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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, 2001



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)



Delaware                               94-3112828

(State or other jurisdiction of                (I.R.S. Employer

incorporation or organization)                Identification No.)



4440 El Camino Real, Los Altos, CA 94022

(Address of principal executive offices) (zip code)



Registrant's telephone number, including area code:

(650) 947-5000



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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)



Preferred Share Purchase Rights

(Title of Class)



Indicate by check mark whether 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. [_]



Aggregate market value of the Registrant's Common Stock held by

non-affiliates of the Registrant as of October 31, 2001 was approximately

$685.6 million based upon the closing price reported for such date on the

Nasdaq Stock 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 100,530,502 as of October 31, 2001.



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 report contains forward-looking statements. These 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. These forward-looking statements include the

following predictions regarding the Company's future:



.  the ability of licensees to implement Rambus(R) technology with decreased

assistance from Rambus;



.  the manufacture of RDRAM(R) memory devices in a manner and at a

sufficiently competitive price with SDRAM to allow for the development of

a mass market for RDRAM memory devices and controllers;



.  the ability of the Company to advance its chip-connection technology in

order to meet changing market needs;



.  the Company's development of next-generation chip interfaces and other

proprietary technology;



.  the Company's ability to continue to invest substantial funds in research

and development activities;



.  the success of the Company being dependent upon royalties increasing at a

rate which more than offsets decreases in the recognition of revenue under

existing contracts;



.  the Company's competition from its licensees and prospective licensees;



.  the source and concentration of the Company's revenue, and the Company's

ability to collect this revenue;



.  the Company's vigorous protection and defense of its patents and

successful litigation results relating thereto;



.  the possibility that the Company's licensees or prospective licensees may

adopt and promote alternate technologies such as DDR-2, ADT and embedded

DRAM; and



.  the Company's intention to develop and maintain a uniform RDRAM(R) memory

interface standard.



You can identify these and other forward-looking statements by the use of

words such as "may," "will," "should," "expects," "plans," "anticipates,"

"believes," "estimates," "predicts," "intends," "potential," "continue," or the

negative of such terms, or other comparable terminology. Forward-looking

statements also include the assumptions underlying or relating to any of the

foregoing statements.



Actual results could differ materially from those anticipated in these

forward-looking statements as a result of various factors, including those set

forth under "Risk Factors." All forward-looking statements included in this

document are based on information available to Rambus on the date hereof.

Rambus assumes no obligation to update any forward-looking statements.



Item 1. Business



Rambus Inc. ("Rambus" or the "Company") designs, develops, licenses and

markets high-speed chip-connection technologies to enhance the performance and

cost-effectiveness of computers, consumer electronics, communications systems

and networking products. Rambus has multiple chip-connection technologies.

Rambus technology is used in Dynamic Random Access Memory ("DRAM") devices and

memory controller ICs which connect to DRAM devices. The Rambus DRAM memory

device ("RDRAM") and memory controller ICs which connect to the RDRAM memory

device use Rambus technology and comply to a system specification designed,

developed and issued by the Company. The Company's patents and intellectual

property are also used in SDRAM-compatible memory devices and DDR-compatible

memory devices. The Company's RaSer/TM/ serial link technology enables

semiconductor companies to use familiar, widely available design tools and

conventional techniques in integrating the RaSer serial link application

specification integrated circuit (ASIC) cells into their logic designs for use

in high speed communications and networking applications. Rambus' newest

chip-connection technology, Yellowstone, with high-speed data transfer rates,

enables solutions satisfying various high-bandwidth market requirements.



1

Rambus licenses semiconductor and systems companies to manufacture and sell

memory, memory controllers and other semiconductors incorporating Rambus

chip-connection technology, and markets its solutions to systems companies to

encourage them to design the Rambus technology into their products. The

Company's chip-connection technology increases the data transfer rate, or

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.



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 integrated circuit (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 was the rate at which data could move from one chip to

another.



Since 1980, the typical operating frequency of mainstream microprocessors

increased from 5 MHz (million cycles per second) to 2 GHz (billion cycles per

second). For several years, the typical operating frequency of a standard DRAM

did not keep pace with the microprocessor frequencies. The initial application

of Rambus technology was to ensure that the chip connection to memory did not

limit overall system performance.



While microprocessors underwent both manufacturing and architectural

improvements, significant innovations for DRAM generally only occurred in the

manufacturing area. DRAM manufacturers were successful in increasing DRAM

"density," or storage capacity, from roughly 1 Kbit (thousand bits) to 256

Mbits (million bits) per chip for standard production devices, thereby reducing

the number of DRAM devices 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 did not occur.



Rambus Technology



Rambus initially created a chip-connection architecture, which increased

transfer rates by transferring data through a simplified bus at significantly

higher frequencies than permitted by conventional technologies. The Company has

made ongoing innovations in high-speed chip connections since its founding.



The RDRAM memory interface chip-connection technology allows data transfers

of up to 1.6 gigabytes per second between memory controllers and RDRAM memory

devices by transferring data at a frequency of 800 MHz over a two-byte wide

bus. System performance can be further enhanced by increasing the number of

RDRAM memory interface channels on a memory controller IC. For example, a

memory controller IC incorporating Rambus technology can utilize four channels

to achieve data transfer rates of up to 6.4 gigabytes per second. In 2001,

Rambus and its partners announced an evolutionary roadmap for RDRAM memory

devices that will allow data to transfer up to 9.6 gigabytes per second for a

single memory module within the next few years. This increase in performance is

accomplished by increasing the speed of the RDRAM memory devices to 1200 MHz

and the width of the memory modules to 64 bits (8 bytes) in evolutionary steps.



The Company recently announced its newest chip connection technology.

Yellowstone was announced with data transfer rates of 3.2 GHz with plans to go

to 6.4 GHz. Yellowstone achieves this speed by transferring 8 bits per clock

cycle using Octal Data Rate (ODR) technology, and by using very low voltage

bi-directional signaling. Yellowstone's flexible architecture enables

customized memory solutions to satisfy various market needs over the next

decade, such as consumer, graphics, personal computer (PC) desktop,

workstation, server and mobile applications.



Rambus technology can be used to address a wide variety of chip-connection

data transfer requirements. The Company has announced its first non

memory-based technology, a serial link cell called the RaSer cell.



2

Existing RaSer serial links provide a 1.25 and 3.2 gigabit per second data

connection for use in high-speed chip connections. Typical applications for

this technology are backplanes in high-speed network routers and switches,

Serial Advanced Technology Attachment (ATA), Infiniband, Fibre Channel and 3GIO

products. The Company recently announced plans to develop RaSer serial links

that operate at 5 and 10 gigabits per second.



Target Markets and Applications



To date, the major markets for the Company's technology have been in the

consumer, computer and communications segments. In the consumer area, the

principal application has been for home video game consoles. An earlier

generation of the RDRAM memory interface technology is in the Nintendo64 video

game console, and current RDRAM technology is used in the newest version of the

Sony video game system known as PlayStation 2. Other consumer applications for

the Company's technology include digital televisions and set-top boxes.



In the computer market, RDRAM memory interface technology is used to provide

a high memory bandwidth connection to Intel Pentium IV processors. The

connections are provided via RDRAM memory controllers, which are a portion of

chipsets developed by Intel. One of these chipsets, designed for use in the PC

workstation market, has become the preferred chipset for performance desktop

PCs, and RDRAM technology is now fully established in this segment. RDRAM

technology has not yet penetrated the main PC market to the same extent as in

the PC workstation market because RDRAM memory device prices remain higher than

standard memory, and price remains more important than performance in the main

PC market.



Communications products are another important application for Rambus memory

interface and RaSer serial link technologies. RDRAM and RaSer technologies have

been specified in several network switch and router products. In addition RaSer

technology is valuable in a wide range of applications including Fibre Channel,

Serial ATA, Infiniband and 3GIO products.



Rambus Business Model and Strategy



In order to establish Rambus chip-connection 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 products that

incorporate Rambus technology. The Company offers several types of licenses.

For technology which is fully compatible with the RDRAM standard ("RDRAM

licenses"), Rambus licenses semiconductor manufacturers to manufacture and sell

RDRAM memory devices and logic ICs containing RDRAM ASIC cells ("RDRAM

controllers") to systems companies that have adopted RDRAM technology. Systems

companies are not required to obtain an RDRAM license to incorporate RDRAM

memory devices and controllers 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.



In the case of RDRAM licenses, the Rambus business model and strategy are

designed to:



.  promote RDRAM technology as an industry standard;



.  work with leading systems companies in the highest potential markets;



.  provide systems companies with multiple sources for RDRAM devices;



.  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.



3

Rambus also licenses companies to use Rambus patents in synchronous DRAM

("SDRAM") and double data-rate ("DDR") memory devices and logic ICs which

control such memory. In the case of these "SDRAM-compatible licenses" and

"DDR-compatible licenses," the Rambus business model and strategy are designed

to recover the return on investment in R&D and patents through the generation

of license fees and royalties.



The final area in which Rambus is licensing technology is for the RaSer

serial link cells. This new area has resulted in licensees building networking,

Serial ATA, Infiniband and Fibre Channel products.



Rambus provides licenses to both DRAM manufacturers and logic IC

manufacturers. Royalties, which are generally a percentage of the revenues

received by licensees on their sales of licensed ICs, are normally payable by a

Rambus licensee on sales occurring during the life of the Rambus patents being

licensed in the case of RDRAM licenses, and over a five-year contract life in

the case of SDRAM-compatible and DDR-compatible licenses. For a typical systems

application using Rambus technology, the Company receives royalties from the

sale of both licensed logic ICs and DRAM as they are shipped by Rambus

licensees. Royalty rates range up to a maximum of approximately 2.5% for RDRAM

memory devices and a maximum of approximately 5% for associated RDRAM logic

ICs, and in some cases may decline based on the passage of time or on the total

volume of RDRAM memory interface ICs shipped. In the case of SDRAM-compatible

and DDR-compatible licenses, the royalty rates for SDRAM and associated

controllers are generally less than the comparable RDRAM royalty rates, and for

DDR and associated controllers the rates are generally higher. The exact rate

and structure of a royalty arrangement with a particular licensee depends on a

number of factors, including the amount of the license fee to be paid by the

licensee and, in the case of RDRAM licenses, the marketing and engineering

commitment made by the licensee. In the case of one license with Intel,

royalties are a fixed amount per quarter for a period of five years, which

grants Intel access to the complete Rambus patent portfolio. There is also one

DRAM company that has a fixed royalty payment per quarter until there is a

final resolution of pending litigation.



For the RaSer serial link business, royalties are generally calculated on

the volume of links produced by the licensees. The exact rate and structure of

Rambus RaSer licenses vary based on a number of factors including volume and

required customization.



Design and Manufacturing



RDRAM technology has been developed to allow semiconductor companies to use

familiar, widely available design tools and conventional techniques when

designing their RDRAM chips. A new RDRAM licensee receives an implementation

package from the Company which contains the information needed to develop a

RDRAM memory interface in the IC licensee's manufacturing process. There are

separate implementation packages for RDRAM memory devices and for Rambus ASIC

cells (RACs). An implementation package includes a specification, a generalized

circuit layout database for the particular version of the RDRAM memory device

or RAC which the licensee intends to develop, test parameter software and, for

RDRAM memory devices, a DRAM core interface specification. Many RDRAM 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 memory devices

or RAC circuits into the licensee's process. However, Rambus anticipates that

as licensees become more familiar with the RDRAM technology, they will be able

to do more of the implementation work without Rambus' assistance.



Rambus has developed its RDRAM technology to be manufacturable using

familiar, industry-standard CMOS semiconductor processes. For this reason the

Company believes that the wafer fabrication yields of RDRAM memory devices and

logic products containing RACs in mass-production volumes are consistent with

those for similar products in the same manufacturing facility and in the same

stage of production ramp. However, because of the extra Rambus interface

circuitry and other features, an RDRAM chip is somewhat larger than a



4

standard SDRAM. Therefore, a manufacturer will generally produce fewer RDRAM

memory devices than standard SDRAM 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 RDRAM memory devices. 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.



RaSer serial link technology has also been developed to allow semiconductor

companies to use familiar, widely available design tools and conventional

techniques in integrating the RaSer cells into their overall logic designs.

Rambus typically works with its customers for the initial implementation.



Research and Development



The ability of the Company to compete in the future will be substantially

dependent on its ability to advance its chip-connection technology in order to

meet changing market needs. To this end, Company engineers are involved in

developing new versions of the Rambus technology that will allow chip-to-chip

data transfer at higher speeds as well as provide other improvements. The

Company has announced the intention to enable a 1200 MHz and 64 bit bus version

of its current RDRAM technology. Recently, Rambus announced its next generation

of chip interfaces operating at 3.2 GHz to 6.4 GHz. In the RaSer business,

Rambus has announced its intention to deliver 5 and 10 gigabit per second

links. The Company has assembled a team of highly skilled engineers whose

activities are focused on further development of Rambus chip-connection

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,

printed circuit board (PCB) routing and high-speed testing techniques.



As of September 30, 2001, Rambus had 113 employees in its engineering

departments, representing 69% of the Company's total human resources.

Approximately 63% of research and development employees have advanced technical

degrees and 15% have PhDs. In fiscal 2001, 2000 and 1999, research and

development expenses were approximately $18.2 million, $11.5 million and $8.1

million, respectively. In addition, because the Company's RDRAM and RaSer

license agreements often call for engineering support by Rambus, a 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 chip-connection 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

chip-connection 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.



5

Most major DRAM manufacturers, including RDRAM licensees, produce

higher-frequency versions of standard DRAM such as SDRAM and DDR that compete

with RDRAM memory devices. 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 the RDRAM standard has

been due in part to the systems approach it has taken to solving the

application needs of companies in home video console, 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

will come from its RDRAM licensees and prospective licensees, many of which are

evaluating and developing products based on alternative technologies. Some DRAM

suppliers have been producing DDR, aimed at doubling the memory bandwidth from

SDRAM without increasing the clock frequency. While Rambus has been successful

in negotiating SDRAM-compatible licenses with some DRAM manufacturers that

include the payment of royalties on DDR, other manufacturers have not agreed to

a license and are in litigation with the Company. See "Legal Proceedings."



A consortium including semiconductor and systems companies is thought to be

developing an extension of DDR known as DDR-2, and another consortium is

working on advanced DRAM technology ("ADT"). To the extent that these

alternative technologies provide comparable system performance at lower or

similar cost than RDRAM memory devices, 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. While the

Company might determine that such alternative technologies, when and if

developed, infringe the Company's patents, there can be no assurance that the

Company would be able to negotiate agreements which would result in royalties

paid to the Company without litigation, which could be costly and the result of

which would be uncertain.



In addition, certain semiconductor companies are now marketing ICs which

combine logic and DRAM on the same chip. Such technology, called "embedded

DRAM," eliminates the need for an external chip-connection interface. Embedded

DRAM is 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 DRAM will not increase

in the future.



The Company will face new competition in the RaSer serial link business. The

initial competition is from semiconductor companies who sell discrete chips for

use in various types of systems, as well as competitors who license competing

serial link cells. The current Rambus business model for the RaSer serial link

cell is to license technology rather than compete directly with discrete chip

providers.



Patents and Intellectual Property Protection



The Company has an active program to protect its proprietary technology

through the filing of patents. At September 30, 2001, the Company held 126

United States patents on various aspects of its technology, with expiration

dates ranging from 2010 to 2020 and had applications pending for an additional

160 United States patents. At September 30, 2001, the Company held 26 foreign

patents and had 51 additional foreign patent applications pending in Europe and

Asia. 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 RDRAM 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 chip-connection

technology.



6

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. Nonetheless,

there is no assurance that such a blocking arrangement will not occur in the

future.



Risk Factors



Current and Potential Litigation. As the Company has extended its licensing

program to SDRAM-compatible and DDR-compatible products, it has increasingly

become involved in litigation either instigated by the Company or by the

potential licensee. As of September 30, 2001, the Company was in litigation

with three such potential SDRAM-compatible and DDR-compatible licensees. In

each of these cases, the Company has claimed infringement of its patents

whereas the potential licensees have generally sought damages and a

determination that the Rambus patents at suit are invalid and not infringed.

While the Company's preference in all these cases is to achieve settlements

resulting in SDRAM-compatible and DDR-compatible licenses, there can be no

assurance that such settlements will take place, that the Company will prevail

if there is no settlement or that additional litigation will not result from

future efforts by the Company to obtain additional SDRAM-compatible and

DDR-compatible licenses. In addition, future litigation may be necessary to

enforce the Company's patents and other intellectual property rights, to

protect the Company's trade secrets, or to determine the validity and scope of

the proprietary rights of others, 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, is costly and

could 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 or adverse interim results in

litigation could result in, and/or have already resulted in, at least on an

interim basis, the Company losing certain rights, including the loss of the

right to sue others for violating the Company's proprietary rights, the Company

being subjected to significant liabilities, the Company being required to seek

licenses from third parties, the Company being prevented from licensing its

technology, or the Company being required to renegotiate with current licensees

on a temporary or permanent basis, any, or all, 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. In addition, the Company is bound to indemnify certain

licensees under the terms of certain RDRAM 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 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.



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.

Until the fourth quarter of FY 2000, contract revenues had represented the

largest portion of the Company's revenues. The Company recognizes contract

revenues ratably over the period during which post-contract customer support on

RDRAM and RaSer licenses 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 RDRAM and RaSer technology 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



7

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 90% of total revenues in the fourth quarter of

fiscal 2001 and 81% of total revenues in the full fiscal year. The Company

believes that royalties will represent the majority of total revenues in future

periods. 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

licensed 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 revenue under existing contracts, 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

licensed ICs at any time, and because the new source could have different

royalty rates, any such change by a systems company, particularly one which

accounts for substantial volumes of licensed 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 ICs produced by the Company's licensees;



.  semiconductor and systems companies' acceptance of RaSer serial link

technology;



.  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

of future generations of the Company's technology;



.  fluctuations in the market price and demand for DRAM 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 systems 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 Company's intellectual property;



.  adverse developments in litigation, including current litigation with

potential SDRAM and DDR licensees;



.  the potential that licensees could fail to make payments under their

current contracts;



.  changes in Company strategies;



.  foreign exchange rate fluctuations or other changes in the international

business climate; and



.  general economic trends and other factors.



8

Extreme Volatility of Stock Price. The trading price of the Company's Common

Stock has been subject to very wide fluctuations which may continue in the

future in response to the following:



.  quarterly variations in operating results;



.  progress or lack of progress in the development of RDRAM ICs by licensees

or RDRAM-based products by systems companies;



.  signing or not signing new licensees, especially for SDRAM-compatible,

DDR-compatible, RaSer and Yellowstone licenses;



.  new litigation or developments in current litigation;



.  announcements of technological innovations or new products by the Company,

its licensees or its competitors; and



.  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 memory or serial link

chip-connection technology. In general, the Company licenses its technology to

semiconductor companies, which in turn manufacture and sell licensed 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. In the case of RaSer serial links, semiconductor and systems

companies may license directly from Rambus. The Company faces numerous risks in

successfully obtaining RDRAM memory device and controller 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 RDRAM technology and to make the necessary investment to

successfully produce RDRAM memory devices and controllers; and



.  successfully transferring technical know-how to licensees.



To obtain new SDRAM-compatible and DDR-compatible licenses the Company may

have to resort to litigation, in many cases against the same companies who are

RDRAM memory device and controller licensees of the Company. 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 RDRAM ICs to systems

companies which have adopted the Company's technology for their products are

not made directly by the Company, such sales directly



9

affect the amount of royalties from RDRAM memory devices and controllers

received by the Company. Therefore, the Company's success is partially

dependent upon the adoption of the Company's chip-connection technology by

systems companies, particularly those which develop and market high-volume

business and consumer products such as PCs and home video game consoles. The

sales of RaSer serial link technology are directly impacted by the sales of

systems using the technology regardless of whether the license is obtained

directly or through a semiconductor company. 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

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, marketing and

technical efforts of its licensees in promoting Rambus technology to systems

companies. Even if a systems company develops a product based on Rambus

technology, success in the market will depend in part on a 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 the chips

containing its technology are made available to systems companies or the degree

to which its licensees promote Rambus technology to systems companies.



No Assurance of Adoption of RDRAM Technology as an Industry Standard; Cost

of RDRAM Technology. An important part of the Company's strategy for its RDRAM

technology to become an industry standard is to penetrate markets by working

with leaders in those markets. This strategy is designed to encourage other

participants in those markets to follow such leaders in adopting RDRAM

technology. Should a high profile industry participant adopt RDRAM technology

for one or more of its products but fail to achieve success with those

products, other industry participants' perception of RDRAM technology could be

adversely affected. Any such event could reduce future sales of RDRAM memory

devices and controllers. 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 RDRAM technology to be adopted

as an industry standard is for any premium in the price and cost of RDRAM

devices over alternatives to be reasonable in comparison to the perceived

benefits of the technology. However, there can be no assurance that the price

and cost premium for RDRAM memory over standard memory can be reduced

sufficiently to allow the development of RDRAM as an industry standard. There

can be no assurance that yields to the full 800 MHz or 1066 MHz specification

will maintain satisfactory levels. In addition, because of the extra interface

circuitry and other features, an RDRAM chip is somewhat larger than a standard

SDRAM. Therefore, a manufacturer will generally produce fewer RDRAM devices

than standard SDRAM for a given wafer size and an RDRAM chip will be somewhat

more expensive than the standard SDRAM version. Also, RDRAM manufacturers are

responsible for their own manufacturing processes, and Rambus has no role in

the manufacture of RDRAM devices. 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.



10

RDRAM devices use newer-generation chip-scale packaging ("CSP") and require

high-speed testers for a portion of the test procedure. While the Company feels

that testing costs for RDRAM devices in mass production volumes will be no

greater than for current standard SDRAM, additional capital equipment is

required and startup costs are incurred by the manufacturers producing RDRAM

devices. In addition, for PC main memory applications, memory modules (called

"RIMM(TM) modules"), 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 can be

accomplished at a sufficiently competitive price to allow the development of a

mass market for RDRAM technology.



Dependence upon PC Main Memory Market Segment and Intel. An important part

of the Company's strategy is for its RDRAM technology to penetrate the market

segment for PC main memory. To date, the only use of RDRAM technology in this

market is via chipsets developed by Intel which allow RDRAM memory devices to

connect to Pentium III and Pentium IV processors. There can be no assurance

that the pricing of RDRAM memory devices will be reduced to a competitive level

or that Intel chipsets and RDRAM technology will be successful in penetrating

the market segment for PC main memory. Furthermore, Intel has in the past

changed it's roadmap to eliminate certain products using RDRAM technology and

there can be no assurance that Intel's emphasis or priorities will not further

change in the future, resulting in less attention and fewer resources being

devoted to developing chipsets supporting RDRAM. Intel could stop developing

chipsets that support RDRAM technology. Also, there can be no assurance that

Rambus and Intel will continue to be able to work together successfully over an

extended period of time or that Intel will not continue to 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 2001, 2000, and

1999, revenues from the Company's top five licensees accounted for

approximately 75%, 54% and 47% of the Company's revenues, respectively. 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 licensed 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, other

than for RaSer technology, generally do not have a direct contractual

relationship with the Company. The Company's licensees generally do not provide

detail as to the identity or volume of licensed 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. 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 licensed ICs that will be purchased by

these companies in the future or as to 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. In fiscal 2001, a majority of the Company's royalties was derived from

the sale of DRAM. Royalties on DRAM are based on the volumes and prices of DRAM

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 (ASPs) during periods of

surplus. The DRAM market is intensely competitive and generally is

characterized by declining ASPs 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 RDRAM license

agreements, royalty rates decrease as a function of time or



11

volume. 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 chip-connection technology and expects that this dependence on its

fundamental technology will continue for the foreseeable future. Accordingly,

broad acceptance of the Company's technology is critical to the Company's

future success. The introduction or market acceptance of competing technology

which renders the Company's chip-connection 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 chip-connection

technologies 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, as well as to serial link and signaling technologies.

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 technologies. 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 RDRAM licensees, produce

higher-frequency versions of standard DRAM such as SDRAM and DDR which compete

with RDRAM devices. 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 for memory interfaces

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. Most DRAM suppliers have been producing

DDR, aimed at doubling the memory bandwidth from SDRAM without increasing the

clock frequency. While Rambus has been successful in negotiating

SDRAM-compatible and DDR-compatible licenses with some DRAM manufacturers which

include the payment of royalties on DDR, other manufacturers have not agreed to

a license and are in litigation with the Company.



A consortium including semiconductor and systems companies is thought to be

developing an extension of DDR known as DDR-2 and another consortium is working

on advanced DRAM technology ("ADT").



12

To the extent that these alternative technologies provide comparable system

performance at lower or similar cost than RDRAM devices, 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, results of operations and financial

condition. While the Company might determine that such alternative

technologies, when and if developed, infringe the Company's patents, there can

be no assurance that the Company would be able to negotiate agreements which

would result in royalties paid to the Company without litigation, which could

be costly and the result of which would be uncertain.



In addition, certain semiconductor companies are now marketing ICs which

combine logic and DRAM on the same chip. Such technology, called "embedded

DRAM," eliminates the need for an external interface to memory. Embedded DRAM

is 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 DRAM will not increase

in the future.



The Company believes that competition for RaSer technology will come from

systems companies, semiconductor companies and other licensors of serial links.

At the 10 gigabit per second speed, competition will also come from optical

technology sold by systems and semiconductor companies.



Limited Protection of Intellectual Property. 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, that the

Company will be successful in litigation relating to its patents, 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 RDRAM 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 chip-connection

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.

Nonetheless, there is no assurance that such a blocking arrangement will not

occur in the future.



Risks Associated with International Licenses. In fiscal 2001, 2000 and 1999,

international revenues constituted approximately 81%, 82% and 60% of the

Company's total revenues, respectively. For additional information concerning

international revenues, see Note 12 in the Notes to Consolidated Financial

Statements on page 48. 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



13

licensed ICs sold by the Company's foreign licensees were to increase as a

result of fluctuations in the exchange rate of the relevant currencies, demand

for licensed 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 that tax authorities in those countries

may re-characterize 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 console 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 to

enhance and introduce new generations of its 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 RaSer and RDRAM licensees and

systems companies rely heavily on the Company's technological expertise in

designing, testing and manufacturing products incorporating the Company's

interface technologies. In addition, relationships with new RaSer and RDRAM

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



14

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 could 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.



Item 2. Properties



Early in the second fiscal quarter of 2001, the Company moved all of its

U.S. operations, including its engineering, marketing, and administrative

functions into a newly constructed building in Los Altos, California. The

Company currently leases this 96,000 square foot building, and the lease has an

initial term of ten years, with options to extend the term for two periods of

five years each. The Company also leases approximately 31,000 square feet in

one building in Mountain View, California, which formerly housed 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. With the move of the Company's U.S. operations to the new facility in

Los Altos in the second fiscal quarter of 2001, the Company subsequently

subleased the Mountain View facility. The sublease expires in 2005, although

there can be no assurance that the sub-tenant will continue to fulfill the

terms of the current agreement. The Company also leases space in Tokyo, Japan,

and Taipei, Taiwan, for offices which provide sales and technical support to

systems companies in Japan and Taiwan. The Company believes that its current

facilities are adequate to support any current growth expectations.



Item 3. Legal Proceedings



On August 8, 2000, the Company filed suit in the U.S. District Court for the

Eastern District of Virginia (the "Virginia court") against Infineon

Technologies AG ("Infineon") and its North American subsidiary for patent

infringement of two U.S. patents (USDC Virginia Civil Action No.: 3:00CV524).

On September 25, 2000, Infineon filed counterclaims against the Company in the

U.S. case seeking a declaratory judgment that the two asserted patents are

invalid and not infringed and further claiming contributory infringement by the

Company of two Infineon U.S. patents. In addition, Infineon also asserted

breach of contract, fraud, RICO, and monopolization claims in connection with

the Company's participation in an industry standards-setting group known as

JEDEC where the Company is alleged not to have disclosed certain of its

then-pending patents ("JEDEC related claims"). The Infineon counterclaims seek

compensatory and punitive damages, attorneys' fees, injunctions to halt future

infringement of the Infineon patents, and an award of a royalty-free license to

the Rambus patents. In October 2000, the Company amended its complaint to

assert infringement of two additional U.S. patents. In January 2001, Infineon

amended its answer and counterclaims to include a request for a declaratory

judgment that all four asserted Rambus patents are invalid and not infringed.

In addition, Infineon withdrew all contributory patent infringement claims

against the Company relating to Infineon's U.S. patents.



Trial began in the Virginia case on April 23, 2001. On May 4, 2001, the

Virginia court granted Infineon's motion to dismiss Rambus' patent infringement

case and granted Rambus' motion to dismiss Infineon's breach of contract and

monopolization claims. On May 9, 2001, the jury returned a verdict against

Rambus on the fraud claims and for Rambus on the RICO claims. The jury awarded

Infineon $3.5 million in punitive damages, which was reduced to $350,000 under

Virginia law. On August 9, 2001, as a result of post-trial motions, the

Virginia court set aside the constructive fraud verdict with respect to both

SDRAM and DDR standard setting. The actual fraud verdict with respect to DDR

standard setting was also set aside. Post-trial motions by Infineon resulted in



15

the Virginia court awarding Infineon approximately $7.1 million in attorneys'

fees. In addition, on November 26, 2001, the Virginia court issued a permanent

injunction, largely in accord with its previous rulings, prohibiting the

Company from filing additional patent infringement actions in the U.S., under

certain of the Company's U.S. patents, against Infineon with regard to

JEDEC-compliant SDRAM and DDR devices.



The Company has appealed numerous liability rulings by the Virginia court

with respect to infringement and the JEDEC-related claims with respect to SDRAM

standard setting. Infineon has also cross-appealed setting aside of the verdict

with respect to DDR standard setting. These appeals, which will be heard by the

Court of Appeals for the Federal Circuit (CAFC), have been consolidated (CAFC

Appeal Nos. 01-1449, 01-1583, 01-1604, 01-1641). The Company filed its opening

brief on November 2, 2001. The Company has also filed a subsequent appeal with

respect to the permanent injunction ruling.



On August 7, 2000, the Company filed suit in the District Court in Mannheim,

Germany (the "Mannheim court") against Infineon for infringement of one

European patent. A hearing was held on May 18, 2001, and on July 20, 2001, the

Mannheim court issued an "order for evidence" requiring the appointment of an

independent technical expert to evaluate certain technical aspects of Rambus'

infringement claim. The Mannheim court subsequently appointed its independent

technical expert, and, after the expert delivers an opinion, the court will

then determine whether Infineon products infringe Rambus' patent. In the

meantime, the validity of the same Rambus European patent is being reviewed by

the European Patent Office.



On August 28, 2000, Micron Technology, Inc. ("Micron") filed suit against

the Company in the U.S. District Court in Delaware (USDC Delaware Civil Action

No.: 00-792-RRM). The suit asserts violations of federal antitrust laws,

deceptive trade practices, breach of contract, fraud and negligent

misrepresentation in connection with the Company's participation in JEDEC.

Micron's suit seeks a declaration of monopolization by the Company,

compensatory and punitive damages, attorneys' fees, a declaratory judgment that

eight Rambus patents are invalid and not infringed and the award to Micron of a

royalty-free license to the Rambus patents. In February 2001, the Company filed

its answer and counterclaims, whereby the Company disputes Micron's claims and

asserts infringement by Micron of the eight U.S. patents. Some discovery is

still ongoing in the Delaware action. Both sides have filed a number of

potentially dispositive motions for summary judgment on which the Delaware

court has not yet ruled. The judge has postponed trial on a number of the

issues until after the CAFC reviews the judgments of the Virginia court in the

Infineon matter. Issues, if any, that are to be tried before the outcome of the

appeal is known are tentatively scheduled for a trial in the second calendar

quarter of 2002.



In September 2000, the Company filed suit against Micron in Germany, France,

Great Britain and Italy for infringement of a European patent. The French and

Italian actions included court-sanctioned seizure of documents, samples and, in

the case of the Italian action, mask sets from Micron facilities. The Micron

German suit is, like the Infineon German suit, in the Mannheim court, which is

currently expected to issue an "order for evidence" on December 7, 2001, which

the Company believes will ultimately result in the appointment of an expert.

The French suit is in an early phase. The British suit has been temporarily

stayed pending a determination by the European Patent Office on validity. In

the Italian case, on December 21, 2000, the items seized were ordered returned

based on jurisdictional grounds. On May 2, 2001, the independent experts

appointed by the District Court in Monza, Italy (the "Monza court") issued a

report that confirmed the validity of the Rambus patent in suit and determined

that Micron's SDRAM products infringe the Rambus patent. On May 25, 2001, the

Monza court, after considering the expert's report, declined to grant Rambus a

preliminary injunction. Rambus appealed the Monza court's ruling, and on July

18, 2001, the Appeals Court rejected the appeal based on jurisdictional

grounds. The infringement suit against Micron in Italy on the first European

patent will now continue in the District Court of Milan.



In December 2000, Micron filed a declaratory judgment suit of

non-infringement of a second European Patent against the Company in the

District Court of Avezzano, Italy. In response, the Company asserted

infringement of the second European Patent in Milan, Italy. Further, the

Company filed suit against Micron in Germany and Italy for infringement of a

third European patent. The German suit for infringement of the third European

patent is pending in the Mannheim court, while the Italian suit on this third

European patent has been stayed.



On August 29, 2000, Hyundai Electronics Industries Co., Ltd. ("Hyundai") and

various subsidiaries filed suit against the Company in the U.S. District Court

for the Northern District of California (USDC Northern



16

District of California Case No.: 00-20905 PVT). Since filing suit, Hyundai has

changed its name to "Hynix Semiconductor Inc." ("Hynix"). The suit asserts

breach of contract in connection with the Company's participation in JEDEC and

seeks a declaratory judgment that 11 Rambus patents are invalid and not

infringed by Hynix. In November 2000, Hynix amended its complaint to further

assert violations of federal antitrust laws, deceptive trade practices, breach

of contract, fraud and negligent misrepresentation in connection with the

Company's participation in JEDEC. Hynix seeks a declaration of monopolization

by the Company, compensatory and punitive damages, and attorneys' fees. In

February 2001, the Company filed its answer and counterclaims, whereby the

Company disputes Hynix's claims and asserts infringement of 11 U.S. patents. On

November 21, 2001, the California court ruled that the claim construction

applied in the Virginia case against Infineon should be applied in the case

with Hynix and, as a result, dismissed most of the Company's claims of patent

infringement against Hynix. In doing so, the California court declined to

decide whether, on the merits, the Virginia claim construction was correctly or

incorrectly decided. The Virginia claim construction issue is one of the

matters that will be reviewed as part of the Company's pending appeal in the

Infineon case, and the California court has suggested it will stay the

remaining issues in the Hynix case pending the outcome of the appeal.



In September 2000, the Company filed suit against Hynix in Germany, France

and Great Britain for infringement of a European patent. The French suit

included court-sanctioned seizure of documents and samples from a Hynix

facility. A hearing is scheduled on December 7, 2001, in the German suit. The

French suit is in an early phase. The British suit has been temporarily stayed.



On August 10, 2001, following the trial results in the Infineon case, Rambus

Inc. was named as a defendant in a purported federal class action in the United

States District Court for the Northern District of California. Toiv v. Rambus,

et al., C01-CV-3112 (Chesney, J.). That action was brought allegedly on behalf

of a class of plaintiffs who purchased Rambus Common Stock between February 11,

2000 and May 9, 2001, inclusive, and asserted claims under Section 10(b) of the

Exchange Act and Section 20(a) of the Exchange Act, as well as Rule 10b-5. The

Complaint alleges that Rambus misled shareholders concerning its business and

the status of its intellectual property in light of allegations concerning the

Company's involvement in JEDEC. Fourteen similar actions were filed in the

Northern District of California. On November 16, 2001, a lead plaintiff was

appointed and the various cases will be consolidated and a consolidated amended

complaint will be filed. The Company intends to defend itself in this action.



On August 15, 2001, a purported shareholder derivative lawsuit, Boyadjian v.

Davidow, et al., C.A. No. 19057, was filed in Delaware Chancery Court. The

Company is a nominal defendant and the Company's directors are defendants.

Additional similar actions were filed and were consolidated. The consolidated

complaint was filed on November 12, 2001 and alleges that the individual

defendants caused the Company to engage in an improper course of conduct

relating to JEDEC and its intellectual property beginning in 1992 and

continuing through the Infineon trial in May of 2001. The complaint alleges

breaches of fiduciary duty, misappropriation of confidential information for

personal profit, and asks for contribution or indemnification from the named

director defendants. The Company intends to file a motion to dismiss the

complaint.



Similar derivative actions were filed in California Superior Court, Santa

Clara County. They are Vista 2000 v. Davidow, et al., CV-800901, Taylor v.

Tate, et al., No. CV 801266, and Bonds v. Davidow et al., CV No. 802086, CV.

No. 802086. The Complaints assert claims for breaches of fiduciary duty and

violation of California's proscription against insider trading. On November 15,

2001, the Court granted defendants' motion to stay the Vista 2000 and Taylor

cases in deference to the Delaware actions described above. Defendants' have

filed a similar motion to stay the Bonds case.



The Company has been in communication with the Federal Trade Commission

(FTC) regarding its investigation of several standards-setting processes,

including Rambus' involvement in JEDEC. To the Company's knowledge, there has

been no decision by the FTC to move forward with any legal or other action

relating to these matters.



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 2001.



17

PART II



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



The Company's Common Stock is listed on the Nasdaq Stock 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 52 of

this report on Form 10-K.



As of October 31, 2001, there were 747 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



Net income (loss) per share calculations have been retroactively restated to

reflect a four-for-one split of Rambus' Common Stock effective June 15, 2000.

For a discussion of factors that could cause the information set forth below to

be not indicative of the Company's future financial condition or results of

operations, see "Risk Factors," beginning on page 7.



<TABLE>

<CAPTION>

Year Ended September 30,

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

2001     2000       1999     1998    1997

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

(in thousands except per share data)

<S>                                               <C>      <C>        <C>      <C>      <C>

Operations:

Total revenues................................... $117,160 $  72,311  $ 43,370 $ 37,864 $26,015

Operating income (loss)..........................   40,715  (143,508)    9,499    7,967   1,954

Net income (loss)................................   31,271  (106,127)    8,718    6,788   1,981

Net income (loss) per share-diluted.............. $   0.29 $   (1.10) $   0.09 $   0.07 $  0.02



Financial Position (at year end):

Total assets..................................... $237,790 $ 219,631  $115,773 $110,987 $87,878

Total debt (capital lease obligations)...........       --        --        --      130     512

Stockholders' equity.............................  191,357   162,322    61,564   41,792  26,661

</TABLE>



18

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 "Risk Factors" 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-connection technology. The Company neither manufactures nor

sells semiconductors but, rather, licenses its technology, patents and other

intellectual property on a nonexclusive and worldwide basis to semiconductor

companies which manufacture memory and logic ICs incorporating Rambus memory

interface technology. These RDRAM ICs are sold to systems companies to enhance

the performance and cost-effectiveness of consumer electronics, computer

systems and other electronic systems. The Company also licenses its RaSer

serial link technology to semiconductor companies for use in high-speed

communications and networking applications.



Revenues. The Company generates revenues from four types of agreements with

semiconductor companies. The first type of agreement, for technology which is

fully compatible with the RDRAM standard ("RDRAM licenses"), allows

semiconductor manufacturers to manufacture and sell RDRAM memory devices and

logic ICs containing an interface to the RDRAM devices. The second type of

agreement covers the use of Rambus patents and other intellectual property in

synchronous DRAM ("SDRAM") and double data-rate ("DDR") memory devices and

logic ICs which control such memory. The third type of agreement is for the

RaSer serial link ASIC cell that licensees integrate into their logic ICs. The

fourth type of agreement is one with Intel for five years of quarterly

payments, which grants Intel access to Rambus' complete patent portfolio.



Revenues from RDRAM and RaSer serial link agreements consist of contract

fees and royalties. Contract fees from RDRAM and RaSer agreements are comprised

of license fees, engineering service fees and nonrefundable, prepaid royalties,

and represented approximately 19% of the Company's total revenues in fiscal

2001, 55% in 2000, and 82% in 1999. The Company's RDRAM and RaSer agreements

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 the provision of certain deliverables by Rambus or

production of chips by the licensee. All contract fees are nonrefundable.



Substantially all of the license fees, engineering service fees and

nonrefundable, prepaid royalties from RDRAM and RaSer serial link licenses are

bundled together as contract fees because the Company generally does not

provide or price these components separately. These 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

revenue recognized is shown on the Company's balance sheet as deferred revenue.



SDRAM-compatible and DDR-compatible licenses generally provide for the

payment of fees which include compensation for use of Rambus patents from the

time the Company notifies the licensee of potential infringement. Accordingly,

Rambus classifies these fees as royalty revenues that are recognized ratably

over the five-year contract period. The excess of payments received over

royalty revenue recognized is shown on the Company's balance sheet as deferred

revenue. As of September 30, 2001, the Company's deferred revenue from RDRAM,

SDRAM-compatible and DDR-compatible licenses was $38.5 million, substantially

all of which is scheduled to be recognized in varying amounts over the next

five years.



19

Royalties, which are generally a percentage of the revenues received by

licensees on their sales of licensed ICs, are normally payable quarterly by a

Rambus licensee on sales occurring during the life of the Rambus patents being

licensed in the case of RDRAM licenses, and over a five year contract period in

the case of SDRAM-compatible and DDR-compatible licenses. Rambus recognizes

royalties from a licensee in the quarter in which it receives the report

detailing shipments of the ICs by such licensee in the prior quarter. For a

typical systems application using Rambus technology, the Company receives

royalties from the sale of both licensed logic ICs and DRAM devices as they are

shipped by Rambus licensees. Royalty rates range up to a maximum of

approximately 2.5% for RDRAM memory devices and a maximum of approximately 5%

for associated RDRAM controllers, and in some cases may decline based on the

passage of time or on the total volume of RDRAM memory interface ICs shipped.

The royalty rates for SDRAM and associated controllers are generally less than

the comparable RDRAM royalty rates, and for DDR and associated controllers the

rates are generally higher. 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, in the case of

RDRAM memory device and controller licenses, the marketing and engineering

commitment made by the licensee. Royalties for the RaSer serial link technology

are generally calculated on the volume of links produced by the licensee. The

exact rate and structure for RaSer serial link royalties vary based on a number

of factors including volume and required customization. Royalties for the Intel

license are a fixed amount per quarter for five years from the date of the

contract signed in September 2001. There is also one DRAM company that has a

fixed royalty payment per quarter until there is a final resolution of pending

litigation.



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 2001, revenues from the Company's top five licensees, Hitachi, Intel,

NEC, Samsung and Toshiba, each accounted for greater than 10% of the Company's

total revenues. In fiscal 2000, revenues from the Company's top three

licensees, NEC, Samsung and Toshiba, each accounted for greater than 10% of the

Company's total revenues. In fiscal 1999, revenues from the Company's top three

licensees, Intel, NEC and Texas Instruments, each accounted for greater than

10% of the Company's 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, industry

consolidation, the expiration of deferred revenue schedules under existing

contracts, and the volumes and prices at which the licensees sell licensed ICs

to systems companies in any given period.



The royalties received by the Company are also partially 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, licensed 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 2001, 2000, and 1999, international revenues constituted 81%, 82%

and 60% 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, including legal

costs, 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

since the Company's inception 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.



20

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 chip connection technology for specific

RDRAM and RaSer 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

shift 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, legal, finance and

other marketing and administrative efforts. Costs of technical support for

systems companies, including applications engineering, are also charged to

marketing, general and 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 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 RDRAM and RaSer contract fees over the period

post-contract customer support is expected to be provided and from

SDRAM-compatible and DDR-compatible license fees over the five-year contract

period and records royalty revenues upon notification from licensees. Thus, the

Company recognizes revenue earlier for tax than for financial reporting

purposes. Accordingly, the Company's net operating profit or loss for tax

purposes may be more or less than the amount 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>

2001    2000    1999

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

<S>                                                    <C>    <C>      <C>

Revenues:

Contract revenues..................................  18.6%   54.9 %  81.5%

Royalties..........................................  81.4    45.1    18.5

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

Total revenues................................. 100.0%  100.0 % 100.0%

=====  ======   =====

Costs and expenses:

Cost of contract revenues..........................   8.4    16.7    28.2

Research and development...........................  15.5    15.9    18.7

Marketing, general and administrative..............  41.3    29.2    31.2

Employee stock-related compensation expense........    --   236.6      --

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

Total costs and expenses.......................  65.2   298.4    78.1

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

Operating income (loss)...............................  34.8  (198.4)   21.9

Interest and other income, net........................   7.6     6.5    10.0

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

Income (loss) before income taxes.....................  42.4  (191.9)   31.9

Provision for (benefit from) income taxes.............  15.7   (45.1)   11.8

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

Net income (loss).....................................  26.7% (146.8)%  20.1%

=====  ======   =====

</TABLE>



21

Revenues. Revenues were $117.2 million, $72.3 million and $43.4 million in

fiscal 2001, 2000 and 1999, respectively. Contract revenues decreased 45% to

$21.8 million in fiscal 2001. The decrease in contract revenues in fiscal 2001

is due largely to the expiration of revenue recognition periods for several

RDRAM contracts. This decrease was partially offset by the recognition of $4.3

million of remaining deferred revenue on contracts for which all remaining

obligations were terminated by mutual consent of the Company and the Company's

licensees. Such terminations result in the cancellation of all RDRAM

development obligations by both parties. Since all license and engineering

payments already received are non-refundable, the balance of deferred revenue

on these contracts was recognized in the period of cancellation. Contract

revenues increased 12.2% to $39.7 million in fiscal 2000 and increased 23.1% to

$35.4 million in fiscal 1999. The majority of the increase in contract revenues

in fiscal 2000 represents recognition of the remaining revenue on contracts for

which all remaining obligations were terminated by mutual consent due to the

licensees' withdrawal from the commodity DRAM market. The deferred revenue

balance of approximately $8.1 million on these contracts was recognized upon

termination in fiscal 2000. Also contributing to the revenue increase in fiscal

2000 was a change in management's estimate of certain contract revenue

recognition periods, which occurred in the fourth quarter of fiscal 1999. Such

periods are initially estimated based upon management's judgment of the time

over which the Company has an obligation to support its RDRAM licensees. As the

current generation of RDRAM ICs went into production late in fiscal 1999, a

more accurate estimate of the remaining support period could be made. To the

extent the new estimated periods were less than the original estimates, the

amount of deferred revenue recognized in fiscal 2000 was greater than in the

comparable periods of prior years. In fiscal 2000, this increase was partially

offset by the ending of revenue recognition on contracts for which the contract

periods had expired.



The Company anticipates continuing to book additional contracts, especially

contracts with existing licensees for newer versions of Rambus technology.

However, the Company anticipates that contract revenues will decline over time

as the value of contracts for which the revenue recognition periods have

expired exceeds the value of new contracts. The Company's past success in

signing licensees has reduced the number of potential new licensees, which also

contributes to the anticipated decline in contract revenues.



In fiscal 2001, royalties increased 192% to $95.4 million, or 81.4% of total

revenues. Royalties in fiscal 2001 included increased royalties for the first

of the Company's two royalty sources, namely licensees' shipments of RDRAM

memory devices and memory controllers that connect to RDRAM memory devices,

because wider acceptance increased RDRAM device market share and strengthened

the shipment ramp into the desktop PC workstation, digital television (TV) and

Sony PlayStation2 markets. As of the end of fiscal 2001, more than 300

computers, game consoles, TVs and other electronic systems worldwide were using

RDRAM memory devices and controllers. Average selling prices (ASPs) for RDRAM

memory devices continued to decline in fiscal 2001 due to competitive pressures

and as the Company worked closely with RDRAM licensees to reduce costs. In

fiscal 2001, these ASP declines were more than offset by increasing unit

volumes, which resulted in higher royalties from RDRAM ICs. In the case of

RDRAM ICs, the Company believes that declining ASPs are to the Company's

advantage as RDRAM memory devices continue to gain market share. The second of

the Company's two royalty sources in fiscal 2001 was royalties from licensees

for the use of Rambus patents and intellectual property in SDRAM, DDR and logic

products which directly control these memories. ASPs for SDRAM-compatible ICs

continued to decline in fiscal 2001. In the absence of increasing unit volumes

or additional licensees, royalties from this source will likely decrease in

future periods. Because of a slower than expected adoption of DDR during fiscal

2001, the decline in SDRAM royalties was not offset by increased DDR royalties.

In addition, in the third quarter of fiscal 2001, due to the rapid decline in

DRAM ASPs and due to adverse interim results in litigation, the Company had

discussions with one major SDRAM licensee and agreed to a reduced but fixed

royalty amount on memory for at least four quarters, including the fourth

fiscal quarter of 2001. The Company believes the long-term impact of that

agreement remains unchanged as, after the fourth quarter of the agreement, with

a favorable legal outcome, the royalty payments return to the original

agreement level. In fiscal 2000, royalties increased 307% to $32.6 million, or

45.1% of total revenues. The first contract revenue for RaSer serial link

technology was recognized in fiscal 2001. Fiscal 2000 revenues include

increased royalties from licensees' shipments of RDRAM memory devices and

controllers, as well as the first ever royalties from licensees for the use of

Rambus intellectual property in SDRAM-compatible ICs.



22

The Company anticipates that its potential to generate RDRAM royalties in

fiscal 2002 will be largely dependent upon system sales by PC and workstation

manufacturers and Sony. The markets addressed by systems companies using RDRAM

memory devices and controllers, including those in the video game console and

PC businesses, 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 RDRAM memory devices and controllers that

will be purchased in the future or the level of royalty-bearing revenues that

the Company will receive due to these applications. None of the systems

companies currently incorporating RDRAM memory devices and controllers into

their products is contractually obligated to continue doing so. Given the

concentration of royalties from a limited number of sources, it is likely that

royalties will continue to vary greatly from period to period.



Engineering Costs. Engineering costs, consisting of cost of contract

revenues and research and development expenses, were $28.1 million, $23.6

million and $20.4 million in fiscal 2001, 2000 and 1999, respectively, which

represented 23.9%, 32.6% and 46.9% of revenues in the same periods,

respectively. The increase in engineering costs in fiscal 2001 was primarily

attributable to higher operating costs of the new office facilities to which

the Company relocated at the beginning of the second quarter of fiscal 2001, as

well as to the addition of engineering personnel to support the Company's

technology roadmap improvements. The increase in engineering costs in fiscal

2000 was primarily attributable to engineering personnel added to support the

launch of RDRAM ICs into the PC main memory market and new initiatives in the

communications market and chip-to-chip connections. 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 $9.9 million,

$12.1 million and $12.2 million, which represented 8.4%, 16.7% and 28.2% of

revenues, in fiscal 2001, 2000 and 1999, respectively. The decrease in the cost

of contract revenues in fiscal 2001 and fiscal 2000 in absolute dollars, as a

percentage of total revenues, and as a percentage of total engineering costs,

is primarily due to the successful launch and ramp of RDRAM ICs into the PC

main memory market resulting in a reduction in engineering support efforts, as

well as to the effect of increasing royalty revenues. 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 RDRAM ICs go through the normal development and implementation

phases.



Research and Development. Research and development expenses were $18.2

million, $11.5 million and $8.1 million, which represented 15.5%, 15.9% and

18.7% of revenues, in fiscal 2001, 2000 and 1999, respectively. Research and

development expenses increased 58.3% in fiscal 2001 as compared to fiscal year

2000, and 41.6% in fiscal 2000 as compared to fiscal 1999, as the Company was

able to shift engineering resources from support of the PC market ramp to

development of technology roadmap improvements as well as new chip connection

activities. However, research and development expenses decreased as a

percentage of revenues in fiscal 2001 and fiscal 2000 due to the increase in

the Company's revenues. Research and development expenses include approximately

$904,000 and $802,000 of deferred compensation costs and goodwill amortization

in fiscal 2001 and fiscal 2000, respectively, related to the Company's fiscal

2000 purchase of the intellectual property assets of a small company

responsible for developing a Serializer/Deserializer (SerDes) serial link cell

for network applications. The acquisition was accounted for as a purchase,

which resulted in goodwill and deferred compensation costs that are being

amortized over periods ranging from 2 to 5 years. 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 $48.4 million, $21.1 million and $13.5 million, which represented

41.3%, 29.2% and 31.2% of revenues, in fiscal 2001, 2000 and 1999,

respectively. The increase in fiscal 2001 in marketing, general and

administrative expenses primarily represents increased litigation costs

associated with the defense of the Company's intellectual property.



23

Litigation costs were $27.1 million in fiscal 2001 versus $3.8 million in

fiscal year 2000. Trial delays in several of the pending cases as well as the

number of simultaneous litigation activities -- many initiated by potential

SDRAM and DDR licensees -- contributed to the significant increase in

litigation expenses in fiscal 2001. In addition, at the beginning of fiscal

2001, the Company began to incur higher rent and other ongoing operating costs

associated with relocating its corporate headquarters to a larger facility to

accommodate anticipated long-term growth. The fiscal 2000 increase in absolute

dollars was primarily due to the addition of administrative personnel and legal

fees to support enforcement of the Company's patents and other intellectual

property rights. The decrease in marketing, general and administrative expenses

as a percentage of revenues in fiscal 2000 reflects the increased revenue base.

The Company expects marketing, general and administrative expenses to vary in

the future. Litigation expenses are expected to vary from period to period,

given the volatility of litigation activities, and as the Company continues to

focus its resources upon protecting its intellectual property rights, marketing

its technology and assisting systems companies with adapting 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,

legal and other marketing and administrative activities undertaken and the

change in sales, marketing and administrative headcount in any given period, as

well as the rate of change in the Company's total revenues.



Employee Stock-Related Compensation Expense. As discussed below in the

section entitled "Contingent Warrants, Common Stock Equivalents, and Options,"

a $171.1 million employee stock-related compensation charge was taken in fiscal

2000 related to Common Stock Equivalents granted to the Company's Chief

Executive Officer and President and options granted to the Company's employees.



Interest and other Income, Net. Interest and other income, net consists

primarily of interest income from the Company's cash investments. Interest and

other income, net was $8.9 million, $4.7 million and $4.3 million, which

represented 7.6%, 6.5% and 10.0% of revenues, in fiscal 2001, 2000 and 1999,

respectively. The increase in absolute dollars in fiscal 2001 was due primarily

to higher invested balances. In addition, beginning in the second fiscal

quarter of 2001, interest and other income, net, includes net income recognized

from the Company's sublease of its former office facilities in Mountain View,

California. The Company expects cash investments to remain flat, and, with the

decline in interest rates, interest and other income, net, will likely decline

in future periods, particularly if the Company's sub-tenant does not continue

to fulfill the terms of the current agreement.



Provision for (Benefit from) Income Taxes. The Company recorded an income

tax provision of $18.4 million in fiscal 2001, an income tax benefit of $32.7

million in fiscal 2000, and a provision for income taxes of $5.1 million in

fiscal 1999. In the third quarter of fiscal 2001, the Company adjusted its

fiscal 2001 year-to-date tax rate to 37% to more accurately reflect the

Company's estimated tax liability. In the fourth quarter of fiscal 2000, the

Company determined, based upon its continued and growing profitability, that it

would more likely than not be able to utilize its deferred tax assets, and

recorded a $38 million credit to income tax expense to reduce the valuation

allowance against the deferred tax assets. For the 2000 and 1999, the estimated

federal and state combined rate on income before income taxes was (23.5)% and

37%, respectively. The Company's effective tax rate differs from the statutory

rate due to differences related to the timing of recognition of contract and

royalty revenues and expenses for tax and financial reporting purposes.



At September 30, 2001, the Company had gross deferred tax assets of

approximately $55.8 million, primarily relating to the difference between tax

and book treatment of employee stock-related compensation expenses and deferred

revenue, and net operating losses. The deferred tax assets of approximately

$49.8 million, net of the valuation allowance of $5.9 million, as of September

30, 2001, 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.



Common Stock Split



In March 2000, the Company's board of directors approved a four-for-one

split of Rambus' Common Stock subject to stockholder approval of an increase in

authorized Common Stock. On May 23, 2000, the Company's



24

stockholders approved an increase in the Company's authorized shares of Common

Stock to 500 million shares. The stock began trading on a split-adjusted basis

on June 15, 2000. All references in this report on Form10-K to earnings per

share, to the number of common shares, contingent warrants, Common Stock

Equivalents, and options, and to the share price have been retroactively

restated to reflect the Common Stock split and the increase in authorized

Common Stock.



Contingent Warrants, Common Stock Equivalents, and Options



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 4,000,000 shares of Common Stock of the Company at a

purchase price of $2.50 per share (the "Intel warrant"). This warrant was to

have become exercisable only upon the achievement of certain milestones by

Intel relating to shipment volumes of RDRAM chipsets (the "Intel milestones").

In September 2001, this warrant was cancelled as part of contract negotiations

that resulted in a new royalty-bearing contract with Intel.



In October 1998, the Company's board of directors authorized an incentive

program in the form of warrants for a total of up to 1,600,000 shares of Rambus

Common Stock (the "DRAM incentive warrants") to be issued to various RDRAM

licensees upon the achievement of certain product qualification and volume

production targets. The warrants, to be issued at the time the targets are met,

have an exercise price of $2.50 per share and a life of five years. These

warrants vest and become exercisable on the same basis as the former Intel

warrant, which will result in a non-cash charge to the statement of operations

based on the fair value of the warrants at the time the achievement of the

Intel milestones becomes probable. As of September 30, 2001, a total of

1,520,000 of these warrants had been issued.



In the fourth quarter of fiscal 1999, the Company granted to its Chief

Executive Officer and to its President a combined total of 2,000,000 Common

Stock Equivalents (CSEs) and to its employees approximately 2,160,000 options

to purchase Rambus Common Stock at $2.50 per share. An additional 494,500 of

these options were granted to employees in fiscal year 2001. Vesting of these

CSEs and options was contingent upon the achievement of key indicators of

success for Rambus. Vesting for a portion of the CSEs and options granted in

fiscal 1999 was contingent on an increase in the price of Rambus Common Stock

to greater than $50 per share for 30 consecutive days. This target was achieved

by the end of the second quarter of fiscal 2000, and resulted in a $171.1

million employee stock-related compensation charge taken in the same quarter.

Except for a $1.2 million employer payroll tax liability, this was a non-cash

charge. The remaining CSEs and options will vest on the same basis as the

former Intel and existing DRAM incentive warrants, which will result in another

almost entirely non-cash charge to the statement of operations based on the

fair value of the CSEs and options at the time achievement of the Intel

milestones becomes probable.



The magnitude of these charges is a function of the then current price of

Rambus Common Stock at the time the charges are taken. For example, if these

warrants, CSEs, and options were valued based upon a stock price of $50, the

charge could be $200 million or more. The charge, when and if taken, will be

non-cash except for payroll tax liabilities, which would likely be more than

offset by cash received by the Company upon exercise of the warrants and

options.



Liquidity and Capital Resources



As of September 30, 2001, the Company had cash and cash equivalents and

marketable securities of $155.6 million, including restricted investments of

$13.6 million and a long-term component of $12.1 million. As of the same date,

the Company had total working capital of $120.9 million, including a short-term

component of deferred revenue of $14.4 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

$135.3 million at September 30, 2001.



25

The Company's operating activities provided net cash of $30.6 million, $35.2

million and $4.1 million in fiscal 2001, 2000 and 1999, respectively. Cash

generated by fiscal 2001 operations was primarily the result of net income and

a decrease in prepaids, deferred taxes and other, offset by the tax cost of

stock option exercises, increases in accounts receivable, and decreases in

accounts and taxes payable, accrued payroll and other liabilities and deferred

revenue. Cash generated by fiscal 2000 operations was primarily the result of

net loss, the tax benefit of stock option exercises and deferred taxes, offset

by non-cash items, primarily non-cash stock compensation expense. Cash

generated in 1999 was primarily from net income, the tax benefit of stock

option exercises and income tax adjustments, offset by a decrease in deferred

revenue due to recognition of contract revenues in excess of new billings.



Net cash used in investing activities was $60.2 million in fiscal 2001. Net

cash provided in investing activities was $2.2 million in fiscal 2000. Net cash

used in investing activities was $19.8 million in fiscal 1999. Investing

activities have consisted primarily of net purchases and maturities of

marketable securities, increases in restricted cash, and purchases of property

and equipment and investments.



Net cash provided by financing activities were $10.8 million, $10.8 million

and $4.7 million in fiscal 2001, 2000 and 1999, respectively. Proceeds from the

sale of Common Stock under the Company's Employee Stock Purchase and Option

plans are the primary source of net cash provided by financing activities.



The Company presently anticipates that existing cash balances will be

adequate to meet its cash needs for at least the next 12 months.



Recent Accounting Pronouncements



In June 1998, the Financial Accounting Standards Board (FASB) issued

Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for

Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new

standards of accounting and reporting for derivative instruments and hedging

activities. SFAS No. 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 fiscal 2001, the Company adopted SFAS No. 133. The adoption of SFAS

No. 133 did not have any effect on the Company's financial statements and

related disclosures since the company does not currently hold any derivative

instruments.



In December 1999, the Securities and Exchange Commission issued Staff

Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial

Statements." SAB 101 provides guidance on applying accounting principles

generally accepted in the United States to revenue recognition in financial

statements. The Company adopted SAB 101 in fiscal 2001. The adoption of SAB 101

did not have any material effect on the Company's financial statements and

related disclosures since the Company's accounting policies are consistent with

the requirements of SAB 101.



On July 20, 2001, the FASB issued SFAS No. 141 "Business Combinations" and

SFAS No. 142, "Goodwill and Other Intangible Assets." These statements make

significant changes to the accounting for business combinations, goodwill and

intangible assets. SFAS No. 141 established new standards for accounting and

reporting requirements for business combinations and will require that the

purchase method of accounting be used for all business combinations initiated

after June 30, 2001. Use of the pooling-of-interests method will be prohibited.

This statement is effective for business combinations completed after June 30,

2001. SFAS No. 142 establishes new standards for goodwill acquired in a

business combination and eliminates amortization of goodwill and instead sets

forth methods to periodically evaluate goodwill for impairment. Intangible

assets with a determinable useful life will continue to be amortized over that

period. The Company expects to adopt both of these statements during the first

quarter of fiscal 2003.  During the fiscal year ended September 30, 2001,

goodwill amortization totaled $286,000.



In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset

Retirement Obligations". This Statement addresses financial accounting and

reporting for obligations associated with the retirement of tangible



26

long-lived assets and the associated asset retirement costs. This Statement

applies to all entities. It applies to legal obligations associated with the

retirement of long-lived assets that result from the acquisition, construction,

development and (or) the normal operation of a long-lived asset, except for

certain obligations of lessees. SFAS No. 143 is effective for financial

statements issued for fiscal years beginning after June 25, 2002. The Company

expects that the initial application of SFAS 143 will not have a material

impact on its financial statements.



On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the

Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supercedes SFAS No.

121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived

Assets to Be Disposed Of." SFAS No. 144 applies to all long-lived assets

(including discontinued operations) and consequently amends Accounting

Principles Board Opinion No. 30. SFAS No. 144 develops one accounting model for

long-lived assets that are to be disposed of by sale. SFAS No. 144 requires

that long-lived assets that are to be disposed of by sale be measured at the

lower of book value or fair value less cost to sell. Additionally, SFAS No. 144

expands the scope of discontinued operations to include all components of an

entity with operations that (1) can be distinguished from the rest of the

entity and (2) will be eliminated from the ongoing operations of the entity in

a disposal transaction. SFAS No. 144 is effective for the Company for all

financial statements issued in fiscal 2003. The Company expects the initial

application of SFAS No. 144 will not have a material impact on its financial

statements.



Item 7A. Quantitative and Qualitative Disclosures about Market Risk



The Company's exposure to market risk for changes in interest rates relates

primarily to its 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, 2001.



<TABLE>

<CAPTION>

Average Rate

of Return at

Carrying    September 30,

Value          2001

(in thousands) (annualized)

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

<S>                                                    <C>            <C>

Marketable securities:

Cash equivalents...................................    $ 40,699         3.2%

United States government debt securities...........      36,572         3.7%

Corporate notes and bonds..........................      21,123         6.1%

Foreign debt securities............................      26,944         4.6%

Commercial paper...................................      13,118         3.1%

--------

Total marketable securities....................    $138,456

========

</TABLE>



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.



27

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 is

incorporated by reference to the information set forth in the section entitled

"Proposal One - Election of Directors - Information Regarding Nominees and

Other Directors" in the Company's Proxy Statement for the 2002 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, 2001. Information required by

this item concerning the Company's executive officers is incorporated by

reference to the information set forth in the section entitled "Executive

Officers of the Company" in the Company's Proxy Statement for the 2002 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, 2001. Information

regarding Section 16 reporting compliance is incorporated by reference to the

information set forth in the section entitled "Section 16(a) Beneficial

Ownership Reporting Compliance" in the Company's Proxy Statement for the 2002

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, 2001.



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

Compensation" in the Company's Proxy Statement for the 2002 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, 2001.



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 "Security Ownership of Certain

Beneficial Owners and Management" in the Company's Proxy Statement for the 2002

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, 2001.



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 Relationships and Related Transactions" in the

Company's Proxy Statement for the 2002 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, 2001.



28

PART IV



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



(a) (1) Financial Statements



<TABLE>

<CAPTION>

Page

----

<C>                                                                        <S>

The following consolidated financial statements of the Registrant and

Report of PricewaterhouseCoopers LLP, Independent Accountants, are

included herewith:



Report of PricewaterhouseCoopers LLP, Independent Accountants.............  30



Consolidated Balance Sheets as of September 30, 2001 and 2000.............  31



Consolidated Statements of Operations for the years ended September 30,

2001, 2000, and 1999....................................................  32



Consolidated Statements of Stockholders' Equity and Comprehensive Income

for the years ended September 30, 2001, 2000, and 1999..................  33



Consolidated Statements of Cash Flows for the years ended September 30,

2001, 2000, and 1999....................................................  34



Notes to Consolidated Financial Statements................................  35



Consolidated Supplementary Financial Data.................................  52

</TABLE>



(a) (2) Financial Statement Schedules



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 is included in the

consolidated financial statements or notes thereto.



(a) (3) Exhibits



See Index to Exhibits on page 54 of this report on Form 10-K.



(b) Reports of Form 8-K



The Company filed no reports on Form 8-K during the fiscal year ended

September 30, 2001.



29

REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholders of

Rambus Inc. and Subsidiary



In our opinion, the consolidated financial statements listed in the index

appearing under item 14 (a) (1) present fairly, in all material respects, the

financial position of Rambus Inc. and its subsidiary at September 30, 2001 and

2000 and the results of their operations and their cash flows for each of the

three years in the period ended September 30, 2001, in conformity with

accounting principles generally accepted in the United States of America. 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

auditing standards generally accepted in the United States of America, 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 our opinion.



/s/ PRICEWATERHOUSECOOPERS LLP



San Jose, California

October 16, 2001, except at to Note 13, which is as of November 26, 2001



30

RAMBUS INC. AND SUBSIDIARY



CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)



<TABLE>

<CAPTION>

September 30,

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

2001       2000

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

<S>                                                          <C>        <C>

ASSETS

------

Current assets:.............................................

Cash and cash equivalents................................ $  44,195  $  63,093

Marketable securities....................................    85,700     59,127

Accounts receivable......................................     2,368         68

Prepaid and deferred taxes...............................     7,665     17,661

Prepaids and other current assets........................     3,319      2,988

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

Total current assets.................................   143,247    142,937

Property and equipment, net.................................    15,862      6,724

Marketable securities, long-term............................    12,057      7,548

Restricted investments......................................    13,605      2,500

Deferred taxes, long-term...................................    44,275     55,404

Other assets................................................     8,744      4,518

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

Total assets......................................... $ 237,790  $ 219,631

=========  =========



LIABILITIES

-----------

Current liabilities:........................................

Accounts payable......................................... $   1,563  $   1,850

Income taxes payable.....................................       183         74

Accrued salaries and benefits............................     2,635      3,504

Other accrued liabilities................................     3,596      3,604

Deferred revenue.........................................    14,398     24,155

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

Total current liabilities............................    22,375     33,187

Deferred revenue, less current portion......................    24,058     24,122

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

Total liabilities....................................    46,433     57,309

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

Commitments and contingencies (Notes 6, 7 and 13)...........



STOCKHOLDERS' EQUITY

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

Convertible preferred stock, $.001 par value:...............

Authorized: 5,000,000 shares;............................

Issued and outstanding: no shares at September 30, 2001

and September 30, 2000.................................        --         --

Common Stock, $.001 par value:..............................

Authorized: 500,000,000 shares;..........................

Issued and outstanding: 100,287,676 shares at September

30, 2001 and 97,490,774 shares at September 30, 2000...       100         97

Additional paid-in capital..................................   282,911    285,885

Deferred stock-based compensation...........................      (461)      (571)

Accumulated deficit.........................................   (91,861)  (123,132)

Accumulated other comprehensive gain........................       668         43

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

Total stockholders' equity...........................   191,357    162,322

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

Total liabilities and stockholders' equity........ $ 237,790  $ 219,631

=========  =========

</TABLE>



See Notes to Consolidated Financial Statements.



31

RAMBUS INC. AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)



<TABLE>

<CAPTION>

Year Ended September 30,

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

2001      2000       1999

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

<S>                                               <C>      <C>         <C>

Revenues:

Contract revenues............................. $ 21,797 $   39,683  $ 35,353

Royalties.....................................   95,363     32,628     8,017

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

Total revenues............................  117,160     72,311    43,370

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

Costs and expenses:

Cost of contract revenues.....................    9,863     12,093    12,232

Research and development......................   18,204     11,501     8,123

Marketing, general and administrative.........   48,378     21,140    13,516

Employee stock-related compensation expense...       --    171,085        --

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

Total costs and expenses..................   76,445    215,819    33,871

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

Operating income (loss)...................   40,715   (143,508)    9,499

Interest and other income, net...................    8,932      4,714     4,346

Interest expense.................................       --         --        (7)

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

Income (loss) before income taxes.........   49,647   (138,794)   13,838

Provision for (benefit from) income taxes........   18,376    (32,667)    5,120

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

Net income (loss)......................... $ 31,271 $ (106,127) $  8,718

======== ==========  ========

Net income (loss) per share--basic............... $   0.31 $    (1.10) $   0.09

======== ==========  ========

Net income (loss) per share--diluted............. $   0.29 $    (1.10) $   0.09

======== ==========  ========

Number of shares used in per share calculations:

Basic.........................................   99,456     96,487    93,328

======== ==========  ========

Diluted.......................................  105,966     96,487   100,208

======== ==========  ========

</TABLE>





See Notes to Consolidated Financial Statements.



32

RAMBUS INC. AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

for the years ended September 30, 2001, 2000 and 1999



<TABLE>

<CAPTION>





Accumulated

Common Stock  Additional   Deferred                   Other

--------------  Paid-In   Stock-Based  Accumulated Comprehensive

Shares  Amount  Capital   Compensation   Deficit    Gain (Loss)    Total

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

(in thousands)

<S>                               <C>     <C>    <C>        <C>          <C>         <C>           <C>

Balances, September 30, 1998.....  91,704 $  92  $  67,548     $   --     $ (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...........................   2,360     2      2,821         --            --         --          2,823

Issuance of Common Stock

under Employee Stock

Purchase Plan.................     748     1      2,031         --            --         --          2,032

Tax benefit of stock option

exercises.....................      --    --      6,103         --            --         --          6,103

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

Balances, September 30, 1999.....  94,812    95     78,503         --      (123,132)        43        162,322

Components of comprehensive

income:

Net loss......................      --    --         --         --      (106,127)        --       (106,127)

Foreign currency

translation adjustments......      --    --         --         --            --        (14)           (14)

Unrealized gain on

marketable securities........      --    --         --         --            --         86             86

----------

Total comprehensive income...                                                                    (106,055)

----------

Issuance of Common Stock

upon exercise of options,

net...........................   2,300     2      8,497         --            --         --          8,499

Issuance of Common Stock

under Employee Stock

Purchase Plan.................     179    --      2,257         --            --         --          2,257

Issuance of Common Stock

from Common Stock

Equivalents...................     200    --         --         --            --         --             --

Stock-related compensation

charges.......................      --    --    169,878         --            --         --        169,878

Deferred compensation...........      --    --        663       (663)           --         --             --

Amortization of deferred

compensation..................      --    --         --         92            --         --             92

Tax benefit of stock option

exercises.....................      --    --     26,087         --            --         --         26,087

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

Balances, September 30, 2000.....  97,491    97    285,885       (571)     (123,132)        43        162,322

Components of comprehensive

income:

Net income....................      --    --         --         --        31,271         --         31,271

Foreign currency

translation adjustments......      --    --         --         --            --        (87)           (87)

Unrealized gain on

marketable securities........      --    --         --         --            --        712            712

----------

Total comprehensive income...                                                                      31,896

----------

Issuance of Common Stock

upon exercise of options,

net...........................   1,813     2      8,318         --            --         --          8,320

Issuance of Common Stock

under Employee Stock

Purchase Plan.................     184    --      2,459         --            --         --          2,459

Issuance of Common Stock

from Common Stock

Equivalents...................     800     1         --         --            --         --              1

Amortization of deferred

compensation..................      --    --         --        110            --         --            110

Tax cost of stock option

exercises.....................      --    --    (13,751)        --            --         --        (13,751)

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

Balances, September 30, 2001..... 100,288 $ 100  $ 282,911     $ (461)    $ (91,861)    $  668     $  191,357

======= =====  =========     ======     =========     ======     ==========

</TABLE>



See Notes to Consolidated Financial Statements.



33

RAMBUS INC. AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>

<CAPTION>

Year Ended September 30,

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

2001       2000        1999

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

(in thousands)

<S>                                                           <C>        <C>        <C>

Cash flows from operating activities:

Net income (loss)......................................... $  31,271  $(106,127) $     8,718

Adjustments to reconcile net income (loss) to

net cash provided by operating activities:

Non-cash employee stock-related

compensation........................................        --    169,878           --

Tax benefit (cost) of stock option

exercises...........................................   (13,751)    26,087        6,103

Depreciation..........................................     4,449      3,243        3,127

Amortization of deferred compensation.................       618        557           --

Amortization of goodwill..............................       286        245           --

Other.................................................        --         --         (531)

Change in operating assets and liabilities:

Accounts receivable................................    (2,300)     1,431          414

Prepaids, deferred taxes and other

assets...........................................    21,382    (62,664)       1,110

Accounts and taxes payable, accrued

payroll and......................................

other liabilities..................................    (1,563)     4,070          991

Deferred revenue...................................    (9,821)    (1,507)     (15,853)

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

Net cash provided by operating

activities...................................    30,571     35,213        4,079

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

Cash flows from investing activities:

Purchase of property and equipment........................   (13,587)    (5,737)      (3,292)

Purchases of marketable securities........................  (835,414)  (854,550)  (1,118,281)

Maturities of marketable securities.......................   805,044    865,777    1,102,630

Acquired technology rights................................        --     (1,334)          --

Purchase of investments...................................    (5,100)    (2,000)      (1,200)

Sale of investments.......................................        --         --        2,822

Increase in restricted cash...............................   (11,105)        --       (2,500)

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

Net cash provided by (used in)

investing activities.........................   (60,162)     2,156      (19,821)

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

Cash flows from financing activities:

Net proceeds from issuance of common stock................    10,780     10,756        4,855

Principal payments on capital lease obligations...........        --         --         (130)

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

Net cash provided by financing

activities...................................    10,780     10,756        4,725

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

Effect of exchange rates on cash and cash

equivalents................................................       (87)       (14)         201

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

Net increase (decrease) in cash and cash

equivalents................................................   (18,898)    48,111      (10,816)

Cash and cash equivalents at beginning of year...............    63,093     14,982       25,798

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

Cash and cash equivalents at end of year..................... $  44,195  $  63,093  $    14,982

=========  =========  ===========

Supplemental disclosure of cash flow information:

Interest paid............................................. $      --  $      --  $         7

Taxes paid................................................    12,968      5,975          408

Deferred compensation upon acquisition of

technology rights.......................................        --      1,128           --

</TABLE>



See Notes to Consolidated Financial Statements.



34

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-connection technologies to enhance the performance and

cost-effectiveness of computers, consumer electronics, communications systems,

and networking products. The Company licenses semiconductor companies to

manufacture and sell memory and logic ICs incorporating Rambus chip-connection

technology and markets its solution to systems companies to encourage them to

design Rambus standard 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 generates revenues from four types of agreements with

semiconductor companies. The first type of agreement, for memory interface

technology which is fully compatible with the RDRAM standard ("RDRAM

licenses"), allows semiconductor manufacturers to manufacture and sell RDRAM

memory devices and logic ICs containing an interface to the RDRAM device. The

second type of agreement covers the use of Rambus patents and other

intellectual property in synchronous DRAM ("SDRAM") and double data-rate

("DDR") memory devices and logic ICs which control such memory. The third type

of agreement is for the RaSer ASIC cell that licensees integrate into their

logic ICs. The fourth type of agreement is one with Intel for five years of

payments which grants Intel access to Rambus' complete patent portfolio.



RDRAM licenses allow a semiconductor manufacturer to use the Company's

proprietary technology and to receive engineering implementation services,

customer support, and enhancements. The Company delivers to a new RDRAM

licensee an implementation package which contains the information needed to

develop a chip incorporating RDRAM memory interface technology 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 RDRAM 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 RDRAM licenses also provide for the

right to receive ongoing customer support which includes technical advice on

chip specifications, enhancements, debugging and testing.



35

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



2. Summary of Significant Accounting Policies (Continued)



Revenue Recognition (continued)





The Company recognizes revenue on RDRAM licenses consistent with American

Institute of Certified Public Accountants (AICPA) Statement of Position No.

98-9 (SOP 98-9), modification of SOP 97-2, "Software Revenue Recognition." This

SOP applies to all entities that earn revenue on products containing software,

where software is not incidental to the product as a whole. Contract fees for

the services provided under these agreements are comprised of license fees,

engineering service fees and 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. Revenue recognition

periods are estimated based on management's judgment of the time over which the

Company expects to support its licensees.



At the time the Company begins to recognize revenue under RDRAM licenses,

the remaining obligations, as defined by the SOP, are no longer significant.

These remaining obligations are primarily to keep the product updated and 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 excess of

contract fees received over revenue recognized is shown on the balance sheet as

deferred revenue.



RaSer serial link licenses generally also provide for the payment of license

fees and engineering fees, as well as royalties based upon the number of links

produced by the licensees. Revenues from license fees and engineering fees are

recognized ratably over the period during which the post-contract customer

support is expected to be provided, independent of the payment schedules under

the contract.



SDRAM-compatible and DDR-compatible licenses also generally provide for the

payment of fees which include compensation for use of Rambus patents from the

time the Company notifies the licensee of potential infringement. Accordingly,

the Company classifies these fees as royalty revenues which are recognized

ratably over the five-year contract period.



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. The Company recognizes royalties

from the Intel contract which grants Intel access to the Rambus patent

portfolio as the amounts are due and payable pursuant to the contract with

Intel.



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.



36

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



2. Summary of Significant Accounting Policies (Continued)





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 stock and common stock equivalents,

if dilutive, outstanding during the period.



Common Stock Split



In March 2000, the Company's board of directors approved a four-for-one

split of Rambus' Common Stock, subject to stockholder approval of an increase

in authorized Common Stock. On May 23, 2000, the Company's stockholders

approved an increase in the Company's authorized shares of Common Stock to 500

million shares. The stock began trading on a split-adjusted basis on June 15,

2000. All references in this Form 10-K to earnings per share, the number of

common shares, warrants, Cmmon Stock Equivalents, and options, and the share

price have been retroactively restated to reflect the common stock split and

the increase in authorized Common Stock.



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." Stock options are generally granted

with exercise prices equivalent to fair market value, and no compensation cost

is recognized. When stock options are granted with exercise prices below fair

market value, employee stock-related compensation expense is recognized

accordingly. 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 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.



37

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



2. Summary of Significant Accounting Policies (Continued)





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 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 gain (loss).

Gains or losses resulting from foreign currency transactions are included in

the results of operations.



Segments



As defined by Statement of Financial Accounting Standards No. 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 adjustments and

unrealized gains and losses on marketable securities. Other comprehensive gain

is presented in the statement of stockholders' equity and comprehensive income.



Recent Accounting Pronouncements



In June 1998, the Financial Accounting Standards Board (FASB) issued

Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for

Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new

standards of accounting and reporting for derivative instruments and hedging

activities. SFAS No. 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 fiscal 2001, the Company adopted SFAS No. 133. The adoption of SFAS

No. 133 did not have any effect on the Company's financial statements and

related disclosures since the company does not currently hold any derivative

instruments.



In December 1999, the Securities and Exchange Commission issued Staff

Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial

Statements." SAB 101 provides guidance on applying accounting principles

generally accepted in the United States to revenue recognition in financial

statements. The Company adopted SAB 101 fiscal 2001. The adoption of SAB 101

did not have any material effect on the Company's financial statements and

related disclosures since the Company's accounting policies are consistent with

the requirements of SAB 101.



38

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



2. Summary of Significant Accounting Policies (Continued)



Recent Accounting Pronouncements (continued)





On July 20, 2001, the FASB issued SFAS No. 141 "Business Combinations" and

SFAS No. 142, "Goodwill and Other Intangible Assets." These statements make

significant changes to the accounting for business combinations, goodwill and

intangible assets. SFAS No. 141 established new standards for accounting and

reporting requirements for business combinations and will require that the

purchase method of accounting be used for all business combinations initiated

after June 30, 2001. Use of the pooling-of-interests method will be prohibited.

This statement is effective for business combinations completed after June 30,

2001. SFAS No. 142 establishes new standards for goodwill acquired in a

business combination and eliminates amortization of goodwill and instead sets

forth methods to periodically evaluate goodwill for impairment. Intangible

assets with a determinable useful life will continue to be amortized over that

period. The Company expects to adopt both of these statements during the first

quarter of fiscal 2003.  During the fiscal year ended September 30, 2001,

goodwill amortization totaled $286,000.



In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset

Retirement Obligations". This Statement addresses financial accounting and

reporting for obligations associated with the retirement of tangible long-lived

assets and the associated asset retirement costs. This Statement applies to all

entities. It applies to legal obligations associated with the retirement of

long-lived assets that result from the acquisition, construction, development

and (or) the normal operation of a long-lived asset, except for certain

obligations of lessees. SFAS No. 143 is effective for financial statements

issued for fiscal years beginning after June 25, 2002. The Company expects that

the initial application of SFAS 143 will not have a material impact on its

financial statements.



On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the

Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supercedes SFAS No.

121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived

Assets to Be Disposed Of." SFAS No. 144 applies to all long-lived assets

(including discontinued operations) and consequently amends Accounting

Principles Board Opinion No. 30. SFAS No. 144 develops one accounting model for

long-lived assets that are to be disposed of by sale. SFAS No. 144 requires

that long-lived assets that are to be disposed of by sale be measured at the

lower of book value or fair value less cost to sell. Additionally, SFAS No. 144

expands the scope of discontinued operations to include all components of an

entity with operations that (1) can be distinguished from the rest of the

entity and (2) will be eliminated from the ongoing operations of the entity in

a disposal transaction. SFAS No. 144 is effective for the Company for all

financial statements issued in fiscal 2003. The Company expects that the

initial application of SFAS No. 144 will not have a material impact on it

financial statements.



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, litigation regarding

patent and other intellectual property rights, 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, 2001, one customer

accounted for 90% of accounts receivable. At September 30, 2000, three

customers accounted for 73%, 12% and 11% of accounts receivable.



As of September 30, 2001, the Company's cash and cash equivalents are

deposited with principally three financial institutions in the form of

commercial paper, money market accounts, and demand deposits. As of



39

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



3. Business Risks and Credit Concentration (Continued)



September 30, 2000, the Company's cash and cash equivalents were deposited with

principally two financial institutions in the form of commercial paper, money

market accounts, and demand deposits.



4. Marketable Securities



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 2 years.



All marketable securities are classified as available-for-sale and are

summarized as follows (in thousands):



<TABLE>

<CAPTION>

September 30,

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

2001    2000

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

<S>                                                         <C>     <C>

United States government debt securities................... $36,572 $37,527

Corporate notes and bonds..................................  21,123   9,520

Municipal notes and bonds..................................      --   8,189

Foreign debt securities....................................  26,944   7,523

Commercial paper...........................................  13,118   3,916

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

$97,757 $66,675

======= =======

</TABLE>



Available-for-sale securities are carried at fair value. Gross unrealized

gains of approximately $701,000 are netted against gross unrealized losses of

approximately $7,000, 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,

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

2001      2000

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

<S>                                                         <C>       <C>

Computer equipment......................................... $  9,654  $  9,215

Computer software..........................................    6,768     5,973

Furniture and fixtures.....................................    5,357     1,509

Leasehold improvements.....................................    9,057       592

Construction in process....................................       --     3,830

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

30,836    21,119

Less accumulated depreciation and amortization.............  (14,974)  (14,395)

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

$ 15,862  $  6,724

========  ========

</TABLE>



Depreciation and amortization expense was approximately $4,449,000,

$2,752,000 and $2,985,000 in the years ended September 30, 2001, 2000 and 1999.



40

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)





6. Lease Commitments



The Company relocated its headquarters at the beginning of calendar year

2001, and entered into an agreement to sublease its previous Mountain View

facilities through the end of the existing lease term in February 2005.



The Company leases its present office facilities in Los Altos, California,

under an operating lease agreement. The Company is responsible for taxes,

insurance, utilities and maintenance related to the leased facilities. 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

commenced upon occupancy in January 2001. 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, 2001, aggregate future minimum payments under the leases

are (in thousands):



<TABLE>

<CAPTION>

Net

Fiscal Year:                            Leases  Subleases Commitments

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

<S>                                     <C>     <C>       <C>

2002................................... $ 4,705  $ 2,893    $ 1,812

2003...................................   4,846    2,980      1,866

2004...................................   4,984    3,069      1,915

2005...................................   4,660    1,304      3,356

2006...................................   4,467       --      4,467

Thereafter.............................  20,516       --     20,516

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

Total minimum lease payments........... $44,178  $10,246    $33,932

=======  =======    =======

</TABLE>



Rent expense was approximately $3,931,000, $1,516,000, and $1,503,000 for

the years ended September 30, 2001, 2000 and 1999, 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 July 2000, the Company's Board of Directors agreed

to restate the exercise price to $600 per right in an Amended and Restated

Preferred Shares Rights Agreement.



As of September 30, 2001, 2000 and 1999, the total shares held by employees

that were subject to repurchase were 5,736 and 215,087, and 841,944,

respectively.



In October 2001, the Company's Board of Directors approved a share

repurchase program of the Company's Common Stock. Under the share repurchase

program, the Company is authorized to purchase in open market transactions up

to five million of the Company's shares of outstanding Common Stock over an

undefined period of time.



41

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



7. Stockholders' Equity (Continued)





Stock Option Plans



In March 1990, the Company adopted the 1990 Stock Plan under which

10,628,572 shares of Common Stock were reserved for issuance. Incentive stock

options were granted with exercise prices of no less than fair market value,

and nonqualified stock options could 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 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 20,494,094 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. In October 1999, the

1997 Stock Plan was revised to add the provision and ability of the Company to

grant Common Stock Equivalents, which are unfunded and unsecured rights to

receive shares in the future.



In October 1999, the Company adopted the 1999 Nonstatutory Stock Option

Plan, which authorizes the issuance of nonstatutory options to employees and

consultants. The Company has reserved 14,800,000 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, the expiration date, and the exercise price (which

generally is the fair market value at the date of grant).



42

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



7. Stockholders' Equity (Continued)



Stock Option Plans (continued)





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



<TABLE>

<CAPTION>





Options Outstanding

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

Options      Number        Weighted

Available for     of      Average Exercise

Grant       Shares    Price Per Share

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

<S>                                     <C>           <C>         <C>

Outstanding at September 30, 1998......      568,800  11,045,936       $ 5.28

Shares reserved........................    3,431,200          --           --

Shares repurchased.....................       28,000          --           --

Options terminated under 1990 Plan.....     (207,800)         --           --

Options granted........................   (4,682,400)  4,682,400       $14.75

Options exercised......................           --  (2,386,420)      $ 1.19

Options canceled.......................    1,095,552  (1,095,552)      $10.99

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

Outstanding at September 30, 1999......      233,352  12,246,364       $ 9.19

Shares reserved........................   10,366,648          --           --

Shares repurchased.....................       33,510          --           --

Options terminated under 1990 Plan.....     (152,204)         --           --

Options granted........................   (9,808,900)  9,808,900       $20.65

Options exercised......................           --  (2,334,300)      $ 3.78

Options canceled.......................      706,382    (706,382)      $ 9.35

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

Outstanding at September 30, 2000......    1,378,788  19,014,582       $15.73

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

Shares reserved........................   10,881,312          --           --

Options terminated under 1990 Plan.....       (9,001)         --           --

Options granted........................  (10,883,500) 10,883,500       $10.36

Options exercised......................           --  (1,812,685)      $ 4.47

Options canceled.......................    1,939,366  (1,939,366)      $17.83

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

Outstanding at September 30, 2001......    3,306,965  26,146,031       $14.11

===========  ==========

</TABLE>



43

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



7. Stockholders' Equity (Continued)



Stock Option Plans (continued)





The following table summarizes information about outstanding and exercisable

options as of September 30, 2001:



<TABLE>

<CAPTION>

Options Outstanding                 Options Exercisable

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

Weighted Average                                 Weighted

Number       Remaining     Weighted Average   Number       Average

Range of Exercise Prices Outstanding Contractual Life  Exercise Price  Exercisable Exercise Price

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

<S>                      <C>         <C>              <C>              <C>         <C>

$ 0.00--$ 2.50       2,694,437        7.13            $ 2.00       1,295,041      $ 1.53

$ 3.00             540,930        5.62              3.00         471,462        3.00

$ 4.86           8,476,000        9.90              4.86         246,979        4.86

$ 6.01--$12.78       2,935,134        7.12             11.24         868,282       11.54

$13.25--$14.83       2,768,089        7.26             14.29         576,633       13.85

$14.94--$15.66         729,204        7.41             15.32         364,344       15.31

$15.67           3,743,500        8.05             15.67         113,950       15.67

$15.78--$37.66       2,627,737        8.63             30.27         315,308       22.03

$54.63--$77.36       1,571,000        9.05             59.77          38,466       69.24

$83.00              60,000        9.01             83.00          13,749       83.00

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

26,146,031        8.42            $14.11       4,304,214      $ 9.46

==========                                     =========

</TABLE>



As of September 30, 2001, a total of 29,452,996 shares of Common Stock were

reserved for issuance under all stock option plans. As of September 30, 2001,

2000 and 1999, options for the purchase of 4,157,613, 2,892,852 and1,960,764

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 1,600,000 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 2001 the Company issued

184,221 shares, 179,300 shares in fiscal 2000 and 748,712 shares in fiscal

1999, under the Purchase Plan at an average price per share of $13.35, $12.58

and $2.72, respectively.



44

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



7. Stockholders' Equity (Continued)





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. Stock options are generally granted with exercise prices

equivalent to fair market value, and no compensation cost is recognized. When

stock options are granted with exercise prices below fair market value,

employee stock-related compensation expense is recognized accordingly. 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 (loss) and net income (loss) per share would have changed to the pro

forma amounts indicated below:



<TABLE>

<CAPTION>

Year Ended September 30,

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

2001     2000      1999

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

<S>                                                    <C>     <C>        <C>

Net income (loss) as reported......................... $31,271 $(106,127) $8,718

Net income (loss) pro forma........................... $13,065 $(117,846) $5,413

Net income (loss) per share--basic as reported........ $  0.31 $   (1.10) $ 0.09

Net income (loss) per share--basic pro forma.......... $  0.13 $   (1.22) $ 0.06

Net income (loss) per share--diluted as reported...... $  0.29 $   (1.10) $ 0.09

Net income (loss) per share--diluted pro forma........ $  0.12 $   (1.22) $ 0.05

</TABLE>



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

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

2001      2000      1999      2001      2000

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

<S>                                     <C>       <C>       <C>       <C>       <C>

Expected stock price volatility........   107%       98%       82%      106%       95%

Risk-free interest rate................   4.2%      6.2%      5.0%      4.8%      6.1%

Expected life of options............... 5.4 years 4.8 years 4.1 years 0.5 years 0.5 years

</TABLE>



The weighted-average fair value of stock options granted during the years

ended September 30, 2001, 2000 and 1999 is $8.79, $19.97 and, $9.36,

respectively. The weighted-average fair value of purchase rights granted under

the Purchase Plan during the years ended September 30, 2001, 2000 and 1999 is

$13.82, $12.95 and $2.68, respectively.



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, 2001, 2000 and 1999 are not likely to be representative of

the effects on pro forma disclosures in future years.



45

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



7. Stockholders' Equity (Continued)





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 4,000,000 shares of Common Stock of the Company at a

purchase price of $2.50 per share (the "Intel warrant"). This warrant was to

have become exercisable only upon the achievement of certain milestones by

Intel relating to shipment volumes of RDRAM chipsets (the "Intel milestones").

In September 2001, this warrant was cancelled as part of contract negotiations

which resulted in a new royalty-bearing contract with Intel.



In October 1998, the Company's Board of Directors authorized an incentive

program in the form of warrants for a total of up to 1,600,000 shares of Rambus

Common Stock (the "DRAM incentive warrants") to be issued to various RDRAM

licensees upon the achievement of certain product qualification and volume

production targets. The warrants, to be issued at the time the targets are met,

have an exercise price of $2.50 per share and a life of five years. They vest

and become exercisable on the same basis as the former Intel warrant, which

will result in a non-cash charge to the statement of operations based on the

fair value of the warrants at the time the achievement of the Intel milestones

becomes probable. As of September 30, 2001, a total of 1,520,000 of these

warrants had been issued.



Contingent Common Stock Equivalents and Options



In the fourth quarter of fiscal 1999, the Company granted to its Chief

Executive Officer and to its President a combined total of 2,000,000 Common

Stock Equivalents (CSEs) and to its employees approximately 2,160,000 options

to purchase Rambus Common Stock for $2.50 per share. An additional 494,500 of

these options were granted to employees in fiscal 2001. Vesting of these CSEs

and options was contingent upon the achievement of key indicators of success

for Rambus. Vesting for a portion of these CSEs and options granted in fiscal

1999 was contingent on an increase in the price of Rambus Common Stock to

greater than $50 per share for 30 consecutive days. This target was achieved by

the end of the second quarter of fiscal 2000, and resulted in a $171.1 million

employee stock-related compensation charge taken in the same quarter. Except

for a $1.2 million employer payroll tax liability, this was a non-cash charge.

The remaining CSEs and options will vest on the same basis as the previous

Intel and existing DRAM incentive warrants, which will result in another almost

entirely non-cash charge to the statement of operations based on the fair value

of the CSEs and options at the time achievement of the Intel milestones becomes

probable.



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. For the years ended September 30, 2001 and

2000, the Company made matching contributions totaling $135,000 and $116,000,

respectively. There were no matching contributions for the year ended September

30, 1999.



46

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)





9. Income Taxes



The provision for (benefit from) income taxes comprises (in thousands):



<TABLE>

<CAPTION>

Year Ended September 30,

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

2001     2000     1999

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

<S>                                               <C>     <C>       <C>

Foreign withholding tax:

Current....................................... $10,667 $  5,954  $  369

Federal:

Current.......................................     311       --      (8)

Deferred......................................   6,785  (32,843)  4,115

State:

Current.......................................      23       --      --

Deferred......................................     590   (5,778)    644

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

$18,376 $(32,667) $5,120

======= ========  ======

</TABLE>



The Company's effective tax rate on pretax income (loss) differs from the

U.S. federal statutory regular tax rate as follows:



<TABLE>

<CAPTION>

Year Ended September 30,

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

2001     2000    1999

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

<S>                                               <C>     <C>      <C>

Expense at U.S. federal statutory rate...........  35.0 %  (35.0)%  35.0 %

Expense at state statutory rate..................   4.3     (5.9)    5.7

Nondeductible compensation expense...............    --     28.7      --

Nondeductible amortization.......................    --       --     0.4

R&D credit.......................................  (1.9)    (1.9)   (9.7)

Change in valuation allowance....................    --    (13.8)   10.8

Other............................................  (0.4)     4.4    (5.2)

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

37.0 %  (23.5)%  37.0 %

====    =====    ====

</TABLE>



The components of the net deferred tax assets are as follows (in thousands):



<TABLE>

<CAPTION>

September 30,

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

2001     2000

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

<S>                                                         <C>      <C>

Deferred tax assets:

Deferred revenue........................................ $14,586  $19,489

Depreciation and amortization expense...................   1,155    1,025

Other liabilities and reserves..........................     757      595

Employee stock-related compensation expense.............   8,033   35,947

Net operating loss carryover............................   7,508   16,431

Tax credits.............................................  23,716    3,394

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

Total deferred tax asset............................  55,755   76,881

Valuation allowance........................................  (5,923)  (5,923)

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

Deferred tax assets, net............................ $49,832  $70,958

=======  =======

</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



47

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



9. Income Taxes (Continued)



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 $19.7 million and $20.4

million for federal and California state tax purposes, respectively. In

addition, the Company has federal and state research and experimentation tax

credit carryforwards of $5.0 million and $3.0 million respectively, and foreign

tax credit carryforwards of $15.7 million. The net operating loss carryforwards

and tax credits expire between 2002 and 2021. For federal and state tax

purposes, the Company's net operating loss carryforwards may be subject to an

annual limitation in the case of a greater than 50% change in stock ownership,

as defined by federal and state tax law.



10. Acquired Technology Rights



In November 1999, the Company acquired rights to the intellectual property

assets of a network technology company for approximately $3.1 million in cash

and stock-based compensation and other obligations, subject to vesting, to

certain key employees. The value of the intellectual property assets acquired

is being amortized over five years. Deferred compensation and other obligations

are being amortized over the vesting terms ranging from 2 to 4 years. Research

and development expenses include approximately $904,000 of such expenses in

fiscal 2001.



11. Net Income Per Share



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

per share data):



<TABLE>

<CAPTION>

Year Ended September 30,

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

2001     2000       1999

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

<S>                                          <C>      <C>        <C>

Net income (loss)........................... $ 31,271 $(106,127) $  8,718

======== =========  ========

Weighted average common shares outstanding..   99,456    96,487    93,328

Additional dilutive common stock equivalents    6,510        --     6,880

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

Diluted shares outstanding..................  105,966    96,487   100,208

======== =========  ========

Net income (loss) per share--basic.......... $   0.31 $   (1.10) $   0.09

======== =========  ========

Net income (loss) per share--diluted........ $   0.29 $   (1.10) $   0.09

======== =========  ========

</TABLE>



Options to purchase 4,931,296 shares of Common Stock were not included in

the computation of diluted shares for the year ended September 30, 2001,

because the options' exercise prices were greater than the average market price

of the common shares for the year. For the year ended September 30, 2000, all

outstanding options to purchase shares of Common Stock were excluded from the

computation of diluted net loss per share because they were anti-dilutive. For

the year ended September 30, 1999, no options were excluded from the

computation of diluted shares for the years ended September 30, 2001, as all

options were dilutive.



12. Business Segments, Exports and Major Customers



The Company operates in a single industry segment.



Five customers accounted for 25%, 17%, 12%, 10% and 10%, respectively, of

revenues in the year ended September 30, 2001. Three customers accounted for

15%, 13% and 11%, respectively, of revenues in the year



48

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



12. Business Segments, Exports and Major Customers (Continued)



ended September 30, 2000. Three customers accounted for 11%, 11% and 10%,

respectively, of revenues in the year ended September 30, 1999.



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,

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

2001    2000    1999

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

<S>                                                    <C>      <C>     <C>

Japan................................................. $ 55,171 $38,415 $14,010

United States.........................................   22,571  13,377  17,404

Korea.................................................   30,483  11,272   4,908

Taiwan................................................    5,930   5,333   4,461

Europe................................................    2,897   3,672   2,587

Israel................................................      108     242      --

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

$117,160 $72,311 $43,370

======== ======= =======

</TABLE>



Revenues are attributed to individual countries according to the countries

in which the licensees are headquartered.



13. Litigation and Asserted Claims



On August 8, 2000, the Company filed suit in the U.S. District Court for the

Eastern District of Virginia (the "Virginia court") against Infineon

Technologies AG ("Infineon") and its North American subsidiary for patent

infringement of two U.S. patents. On September 25, 2000, Infineon filed

counterclaims against the Company in the U.S. case seeking a declaratory

judgment that the two asserted patents are invalid and no infringed and further

claiming contributory infringement by the Company of two Infineon U.S. patents.

In addition, Infineon also asserted breach of contract, fraud, RICO, and

monopolization claims in connection with the Company's participation in an

industry standards-setting group known as JEDEC where the Company is alleged

not to have disclosed certain of its then-pending patents ("JEDEC related

claims"). The Infineon counterclaims seek compensatory and punitive damages,

attorneys' fees, injunctions to halt future infringement of the Infineon

patents, and an award of a royalty-free license to the Rambus patents. In

October 2000, the Company amended its complaint to assert infringement of two

additional U.S. patents. In January 2001, Infineon amended its answer and

counterclaims to include a request for a declaratory judgment that all four

asserted Rambus patents are invalid and not infringed. In addition, Infineon

withdrew all contributory patent infringement claims against the Company

relating to Infineon's U.S. patents.



Trial began in the Virginia case on April 23, 2001. On May 4, 2001, the

Virginia court granted Infineon's motion to dismiss Rambus' patent infringement

case and granted Rambus' motion to dismiss Infineon's breach of contract and

monopolization claims. On May 9, 2001, the jury returned a verdict against

Rambus on the fraud claims and for Rambus on the RICO claims. The jury awarded

Infineon $3.5 million in punitive damages, which was reduced to $350,000 under

Virginia law. On August 9, 2001, as a result of post-trial motions, the

Virginia court set aside the constructive fraud verdict with respect to both

SDRAM and DDR standard setting. The actual fraud verdict with respect to DDR

standard setting was also set aside. Post-trial motions by Infineon resulted in

the Virginia court awarding Infineon approximately $7.1 million in attorneys'

fees. In addition, on November 26, 2001, the Virginia court issued a permanent

injunction, largely in accord with its previous rulings, prohibiting the

Company from filing additional patent infringement actions in the U.S., under

certain of the Company's U.S. patents, against Infineon with regard to

JEDEC-compliant SDRAM and DDR devices.



49

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



13. Litigation and Asserted Claims (Continued)





The Company has appealed numerous liability rulings by the Virginia court

with respect to infringement and the JEDEC-related claims with respect to SDRAM

standard setting. Infineon has also cross-appealed setting aside of the verdict

with respect to DDR standard setting. These appeals, which will be heard by the

Court of Appeals for the Federal Circuit (CAFC), have been consolidated. The

Company filed its opening brief on November 2, 2001. The Company has also filed

a subsequent appeal with respect to the permanent injunction ruling.



On August 7, 2000, the Company filed suit in the District Court in Mannheim,

Germany (the "Mannheim court") against Infineon for infringement of one

European patent. A hearing was held on May 18, 2001, and on July 20, 2001, the

Mannheim court issued an "order for evidence" requiring the appointment of an

independent technical expert to evaluate certain technical aspects of Rambus'

infringement claim. The Mannheim court subsequently appointed its independent

technical expert, and, after the expert delivers an opinion, the court will

then determine whether Infineon products infringe Rambus' patent. In the

meantime, the validity of the same Rambus European patent is being reviewed by

the European Patent Office.



On August 28, 2000, Micron Technology, Inc. ("Micron") filed suit against

the Company in the U.S. District Court in Delaware. The suit asserts violations

of federal antitrust laws, deceptive trade practices, breach of contract, fraud

and negligent misrepresentation in connection with the Company's participation

in JEDEC. Micron's suit seeks a declaration of monopolization by the Company,

compensatory and punitive damages, attorneys' fees, a declaratory judgment that

eight Rambus patents are invalid and not infringed and the award to Micron of a

royalty-free license to the Rambus patents. In February 2001, the Company filed

its answer and counterclaims, whereby the Company disputes Micron's claims and

asserts infringement by Micron of the eight U.S. patents. Some discovery is

still ongoing in the Delaware action. Both sides have filed a number of

potentially dispositive motions for summary judgment on which the Delaware

court has not yet ruled. The judge has postponed trial on a number of the

issues until after the CAFC reviews the judgments of the Virginia court in the

Infineon matter. Issues, if any, that are to be tried before the outcome of the

appeal is known are tentatively scheduled for a trial in the second calendar

quarter of 2002.



In September 2000, the Company filed suit against Micron in Germany, France,

Great Britain and Italy for infringement of a European patent. The French and

Italian actions included court-sanctioned seizure of documents, samples and, in

the case of the Italian action, mask sets from Micron facilities. The Micron

German suit is, like the Infineon German suit, in the Mannheim court, which is

currently expected to issue an "order for evidence" on December 7, 2001, which

the Company believes will ultimately result in the appointment of an expert.

The French suit is in an early phase. The British suit has been temporarily

stayed pending a determination by the European Patent Office on validity. In

the Italian case, on December 21, 2000, the items seized were ordered returned

based on jurisdictional grounds. On May 2, 2001, the independent experts

appointed by the District Court in Monza, Italy (the "Monza court") issued a

report that confirmed the validity of the Rambus patent in suit and determined

that Micron's SDRAM products infringe the Rambus patent. On May 25, 2001, the

Monza court, after considering the expert's report, declined to grant Rambus a

preliminary injunction. Rambus appealed the Monza court's ruling, and on July

18, 2001, the Appeals Court rejected the appeal based on jurisdictional

grounds. The infringement suit against Micron in Italy on the first European

patent will now continue in the District Court of Milan.



In December 2000, Micron filed a declaratory judgment suit of

non-infringement of a second European Patent against the Company in the

District Court of Avezzano, Italy. In response, the Company asserted

infringement of the second European Patent in Milan, Italy. Further, the

Company filed suit against Micron in Germany and Italy for infringement of a

third European patent. The German suit for infringement of the third European

patent is pending in the Mannheim court, while the Italian suit on this third

European patent has been stayed.



50

RAMBUS INC. AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



13. Litigation and Asserted Claims (Continued)





On August 29, 2000, Hyundai Electronics Industries Co., Ltd. ("Hyundai") and

various subsidiaries filed suit against the Company in the U.S. District Court

for the Northern District of California . Since filing suit, Hyundai has

changed its name to "Hynix Semiconductor Inc." ("Hynix"). The suit asserts

breach of contract in connection with the Company's participation in JEDEC and

seeks a declaratory judgment that eleven Rambus patents are invalid and not

infringed by Hynix. In November 2000, Hynix amended its complaint to further

assert violations of federal antitrust laws, deceptive trade practices, breach

of contract, fraud and negligent misrepresentation in connection with the

Company's participation in JEDEC. Hynix seeks a declaration of monopolization

by the Company, compensatory and punitive damages, and attorneys' fees. In

February 2001, the Company filed its answer and counterclaims, whereby the

Company disputes Hynix's claims and asserts infringement of 11 U.S. patents. On

November 21, the California court ruled that the claim construction applied in

the Virginia case against Infineon should be applied in the case with Hynix,

and, as a result, dismissed most of the Company's claims of patent infringement

against Hynix. In doing so, the California court declined to decide whether, on

the merits, the Virginia claim construction was correctly or incorrectly

decided. The Virginia claim construction issue is one of the matters that will

be reviewed as part of the Company's pending appeal in the Infineon case, and

the California court has suggested it will stay the remaining issues in the

Hynix case pending the outcome of the appeal.



In September 2000, the Company filed suit against Hynix in Germany, France

and Great Britain for infringement of a European patent. The French suit

included court-sanctioned seizure of documents and samples from a Hynix

facility. A hearing is scheduled on December 7, 2001, in the German suit. The

French suit is in an early phase. The British suit has been temporarily stayed.



On August 10, 2001, following the trial results in the Infineon case,

Rambus, Inc. was named as a defendant in a purported federal class action in

the United States District Court for the Northern District of California. That

action was brought allegedly on behalf of a class of plaintiffs who purchased

Rambus Common Stock between February 11, 2000 and May 9, 2001, inclusive, and

asserted claims under Section 10(b) of the Exchange Act and Section 20(a) of

the Exchange Act, as well as Rule 10b-5. The Complaint alleges that Rambus

misled shareholders concerning its business and the status of its intellectual

property in light of allegations concerning the Company's involvement in JEDEC.

Fourteen similar actions were filed in the Northern District of California. On

November 16, 2001, a lead plaintiff was appointed and the various cases will be

consolidated and a consolidated amended complaint will be filed. The Company

intends to defend itself in this action.



On August 15, 2001, a purported shareholder derivative lawsuit was filed in

Delaware Chancery Court. The Company is a nominal defendant and the Company's

directors are defendants. Additional similar actions were filed and were

consolidated. The consolidated complaint was filed on November 12, 2001 and

alleges that the individual defendants caused the Company to engage in an

improper course of conduct relating to JEDEC and its intellectual property

beginning in 1992 and continuing through the Infineon trial in May of 2001. The

complaint alleges breaches of fiduciary duty, misappropriation of confidential

information for personal profit, and ask for contribution or indemnification

from the named director defendants. The Company intends to file a motion to

dismiss the complaint.



Similar derivative actions were filed in California Superior Court, Santa

Clara County. Complaints assert claims for breaches of fiduciary duty and

violation of California's proscription against insider trading. On November 15,

2001, the Court granted defendants' motion to stay two of these cases in

deference to the Delaware actions described above. Defendants' have filed a

similar motion to stay the third case.



The Company has been in communication with the Federal Trade Commission

(FTC) regarding its investigation of several standards-setting processes,

including Rambus' involvement in JEDEC. To the Company's knowledge, there has

been no decision by the FTC to move forward with any legal or other action

relating to these matters.



51

RAMBUS INC. AND SUBSIDIARY



CONSOLIDATED SUPPLEMENTARY FINANCIAL DATA



<TABLE>

<CAPTION>

Fiscal years by quarter

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

2001                                  2000

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

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..................... $  2,833 $  3,514 $  7,581 $  7,869 $  6,987  $ 11,186 $  12,191  $  9,319

Royalties.............................   25,063   19,787   23,665   26,848   19,921     6,574     3,503     2,630

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

Total revenues......................   27,896   23,301   31,246   34,717   26,908    17,760    15,694    11,949

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

Costs and expenses:

Cost of contract revenues.............    1,894    2,692    3,057    2,220    2,666     2,908     3,018     3,501

Research and development..............    5,035    4,822    4,758    3,588    3,520     2,828     2,900     2,254

Marketing, general and administrative.   12,654   13,893   12,585    9,247    6,472     6,205     5,064     3,399

Employee stock-related compensation

expense.............................       --       --       --       --       --        --   171,085        --

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

Total costs and expenses............   19,583   21,407   20,400   15,055   12,658    11,941   182,067     9,154

Operating income (loss)................    8,313    1,894   10,846   19,662   14,250     5,819  (166,373)    2,795

Interest and other income, net.........    1,987    2,317    2,557    2,071    1,254     1,296     1,167       997

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

Income (loss) before income taxes......   10,300    4,211   13,403   21,733   15,504     7,115  (165,206)    3,792

Provision for (benefit from) income

taxes.................................    3,818      504    5,361    8,693  (38,121)    2,491     1,635     1,327

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

Net income (loss) ..................... $  6,482 $  3,707 $  8,042 $ 13,040 $ 53,625  $  4,624 $(166,841) $  2,465

======== ======== ======== ======== ========  ======== =========  ========

Net income (loss) per share--diluted... $   0.06 $   0.04 $   0.07 $   0.12 $   0.49  $   0.04 $   (1.75) $   0.02

======== ======== ======== ======== ========  ======== =========  ========

Shares used in per share calculations..  102,218  102,889  107,588  108,560  110,049   108,859    95,557   100,681

Stock prices:

High.................................. $  11.06 $  20.40 $  53.69 $  83.25 $ 109.69  $ 117.38 $  111.27  $  23.16

Low................................... $   5.35 $   9.07 $  15.80 $  35.00 $  66.69  $  37.66 $   17.25  $  15.66

</TABLE>





52

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 4, 2001

By:       /s/  ROBERT K. EULAU

__________________________________

Robert K. Eulau,

Sr. Vice President, Finance,

Chief Financial Officer



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>

Signatures                              Title                      Date

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

<C>                                      <S>                                <C>



/s/ GEOFF TATE              Chief Executive Officer and        December 4, 2001

- ----------------------------------------   Director (Principal Executive

Geoff Tate                  Officer)



/s/ DAVID MOORING             President and Director             December 4, 2001

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

David Mooring



/s/ ROBERT K. EULAU            Sr. Vice President, Finance,       December 4, 2001

- ----------------------------------------   Chief Financial Officer

Robert K. Eulau                (Principal Financial and

Accounting Officer)



/s/ WILLIAM DAVIDOW            Chairman of the Board of Directors December 4, 2001

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

William Davidow



/s/ BRUCE DUNLEVIE            Director                           December 4, 2001

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

Bruce Dunlevie



/s/ P. MICHAEL FARMWALD          Director                           December 4, 2001

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

P. Michael Farmwald



/s/ CHARLES GESCHKE            Director                           December 4, 2001

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

Charles Geschke



/s/ MARK HOROWITZ             Director                           December 4, 2001

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

Mark Horowitz

</TABLE>





53

INDEX TO EXHIBITS



<TABLE>

<CAPTION>

Exhibit

Number                           Description of Document

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

<C>        <S>

3.1(3)    Amended and Restated Certificate of Incorporation of Registrant filed

May 29, 1997.

3.2(6)    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(7)    Warrant No. 1-REV dated January 7, 1997 issued to Intel Corporation

to purchase shares of the Registrant's common stock.

10.1(1)    Form of Indemnification Agreement entered into by Registrant with

each of its directors and executive officers.

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.

10.5(11)   1990 Stock Plan, as amended, and related forms of agreements.

10.6(5)    1997 Stock Plan and related forms of agreements.

10.7(11)   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(6)   Office Lease, dated as of August 27, 1999, between Registrant and Los

Altos--El Camino Associates, LLC.

10.11(6)   Common Stock Equivalent Agreement, dated as of October 20, 1999,

between the Registrant and Geoff Tate.

10.12(6)   Common Stock Equivalent Agreement, dated as of October 20, 1999,

between the Registrant and David Mooring.

10.13(8)   Office Sublease, dated as of May 8, 2000, between Registrant and Muse

Prime Software, Inc.

10.14(9)   Amended and Restated 1999 Nonstatutory Stock Option Plan.

10.15(10)  Patent License Agreement, dated as of September 14, 2001, by and

between the Registrant and Intel Corporation.

21.1(1)    Subsidiaries of the Registrant.

23.1       Consent of PricewaterhouseCoopers LLP, Independent Accountants.

</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.

(5) Incorporated by reference to the Registration Statement on Form S-8 filed

December 22, 1999 (file no. 333-93427).

(6) Incorporated by reference to the Form 10-K filed on December 23, 1999.

(7) Incorporated by reference to the Form 8-K filed on July 7, 2000.

(8) Incorporated by reference to the Form 10-Q filed on August 9, 2000.

(9) Incorporated by reference to the Registration Statement on Form S-8 filed

December 19, 2000 (file no. 333-52158).

(10) Confidential treatment has been requested with respect to certain portions

of this exhibit. Omitted portions have been filed separately with the

Securities and Exchange Commission.

(11) Incorporated by reference to the Registration Statement on Form S-8 filed

June 6, 1997 (file no. 333-28597).



54