE>



26
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)

(a) (3) Exhibits (Continued)

<TABLE>
<S> <C>
10.5(1) 1990 Stock Plan, as amended, and related forms of agreements.
10.6(1) 1997 Stock Plan and related forms of agreements.
10.7(1) 1997 Employee Stock Purchase Plan and related forms of agreements.
10.8(1) Standard Office Lease, dated as of March 10, 1991, between Registrant and South
Bay/Latham.
10.9(1) Form of Promissory Note between the Registrant and certain executive officers.
10.10 Office Lease, dated as of August 27, 1999, between Registrant and Los Altos--El Camino
Associates, LLC.
10.11 Common Stock Equivalent Agreement, dated as of October 20, 1999, between the Registrant
and Geoff Tate.
10.12 Common Stock Equivalent Agreement, dated as of October 20, 1999, between the
Registrant and David Mooring.
21.1(1) Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
27.1 Financial Data Schedule.
</TABLE>
- --------
(1) Incorporated by reference to Registration Statement No. 333-22885.
(2) Confidential treatment was granted with respect to certain portions of this
exhibit. Omitted portions were filed separately with the Securities and
Exchange Commission.
(3) Incorporated by reference to the Form 10-K filed on December 15, 1997.
(4) Incorporated by reference to the Form 10-K filed on December 9, 1998.

(b) Reports on Form 8-K

No Current Report on Form 8-K was filed in the fourth quarter ended
September 30, 1999.

27
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Rambus Inc. and Subsidiary

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Rambus Inc.
and its subsidiary at September 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

PricewaterhouseCoopers LLP

San Jose, California
October 14, 1999

28
RAMBUS INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
September 30,
--------------------
1999 1998
--------- ---------
(in thousands,
except share and
per share amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 14,982 $ 25,798
Marketable securities.................................. 72,158 53,913
Accounts receivable, less allowance for doubtful
accounts of $10 in 1999 and 1998...................... 1,499 1,913
Prepaid and deferred taxes............................. 7,579 7,829
Prepaids and other current assets...................... 2,260 2,340
--------- ---------
Total current assets.................................. 98,478 91,793
Property and equipment, net.............................. 4,232 3,989
Marketable securities, long-term......................... 5,658 8,357
Restricted cash.......................................... 2,500 --
Deferred taxes, long-term................................ 4,123 4,720
Other assets............................................. 782 2,128
--------- ---------
Total assets.......................................... $ 115,773 $ 110,987
========= =========
LIABILITIES
Current liabilities:
Accounts payable....................................... $ 265 $ 459
Income taxes payable................................... -- 12
Accrued salaries and benefits.......................... 3,090 1,940
Other accrued liabilities.............................. 1,070 1,017
Current portion of:
Capital lease obligations............................. -- 130
Deferred revenue...................................... 32,279 28,617
--------- ---------
Total current liabilities........................... 36,704 32,175
Deferred revenue, less current portion................... 17,505 37,020
--------- ---------
Total liabilities................................... 54,209 69,195
--------- ---------
Commitments and contingencies (Notes 6 and 7)
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value:
Authorized: 5,000,000 shares;
Issued and outstanding: no shares at September 30, 1999
and
September 30, 1998..................................... -- --
Common stock, $.001 par value:
Authorized: 60,000,000 shares;
Issued and outstanding: 23,702,668 shares at September
30, 1999 and 22,925,885 shares at September 30, 1998.. 24 23
Additional paid-in capital............................... 78,574 67,617
Accumulated deficit...................................... (17,005) (25,723)
Accumulated other comprehensive loss..................... (29) (125)
--------- ---------
Total stockholders' equity.......................... 61,564 41,792
--------- ---------
Total liabilities and stockholders' equity........ $ 115,773 $ 110,987
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.

29
RAMBUS INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended
September 30,
-------------------------
1999 1998 1997
------- ------- -------
(in thousands, except
per share amounts)
<S> <C> <C> <C>
Revenues:
Contract revenues.................................. $35,353 $28,727 $20,186
Royalties.......................................... 8,017 9,137 5,829
------- ------- -------
Total revenues................................... 43,370 37,864 26,015
------- ------- -------
Costs and expenses:
Cost of contract revenues.......................... 12,232 8,988 5,491
Research and development........................... 8,123 9,649 9,815
Marketing, general and administrative.............. 13,516 11,260 8,755
------- ------- -------
Total costs and expenses......................... 33,871 29,897 24,061
------- ------- -------
Operating income................................. 9,499 7,967 1,954
Interest and other income, net....................... 4,346 3,413 1,536
Interest expense..................................... (7) (52) (194)
------- ------- -------
Income before income taxes....................... 13,838 11,328 3,296
Provision for income taxes........................... 5,120 4,540 1,315
------- ------- -------
Net income....................................... $ 8,718 $ 6,788 $ 1,981
======= ======= =======
Net income per share--basic.......................... $ 0.37 $ 0.30 $ 0.10
======= ======= =======
Net income per share--assuming dilution.............. $ 0.35 $ 0.28 $ 0.09
======= ======= =======
Number of shares used in per share calculations:
Basic.............................................. 23,332 22,704 19,548
======= ======= =======
Assuming dilution.................................. 25,052 24,376 21,510
======= ======= =======
</TABLE>


See Notes to Consolidated Financial Statements.

30
RAMBUS INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended September 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>
Convertible
Preferred Accumulated
Stock Common Stock Additional Stockholders' Other
--------------- ------------- Paid-In Notes Accumulated Comprehensive
Shares Amount Shares Amount Capital Receivable Deficit Loss Total
------- ------ ------ ------ ---------- ------------- ----------- ------------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30,
1996.................... 11,297 $ 11 5,759 $ 6 $22,330 $ -- $(34,492) $ 1 $(12,144)
Components of
comprehensive income:
Net income............. -- -- -- -- -- -- 1,981 -- 1,981
Foreign currency
translation
adjustments............ -- -- -- -- -- -- -- (36) (36)
--------
Total comprehensive
income................ 1,945
--------
Issuance of common
stock upon initial
public offering, net of
issuance costs of
$3,832................. -- -- 3,163 3 34,114 -- -- -- 34,117
Issuance of common
stock upon exercise of
options................ -- -- 2,092 2 2,564 (1,047) -- -- 1,519
Conversion of preferred
stock to common stock.. (11,297) (11) 11,297 11 -- -- -- -- --
Repayments of
stockholders' notes
receivable............. -- -- -- -- -- 367 -- -- 367
Tax benefit of stock
option exercises....... -- -- -- -- 857 -- -- -- 857
------- ----- ------ --- ------- ------ -------- ----- --------
Balances, September 30,
1997.................... -- -- 22,311 22 59,865 (680) (32,511) (35) 26,661
Components of
comprehensive income:
Net income............. -- -- -- -- -- -- 6,788 -- 6,788
Foreign currency
translation
adjustments............ -- -- -- -- -- -- -- (90) (90)
--------
Total comprehensive
income................ 6,698
--------
Issuance of common
stock upon exercise of
options, net........... -- -- 432 1 1,217 -- -- -- 1,218
Issuance of common
stock under Employee
Stock Purchase Plan.... -- -- 183 -- 1,880 -- -- -- 1,880
Repayments of
stockholders' notes
receivable............. -- -- -- -- -- 680 -- -- 680
Issuance of warrant.... -- -- -- -- 568 -- -- -- 568
Tax benefit of stock
option exercises....... -- -- -- -- 4,087 -- -- -- 4,087
------- ----- ------ --- ------- ------ -------- ----- --------
Balances, September 30,
1998.................... -- -- 22,926 23 67,617 -- (25,723) (125) 41,792
Components of
comprehensive income:
Net income............. -- -- -- -- -- -- 8,718 -- 8,718
Foreign currency
translation
adjustments............ -- -- -- -- -- -- -- 201 201
Unrealized loss on
marketable securities.. -- -- -- -- -- -- -- (105) (105)
--------
Total comprehensive
income................. 8,814
--------
Issuance of common
stock upon exercise of
options, net........... -- -- 590 1 2,822 -- -- -- 2,823
Issuance of common
stock under Employee
Stock Purchase Plan.... -- -- 187 -- 2,032 -- -- -- 2,032
Tax benefit of stock
option exercises....... -- -- -- -- 6,103 -- -- -- 6,103
------- ----- ------ --- ------- ------ -------- ----- --------
Balances, September 30,
1999.................... -- $ -- 23,703 $24 $78,574 $ -- $(17,005) $ (29) $ 61,564
======= ===== ====== === ======= ====== ======== ===== ========
</TABLE>

See Notes to Consolidated Financial Statements.

31
RAMBUS INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1999 1998 1997
----------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 8,718 $ 6,788 $ 1,981
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 3,127 2,835 2,070
Non-cash compensation expense for issuance
of warrant............................... -- 568 --
(Gain) loss on investments and other...... (531) 666 45
Change in operating assets and
liabilities:
Accounts receivable...................... 414 (988) (207)
Prepaid taxes............................ 2,191 1,768 --
Prepaids and other current assets........ 80 (308) (1,160)
Other assets............................. 195 (81) (1,414)
Accounts payable......................... (194) 81 150
Deferred taxes........................... 4,759 (3,253) (5,974)
Income taxes payable..................... (12) (3,280) 4,065
Accrued salaries and benefits............ 1,150 473 1,116
Other accrued liabilities................ 35 (57) 394
Deferred revenue......................... (15,853) 11,098 30,861
----------- --------- ---------
Net cash provided by operating
activities............................. 4,079 16,310 31,927
----------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment......... (3,292) (2,229) (3,854)
Proceeds from sale of property and
equipment................................. -- 6 4
Purchases of marketable securities......... (1,118,281) (313,525) (279,222)
Maturities of marketable securities........ 1,102,630 302,439 235,850
Purchase of investments.................... (1,200) (1,150) --
Sale of investments........................ 2,822 -- --
Increase in restricted cash................ (2,500) -- --
----------- --------- ---------
Net cash used in investing activities... (19,821) (14,459) (47,222)
----------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common
stock..................................... 4,855 3,098 35,636
Repayments of stockholders' notes
receivable................................ -- 680 367
Proceeds from bank loans................... -- -- 794
Principal payments on bank loans........... -- -- (794)
Principal payments on capital lease
obligations............................... (130) (382) (773)
----------- --------- ---------
Net cash provided by financing
activities............................. 4,725 3,396 35,230
----------- --------- ---------
Effect of exchange rates on cash and cash
equivalents................................ 201 (90) (36)
----------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ (10,816) 5,157 19,899
Cash and cash equivalents at beginning of
period..................................... 25,798 20,641 742
----------- --------- ---------
Cash and cash equivalents at end of period.. $ 14,982 $ 25,798 $ 20,641
=========== ========= =========
Supplemental disclosure of cash flow
information:
Interest paid.............................. $ 7 $ 52 $ 194
Taxes paid................................. 408 8,874 4,224
License of technology for common stock..... -- -- 1,200
Issuance of stockholders' notes
receivable................................ -- -- 1,047
Tax benefit of stock option exercises...... 6,103 4,087 857
</TABLE>

See Notes to Consolidated Financial Statements.

32
RAMBUS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Formation and Business of the Company

Rambus Inc. and Subsidiary (the Company) designs, develops, licenses and
markets high-speed chip-to-chip interface technology to enhance the performance
and cost-effectiveness of computers, consumer electronics, and other electronic
systems. The Company licenses semiconductor companies to manufacture and sell
memory and logic ICs incorporating Rambus interface technology and markets its
solution to systems companies to encourage them to design Rambus interface
technology into their products.

The Company was incorporated in California in March 1990 and reincorporated
in Delaware in March 1997.

2. Summary of Significant Accounting Policies

Financial Statement Presentation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Rambus K.K., located in Tokyo,
Japan. All intercompany accounts and transactions have been eliminated in the
accompanying consolidated financial statements. Identifiable assets and
revenues of the subsidiary are not significant. Investments with less than 20%
ownership by the Company are recorded using the cost method.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company has entered into nonexclusive technology agreements with
semiconductor licensees. These agreements provide a license to use the
Company's proprietary technology and to receive engineering implementation
services, customer support, and enhancements.

The Company delivers to a new licensee an implementation package which
contains all information needed to develop a Rambus chip in the licensee's
process. An implementation package includes a specification, a 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
Rambus technology embedded in the customer's product. Many 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 contracts also provide for the right to receive
ongoing customer support which includes technical advice on chip
specifications, enhancements, debugging and testing.

The Company recognizes revenue consistent with American Institute of
Certified Public Accountants (AICPA) Statement of Position No. 97-2 (SOP 97-2),
"Software Revenue Recognition," as amended by Statement of Position 98-4,
"Deferral of the Effective Date of Certain Provisions of SOP 97-2," effective
January 1, 1998. This SOP applies to all entities that earn revenue on products
containing software, where software is not incidental to the product as a
whole. The Company's adoption of SOP 97-2, as amended, in the first quarter of
fiscal 1999 had no material impact on the Company's results of operations.

33
RAMBUS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Contract fees for the services provided under these agreements are comprised
of license fees, engineering service fees and 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. Fiscal 1999
contract revenues include approximately $3.3 million of previously deferred
income due to a change in management's estimate of certain contract revenue
recognition periods. Such periods are initially estimated based on management's
judgment of the time over which the Company has an obligation to support its
licensees. As the new generation of RDRAMs goes into production, a more
accurate estimate of remaining support can be made. To the extent the new
estimated period is less than the original estimate there will be a temporary
increase in the amount of deferred revenue recognized.

At the time the Company begins to recognize revenue under the contract, 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 the Company or
production of chips by the licensee. The remaining fees are due on pre-
determined dates and include significant up-front fees.

The Company recognizes royalties upon notification of sale by its licensees.
The terms of the royalty agreements generally require licensees to give
notification to the Company and to pay royalties within 60 days of the end of
the quarter during which the sales take place.

Research and Development

Costs incurred in research and development are expensed as incurred.
Software development costs are capitalized beginning when a product's
technological feasibility has been established and ending when a product is
available for general release to customers. The Company has not capitalized any
software development costs since such costs have not been significant.

Income Taxes

The Company accounts for income taxes under the liability method whereby
deferred tax asset or liability account balances are calculated at the balance
sheet date using current laws and rates in effect. Research and development
credits are accounted for using the flow-through method.

Computation of Net Income Per Share

Net income per share is calculated in accordance with Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share" (SFAS 128), which
requires the presentation of basic and diluted earnings per share. Basic
earnings per share is calculated using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is calculated
using the weighted average number of common share and common stock equivalents,
if dilutive, outstanding during the period.

Stock-Based Compensation

The Company 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."

34
RAMBUS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As the Company grants stock options with exercise prices equivalent to fair
market value, no compensation cost has been recognized for its stock plans. The
Company provides additional pro forma disclosures as required under Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-
Based Compensation." See Note 7.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments with original or remaining
maturities of three months or less at the date of purchase. Cash equivalents
present risk of changes in value because of interest rate changes. The Company
maintains its cash balances with high quality financial institutions and has
not experienced any material losses.

Marketable Securities

Available-for-sale securities are carried at fair value, based on quoted
market prices, with the unrealized gains or losses, net of tax, reported in
stockholders' equity. The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity, both of which
are included in interest income. Realized gains and losses are recorded on the
specific identification method.

Fair Value of Financial Instruments

The amounts reported for cash equivalents, receivables and other financial
instruments are considered to approximate fair values based upon comparable
market information available at the respective balance sheet dates.

Property and Equipment

Property and equipment are stated at cost and depreciated on a straight-line
basis over estimated useful lives of three to five years. Leasehold
improvements and property under capital leases are amortized on a straight-line
basis over the shorter of their estimated useful lives or the terms of the
leases. Upon disposal, assets and related accumulated depreciation are removed
from the accounts and the related gain or loss is included in results from
operations.

Foreign Currency Translation

The functional currency for the Company's foreign operation in Japan is the
Japanese yen. The translation from the Japanese yen to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using the weighted
average exchange rate during the period. Adjustments resulting from such
translation are included in stockholders' equity and comprehensive loss. Gains
or losses resulting from foreign currency transactions are included in the
results of operations.

Segments

Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, or SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company operates in one disclosable
segment, using one measurement of profitability for its business. The Company
has sales outside the United States, which are described in Note 12. All long-
lived assets are maintained in the United States.

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

35
RAMBUS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

adjustments and unrealized gains and losses on marketable securities. Other
comprehensive loss is presented on the statement of stockholders' equity.

Recent Accounting Pronouncements

In December 1998, AcSEC released Statement of Position 98-9 or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition." SOP 98-9 amends SOP
97-2 to require that an entity recognize revenue for multiple element
arrangements by means of the "residual method" when (1) there is no vendor-
specific objective evidence ("VSOE") of the fair values of all the undelivered
elements that are not accounted for by means of long-term contract accounting,
(2) VSOE of fair value does not exist for one or more of the delivered
elements, and (3) all revenue recognition criteria of SOP 97-2 (other than the
requirement for VSOE of the fair value of each delivered element) are
satisfied. The provisions of SOP 98-9 that extend the deferral of certain
paragraphs of SOP 97-2 became effective December 15, 1998. These paragraphs of
SOP 97-2 and SOP 98-9 will be effective for transactions that are entered into
in fiscal years beginning after March 15, 1999. Retroactive application is
prohibited. The Company is currently evaluating the impact of the requirements
of SOP 98-9 and the effects, if any, on its current revenue recognition
policies.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that
exists. In July 1999, the Financial Accounting Standard Boards issued SFAS No.
137, or SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133." SFAS 137 deferred
the effective date of SFAS 133 until the first fiscal quarter beginning after
June 15, 2000. The Company does not currently hold derivative instruments or
engage in hedging activities. The Company is continuing to evaluate the impact
of the requirements of SFAS 133 and SFAS 137 will have on its financial
statements and related disclosures.

3. Business Risks and Credit Concentration

The Company operates in the intensely competitive semiconductor industry,
which has been characterized by price erosion, rapid technological change,
short product life cycles, cyclical market patterns and heightened foreign and
domestic competition. Significant technological changes in the industry could
adversely affect operating results.

The Company markets and sells its technology to a narrow base of customers
and generally does not require collateral. At September 30, 1999, two customers
accounted for 67% and 17% of accounts receivable. At September 30, 1998, three
customers accounted for 26%, 16% and 10% of accounts receivable.

As of September 30, 1999 and 1998, the Company's cash and cash equivalents
are deposited with principally one financial institution in the form of
commercial paper, money market accounts, and demand deposits.

Financial instruments that potentially subject the Company to concentrations
of credit risk comprise principally cash and cash equivalents, available-for-
sale securities and trade accounts receivable. The Company invests its excess
cash primarily in U.S. government agency and treasury notes; corporate paper,
notes, bonds and preferred stock; and municipal notes and bonds that mature
within eighteen months.

36
RAMBUS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


4. Marketable Securities

All marketable securities are classified as available-for-sale and are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
September 30,
---------------
1999 1998
------- -------
<S> <C> <C>
Corporate notes and bonds................................ $23,528 $20,523
Municipal notes and bonds................................ 29,297 18,879
United States government debt securities................. 24,991 16,989
Foreign debt securities.................................. -- 4,879
Certificates of deposit and commercial paper............. -- 1,000
------- -------
$77,816 $62,270
======= =======
</TABLE>

Available-for-sale securities are carried at fair value. Gross unrealized
gains of approximately $13,000 are netted against gross unrealized losses of
approximately $118,000, net of tax, and are included as a component of
stockholders' equity and comprehensive income. Realized gains and losses,
declines in value judged to be other than temporary, and interest on
available-for-sale securities are included in interest income. All marketable
securities classified as current have scheduled maturities of less than one
year.

5. Property and Equipment, Net

Property and equipment, net is comprised of the following (in thousands):

<TABLE>
<CAPTION>
September 30,
-----------------
1999 1998
-------- -------
<S> <C> <C>
Computer equipment..................................... $ 7,828 $ 6,762
Computer software...................................... 5,543 4,895
Furniture and fixtures................................. 1,423 1,170
Leasehold improvements................................. 589 429
-------- -------
15,383 13,256
Less accumulated depreciation and amortization......... (11,151) (9,267)
-------- -------
$ 4,232 $ 3,989
======== =======
</TABLE>

Depreciation and amortization expense was approximately $2,985,000,
$2,550,000 and $1,857,000 in the years ended September 30, 1999, 1998 and
1997.

Property and equipment under capital leases included above is comprised of
(in thousands):

<TABLE>
<CAPTION>
September 30,
-------------
1999 1998
------ ------
<S> <C> <C>
Computer equipment......................................... $ -- $ 296
Furniture and fixtures..................................... -- 248
------ ------
-- 544
Less accumulated amortization.............................. -- (495)
------ ------
$ -- $ 49
====== ======
</TABLE>


37
RAMBUS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Lease Commitments

The Company leases its present office facilities in Mountain View,
California, under operating lease agreements that expire through February 2005.
The Company is responsible for taxes, insurance and utilities related to the
leased facilities.

The Company has entered into an agreement to lease approximately 96,000
square feet of office space in a building currently under construction in Los
Altos, California. The Company plans to relocate its headquarters to the new
site upon completion in late calendar 2000. The lease has an initial term of
ten years with options to renew for an additional ten years, subject to certain
conditions. Rent obligations for the building commence upon occupancy or
substantial completion of construction, whichever occurs first. As part of this
lease transaction, the Company provided the lessor with a letter of credit
restricting $2.5 million of its cash as collateral for certain of the Company's
obligations under the lease. The cash is restricted as to withdrawal and is
managed by a third party subject to certain limitations under the Company's
investment policy. The letter of credit is subject to reduction to $1.2 million
on the first anniversary of rent commencement and to $0.6 million on the second
anniversary.

As of September 30, 1999, aggregate future minimum payments under the leases
are (in thousands):

<TABLE>
<S> <C>
Fiscal Year:
2000............................................................ $ 1,034
2001............................................................ 3,698
2002............................................................ 4,682
2003............................................................ 4,822
2004............................................................ 4,960
Thereafter...................................................... 29,472
-------
Total minimum lease payments................................... $48,668
=======
</TABLE>

Rent expense was approximately $1,503,000, $1,309,000, and $987,000 for the
years ended September 30, 1999, 1998 and 1997, respectively.

7. Stockholders' Equity

Preferred and Common Stock

In February 1997, the Company established a Stockholder Rights Plan pursuant
to which each holder of the Company's common stock shall receive a right to
purchase one-thousandth of a share of Series E Preferred Stock for $125 per
right, subject to a number of conditions. Such rights are subject to adjustment
in the event of a takeover or commencement of a tender offer not approved by
the Board of Directors.

In May 1997, all of the then outstanding preferred shares were automatically
converted to common stock concurrent with the closing of the initial public
offering.

As of September 30, 1999 and 1998, the total shares held by employees that
were subject to repurchase was 210,486 and 390,509, respectively.

Stock Option Plans

In March 1990, the Company adopted the 1990 Stock Plan under which 2,657,143
shares of common stock were reserved for issuance. Incentive stock options may
be granted with exercise prices of no less than fair market value, and
nonqualified stock options may be granted with exercise prices of no less than
85% of the fair market value of the common stock on the grant date, as
determined by the Board of Directors. The

38
RAMBUS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

options generally vest over a four-year period but may be exercised immediately
subject to repurchase by the Company for those options that are not vested.


In May 1997, the 1990 Stock Plan was terminated and the 1997 Stock Plan was
adopted. The 1997 Stock Plan authorizes the issuance of incentive stock options
and nonstatutory stock options to employees and nonstatutory stock options to
directors, employees or paid consultants of the Company. The Company has
reserved 1,000,000 shares of common stock for issuance under the plan. The plan
expires ten years after adoption, and the Board of Directors or a committee
designated by the Board of Directors has the authority to determine to whom
options will be granted, the number of shares, the vesting period and the
exercise price (which generally cannot be less than 100% of the fair market
value at the date of grant for incentive stock options). The options are
exercisable at times and in increments as specified by the Board of Directors,
and expire not more than ten years from date of grant.

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

<TABLE>
<CAPTION>
Options Outstanding
----------------------------
Options Number Weighted
Available of Average Exercise
for Grant Shares Price Per Share
---------- ---------- ----------------
<S> <C> <C> <C>
Outstanding at September 30, 1996..... 1,065,452 3,105,450 $ 1.00
Shares reserved....................... 1,000,000 -- --
Options granted....................... (1,411,350) 1,411,350 $14.37
Options exercised..................... -- (2,092,428) $ 1.22
Options canceled...................... 20,000 (20,000) $ 8.00
---------- ----------
Outstanding at September 30, 1997..... 674,102 2,404,372 $ 8.55
Shares reserved....................... 440,000 -- --
Shares repurchased.................... 2,837 -- --
Options terminated under 1990 Plan.... (182,425) -- --
Options granted....................... (1,125,900) 1,125,900 $47.98
Options exercised..................... -- (435,202) $ 2.81
Options canceled...................... 333,586 (333,586) $45.72
---------- ----------
Outstanding at September 30, 1998..... 142,200 2,761,484 $21.10
Shares reserved....................... 857,800 -- --
Shares repurchased.................... 7,000 -- --
Options terminated under 1990 Plan.... (51,950) -- --
Options granted....................... (1,170,600) 1,170,600 $58.99
Options exercised..................... -- (596,605) $ 4.76
Options canceled...................... 273,888 (273,888) $43.96
---------- ----------
Outstanding at September 30, 1999..... 58,338 3,061,591 $36.75
========== ==========
</TABLE>

39
RAMBUS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


The following table summarizes information about outstanding and exercisable
options as of September 30, 1999:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Life Exercise Price Exercisable Exercise Price
Prices ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.25--
$ 5.00 629,388 6.26 $ 3.14 629,388 $3.14
$ 7.00--
$42.75 656,183 7.83 19.67 260,130 10.87
$42.88--
$53.00 613,020 8.58 49.21 24,574 47.03
$53.25--
$59.31 933,700 9.28 57.20 17,725 55.59
$59.75--
$63.13 229,300 9.31 61.24 14,418 61.17
--------- -------
3,061,591 8.21 $36.75 946,235 $8.27
========= =======
</TABLE>

As of September 30, 1999, a total of 3,119,929 shares of common stock were
reserved for issuance under all stock option plans. As of September 30, 1999,
1998 and 1997, options for the purchase of 490,191, 476,266 and 1,964,372
shares, respectively, were exercisable without being subject to repurchase by
the Company.

Employee Stock Purchase Plan

In May 1997, the Company adopted the 1997 Employee Stock Purchase Plan (the
"Purchase Plan") and reserved 400,000 shares of common stock for issuance under
the Purchase Plan. The Purchase Plan authorizes the granting of stock purchase
rights to eligible employees during two-year offering periods with exercise
dates approximately every six months. Shares are purchased through employee
payroll deductions at purchase prices equal to 85% of the lesser of the fair
market value of the Company's common stock at either the first day of each
offering period or the date of purchase. In fiscal 1999 and 1998, the Company
issued 187,178 and 183,021 shares, respectively, under the Purchase Plan at an
average price per share of $10.86 and $10.27, respectively.

Stock-Based Compensation

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its stock plans. As the Company grants stock options with exercise prices
equivalent to fair market value, no compensation expense has been recognized
for its stock-based compensation plans. If the Company had recognized
compensation expense based upon the fair value of stock option awards,
including shares issued under the Purchase Plan (collectively called
"options"), at the grant date consistent with the methodology prescribed under
SFAS 123, "Accounting for Stock-Based Compensation," the Company's net income
and net income per share would have changed to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
Year Ended September
30,
--------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net income as reported.................................... $8,718 $6,788 $1,981
Net income pro forma...................................... $5,413 $5,299 $1,386
Net income per share as reported.......................... $ 0.37 $ 0.30 $ 0.10
Net income per share pro forma............................ $ 0.23 $ 0.23 $ 0.07
Net income per share--assuming dilution as reported....... $ 0.35 $ 0.28 $ 0.09
Net income per share--assuming dilution pro forma......... $ 0.22 $ 0.22 $ 0.06
</TABLE>

40
RAMBUS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.

The fair value of the options is estimated as of the grant date using the
Black-Scholes option-pricing model assuming a dividend yield of 0% and the
following additional weighted-average assumptions:

<TABLE>
<CAPTION>
Stock Option Plans Stock Purchase Plan
----------------------------- -------------------
1999 1998 1997 1999 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Expected stock price
volatility................. 82% 82% 71% 82% 82%
Risk-free interest rate..... 5.0% 5.1% 6.2% 4.7% 5.2%
Expected life of options 4.1 years 4.4 years 4.5 years 0.5 years 0.5 years
</TABLE>

The weighted-average fair value of stock options granted during the years
ended September 30, 1999, 1998 and 1997 is $37.42, $31.28, and $8.79,
respectively. The weighted-average fair value of purchase rights granted under
the Purchase Plan during the years ended September 30, 1999, 1998 and 1997 is
$10.70, $4.65 and $4.53, respectively. Fair value is calculated using the
Black-Scholes option valuation model.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's options have characteristics significantly different from
those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in the opinion of
management, the existing models do not necessarily provide a reliable single
measure of the fair value of its options.

The effects of applying SFAS 123 on the pro forma disclosures for the years
ended September 30, 1999, 1998 and 1997 are not likely to be representative of
the effects on pro forma disclosures in future years. Because SFAS No. 123 is
applicable only to options granted by the Company subsequent to October 1, 1995
the pro forma effect will not be fully reflected until 2001.

Warrants

In November 1996, the Company entered into an agreement with Intel
Corporation for the development of high-speed semiconductor memory interface
technology. In January 1997, as part of this agreement, the Company issued a
warrant to purchase 1,000,000 shares of common stock of the Company at a
purchase price of $10.00 per share. This warrant will become exercisable only
upon the achievement of certain specified performance milestones relating to
shipment volumes of Rambus-based chipsets. At the time that the achievement of
the milestones becomes probable, a charge will be made to the statement of
operations based on the fair value of the warrant.

In June 1998, the Company issued a warrant to purchase 25,000 shares of
common stock of the Company at a price of $36.64 per share to LG Semicon. This
warrant, issued as part of a DRAM incentive program among the Company's
licensees, was immediately exercisable and expires seven years from date of
issue. The fair value of this warrant, calculated using the Black-Scholes
option pricing model, was charged to expense in the Company's consolidated
statements of operations for the year ended September 30, 1998.

In October 1998, the Company's Board of Directors authorized an incentive
program in the form of warrants for a total of up to 400,000 shares of Rambus
common stock to be issued to various Rambus DRAM partners upon the achievement
of certain product qualification and volume production targets associated with
the introduction of the newest generation of Rambus technology.

41
RAMBUS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


These warrants, to be issued at the time the targets are met, have an
exercise price of $10 per share and a life of five years. They vest and become
exercisable on the same basis as the Intel warrant, which will result in a
charge to the statement of operations based on the fair value of these warrants
at the time the achievement of the Intel milestones becomes probable. As of
September 30, 1999 a total of 30,000 of these warrants have been issued.

8. Employee Benefit Plans

The Company has a 401(k) Profit Sharing Plan (the "Plan") qualified under
Section 401(k) of the Internal Revenue Code of 1986. Each eligible employee may
elect to contribute up to 20% of the employee's annual compensation to the
Plan. The Company, at the discretion of its Board of Directors, may match
employee contributions to the Plan but has not done so for the years ended
September 30, 1999, 1998 and 1997.

9. Income Taxes

The provision for income taxes comprises (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Foreign withholding tax:
Current...................................... $ 369 $ 1,225 $ 1,498
Federal:
Current...................................... (8) 3,941 4,335
Deferred..................................... 4,115 (2,830) (5,999)
State:
Current...................................... -- 2,627 2,458
Deferred..................................... 644 (423) (977)
-------- -------- --------
$5,120 $ 4,540 $ 1,315
======== ======== ========
</TABLE>

The Company's effective tax rate on pretax income differs from the U.S.
federal statutory regular tax rate as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expense at U.S. federal statutory rate........... 35.0% 35.0% 34.0%
Expense at state statutory rate.................. 5.7 5.7 5.7
Nondeductible amortization....................... 0.4 1.0 2.7
R&D credit....................................... (9.7) (6.2) (15.1)
Change in valuation allowance.................... 10.8 12.6 12.7
FSC benefit...................................... -- (8.4) --
Other............................................ (5.2) 0.3 --
------- ------- --------
37.0% 40.0% 40.0%
======= ======= ========
</TABLE>

42
RAMBUS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


The components of the net deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
----------------
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Deferred revenue......................................... $20,198 $26,416
Depreciation and amortization expense.................... 1,083 1,081
Other liabilities and reserves........................... 1,006 654
Net operating loss carryover............................. 2,701 --
Tax credits.............................................. 1,974 --
------- -------
Total deferred tax asset............................... 26,962 28,151
Deferred tax liability:
Deferred royalty cost.................................... -- (4)
Valuation allowance........................................ (21,491) (17,918)
------- -------
Deferred tax assets, net............................... $ 5,471 $10,229
======= =======
</TABLE>

The Company has established a partial valuation allowance against its
deferred tax assets due to the uncertainty surrounding the realization of such
assets. Management periodically evaluates the recoverability of the deferred
tax assets and recognizes the tax benefit only as reassessment demonstrates
they are realizable. At such time, if it is determined that it is more likely
than not that the deferred tax assets are realizable, the valuation allowance
will be reduced.

The Company has net operating loss carryforwards of $6.5 million and $7.9
million for federal and state tax purposes, respectively. In addition, the
Company has federal and state research and experimentation tax credit
carryforwards of $0.8 million. The net operating loss carryforwards and tax
credits expire between 2004 and 2019.

10. Net Income Per Share

Net income per share is calculated as follows (in thousands, except per
share data):

<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income....................................... $ 8,718 $ 6,788 $ 1,981
======== ======== ========
Weighted average common shares outstanding....... 23,332 22,704 19,548
Additional dilutive common stock equivalents..... 1,720 1,672 1,672
-------- -------- --------
Diluted shares outstanding....................... 25,052 24,376 21,510
======== ======== ========
Net income per share--basic...................... $ 0.37 $ 0.30 $ 0.10
======== ======== ========
Net income per share--diluted.................... $ 0.35 $ 0.28 $ 0.09
======== ======== ========
</TABLE>

11. Related Party Transactions

Chromatic Research Inc. In February 1994, the Company licensed its interface
technology to Chromatic Research, Inc. ("Chromatic"), an entity in which the
Company held a minority interest and had members of the board of directors in
common. Under the terms of the license, Rambus received 626,053 shares of
Chromatic Series B Preferred Stock (representing 5% of the then outstanding
shares of Chromatic) and continuing royalties. The initial valuation of the
Chromatic stock, approximately $626,000, has been fully

43
RAMBUS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

written down by the Company. Revenue recognized as license fees under this
agreement was $70,000, $119,000 and $119,000 in the years ended September 30,
1999, 1998 and 1997, respectively. As of September 30, 1999 and 1998, the
remaining balance of license fees of approximately $10,000 and $81,000,
respectively, is included in deferred revenue.

In December 1997, the Company made a cash investment in Chromatic of
$1,000,000 and received 142,857 shares of Series I Preferred Stock.

In fiscal 1999, Chromatic was acquired and the Company received
approximately $782,000 in exchange for its Chromatic shares. The remaining book
value of the Chromatic investment of approximately $218,000 was written off
against previously established reserves.

12. Business Segments, Exports and Major Customers

The Company operates in a single industry segment.

Three customers accounted for 11%, 11% and 10% of revenues in the year ended
September 30, 1999. One customer accounted for 22% of revenues in the year
ended September 30, 1998. Two customers accounted for 29% and 10% of revenues
in the year ended September 30, 1997.

The Company sells its technology to customers in the Far East, North
America, and Europe. The net income and loss for all periods presented are
derived primarily from the Company's North American operations, which generates
revenues from the following geographic regions (in thousands):

<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
United States....................................... $ 17,404 $10,218 $ 5,076
Japan............................................... 14,010 18,556 15,118
Korea............................................... 4,908 6,663 5,520
Taiwan.............................................. 4,461 618 --
Europe.............................................. 2,587 1,809 301
-------- ------- -------
$ 43,370 $37,864 $26,015
======== ======= =======
</TABLE>


44
RAMBUS INC. AND SUBSIDIARY

CONSOLIDATED SUPPLEMENTARY FINANCIAL DATA

<TABLE>
<CAPTION>
Fiscal years by quarter
-----------------------------------------------------------
1999 1998
------------------------------- ---------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
------- ------- ------- ------- ------ ------ ------ ------
(in thousands, except per share amounts)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Contract revenues..... $10,630 $ 8,830 $ 7,945 $ 7,948 $7,394 $7,535 $7,122 $6,676
Royalties............. 1,675 1,802 1,914 2,626 2,269 1,625 2,529 2,714
------- ------- ------- ------- ------ ------ ------ ------
Total revenues....... 12,305 10,632 9,859 10,574 9,663 9,160 9,651 9,390
------- ------- ------- ------- ------ ------ ------ ------
Costs and expenses:
Cost of contract
revenues............. 3,701 3,944 2,485 2,102 2,549 2,490 2,308 1,641
Research and
development.......... 1,425 1,111 2,498 3,089 2,497 2,183 2,163 2,806
Marketing, general and
administrative....... 3,733 3,520 3,293 2,970 2,802 2,687 2,948 2,823
------- ------- ------- ------- ------ ------ ------ ------
Total costs and
expenses............ 8,859 8,575 8,276 8,161 7,848 7,360 7,419 7,270
Operating income........ 3,446 2,057 1,583 2,413 1,815 1,800 2,232 2,120
Interest and other
income, net............ 770 900 1,657 1,012 1,117 1,018 755 471
------- ------- ------- ------- ------ ------ ------ ------
Income before income
taxes.................. 4,216 2,957 3,240 3,425 2,932 2,818 2,987 2,591
Provision for income
taxes.................. 1,563 956 1,231 1,370 1,186 1,123 1,195 1,036
------- ------- ------- ------- ------ ------ ------ ------
Net income.............. $ 2,653 $ 2,001 $ 2,009 $ 2,055 $1,746 $1,695 $1,792 $1,555
======= ======= ======= ======= ====== ====== ====== ======
Net income per share--
diluted................ $ 0.10 $ 0.08 $ 0.08 $ 0.08 $ 0.07 $ 0.07 $ 0.07 $ 0.06
======= ======= ======= ======= ====== ====== ====== ======
Shares used in per share
calculations........... 25,291 25,038 24,980 24,874 24,536 24,360 24,316 24,310
Stock prices:
High.................. $115.25 $100.63 $109.50 $102.88 $66.25 $61.50 $54.81 $61.25
Low................... $ 59.06 $ 55.00 $ 61.25 $ 50.75 $47.75 $35.75 $38.69 $40.06
</TABLE>

45
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of
Rambus Inc. and Subsidiary

Our audits of the consolidated financial statements referred to in our
report dated October 14, 1999 which appears in this Annual Report on Form 10-K
of Rambus Inc. and Subsidiary also included an audit of the Financial Statement
Schedule listed in Item 14(a) of this Form 10-K. In our opinion, the Financial
Statement Schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.

PricewaterhouseCoopers LLP

San Jose, California
October 14, 1999

46
RAMBUS INC. AND SUBSIDIARY

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

Valuation allowance for doubtful accounts

<TABLE>
<CAPTION>
Additions
Balance at charged to Charged to
beginning costs and other Balance at
For the year ended: of period expenses accounts Deductions end of period
- ------------------- ---------- ---------- ---------- ---------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
September 30, 1997... $ 8 $ 2 -- -- $10
September 30, 1998... $10 -- -- -- $10
September 30, 1999... $10 -- -- -- $10
</TABLE>

Valuation allowance for deferred tax asset

<TABLE>
<CAPTION>
Additions
Balance at charged to Charged to
beginning costs and other Balance at
For the year ended: of period expenses accounts Deductions end of period
- ------------------- ---------- ---------- ---------- ---------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
September 30, 1997... $16,071 $ 418 -- -- $16,489
September 30, 1998... $16,489 $1,429 -- -- $17,918
September 30, 1999... $17,918 $3,573 -- -- $21,491
</TABLE>

47
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

Rambus Inc.

Date: December 22, 1999
By: /s/ Gary Harmon
---------------------------------
Gary Harmon,
Sr. Vice President, Finance,
Chief Financial Officer and
Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Geoff Tate
- -------------------------------------- Chief Executive Officer December 22, 1999
Geoff Tate and Director (Principal
Executive Officer)

/s/ David Mooring
- -------------------------------------- President and Director December 22, 1999
David Mooring

/s/ Gary Harmon
- -------------------------------------- Sr. Vice President, December 22, 1999
Gary Harmon Finance, Chief Financial
Officer and Secretary
(Principal Financial and
Accounting Officer)

/s/ William Davidow
- -------------------------------------- Chairman of the Board of December 22, 1999
William Davidow Directors

/s/ Bruce Dunlevie
- -------------------------------------- Director December 22, 1999
Bruce Dunlevie

/s/ P. Michael Farmwald
- -------------------------------------- Director December 22, 1999
P. Michael Farmwald

/s/ Charles Geschke
- -------------------------------------- Director December 22, 1999
Charles Geschke

/s/ Mark Horowitz
- -------------------------------------- Director December 22, 1999
Mark Horowitz
</TABLE>

48