##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2010

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number: 000-50460





TESSERA
TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 16-1620029                          
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer
Identification No.)
|                                                               | 
|3025 Orchard Parkway, San Jose, California                     |  | 95134                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          

(408)
321-6000

(Registrants Telephone Number, Including Area Code)





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter time period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x    Accelerated
filer   ̈    Non-accelerated filer   ̈    Smaller reporting
company   ̈

Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act)     Yes   ̈    No  x

As of July 27, 2010, 50,238,054 shares of the registrants common stock were outstanding.









---

##### Table of Contents

TESSERA TECHNOLOGIES, INC.

FORM 10-Q  QUARTERLY REPORT

FOR THE QUARTER ENDED JUNE 30, 2010

TABLE OF CONTENTS



|              |  |                                                                                                     |  |     
|------------- |  | --------------------------------------------------------------------------------------------------- |  | ----
|              |  |                                                                                                     |  | Page
|              |  | PART I                                                                                              |  |     
|Item 1.       |  | Financial Statements (unaudited)                                                                    |  | 3   
|              |  | Condensed Consolidated Balance Sheets  June 30, 2010 and December 31, 2009                         |  | 3   
|              |  | Condensed Consolidated Statements of Operations  Three and Six Months Ended June 30, 2010 and 2009 |  | 4   
|              |  | Condensed Consolidated Statements of Cash Flows  Six Months Ended June 30, 2010 and 2009           |  | 5   
|              |  | Notes to Condensed Consolidated Financial Statements                                                |  | 6   
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations               |  | 35  
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                                          |  | 47  
|Item 4.       |  | Controls and Procedures                                                                             |  | 47  
|              |  |                                                                                                    
|              |  | PART II                                                                                             |  |     
|Item 1.       |  | Legal Proceedings                                                                                   |  | 48  
|Item 1A.      |  | Risk Factors                                                                                        |  | 59  
|Item 2.       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                         |  | 72  
|Item 3.       |  | Defaults Upon Senior Securities                                                                     |  | 72  
|Item 4.       |  | [Removed and Reserved]                                                                              |  | 72  
|Item 5.       |  | Other Information                                                                                   |  | 72  
|Item 6.       |  | Exhibits                                                                                            |  | 73  
|              | 
|Signatures    |  | 74                                                                                                 
|              | 
|Exhibit Index |  | 75                                                                                                 



2



---

##### Table of Contents

PART IFINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

TESSERA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for par value)

(unaudited)



|                                                                                                                                                                 |  |              |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                 |  | June 30,2010 |         |   | December 31,2009 |  
|ASSETS                                                                                                                                                           |  |              |         |   |                  |   |         |  
|Current assets:                                                                                                                                                  |  |              |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                        |  | $            | 116,878 |   |                  | $ | 107,873 |  
|Short-term investments                                                                                                                                           |  |              | 320,453 |   |                  |   | 280,085 |  
|Accounts receivable, net of allowance for doubtful accounts of $43 at each period end                                                                            |  |              | 11,289  |   |                  |   | 10,237  |  
|Inventories                                                                                                                                                      |  |              | 1,869   |   |                  |   | 1,571   |  
|Short-term deferred tax assets                                                                                                                                   |  |              | 6,244   |   |                  |   | 6,240   |  
|Other current assets                                                                                                                                             |  |              | 5,740   |   |                  |   | 6,255   |  
|                                                                                                                                                                 |  |              |         |   |                  |   |         |  
|Total current assets                                                                                                                                             |  |              | 462,473 |   |                  |   | 412,261 |  
|                                                                                                                                                                 |  |             
|Property and equipment, net                                                                                                                                      |  |              | 49,041  |   |                  |   | 42,483  |  
|Intangible assets, net                                                                                                                                           |  |              | 79,091  |   |                  |   | 77,753  |  
|Goodwill                                                                                                                                                         |  |              | 49,422  |   |                  |   | 45,150  |  
|Long-term deferred tax assets                                                                                                                                    |  |              | 19,299  |   |                  |   | 19,299  |  
|Long-term investments                                                                                                                                            |  |              | 508     |   |                  |   | 15,691  |  
|Other assets                                                                                                                                                     |  |              | 2,709   |   |                  |   | 3,681   |  
|                                                                                                                                                                 |  |              |         |   |                  |   |         |  
|Total assets                                                                                                                                                     |  | $            | 662,543 |   |                  | $ | 616,318 |  
|                                                                                                                                                                 |  |              |         |   |                  |   |         |  
|                                                                                                                                                                 |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                             |  |              |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                             |  |              |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                 |  | $            | 2,469   |   |                  | $ | 2,354   |  
|Accrued legal fees                                                                                                                                               |  |              | 5,169   |   |                  |   | 3,064   |  
|Accrued liabilities                                                                                                                                              |  |              | 21,338  |   |                  |   | 21,633  |  
|Deferred revenue                                                                                                                                                 |  |              | 5,126   |   |                  |   | 5,334   |  
|Income tax payable                                                                                                                                               |  |              |        |   |                  |   | 317     |  
|                                                                                                                                                                 |  |              |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                        |  |              | 34,102  |   |                  |   | 32,702  |  
|Long-term deferred tax liabilities                                                                                                                               |  |              | 6,733   |   |                  |   | 6,684   |  
|Other long-term liabilities                                                                                                                                      |  |              | 5,296   |   |                  |   | 4,747   |  
|                                                                                                                                                                 |  |             
|Commitments and contingencies (Note 11)                                                                                                                          |  |              |         |   |                  |   |         |  
|Stockholders equity:                                                                                                                                            |  |              |         |   |                  |   |         |  
|Preferred stock: $0.001 par value; 10,000 shares authorized and no shares issued and outstanding                                                                 |  |              |        |   |                  |   |        |  
|Common stock: $0.001 par value; 150,000 shares authorized; 50,885 and 50,490 shares issued, respectively, and 50,240 and 49,845
shares outstanding, respectively |  |              | 51      |   |                  |   | 50      |  
|Additional paid-in capital                                                                                                                                       |  |              | 421,233 |   |                  |   | 402,330 |  
|Treasury stock at cost: 645 shares of common stock at each period end                                                                                            |  |              | (10,505 | ) |                  |   | (10,505 | )
|Accumulated other comprehensive income (loss)                                                                                                                    |  |              | 458     |   |                  |   | (55     | )
|Retained earnings                                                                                                                                                |  |              | 205,175 |   |                  |   | 180,365 |  
|                                                                                                                                                                 |  |              |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                       |  |              | 616,412 |   |                  |   | 572,185 |  
|                                                                                                                                                                 |  |              |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                       |  | $            | 662,543 |   |                  | $ | 616,318 |  
|                                                                                                                                                                 |  |              |         |   |                  |   |         |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



3



---

##### Table of Contents

TESSERA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)



|                                                                         |  |                    |        |                  |   |              |  |              |         |  |   |        
|------------------------------------------------------------------------ |  | ------------------ | ------ | ---------------- | - | ------------ |  | ------------ | ------- |  | - | -------
|                                                                         |  | Three Months Ended |        | Six Months Ended
|                                                                         |  | June 30,2010       |        | June 30,2009     |   | June 30,2010 |  | June
30,2009
|Revenues:                                                                |  |                    |        |                  |   |              |  |              |         |  |   |        
|Royalty and license fees                                                 |  | $                  | 68,356 |                  | $ | 59,870       |  | $            | 127,209 |  | $ | 171,727
|Product and service revenues                                             |  |                    | 6,221  |                  |   | 2,401        |  |              | 11,630  |  |   | 5,120  
|                                                                         |  |                    |        |                  |   |              |  |              |         |  |   |        
|                                                                         |  |                    |        |                 
|Total revenues                                                           |  |                    | 74,577 |                  |   | 62,271       |  |              | 138,839 |  |   | 176,847
|                                                                         |  |                    |        |                  |   |              |  |              |         |  |   |        
|                                                                         |  |                    |        |                 
|Operating expenses:                                                      |  |                    |        |                  |   |              |  |              |         |  |   |        
|Cost of revenues                                                         |  |                    | 5,788  |                  |   | 3,902        |  |              | 10,981  |  |   | 8,000  
|Research, development and other related costs                            |  |                    | 18,340 |                  |   | 16,849       |  |              | 34,153  |  |   | 33,479 
|Selling, general and administrative                                      |  |                    | 20,152 |                  |   | 17,282       |  |              | 39,410  |  |   | 34,778 
|Litigation expense                                                       |  |                    | 4,343  |                  |   | 5,538        |  |              | 10,940  |  |   | 14,163 
|                                                                         |  |                    |        |                  |   |              |  |              |         |  |   |        
|                                                                         |  |                    |        |                 
|Total operating expenses                                                 |  |                    | 48,623 |                  |   | 43,571       |  |              | 95,484  |  |   | 90,420 
|                                                                         |  |                    |        |                 
|Operating income                                                         |  |                    | 25,954 |                  |   | 18,700       |  |              | 43,355  |  |   | 86,427 
|Other income and expense, net                                            |  |                    | 442    |                  |   | 1,096        |  |              | 963     |  |   | 3,858  
|                                                                         |  |                    |        |                  |   |              |  |              |         |  |   |        
|                                                                         |  |                    |        |                 
|Income before taxes                                                      |  |                    | 26,396 |                  |   | 19,796       |  |              | 44,318  |  |   | 90,285 
|Provision for income taxes                                               |  |                    | 11,413 |                  |   | 7,960        |  |              | 19,508  |  |   | 38,980 
|                                                                         |  |                    |        |                  |   |              |  |              |         |  |   |        
|                                                                         |  |                    |        |                 
|Net income                                                               |  | $                  | 14,983 |                  | $ | 11,836       |  | $            | 24,810  |  | $ | 51,305 
|                                                                         |  |                    |        |                  |   |              |  |              |         |  |   |        
|                                                                         |  |                    |        |                 
|Basic and diluted net income per share:                                  |  |                    |        |                  |   |              |  |              |         |  |   |        
|                                                                         |  |                    |        |                 
|Net income per share-basic                                               |  | $                  | 0.30   |                  | $ | 0.24         |  | $            | 0.50    |  | $ | 1.06   
|                                                                         |  |                    |        |                  |   |              |  |              |         |  |   |        
|                                                                         |  |                    |        |                 
|Net income per share-diluted                                             |  | $                  | 0.30   |                  | $ | 0.24         |  | $            | 0.49    |  | $ | 1.06   
|                                                                         |  |                    |        |                  |   |              |  |              |         |  |   |        
|                                                                         |  |                    |        |                 
|Weighted average number of shares used in per share calculations-basic   |  |                    | 50,028 |                  |   | 48,420       |  |              | 49,922  |  |   | 48,288 
|                                                                         |  |                    |        |                  |   |              |  |              |         |  |   |        
|                                                                         |  |                    |        |                 
|Weighted average number of shares used in per share calculations-diluted |  |                    | 50,260 |                  |   | 48,776       |  |              | 50,238  |  |   | 48,496 
|                                                                         |  |                    |        |                  |   |              |  |              |         |  |   |        

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.



4



---

##### Table of Contents

TESSERA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                                  |  |                  |          |   |              |   |          |  
|--------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ------------ | - | -------- | -
|                                                                                  |  | Six Months Ended |         
|                                                                                  |  | June 30,2010     |          |   | June 30,2009 |  
|Cash flows from operating activities:                                             |  |                  |          |   |              |   |          |  
|Net income                                                                        |  | $                | 24,810   |   |              | $ | 51,305   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                  |          |   |              |   |          |  
|Depreciation and amortization of property and equipment                           |  |                  | 5,729    |   |              |   | 4,326    |  
|Amortization of intangible assets                                                 |  |                  | 7,069    |   |              |   | 5,777    |  
|Impairment on long-term investments and assets, net of gain                       |  |                  |         |   |              |   | 1,683    |  
|Loss on property and equipment                                                    |  |                  | 60       |   |              |   | 518      |  
|Stock-based compensation expense                                                  |  |                  | 14,277   |   |              |   | 13,547   |  
|Deferred income tax, net                                                          |  |                  | (104     | ) |              |   | 529      |  
|Tax benefits from employee stock option plan                                      |  |                  | 2,066    |   |              |   | 5,805    |  
|Excess tax benefit from stock-based compensation                                  |  |                  | (758     | ) |              |   | (3,443   | )
|Changes in operating assets and liabilities, net of acquisitions:                 |  |                  |          |   |              |   |          |  
|Accounts receivable, net                                                          |  |                  | (1,044   | ) |              |   | 550      |  
|Inventories                                                                       |  |                  | (298     | ) |              |   | 235      |  
|Other assets                                                                      |  |                  | 877      |   |              |   | 3,115    |  
|Accounts payable                                                                  |  |                  | (366     | ) |              |   | (484     | )
|Accrued legal fees                                                                |  |                  | 2,105    |   |              |   | (9,195   | )
|Accrued liabilities                                                               |  |                  | (546     | ) |              |   | (1,389   | )
|Deferred revenue                                                                  |  |                  | (208     | ) |              |   | 447      |  
|Income tax payable                                                                |  |                  | (319     | ) |              |   | 6,946    |  
|                                                                                  |  |                  |          |   |              |   |          |  
|                                                                                  |  |                 
|Net cash provided by operating activities                                         |  |                  | 53,350   |   |              |   | 80,272   |  
|                                                                                  |  |                  |          |   |              |   |          |  
|                                                                                  |  |                 
|Cash flows from investing activities:                                             |  |                  |          |   |              |   |          |  
|Purchases of property and equipment                                               |  |                  | (7,193   | ) |              |   | (8,817   | )
|Proceeds from sale of property and equipment                                      |  |                  | 6        |   |              |   | 9        |  
|Purchases of short-term available-for-sale investments                            |  |                  | (235,136 | ) |              |   | (122,748 | )
|Proceeds from maturities and sales of short-term and long-term investments        |  |                  | 211,290  |   |              |   | 72,808   |  
|Acquisitions, net of cash acquired                                                |  |                  | (14,971  | ) |              |   | (6,633   | )
|Purchases of intangible assets                                                    |  |                  | (1,660   | ) |              |   | (3,635   | )
|Other investing activities                                                        |  |                  |         |   |              |   | 912      |  
|                                                                                  |  |                  |          |   |              |   |          |  
|                                                                                  |  |                 
|Net cash used in investing activities                                             |  |                  | (47,664  | ) |              |   | (68,104  | )
|                                                                                  |  |                  |          |   |              |   |          |  
|                                                                                  |  |                 
|Cash flows from financing activities:                                             |  |                  |          |   |              |   |          |  
|Excess tax benefit from stock-based compensation                                  |  |                  | 758      |   |              |   | 3,443    |  
|Proceeds from exercise of stock options                                           |  |                  | 563      |   |              |   | 11,123   |  
|Proceeds from employee stock purchase program                                     |  |                  | 1,998    |   |              |   | 1,051    |  
|                                                                                  |  |                  |          |   |              |   |          |  
|                                                                                  |  |                 
|Net cash provided by financing activities                                         |  |                  | 3,319    |   |              |   | 15,617   |  
|                                                                                  |  |                  |          |   |              |   |          |  
|Net increase in cash and cash equivalents                                         |  |                  | 9,005    |   |              |   | 27,785   |  
|Cash and cash equivalents at beginning of period                                  |  |                  | 107,873  |   |              |   | 87,890   |  
|                                                                                  |  |                  |          |   |              |   |          |  
|                                                                                  |  |                 
|Cash and cash equivalents at end of period                                        |  | $                | 116,878  |   |              | $ | 115,675  |  
|                                                                                  |  |                  |          |   |              |   |          |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



5



---

##### Table of Contents

TESSERA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1
 THE COMPANY AND BASIS OF PRESENTATION

Tessera Technologies, Inc. (together with its subsidiaries, herein referred to as
Tessera or the Company), is a technology innovator that invests in, licenses and delivers innovative miniaturization technologies for next-generation electronic devices. Tessera licenses its technologies worldwide, as well as
delivers products based on its technologies, which is done in part to promote the development of supply chain infrastructure. The condensed consolidated financial statements include the accounts of Tessera Technologies, Inc. and each of its wholly
owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation.

The accompanying interim
unaudited condensed consolidated financial statements as of June 30, 2010 and 2009, and for the three and six months then ended, have been prepared by the Company in accordance with generally accepted accounting principles (GAAP) in
the United States for interim financial information. The amounts as of December 31, 2009 have been derived from the Companys annual audited financial statements. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all
adjustments (consisting of normal recurring adjustments) necessary to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These financial statements should be read in
conjunction with the annual audited financial statements and notes thereto as of and for the year ended December 31, 2009, included in the Companys Annual Report on Form 10-K, filed on February 25, 2010.

The results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for
the full year ended December 31, 2010 or any future period and the Company makes no representations related thereto.

NOTE 2 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes in the Companys significant accounting policies
during the three and six months ended June 30, 2010, as compared to the significant accounting policies described in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

NOTE 3  RECENT ACCOUNTING PRONOUNCEMENTS

Adopted

In June 2009, the Financial
Accounting Standards Board (FASB) issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities which changes how a reporting entity determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entitys purpose
and design and the reporting entitys ability to direct the activities of the other entity that most significantly impact the other entitys economic performance. This amendment will require a reporting entity to provide additional
disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the
reporting entitys financial statements. This amendment will be effective at the start of a reporting entitys first fiscal year beginning after November 15, 2009, or January 1, 2010, for a calendar year-end entity. In January
2010, the Company adopted this guidance, which did not have a significant impact on its consolidated financial position, results of operations or cash flows.

On January 21, 2010, the FASB issued an update to the authoritative guidance for fair value measurements and disclosures. The update includes a
requirement that reporting entities provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by existing authoritative guidance; adding separate disclosures about purchase, sales,
issuances, and settlements relative to Level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. This update is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. In January 2010, the Company adopted this guidance, which did not have a significant impact on its consolidated financial position, results of operations or cash flows.

Issued

In September 2009,
the FASB issued an update to the authoritative guidance for revenue recognition related to multiple-deliverable arrangements. This update removes the objective-and-reliable-evidence-of-fair-value criterion from the separation criteria used to
determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, replaces references to fair value with selling price to distinguish from the fair value measurements required under
the authoritative guidance for fair value measurements and disclosures, provides a hierarchy that entities must use to estimate the selling price, eliminates the use of the residual method for allocation, and



6



---

##### Table of Contents

expands the ongoing disclosure requirements. In addition, this update removes non-software components of
tangible products and certain software components of tangible products from the scope of existing software revenue guidance. This update is effective in fiscal years beginning on or after June 15, 2010 and can be applied prospectively or
retrospectively. Early adoption is permitted. The Company is currently evaluating the effect the adoption of this update will have, if any, on its consolidated financial position, results of operations or cash flows.

In April 2010, the FASB issued an update to the authoritative guidance for revenue recognition related to the milestone method. This update provides that
an entity can make an accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety as revenue in the period in which the milestone is achieved. The milestone method is not
required and is not the only acceptable method of revenue recognition for milestone payments. This update is effective in fiscal years beginning on or after June 15, 2010 and can be applied prospectively or retrospectively. Early adoption is
permitted. The Company is currently evaluating the effect the adoption of this update will have, if any, on its consolidated financial position, results of operations or cash flows.

NOTE 4  COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

Inventories consisted of the following (in thousands):



|                                                                                         |  |              |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                         |  | June 30,2010 |         |   | December 31,2009 |  
|Raw materials                                                                            |  | $            | 644     |   |                  | $ | 513     |  
|Work in process                                                                          |  |              | 914     |   |                  |   | 739     |  
|Finished goods                                                                           |  |              | 311     |   |                  |   | 319     |  
|                                                                                         |  |              |         |   |                  |   |         |  
|                                                                                         |  | $            | 1,869   |   |                  | $ | 1,571   |  
|                                                                                         |  |              |         |   |                  |   |         |  
|                                                                                         |  |             
|Property and equipment consisted of the following (in thousands):                        |  |              |         |   |                  |   |         |  
|                                                                                         |  |             
|                                                                                         |  | June 30,2010 |         |   | December 31,2009 |  
|Furniture and equipment                                                                  |  | $            | 57,128  |   |                  | $ | 46,836  |  
|Land and buildings                                                                       |  |              | 20,127  |   |                  |   | 19,886  |  
|Leasehold improvements                                                                   |  |              | 5,606   |   |                  |   | 3,979   |  
|                                                                                         |  |              |         |   |                  |   |         |  
|                                                                                         |  |              | 82,861  |   |                  |   | 70,701  |  
|Less: Accumulated depreciation and amortization                                          |  |              | (33,820 | ) |                  |   | (28,218 | )
|                                                                                         |  |              |         |   |                  |   |         |  
|                                                                                         |  | $            | 49,041  |   |                  | $ | 42,483  |  
|                                                                                         |  |              |         |   |                  |   |         |  
|                                                                                         |  |             
|Accrued liabilities consisted of the following (in thousands):                           |  |              |         |   |                  |   |         |  
|                                                                                         |  |             
|                                                                                         |  | June 30,2010 |         |   | December 31,2009 |  
|Employee compensation and benefits                                                       |  | $            | 10,829  |   |                  | $ | 12,295  |  
|Other                                                                                    |  |              | 10,509  |   |                  |   | 9,338   |  
|                                                                                         |  |              |         |   |                  |   |         |  
|                                                                                         |  | $            | 21,338  |   |                  | $ | 21,633  |  
|                                                                                         |  |              |         |   |                  |   |         |  
|                                                                                         |  |             
|Accumulated other comprehensive income (loss) consisted of the following (in thousands): |  |              |         |   |                  |   |         |  
|                                                                                         |  |             
|                                                                                         |  | June 30,2010 |         |   | December 31,2009 |  
|Unrealized gain (loss) on short-term and long-term investments, net of tax               |  | $            | 458     |   |                  | $ | (55     | )
|                                                                                         |  |              |         |   |                  |   |         |  
|Accumulated other comprehensive income (loss)                                            |  | $            | 458     |   |                  | $ | (55     | )
|                                                                                         |  |              |         |   |                  |   |         |  



7



---

##### Table of Contents

NOTE 5  BUSINESS COMBINATIONS

Siimpel Corporation

In May 2010, Tessera
completed its acquisition of Siimpel Corporation (Siimpel), a Delaware corporation and a developer and manufacturer of MEMS (Micro Electro Mechanical Systems) based camera solutions for mobile imaging applications for cash consideration
of $15.0 million. Approximately $1.9 million of the consideration has been placed in escrow and is subject to forfeiture to satisfy indemnification obligations, if any, of the former stockholders of Siimpel. The escrow will expire in November 2011.

As a result of the acquisition, Siimpel became a wholly owned subsidiary of the Company in a business combination transaction accounted for
using the purchase method of accounting, with the results of the acquired entity included in the Imaging and Optics segment as of the acquisition date. This contributed to a purchase price in excess of the fair value of the underlying net
assets and identified intangible assets acquired from Siimpel and, as a result, the Company has recorded goodwill in connection with this transaction.

Preliminary purchase price allocation

In accordance with the accounting guidance on business combinations, the total purchase price is allocated to the tangible and intangible assets acquired
and liabilities assumed based on their estimated fair values. The preliminary allocation of the purchase price was based upon a preliminary valuation and the estimates and assumptions used are subject to change. Based upon the fair values acquired,
the purchase price allocation is as follows (in thousands):



|                                    |  |        |        |   |                              |    
|----------------------------------- |  | ------ | ------ | - | ---------------------------- | ---
|                                    |  | Amount |        |   | EstimatedUseful 
Life(Years)
|Net tangible assets:                |  |        |        |   |                              |    
|Property and equipment, net         |  | $      | 6,312  |   |                              | 1-5
|Other current assets                |  |        | 105    |   |                              | N/A
|Other assets                        |  |        | 148    |   |                              | N/A
|Current liabilities                 |  |        | (1,837 | ) |                              | N/A
|Long-term liabilities               |  |        | (700   | ) |                              | N/A
|                                    |  |        |        |   |                              |    
|                                    |  |        | 4,028  |   |                              |    
|                                    |  |       
|Identified intangible assets:       |  |        |        |   |                              |    
|Existing technology                 |  |        | 3,000  |   |                              | 9  
|Patents/core technology             |  |        | 1,800  |   |                              | 14 
|In-process research and development |  |        | 1,900  |   |                              | N/A
|Goodwill                            |  |        | 4,272  |   |                              | N/A
|                                    |  |        |        |   |                              |    
|                                    |  |        | 10,972 |   |                              |    
|                                    |  |        |        |   |                              |    
|Total preliminary purchase price    |  | $      | 15,000 |   |                              |    
|                                    |  |        |        |   |                              |    

Approximately $4.0 million has been allocated to acquired net tangible assets consisting of property and equipment
and various assumed assets and liabilities. Approximately $4.8 million has been allocated to amortizable intangible assets acquired. Included in the purchase price allocation is $1.9 million related to acquired in-process research and development
related to various in-process development projects which are expected to be completed by the end of 2011.

Proforma results of operations have
not been presented because the impact of the acquisition on prior period results was not considered material.

NOTE 6  GOODWILL AND
INTANGIBLE ASSETS

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair
value of the net tangible and identified intangible assets acquired under a business combination. Also included in the balance for intangible assets are assets purchased through asset acquisitions. The amounts and useful lives assigned to intangible
assets acquired, other than goodwill, impact the amount and timing of future amortization. The value of the Companys identified intangible assets and goodwill could be impacted by future adverse changes such as a decline in future cash flows,
slow adoption of products by customers or significant decline in growth rates in the industry in which the reporting unit operates.



8



---

##### Table of Contents

The allocation of goodwill to segments and the changes to the carrying value from December 31, 2009
through June 30, 2010 is reflected below (in thousands):



|                                                              |  |                    |       
|------------------------------------------------------------- |  | ------------------ | ------
|                                                              |  | Imaging and Optics
|Balance at December 31, 2009                                  |  | $                  | 45,150
|Goodwill acquired through the Siimpel Corporation acquisition |  |                    | 4,272 
|                                                              |  |                    |       
|Balance at June 30, 2010                                      |  | $                  | 49,422
|                                                              |  |                    |       

See Note 12Segment and Geographic
Information for additional detail.

Identified intangible assets consisted of the following (in thousands):



|                                    |  |             |  |               |         |                         |   |         |     |  |             |        |                         |   |         |     |   |         |   |  |   |       
|----------------------------------- |  | ----------- |  | ------------- | ------- | ----------------------- | - | ------- | --- |  | ----------- | ------ | ----------------------- | - | ------- | --- | - | ------- | - |  | - | ------
|                                    |  | Average     |  | June 30, 2010 |         | December 31, 2009      
|                                    |  | Life(Years) |  | GrossAssets   |         | AccumulatedAmortization |   |         | Net |  | GrossAssets |        | AccumulatedAmortization |   |         | Net
|Existing technology                 |  | 5-10        |  | $             | 54,162  |                         | $ | (21,639 | )   |  | $           | 32,523 |                         | $ | 51,162  |     | $ | (18,284 | ) |  | $ | 32,878
|Acquired patents                    |  | 3-15        |  |               | 45,402  |                         |   | (10,177 | )   |  |             | 35,225 |                         |   | 41,895  |     |   | (7,651  | ) |  |   | 34,244
|Customer contracts                  |  | 3-9         |  |               | 11,900  |                         |   | (4,635  | )   |  |             | 7,265  |                         |   | 11,900  |     |   | (3,687  | ) |  |   | 8,213 
|Trade name                          |  | 4-10        |  |               | 3,620   |                         |   | (1,491  | )   |  |             | 2,129  |                         |   | 3,620   |     |   | (1,288  | ) |  |   | 2,332 
|In-process research and development |  | Indefinite  |  |               | 1,900   |                         |   |        |     |  |             | 1,900  |                         |   |        |     |   |        |   |  |   |      
|Non-competition agreements          |  | 2           |  |               | 1,400   |                         |   | (1,400  | )   |  |             | 0      |                         |   | 1,400   |     |   | (1,400  | ) |  |   |      
|Assembled workforce                 |  | 4           |  |               | 300     |                         |   | (251    | )   |  |             | 49     |                         |   | 300     |     |   | (214    | ) |  |   | 86    
|                                    |  |             |  |               |         |                         |   |         |     |  |             |        |                         |   |         |     |   |         |   |  |   |       
|                                    |  |             |  | $             | 118,684 |                         | $ | (39,593 | )   |  | $           | 79,091 |                         | $ | 110,277 |     | $ | (32,524 | ) |  | $ | 77,753
|                                    |  |             |  |               |         |                         |   |         |     |  |             |        |                         |   |         |     |   |         |   |  |   |       

Amortization expense for the three months ended June 30, 2010 and
2009 amounted to $3.6 million and $2.9 million, respectively. Amortization expense for the six months ended June 30, 2010 and 2009 amounted to $7.1 million and $5.8 million, respectively.

As of June 30, 2010, the estimated future amortization expense of intangible assets is as follows (in thousands):



|                          |  |   |       
|------------------------- |  | - | ------
|2010 (remaining 6 months) |  | $ | 7,082 
|2011                      |  |   | 14,013
|2012                      |  |   | 13,244
|2013                      |  |   | 12,381
|2014                      |  |   | 10,570
|Thereafter                |  |   | 19,901
|                          |  |   |       
|                          |  | $ | 77,191
|                          |  |   |       



9



---

##### Table of Contents

NOTE 7  NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):



|                                                   |  |                    |        |   |                  |   |        |              |  |   |              |   |  |   |        |  
|-------------------------------------------------- |  | ------------------ | ------ | - | ---------------- | - | ------ | ------------ |  | - | ------------ | - |  | - | ------ | -
|                                                   |  | Three Months Ended |        |   | Six Months Ended |  
|                                                   |  | June 30,2010       |        |   | June 30,2009     |   |        | June 30,2010 |  |   | June 30,2009 |  
|Numerator:                                         |  |                    |        |   |                  |   |        |              |  |   |              |   |  |   |        |  
|Net income                                         |  | $                  | 14,983 |   |                  | $ | 11,836 |              |  | $ | 24,810       |   |  | $ | 51,305 |  
|Denominator:                                       |  |                    |        |   |                  |   |        |              |  |   |              |   |  |   |        |  
|Weighted average common shares outstanding         |  |                    | 50,209 |   |                  |   | 48,806 |              |  |   | 50,128       |   |  |   | 48,698 |  
|Less: Unvested common shares subject to repurchase |  |                    | (181   | ) |                  |   | (386   | )            |  |   | (206         | ) |  |   | (410   | )
|                                                   |  |                    |        |   |                  |   |        |              |  |   |              |   |  |   |        |  
|Total shares-basic                                 |  |                    | 50,028 |   |                  |   | 48,420 |              |  |   | 49,922       |   |  |   | 48,288 |  
|Effect of dilutive securities:                     |  |                    |        |   |                  |   |        |              |  |   |              |   |  |   |        |  
|Stock awards                                       |  |                    | 148    |   |                  |   | 264    |              |  |   | 150          |   |  |   | 153    |  
|Restricted stock awards and units                  |  |                    | 84     |   |                  |   | 92     |              |  |   | 166          |   |  |   | 55     |  
|                                                   |  |                    |        |   |                  |   |        |              |  |   |              |   |  |   |        |  
|Total shares-diluted                               |  |                    | 50,260 |   |                  |   | 48,776 |              |  |   | 50,238       |   |  |   | 48,496 |  
|                                                   |  |                    |        |   |                  |   |        |              |  |   |              |   |  |   |        |  
|Net income per common share-basic                  |  | $                  | 0.30   |   |                  | $ | 0.24   |              |  | $ | 0.50         |   |  | $ | 1.06   |  
|                                                   |  |                    |        |   |                  |   |        |              |  |   |              |   |  |   |        |  
|Net income per common share-diluted                |  | $                  | 0.30   |   |                  | $ | 0.24   |              |  | $ | 0.49         |   |  | $ | 1.06   |  
|                                                   |  |                    |        |   |                  |   |        |              |  |   |              |   |  |   |        |  

Basic net income per share is computed using the weighted average number of common shares outstanding during the period,
excluding any unvested restricted stock awards that are subject to repurchase. Diluted net income per share is computed using the treasury stock method to calculate the weighted average number of common shares and, if dilutive, potential common
shares outstanding during the period. Potential dilutive common shares include unvested restricted stock awards and units and the incremental common shares issuable upon the exercise of stock options and warrants, less shares from assumed proceeds.
The assumed proceeds calculation includes actual proceeds to be received from the employee upon exercise, the average unrecognized compensation cost during the period and any tax benefits that will be credited upon exercise to additional paid in
capital.

For the three months ended June 30, 2010 and 2009, approximately 5.8 million and 6.0 million shares of common stock,
respectively, subject to stock options, restricted stock awards and units were excluded from the computation of diluted net income per share as they were anti-dilutive. For the six months ended June 30, 2010 and 2009 approximately
5.7 million and 6.5 million shares of common stock, respectively, subject to stock options, restricted stock awards and units were excluded from the computation of diluted net income per share as they were anti-dilutive.

NOTE 8  STOCKHOLDERS EQUITY

Stock Repurchase Programs

In
August 2007, the Board of Directors authorized a plan to repurchase up to a maximum total of $100.0 million of the Companys outstanding shares of common stock dependent on market conditions, share price and other factors. As of June 30,
2010 and December 31, 2009, the Company had repurchased a total of 645,000 and 645,000 shares of common stock at an average price of $16.26 per share for a total cost of $10.5 million under this plan, respectively. The shares repurchased are
recorded as treasury stock and are accounted for under the cost method. No expiration date has been specified for this plan. As of June 30, 2010, the total amount available for repurchase was $89.5 million. The Company may continue to execute
authorized repurchases from time to time under the plan.

Stock Option Plans

The 1996 Plan and the 1999 Plan

In
December 1996, the Board of Directors adopted the 1996 Stock Option Plan (1996 Plan). In February 1999, the Board of Directors adopted the 1999 Stock Option Plan (1999 Plan) which was approved by the stockholders in May 1999.
Under the 1996 Plan and the 1999 Plan, incentive stock options may be granted to the Companys employees at an exercise price of no less than 100% of the fair value on the date of grant, and nonstatutory stock options may be granted to the
Companys employees, non-employee directors and consultants at an exercise price of no less than 85% of the fair value. In both cases, when the optionees own stock representing more than 10% of the voting power of all classes of stock of the
Company, the exercise price shall be no less than 110% of the fair value on the date of grant. For options granted with an exercise price below fair market value, a stock-based compensation charge has been determined. Options granted under these
plans generally have a term of ten years from the date of grant and vest over a four-year period. Shares issued in connection with the exercise of unvested options are subject



10



---

##### Table of Contents

to repurchase by the Company until such options vest. After February 1999, no further options were granted
from the 1996 Plan. After December 2000, no further options were granted from the 1999 Plan. The Company has no intention of issuing additional grants under these plans. As of June 30, 2010, there were no shares reserved for grant under these
plans and only cancellations under the 1999 Plan are recorded as available for grant. Based on a Board of Directors decision, cancellations under the 1996 Plan are not considered available for grant.

The 2003 Plan

In February 2003, the
Board of Directors adopted and the Companys stockholders approved the 2003 Equity Incentive Plan (2003 Plan). Under the 2003 Plan, incentive stock options may be granted to the Companys employees at an exercise price of no
less than 100% of the fair value on the date of grant, and nonstatutory stock options may be granted to the Companys employees, non-employee directors and consultants at an exercise price of no less than 85% of the fair value. In both cases,
when the optionees own stock representing more than 10% of the voting power of all classes of stock of the Company, the exercise price shall be no less than 110% of the fair value on the date of grant. For options granted with an exercise price
below fair market value, a stock-based compensation charge has been determined. Options, restricted stock awards, and restricted stock units granted under this plan generally have a term of ten years from the date of grant and vest over a four-year
period. Restricted stock, performance awards, dividend equivalents, deferred stock, stock payments and stock appreciation rights may also be granted under the 2003 Plan either alone, in addition to, or in tandem with any options granted thereunder.
Restricted stock awards and units are full-value awards that reduce the number of shares reserved for grant under this plan by one and one-half shares for each share granted. The vesting criteria for restricted stock awards and units is generally
the passage of time or meeting certain performance-based objectives, and continued employment through the vesting period generally over four years. As of June 30, 2010, there were 7,046,000 shares reserved for grant under this plan.

A summary of the stock option activity is presented below (in thousands, except per share amounts):



|                                        |  |                           |   |  |                                                  |      
|--------------------------------------- |  | ------------------------- | - |  | ------------------------------------------------ | -----
|                                        |  | Shares Outstanding       
|                                        |  | Number        
  ofShares |   |  | Weighted     
     AverageExercisePrice
PerShare
|Balance at December 31, 2009            |  | 5,859                     |   |  | $                                                | 22.74
|Options granted                         |  | 523                       |   |  | $                                                | 18.47
|Options exercised                       |  | (77                       | ) |  | $                                                | 7.29 
|Options cancelled / forfeited / expired |  | (123                      | ) |  | $                                                | 28.47
|                                        |  |                           |   |  |                                                  |      
|Balance at June 30, 2010                |  | 6,182                     |   |  | $                                                | 22.46
|                                        |  |                           |   |  |                                                  |      

Information with respect to outstanding restricted stock awards and units as of June 30, 2010 is as follows
(in thousands, except per share amounts):



|                                       |  |                                             |   |  |                                                    |   |  |                       |   |  |                                                |      
|-------------------------------------- |  | ------------------------------------------- | - |  | -------------------------------------------------- | - |  | --------------------- | - |  | ---------------------------------------------- | -----
|                                       |  | Restricted Stock                           
|                                       |  | Number of SharesSubject
toTime-based Awards |   |  | Number of SharesSubject
toPerformance-based Awards |   |  | Total Numberof Shares |   |  | Weighted AverageGrant
DateFair Value Per Share
|Balance at December 31, 2009           |  | 526                                         |   |  | 395                                                |   |  | 921                   |   |  | $                                              | 27.07
|Awards and units granted               |  | 138                                         |   |  | 45                                                 |   |  | 183                   |   |  | $                                              | 19.05
|Awards and units vested / earned       |  | (155                                        | ) |  | (49                                                | ) |  | (204                  | ) |  | $                                              | 31.03
|Awards and units cancelled / forfeited |  | (24                                         | ) |  |                                                   |   |  | (24                   | ) |  | $                                              | 25.71
|                                       |  |                                             |   |  |                                                    |   |  |                       |   |  |                                                |      
|Balance at June 30, 2010               |  | 485                                         |   |  | 391                                                |   |  | 876                   |   |  | $                                              | 24.51
|                                       |  |                                             |   |  |                                                    |   |  |                       |   |  |                                                |      

Performance Awards

Performance awards may be granted to employees or consultants based upon, among other things, the contributions, responsibilities and other compensation
of the particular employee or consultant. The value and the vesting of such performance awards is generally linked to one or more performance goals or other specific performance goals determined by the Company, in each case on a specified date or
dates or over any period or periods determined by the Company, and generally ranges from 0 to 100 percent of the shares.



11



---

##### Table of Contents

Employee Stock Purchase Plan

In August 2003, the Board of Directors adopted the 2003 Employee Stock Purchase Plan, which was approved by the Companys stockholders in September
2003. The Company initially reserved 200,000 shares of common stock for issuance under the 2003 Employee Stock Purchase Plan. The reserve will automatically increase on the first day of each fiscal year during the term of the ESPP by an amount equal
to the lesser of (1) 200,000 shares, (2) 1.0% of the Companys outstanding shares on such date or (3) a lesser amount determined by the Board of Directors. Subsequently, the Board of Directors adopted the International Employee
Stock Purchase Plan in June 2008 which reserves 200,000 shares of common stock for issuance under this plan. The 2003 Employee Stock Purchase Plan and the International Employee Stock Purchase Plan (collectively, ESPP) are designed to
allow eligible employees residing in the U.S. or internationally to purchase shares of common stock, at semi-annual intervals, with their accumulated payroll deductions.

The ESPP has a series of consecutive, overlapping 24-month offering periods. The first offering period commenced February 1, 2004, the effective
date of the ESPP, as determined by the Board of Directors.

Individuals who own less than 5% of the Companys voting stock, are scheduled
to work more than 20 hours per week and whose customary employment is for more than five months in any calendar year may join an offering period on the first day of the offering period or the beginning of any semi-annual purchase period within that
period. Individuals who become eligible employees after the start date of an offering period may join the ESPP at the beginning of any subsequent semi-annual purchase period.

Participants may contribute up to 20% of their cash earnings through payroll deductions, and the accumulated deductions will apply to the purchase of
shares on each semi-annual purchase date. The purchase price per share will equal 85% of the fair market value per share on the participants entry date into the offering period or, if lower, 85% of the fair market value per share on the
semi-annual purchase date.

An eligible employees right to buy the Companys common stock under the ESPP may not accrue at a rate
in excess of $25,000 of the fair market value of such shares per calendar year for each calendar year of an offering period.

If the fair
market value per share of the Companys common stock on any purchase date is less than the fair market value per share on the start date of the 24-month offering period, then that offering period will automatically terminate and a new 24-month
offering period will begin on the next business day. All participants in the terminated offering will be transferred to the new offering period.

In the event of a proposed sale of all or substantially all of the Companys assets, or merger with or into another company, the outstanding rights
under the ESPP will be assumed or an equivalent right substituted by the successor company or its parent or subsidiary. If the successor company or its parent refuses to assume the outstanding rights or substitute an equivalent right, then all
outstanding purchase rights will automatically be exercised prior to the effective date of the transaction. The purchase price will equal 85% of the market value per share on the participants entry date into the offering period in which an
acquisition occurs or, if lower, 85% of the fair market value per share on the date the purchase rights are exercised.

The ESPP will
terminate no later than the tenth anniversary of the ESPPs initial adoption by the Board of Directors.

As of June 30, 2010, there
were 553,000 shares reserved for grant under the ESPP.

NOTE 9  STOCK-BASED COMPENSATION EXPENSE

The effect of recording stock-based compensation expense for the three and six months ended June 30, 2010 and 2009 is as follows (in thousands):



|                                              |  |                    |       |                  |   |              |  |              |        |  |   |       
|--------------------------------------------- |  | ------------------ | ----- | ---------------- | - | ------------ |  | ------------ | ------ |  | - | ------
|                                              |  | Three Months Ended |       | Six Months Ended
|                                              |  | June 30,2010       |       | June 30,2009     |   | June 30,2010 |  | June 30,2009
|Cost of revenues                              |  | $                  | 121   |                  | $ | 140          |  | $            | 296    |  | $ | 251   
|Research, development and other related costs |  |                    | 2,573 |                  |   | 3,443        |  |              | 5,250  |  |   | 6,110 
|Selling, general and administrative           |  |                    | 4,717 |                  |   | 3,648        |  |              | 8,731  |  |   | 7,186 
|                                              |  |                    |       |                  |   |              |  |              |        |  |   |       
|Total stock-based compensation expense        |  | $                  | 7,411 |                  | $ | 7,231        |  | $            | 14,277 |  | $ | 13,547
|                                              |  |                    |       |                  |   |              |  |              |        |  |   |       



12



---

##### Table of Contents

Stock-based compensation expense categorized by various equity components for the three and six months ended
June 30, 2010 and 2009 is summarized in the table below (in thousands):



|                                       |  |                    |       |                  |   |              |  |              |        |  |   |       
|-------------------------------------- |  | ------------------ | ----- | ---------------- | - | ------------ |  | ------------ | ------ |  | - | ------
|                                       |  | Three Months Ended |       | Six Months Ended
|                                       |  | June 30,2010       |       | June 30,2009     |   | June 30,2010 |  | June 30,2009
|Employee stock options                 |  | $                  | 4,051 |                  | $ | 4,510        |  | $            | 7,802  |  | $ | 7,954 
|Restricted stock awards and units      |  |                    | 2,772 |                  |   | 2,264        |  |              | 5,381  |  |   | 4,718 
|Employee stock purchase plan           |  |                    | 588   |                  |   | 457          |  |              | 1,094  |  |   | 875   
|                                       |  |                    |       |                  |   |              |  |              |        |  |   |       
|Total stock-based compensation expense |  | $                  | 7,411 |                  | $ | 7,231        |  | $            | 14,277 |  | $ | 13,547
|                                       |  |                    |       |                  |   |              |  |              |        |  |   |       

The Company uses the Black-Scholes option pricing model to determine
the estimated fair value of stock-based awards. The fair value of each option grant is determined on the date of grant and the expense is recorded on a straight-line basis. The assumptions used in the model include expected life, volatility,
risk-free interest rate, and dividend yield. The Companys determinations of these assumptions are outlined below.

Expected life  The expected life assumption is based on analysis of the Companys historical employee exercise patterns.
The expected life of options granted under the ESPP represents the offering period of 2 years.

Volatility Volatility is calculated using the historical volatility of the Companys common stock for a term consistent with the expected life. Historical volatility of the Companys common stock is also utilized for the ESPP.

Risk-free interest rate  The risk-free interest rate assumption is based on the U.S. Treasury rate for issues with remaining
terms similar to the expected life of the options.

Dividend yield  The Company does not anticipate paying any
cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option pricing model.

In addition, the
Company estimates forfeiture rates. Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. Historical data is used to estimate pre-vesting option forfeitures and record
stock-based compensation expense only for those awards that are expected to vest.

The following assumptions were used to value the options
granted:



|                         |  |                    |   |  |                  |   |  |              |   |  |              |  
|------------------------ |  | ------------------ | - |  | ---------------- | - |  | ------------ | - |  | ------------ | -
|                         |  | Three Months Ended |   |  | Six Months Ended |  
|                         |  | June 30,2010       |   |  | June 30,2009     |   |  | June 30,2010 |   |  | June 30,2009 |  
|Expected life (in years) |  | 3.8                |   |  | 3.7              |   |  | 3.8          |   |  | 3.7          |  
|Risk-free interest rate  |  | 1.0                | % |  | 1.6              | % |  | 1.0 -2.6     | % |  | 1.2 -1.6     | %
|Dividend yield           |  | 0.0                | % |  | 0.0              | % |  | 0.0          | % |  | 0.0          | %
|Expected volatility      |  | 75.7               | % |  | 75.6             | % |  | 75.4 -75.7   | % |  | 73.5 -75.6   | %

NOTE 10  INCOME TAXES

The provision for income taxes for the three and six months ended June 30, 2010 was $11.4 million and $19.5 million, respectively,
and was comprised of domestic income tax and foreign income and withholding tax. The provision for income taxes for the three and six months ended June 30, 2009 was $8.0 million and $39.0 million, respectively, and was comprised of domestic
income tax and foreign income and withholding tax. The Companys provision for income taxes is based on its worldwide estimated annualized effective tax rate, except for jurisdictions for which a loss is expected for the year and no benefit can
be realized for those losses. Such jurisdictions tax is based on actual withholding taxes for the quarter. The increase in the income tax provision for the three months ended June 30, 2010 as compared to the three months ended
June 30, 2009 was primarily attributable to the increase in pre-tax income for the period and the effect of the reduced benefit for research and foreign tax credits. The decrease in the income tax provision for the six months ended
June 30, 2010 as compared to the six months ended June 30, 2009 was primarily attributable to the $64.1 million settlement received from Amkor in February 2009.

As of June 30, 2010 and December 31, 2009, unrecognized tax benefits approximated $4.5 million, of which $3.5 million would affect the
effective tax rate if recognized. The change in the unrecognized tax benefits was immaterial for the periods. As of June 30, 2010, the Company is unable to estimate significant increases or decreases to unrecognized tax benefits that are
reasonably possible within the next 12 months.



13



---

##### Table of Contents

It is the Companys policy to classify accrued interest and penalties related to unrecognized tax
benefits in the provision for income taxes. For the three and six months ended June 30, 2010 and 2009, interest and penalties related to unrecognized tax benefits were immaterial and are included in unrecognized tax benefits.

At June 30, 2010, the Companys 2005 through 2009 tax years were open and may be subject to potential examination in one or more jurisdictions.
In addition, in the U.S., any net operating losses or credits that were generated in prior years but utilized in the open years may also be subject to examination. The Company is not currently under federal income tax examination. The Company is
currently under a state tax examination in California for the years 2006 and 2007 and under a foreign income tax examination in Israel for the years 2006 through 2008.

NOTE 11  COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company
leases office and research facilities and office equipment under operating leases which expire at various dates through 2015. Under lease agreements that contain escalating rent provisions, lease expense is recorded on a straight-line basis over the
lease term. In addition, the Company has agreements containing non-cancelable, nonrefundable payment terms with third parties to purchase services. Rent expense for the three and six months ended June 30, 2010 was $0.7 million and $1.4 million,
respectively. Rent expense for the three and six months ended June 30, 2009 was $0.6 million and $1.3 million, respectively.

As of
June 30, 2010, future minimum lease payments and non-cancelable purchase obligations are as follows (in thousands):



|                          |  |                     |     |                   |   |        |  |   |       
|------------------------- |  | ------------------- | --- | ----------------- | - | ------ |  | - | ------
|                          |  | PurchaseObligations |     | Lease Obligations |   | Total 
|2010 (remaining 6 months) |  | $                   | 134 |                   | $ | 1,747  |  | $ | 1,881 
|2011                      |  |                     |    |                   |   | 2,703  |  |   | 2,703 
|2012                      |  |                     |    |                   |   | 2,396  |  |   | 2,396 
|2013                      |  |                     |    |                   |   | 2,081  |  |   | 2,081 
|2014                      |  |                     |    |                   |   | 1,707  |  |   | 1,707 
|Thereafter                |  |                     |    |                   |   | 814    |  |   | 814   
|                          |  |                     |     |                   |   |        |  |   |       
|                          |  | $                   | 134 |                   | $ | 11,448 |  | $ | 11,582
|                          |  |                     |     |                   |   |        |  |   |       

Litigation

Tessera, Inc. v. Advanced Micro Devices, Inc. et al., Civil Action No. 05-04063 (N.D. Cal.)

On October 7, 2005, the Company filed a complaint for patent infringement against Advanced Micro Devices, Inc. (AMD) and Spansion LLC in
the United States District Court for the Northern District of California, alleging infringement of Tesseras U.S. Patent Nos. 5,679,977, 5,852,326, 6,433,419 and 6,465,893 arising from AMDs and Spansion LLCs respective manufacture,
use, sale, offer to sell and/or importation of certain packaged semiconductor components and assemblies thereof. Tessera seeks to recover damages, up to treble the amount of actual damages, together with attorneys fees, interest and costs. The
Company also seeks other relief, including enjoining AMD and Spansion LLC from continuing to infringe these patents.

On December 16,
2005, Tessera filed a first amended complaint to add Spansion Inc. and Spansion Technology, Inc. to the lawsuit.

On January 31, 2006,
the Company filed a second amended complaint to add claims for breach of contract and/or patent infringement against several new defendants, including Advanced Semiconductor Engineering, Inc., ASE (U.S.) Inc., ChipMOS Technologies, Inc., ChipMOS
U.S.A., Inc., Siliconware Precision Industries Co. Ltd, Siliconware USA Inc., STMicroelectronics N.V., STMicroelectronics, Inc., STATS ChipPAC Ltd., STATS ChipPAC, Inc. and STATS ChipPAC Ltd. (BVI). The defendants in this action have asserted
affirmative defenses to the Companys claims, and some of them have brought related counterclaims alleging that the Tessera patents at issue are invalid, unenforceable and not infringed, and/or that Tessera is not the owner of the patents.

On May 24, 2007, the parties stipulated to temporarily stay this action pending completion of Investigation No. 337-TA-605,
including appeals, before the International Trade Commission (ITC). On August 5, 2008, the court ordered that this action be further stayed pending completion, including appeals, of Investigation No. 337-TA-649 before the ITC,
which Investigation was terminated in July 2009. The matter currently remains stayed, with a Case Management Conference currently set for December 14, 2010. The Company expects that potential damages will continue to accrue during the stay
period through the anticipated expiration of the asserted patents in September of 2010. Upon completion of Investigation No. 337-TA-605, including any appeals, the proceeding may continue, with Tessera seeking to recover its damages
attributable to the alleged infringement.



14



---

##### Table of Contents

The Company cannot predict the outcome of these proceedings. An adverse decision in any of these proceedings
could significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

Tessera
Technologies, Inc. v. Hynix Semiconductor Inc. et. al, Case No. 106CV-076688

On December 18, 2006, the Company filed a
complaint against Hynix Semiconductor Inc. and Hynix Semiconductor America, Inc. (collectively, Hynix) in the Superior Court of the State of California, for the County of Santa Clara, alleging violations of California antitrust law and
California common law based on Hynixs alleged anticompetitive actions in markets related to synchronous DRAM. The Company also seeks other relief, including enjoining Hynix from continuing their alleged anticompetitive actions. On June 1,
2007, the Superior Court overruled the demurrer to Tesseras Cartwright Act claims against Hynix, thus allowing the claims to proceed. On September 14, 2007, the court overruled another demurrer to Tesseras claim for interference
with contract and business relations, allowing those claims to proceed as well.

On September 17, 2009, the judge to whom the case
previously had been assigned filed a petition with the Judicial Council to coordinate the Tessera v. Hynix action with the Rambus v. Micron action pending before Judge Kramer in the San Francisco County Superior Court (Case No. 04-0431105). On
October 15, 2009, the Judicial Council issued an order appointing Judge Kramer as the coordination motion judge. In December 2009, the action was formally coordinated with the Rambus v. Micron action.

Fact and expert discovery in the action are closed. On June 12, 2009, Hynix filed three motions for summary adjudication, addressing among other
things Tesseras standing to bring antitrust claims, its permitted damages, and the propriety of its causes of action for violation of certain California state laws. Tesseras oppositions to the summary adjudication motions were filed on
August 14, 2009. The hearing on Hynixs motions took place on February 22, 2010 and February 24, 2010. The court denied Hynixs motion for summary adjudication for alleged lack of standing and Hynixs motion for summary
adjudication regarding Tesseras claims for damages. The court granted Hynixs motion to dismiss Tesseras intentional interference claim. At present, no trial date has been set. The parties are proceeding with trial preparation
activities and are scheduled to appear for pretrial motion hearings on August 24, 2010, August 25, 2010, September 9, 2010 and September 24, 2010.

The Company cannot predict the outcome of this proceeding. An adverse decision in this proceeding could significantly harm the Companys business
and consolidated financial position, results of operations or cash flows.

In re Certain Semiconductor Chips With Minimized Chip Package
Size and Products Containing Same, ITC No. 337-TA-605

On April 17, 2007, the Company filed a complaint with the ITC,
requesting that the ITC commence an investigation under Section 337 of the Tariff Act of 1930, as amended. The ITC officially instituted an investigation as requested by Tessera on May 21, 2007. The respondents are ATI Technologies, Inc.,
Freescale Semiconductor, Inc., Motorola, Inc., Qualcomm, Inc., Spansion, Inc., Spansion, LLC and ST Microelectronics N.V. The ITC, among other things, investigated infringement of U.S. Patent Nos. 5,852,326 and 6,433,419, and considered
Tesseras request for issuance of an order excluding from entry into the United States infringing packaged semiconductor components, assemblies thereof, and products containing the same, as well as cease and desist orders directing the
respondents with domestic inventories to desist from activities with respect to infringing products.

On September 19, 2007, the ITC
issued an order setting key dates for the investigation, including for the ITC hearing which was scheduled to run from February 25, 2008 to February 29, 2008. On October 17, 2007, the investigation was assigned to Administrative Law
Judge Theodore Essex.

On June 11, 2007, the respondents filed a motion to stay the investigation pending the completion of reexamination
proceedings relating to the asserted Tessera patents. Tessera opposed the motion on June 21, 2007; Judge Essex did not rule on the motion. On February 22, 2008, the respondents filed a renewed motion to stay the ITC action pending
completion of reexamination proceedings relating to the patents at issue, in view of office actions issued by the United States Patent and Trademark Office (PTO) in the reexamination of these patents described below in Reexamination
Proceedings. An initial hearing of the matter was held on February 25, 2008, and Tessera further opposed the motion in writing on that date. On February 26, 2008, Judge Essex ruled that the action would be stayed in view of the pending
reexamination proceedings relating to the patents at issue.

On March 4, 2008, Tessera filed a Request for Emergency Review with the ITC,
seeking reversal of the order staying the case, and seeking reinstatement of the hearing date. On March 27, 2008, the ITC issued an order reversing the stay, and requiring that the hearing proceedings be rescheduled for the earliest practicable
date. On April 29, 2008, the ITC issued its confidential written opinion regarding reversal of the stay.

The five-day hearing began on
July 14, 2008, and was completed on July 18, 2008. On October 16, 2008, Judge Essex issued an order extending the target date for completion of the investigation by the ITC from February 20, 2009 to April 3, 2009, and
extended the target date for issuance of the initial determination regarding violation from October 20, 2008 to December 1, 2008.



15



---

##### Table of Contents

On December 1, 2008, Judge Essex issued the Initial Determination on Violation of Section 337 and
Recommended Determination on Remedy and Bond. He found, among other things, that Tessera had established a domestic industry in the United States due to Tesseras licensing program, that the asserted patents are valid, but that Tessera had
failed to prove infringement of the asserted claims of the patents-in-suit.

On December 15, 2008, Tessera, certain respondents, and the
Staff filed petitions for review of the Initial Determination. The parties filed replies to each others petitions for review on December 23, 2008.

On January 29, 2009, the Commission announced that it had decided to review the Initial Determination in part. Specifically, the Commission
determined to review, among other issues, Judge Essexs findings that the respondents accused devices do not infringe the asserted claims and that a particular prior art device does not anticipate the asserted patents under 35 U.S.C.
§§ 102(b) or (g). The Commission originally set a deadline of February 13, 2009 for the parties to submit responses to particular questions posed by the Commission, with February 23, 2009 set as the deadline for reply
submissions. The Commission later extended those deadlines to February 23, 2009 and March 5, 2009, respectively.

On March 12,
2009, respondents Spansion, Inc. and Spansion LLC (collectively, Spansion) filed a Notice of Commencement of Bankruptcy Proceedings and Automatic Stay, notifying the Commission of Spansions recent filings for bankruptcy and
asserting that certain administrative claims against Spansion must be stayed pursuant to Section 362 of the Bankruptcy Code. On March 18, 2009, Tessera filed a response to Spansions filing, noting that Spansion did not expressly
claim that the bankruptcy filing required a stay of this action. On March 23, 2009, the ITC staff submitted a response to Spansions filing, asserting that Spansions bankruptcy filing does not require any stay of the investigation
against Spansion. On May 20, 2009, the ITC denied Spansions request to stay the investigation against Spansion.

On March 26,
2009, the Commission issued a Notice of Commission Decision to Request Additional Briefing on Remedy and to Extend the Target Date. Pursuant to the notice, the Commission requested additional briefing from the parties, or from any interested third
parties, addressing three issues specified in the notice regarding the appropriateness of Tesseras proposed remedy. The Commission also determined that the target date for issuance of its final determination would be extended from
April 14, 2009 until May 20, 2009. Initial written submissions in response to the Commissions notice were filed by Tessera, certain respondents, the ITC staff, and by certain third parties on April 10, 2009. Reply submissions
were filed by Tessera, certain respondents, the ITC staff and certain third parties on April 20, 2009. On April 20, 2009, the Commission also issued an order permitting interested third parties to have an extra nine days, until
April 29, 2009, to file additional reply submissions.

On May 20, 2009, the Commission issued its Final Determination in the action.
The Commission, among other things, reversed Judge Essexs ruling that Tessera had not proven infringement by the respondents, and ruled that Tessera had established infringement. The Commission affirmed Judge Essexs ruling that the
patents are not invalid. The Commission denied Tesseras request for a General Exclusion Order, but granted a Limited Exclusion Order against all respondents (and certain related entities) and Cease and Desist Orders against certain respondents
(and certain related entities).

On or about July 19, 2009, the Presidential Review period expired, and no alterations were made to the
ITCs orders in the investigation. The Investigation by the ITC is now being appealed, as discussed immediately below.

On or about
June 2, 2009, Motorola, Inc. and Tessera entered into a settlement and license agreement regarding certain Tessera technology, including the patents at issue in the ITC investigation.

The Company cannot predict the outcome of this proceeding, which may be impacted by appellate proceedings, as discussed immediately below. An adverse
decision in proceedings regarding this action could significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

Spansion, Inc. et al., v. International Trade Commission and Tessera, Inc., U.S. Court of Appeals for the Federal Circuit Case Nos. 2009-1460,
2009-1461, 2009-1462, and 2009-1465

On or about July 20, 2009, respondents ATI Technologies, Inc., Freescale Semiconductor, Inc.,
Qualcomm, Inc., Spansion, Inc., Spansion LLC and ST Microelectronics N.V. filed appeals of the ITCs Final Determination in Investigation No. 337-TA-605 with the United States Court of Appeals for the Federal Circuit. The appellants also
filed certain emergency motions seeking a stay of the ITCs limited exclusion order and cease and desist orders during the pendency of the appeal proceedings, as well as an immediate stay of those ITC orders while the Federal
Circuit considered briefing as to whether to grant a stay during the appeal.

On July 22, 2009, the Federal Circuit issued an order
consolidating appeals from the ITCs 337-TA-605 investigation, and ordering Tessera and the ITC to file responses to the appellants motion to stay no later than July 29, 2009. On July 29, 2009, Tessera and the ITC each filed
their briefing in opposition to a stay of the ITCs orders during the appeal. On August 3, 2009, the respondents filed a reply brief in support of their motion. On August 4, 2009, Tessera filed a supplemental response to the
respondents reply brief. Also on August 4, 2009, the Federal Circuit issued an order denying Tesseras request for leave to file a brief in excess of the usual page limits, and ordered Tessera to file a corrected version of its
July 29, 2009 brief consisting of no more than 20 pages. Tessera filed its corrected brief on August 6, 2009. On September 8, 2009, the Federal Circuit denied the motions for a stay.



16



---

##### Table of Contents

On September 22, 2009, respondents ATI Technologies, Inc. and Freescale Semiconductor, Inc. filed a
Combined Motion for Reconsideration and Suggestion for Rehearing En Banc of the Federal Circuits denial of their stay motion. Tessera opposed the motion on October 5, 2009. The ITC also opposed the motion on October 5, 2009. On
October 23, 2009, the Federal Circuit ruled in the Companys favor, denying the respondents request to stay the limited exclusion order and cease and desist orders during the appeal. The Federal Circuit also notified the parties that
it had circulated the petition for rehearing en banc to the court. On November 5, 2009, the petition for rehearing en banc was denied.

On October 30, 2009, the respondents filed their appellate briefing regarding the merits of the ITCs ruling. Tessera filed its response brief
in the appeal on January 15, 2010, and the respondents reply briefs were filed on February 19, 2010. Oral argument occurred on June 9, 2010, and the parties now await a decision from the Federal Circuit.

The Company cannot predict the outcome of this proceeding. An adverse decision in this proceeding could significantly harm the Companys business
and consolidated financial position, results of operations or cash flows.

Tessera, Inc. v. Motorola, Inc., et. al, Case
No. 2:07cv143 (E.D. Tex.)

On April 17, 2007, the Company filed a complaint against Motorola, Inc., Qualcomm, Inc., Freescale
Semiconductor, Inc., and ATI Technologies, Inc. in the United States District Court for the Eastern District of Texas, alleging infringement of Tesseras U.S. Patent Nos. 5,852,326 and 6,433,419, arising from, among other things, the
defendants respective manufacture, use, sale, offer to sell and/or importation of certain packaged semiconductor components and assemblies thereof. The Company seeks to recover damages, up to treble the amount of actual damages, together with
attorneys fees, interest and costs. The Company also seeks other relief, including enjoining the defendants from continuing to infringe these patents. The defendants have not yet answered Tesseras complaint. The parties have agreed that
the case will be temporarily stayed pending completion, including appeals, of ITC Investigation No. 337-TA-605 titled In re Certain Semiconductor Chips With Minimized Chip Package Size and Products Containing Same.

On or about June 2, 2009, Motorola, Inc. and Tessera entered into a settlement and license agreement regarding certain Tessera technology, including
the patents at issue in this action. Tesseras request to dismiss Motorola, Inc. from the action was granted by the Court on June 8, 2009.

The Company cannot predict the outcome of these proceedings. An adverse decision in any of these proceedings could significantly harm the Companys
business and consolidated financial position, results of operations or cash flows.

In the Matter of Certain Semiconductor Chips with
Minimized Chip Package Size and Products Containing Same (III), ITC No. 337-TA-630 (the 630 ITC Action)

On
December 7, 2007, the Company filed a complaint with the ITC, requesting that the ITC commence an investigation under Section 337 of the Tariff Act of 1930, as amended. The ITC officially instituted an investigation as requested by Tessera
on January 3, 2008. The respondents named in the complaint were A-Data Technology Co., Ltd., A-Data Technology (U.S.A.) Co., Ltd., Acer, Inc., Acer America Corp., Centon Electronics, Inc., Elpida Memory, Inc., Elpida Memory (USA) Inc.,
International Products Sourcing Group, Inc., Kingston Technology Co., Inc., Nanya Technology Corporation, Nanya Technology Corp., U.S.A., Peripheral Devices & Products Systems, Inc. d/b/a Patriot Memory, Powerchip Semiconductor Corp.,
ProMOS Technologies Inc., Ramaxel Technology Ltd., Smart Modular Technologies, Inc., TwinMOS Technologies, Inc., and TwinMOS Technologies USA Inc. In the Notice of Institution, the ITC stated that it would, among other things, investigate
infringement of U.S. Patent Nos. 5,679,977, 6,133,627, 5,663,106, and 6,458,681, and consider Tesseras request for issuance of an order excluding from entry into the United States infringing packaged semiconductor components, assemblies
thereof, and products containing the same, as well as cease and desist orders directing parties with domestic inventories to desist from activities with respect to infringing products.

The action was assigned to Administrative Law Judge Bullock. On January 14, 2008, Judge Bullock issued a protective order in the action, and ground
rules setting case procedures. On January 23, 2008, Judge Bullock issued an order setting the target date for completion of the investigation at April 14, 2009. On February 27, 2008, Judge Bullock ordered the hearing date to be set
for September 22, 2008.

With the exception of the TwinMOS respondents, all of the respondents answered Tesseras complaint. On
February 19, 2008, Tessera filed a motion for an order to show cause why the TwinMOS respondents should not be found to be in default. Tesseras motion was granted. The TwinMOS respondents have not responded to the order to show cause.

On May 15, 2008, Company filed a motion to withdraw U.S. Patent No. 6,458,681 from the ITC action. The respondents did not oppose
the motion, and the motion was granted. In July 2008, the action was assigned to Judge Essex.

On May 21, 2008, Company settled its
dispute with one of the respondents, International Products Sourcing Group (IPSG), and entered into a settlement and license agreement with IPSG and its parent, Micro Electronics, Inc. As part of the settlement, IPSG and Micro
Electronics acknowledged the validity and enforceability of the asserted patents, and further acknowledged that their accused products infringe those patents. IPSG has been dismissed from the ITC action. On August 14, 2008, Company settled its
dispute with another respondent, Peripheral



17



---

##### Table of Contents

Devices & Products Systems, Inc. (PDP), and entered into a settlement and license
agreement with PDP. As part of the settlement, PDP, on behalf of itself and its parents, affiliates and subsidiaries, acknowledged the validity and enforceability of the asserted patents, and further acknowledged that its accused products infringe
those patents. On September 22, 2008, Judge Essex granted the motion of A-DATA Technology Co., Ltd. and A-DATA Technology (USA) Co., Ltd. to dismiss those respondents from the ITC action based on their stipulation to a consent order pursuant to
which they agreed not to import or sell for importation into the United States any products infringing Tesseras asserted patents.

A
nine-day hearing in this action began on September 22, 2008 and was completed on October 3, 2008. The parties completed their initial post-hearing briefing on October 31, 2008. On January 2, 2009, Judge Essex issued an order
extending the date for issuance of his initial determination regarding violation from January 14, 2009 until March 6, 2009. On February 10, 2009, Judge Essex again extended the date for issuance of his initial determination regarding
violation until May 22, 2009, and extended the target date for completion of the Commissions investigation until September 22, 2009. On April 2, 2009, Judge Essex again extended the date for issuance of his initial determination
regarding violation until July 17, 2009, and extended the target date for completion of the Commissions investigation until November 17, 2009. On June 12, 2009, Judge Essex again extended the date for issuance of his initial
determination until August 28, 2009. The June 12, 2009 order also extended the target date for completion of the Commissions investigation until December 29, 2009.

In a separate June 12, 2009 order, Judge Essex requested briefing from the parties as to the effect, if any, of the Commissions opinion in the
337-TA-605 investigation on the infringement analysis that Judge Essex should undertake in the 377-TA-630 investigation. The parties submitted their initial briefing on this issue on June 26, 2009, and their reply briefing on July 6, 2009.

On August 28, 2009, Judge Essex issued an Initial Determination on Violation of Section 337 and Recommended Determination on Remedy
and Bond, in which he found that no violation of Section 337 of the Tariff Act of 1930 had occurred. The Administrative Law Judge (ALJ) held, among other things, that the Commission had subject matter jurisdiction over the parties
and products, that the importation or sale requirement of Section 337 was satisfied, that the accused products do not infringe the asserted claims, that the asserted claims are not invalid for anticipation, obviousness or indefiniteness, that a
domestic industry exists, that the respondents failed to approve the affirmative defense of licensing, that respondents except for Elpida Memory, Inc. and Elpida Memory (USA) Inc. (collectively, Elpida) failed to prove the affirmative
defense of patent exhaustion for certain accused products but had established it for others, and that Elpida proved that all of its accused products are subject to patent exhaustion. The section addressing the recommended remedy and bond
provisionally recommended among other things that, if a violation of Section 337 had been found, Tessera had not demonstrated entitlement to a general exclusion order or an order extending to downstream products, and that a bond could have been
set at a reasonable royalty rate as determined by Tesseras license agreements.

On September 17, 2009, Tessera and the ITC Staff
filed petitions for review of portions of the Initial Determination. Certain respondents also conditionally sought review of portions of the Initial Determination. The parties filed replies to each others petitions for review on
October 1, 2009. On October 30, 2009, the ITC announced that it will review portions of the Initial Determination. The Commission stated that it would review, among other things, whether the respondents infringed the Tessera patents
asserted in the action.

On December 29, 2009, the ITC issued a Notice of Final Determination holding, among other things, that it would
(1) modify the ALJs construction of the claim terms top layer and thereon recited in claim 1 of U.S. Patent No. 5,663,106 (the 106 patent); (2) reverse the ALJs finding that the accused
μBGA products do not meet all of the limitations of the asserted claims of the 106 patent but affirm his finding that there is no infringement due to patent exhaustion; (3) affirm the ALJs finding that the accused wBGA
products do not infringe the asserted claims of the 106 patent; (4) affirm the ALJs validity and domestic industry analyses pertaining to the asserted claims of the 106 patent; (5) affirm the ALJs finding that the
Direct Loading testing methodology employed by Tesseras expert fails to prove infringement; and (6) affirm the ALJs finding that the 1989 Motorola OMPAC 68-pin chip package fails to anticipate claims 17 and 18 of U.S. Patent
No. 5,679,977 (the 977 patent) under the on-sale bar provision of 35 U.S.C. § 102(b), but modify a portion of the Initial Determination. A public version of the ITCs full opinion was issued on February 24, 2010. The
ruling by the ITC is now being appealed, as discussed immediately below.

The Company cannot predict the outcome of this proceeding, which may
be impacted by appellate proceedings, as discussed immediately below. An adverse decision in proceedings regarding this action could significantly harm the Companys business and consolidated financial position, results of operations or cash
flows.

Tessera, Inc. et al., v. International Trade Commission., U.S. Court of Appeals for the Federal Circuit Case No. 2010-1176

On January 28, 2010, the Company filed a Notice of Appeal of the ITCs Final Determination in Investigation
No. 337-TA-630 with the United States Court of Appeals for the Federal Circuit. On May 27, 2010, Tessera filed its opening appellate brief. The respondents filed their response brief in the appeal on July 20, 2010. Tesseras
reply brief currently is due to be filed on or about August 6, 2010. Oral argument in the case has not yet been scheduled.



18



---

##### Table of Contents

The Company cannot predict the outcome of this proceeding. An adverse decision in this proceeding could
significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

Tessera, Inc.
v. A-DATA Technology Co., Ltd., et al., Civil Action No. 2:07-cv-534 (E.D. Tex.)

On December 7, 2007, the Company filed a
complaint against A-Data Technology Co., Ltd., A-Data Technology (U.S.A.) Co., Ltd., Acer, Inc., Acer America Corp., Centon Electronics, Inc., Elpida Memory, Inc., Elpida Memory (USA) Inc., International Products Sourcing Group, Inc., Kingston
Technology Co., Inc., Nanya Technology Corporation, Nanya Technology Corp., U.S.A., Peripheral Devices & Products Systems, Inc. d/b/a Patriot Memory, Powerchip Semiconductor Corp., ProMOS Technologies Inc., Ramaxel Technology Ltd., Smart
Modular Technologies, Inc., TwinMOS Technologies, Inc., and TwinMOS Technologies USA Inc. in the United States District Court for the Eastern District of Texas, alleging infringement of Tesseras U.S. Patent Nos. 5,679,977, 6,133,627, 5,663,106
and 6,458,681, arising from, among other things, the defendants respective manufacture, use, sale, offer to sell and/or importation of certain packaged semiconductor components and assemblies thereof. The Company seeks to recover damages, up
to treble the amount of actual damages, together with attorneys fees, interest and costs. The Company also seeks other relief, including enjoining the defendants from continuing to infringe these patents.

The defendants have not yet answered Tesseras complaint, but, with the exception of the TwinMOS defendants and Ramaxel, filed motions to stay the
case pursuant to 28 U.S.C. § 1659 pending final resolution of the 630 ITC action. Tessera did not oppose the motions to stay. Tessera filed a motion seeking to find TwinMOS Technologies U.S.A. Inc. in default, and the clerk has entered
the default. On February 25, 2008, the district court granted the defendants motion to stay the action.

As noted above, on
May 21, 2008, the Company settled its dispute with one of the defendants, International Products Sourcing Group (IPSG), and entered into a settlement and license agreement with IPSG and its parent, Micro Electronics, Inc. As part of
the settlement, IPSG and Micro Electronics acknowledged the validity and enforceability of the asserted patents, and further acknowledged that their accused products infringe those patents. IPSG was dismissed from the Texas district court action on
June 30, 2008. On August 14, 2008, Company settled its dispute with another defendant, Peripheral Devices & Products Systems, Inc. (PDP), and entered into a settlement and license agreement with PDP. As part of the
settlement, PDP, on behalf of itself and its parents, affiliates and subsidiaries, acknowledged the validity and enforceability of the asserted patents, and further acknowledged that its accused products infringe those patents. On September 9,
2008, PDP was dismissed from the Texas district court action.

The Company cannot predict the outcome of this proceeding. An adverse decision
in this proceeding could significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

Siliconware Precision Industries Co., Ltd. and Siliconware U.S.A., Inc. v. Tessera, Inc., Civil Action No. 08-03667 (N.D. Cal.)

On July 31, 2008, Siliconware Precision Industries Co., Ltd. and Siliconware U.S.A., Inc. (collectively, Siliconware)
filed a complaint against the Company in the United States District Court for the Northern District of California seeking a declaratory judgment of noninfringement, invalidity, and unenforceability of Tesseras U.S. Patent No. 5,663,106.
The Company filed its Answer and Counterclaims on September 5, 2008, asserting infringement of the patent at issue by Siliconware. On September 11, 2008, the case was related to Tessera, Inc. v. Advanced Micro Devices, Inc. et al., Civil
Action No. 05-04063 (N.D. Cal) and assigned to the same judge. On December 19, 2008, the court ordered this action be stayed pending completion of Investigation No. 337-TA-649 before the ITC, which Investigation was terminated in July
2009. The matter currently remains stayed, with a Case Management Conference currently set for December 14, 2010.

The Company cannot
predict the outcome of this proceeding. An adverse decision in this proceeding could significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

Advanced Semiconductor Engineering Inc., ASE Test Limited, and ASE (U.S.) Inc. v. Tessera, Inc., Civil Action No. 08-03726 (N.D. Cal.)

On August 4, 2008, Advanced Semiconductor Engineering Inc., ASE Test Limited, and ASE (U.S.) Inc. (collectively, ASE)
filed a complaint against the Company in the United States District Court for the Northern District of California seeking a declaratory judgment of noninfringement and invalidity of Tesseras U.S. Patent No. 5,663,106. On
September 11, 2008, the case was related to Tessera, Inc. v. Advanced Micro Devices, Inc. et al., Civil Action No. 05-04063 (N.D. Cal) and assigned to the same judge. The Company filed its Answer and Counterclaims on December 1, 2008,
asserting infringement of the patent at issue by ASE. On December 19, 2008, the court ordered this action be stayed pending completion of Investigation No. 337-TA-649 before the ITC, which Investigation was terminated in July 2009. The
matter currently remains stayed, with a Case Management Conference currently set for December 14, 2010.

The Company cannot predict the
outcome of this proceeding. An adverse decision in this proceeding could significantly harm the Companys business and consolidated financial position, results of operations or cash flows.



19



---

##### Table of Contents

ChipMOS Technologies Inc., ChipMOS U.S.A. Inc. and ChipMOS Technologies (Bermuda) Ltd. v. Tessera,
Inc., Civil Action No. 08-04063 (N.D. Cal.)

On August 11, 2008, ChipMOS Technologies Inc., ChipMOS U.S.A. Inc. and ChipMOS
Technologies (Bermuda) Ltd. (collectively, ChipMOS) filed a complaint against the Company in the United States District Court for the Northern District of California seeking a declaratory judgment of noninfringement and invalidity of
Tesseras U.S. Patent No. 5,663,106. On September 11, 2008, the case was related to Tessera, Inc. v. Advanced Micro Devices, Inc. et al., Civil Action No. 05-04063 (N.D. Cal) and assigned to the same judge. The Company filed its
Answer and Counterclaims on September 12, 2008, asserting infringement of the patent at issue by ChipMOS. On December 19, 2008, the court ordered this action be stayed pending completion of Investigation No. 337-TA-649 before the ITC,
which Investigation was terminated in July 2009. The matter currently remains stayed, with a Case Management Conference currently set for December 14, 2010.

The Company cannot predict the outcome of this proceeding. An adverse decision in this proceeding could significantly harm the Companys business
and consolidated financial position, results of operations or cash flows.

Powertech Technology Inc. v. Tessera, Inc., Civil Action
No. 10-00945 (N.D. Cal.)

On March 5, 2010, Powertech Technology Inc. (PTI) filed a complaint against the Company
in the United States District Court for the Northern District of California seeking a declaratory judgment of noninfringement and invalidity of Tesseras U.S. Patent No. 5,663,106. On March 22, 2010, the case was related to
Siliconware Precision Industries Co., Ltd. v. Tessera, Inc., Civil Action No. 08-03667 (N.D. Cal.), and assigned to the judge presiding over the action.

On April 1, 2010, the Company filed a motion to dismiss the complaint for lack of subject matter jurisdiction. The hearing on Tesseras motion
occurred on May 13, 2010. On June 1, 2010, the judge granted Tesseras motion, and dismissed the action.

On June 29,
2010, PTI filed a motion seeking reconsideration of the July 1, 2010 order dismissing the action. Tesseras opposition to PTIs motion for reconsideration was filed on July 15, 2010. Oral argument on the motion for
reconsideration is currently scheduled for August 5, 2010.

The Company cannot predict the outcome of this proceeding. An adverse
decision in this proceeding could significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

Tessera, Inc. v. United Test and Assembly Center Limited, et al., Case No. RG08410327

On September 18, 2008, the Company filed a complaint in the Superior Court for the State of California against United Test and Assembly Center, Ltd.
and UTAC America, Inc. (collectively, UTAC) alleging breach of contract for failure to pay Tessera the full royalty due under its license agreement. The Company also alleged violations of California unfair competition laws and seeking
compensatory and punitive damages.

On October 20, 2008, UTAC removed the action to the U.S. District Court for the Northern District of
California. On October 31, 2008, Judge Claudia Wilken issued an order that Tesseras case against UTAC was related to Tessera, Inc. v. Advanced Micro Devices, Inc. et al., Civil Action No. 05-04063 (N.D. Cal.) and that the UTAC case
should be reassigned to her.

On November 19, 2008, Tessera filed a motion to remand the case to state court. On January 6, 2009,
Judge Wilken granted Tesseras motion, and remanded the case to state court.

On January 16, 2009, UTAC filed a cross-complaint
against Tessera, asserting claims for declaratory judgment, breach of contract, breach of the implied covenant of good faith and fair dealing and violation of California unfair competition law. Tesseras response to UTACs cross-complaint
was filed on February 18, 2009. Tesseras answer denied generally the allegations in UTACs cross-complaint, and asserted various affirmative defenses.

On March 25, 2009, UTAC filed a motion to designate the action as complex, and have the case reassigned to a judge on the State Courts complex
panel. Tessera opposed the motion. On April 17, 2009, the Court granted UTACs motion, and the case was reassigned to Judge Robert Freedman.

On March 19, 2009, Tessera filed a Special Motion to Strike Cross-Complaint under California Code of Civil Procedure Section 425.16, asserting
that UTACs claims for breach of contract, breach of implied covenant of good faith and fair dealing, and violation of the unfair competition law were barred by Californias anti- SLAPP statute. On April 16, 2009, UTAC
voluntarily moved to dismiss with prejudice its causes of action for breach of contract and breach of implied covenant of good faith and fair dealing. Tessera did not oppose UTACs motion to voluntarily dismiss with prejudice, and the dismissal
was entered by the Court. On April 22, 2009, a hearing was held before Judge Freedman and Tesseras motion was taken under submission. On May 4, 2009, Judge Freedman issued an order granting Tesseras motion, and striking
UTACs causes of action for breach of contract, breach of implied covenant of good faith and fair dealing, and violation of the unfair competition law. On June 25, 2009, Tessera filed a motion seeking recovery from UTAC of its costs and
attorneys fees incurred in connection with the successful motion. Tesseras motion for costs and attorneys fees was heard by the Court on October 23, 2009, and the Court took the matter under submission. On January 21,
2010, the Court granted Tesseras motion in part and ordered UTAC to pay Tesseras attorneys fees in the amount of $110,812.50, and costs in the amount of $1,957.00.



20



---

##### Table of Contents

Tessera sought summary adjudication regarding certain contract issues, and hearings on those motions took
place on November 20, 2009 and December 11, 2009, respectively. On December 10, 2009, the Court denied summary adjudication regarding interpretation of UTACs royalty obligations under the contract. On December 14, 2009, the
Court granted summary adjudication to Tessera regarding UTACs cause of action and asserted affirmative defenses of patent misuse, finding that UTAC had presented no evidence of patent misuse by Tessera. In addition, the Court denied summary
adjudication regarding whether certain UTAC products meet certain parameters set forth in the parties agreement.

On December 11,
2009, the Court reset the trial date from January 11, 2010 to February 1, 2010. On January 15, 2010, the Court again reset the trial date for March 1, 2010. On February 18, 2010 and February 23, 2010, the Court held the
Pretrial Management Conference, including hearing the parties motions in limine.

On March 1, 2010, the parties entered into a
settlement agreement, agreed to a mutual dismissal of the action, and entered into an updated license agreement. The initial term of the updated license agreement runs through the end of 2016. UTAC has the option to renew the license for an
additional five year term. Among other consideration to Tessera, under the terms of the agreement UTAC is required to pay $15.0 million in cash to address past royalties owed under the initial license, of which $3.0 million has been received from
UTAC.

Reexamination Proceedings

On February 9, 2007 and February 15, 2007, Silicon Precision Industries Co., Ltd. and Siliconware USA, Inc. (collectively,
Siliconware) filed with the PTO requests for inter partes reexamination relating to U.S. Patent Nos. 6,433,419 and 6,465,893, and ex parte reexamination relating to U.S. Patent Nos. 5,679,977, 6,133,627 and 5,852,326. On April 19,
2007, the PTO granted the requests for ex parte reexamination. On May 4, 2007, the PTO granted the requests for inter partes reexamination. The PTO denied the Companys petition to vacate the inter partes reexamination proceeding on the
ground that the request did not name the real party in interest, and a related request for reconsideration of that decision.

The PTO issued a
non-final Official Action in connection with the inter partes reexamination of U.S. Patent No. 6,465,893 initially rejecting a number of patent claims on May 4, 2007, to which a response was filed on July 5, 2007. The PTO issued a
non-final Official Action in connection with the inter partes reexamination of U.S. Patent No. 6,433,419 initially rejecting a number of the patent claims on June 5, 2007, to which a response was filed by Tessera on August 6, 2007. On
September 5, 2007, Siliconware filed comments in response to the Companys August 6, 2007 response. On March 14, 2007, Siliconware filed a second request for ex parte reexamination of U.S. Patent No. 5,679,977. The PTO
granted this request on June 12, 2007.

On May 21, 2007, Amkor filed a request for ex parte reexamination of U.S. Patent
No. 5,861,666. On July 26, 2007, the PTO granted this request. On June 11, 2007, Amkor filed additional requests for reexamination regarding U.S. Patent Nos. 5,679,977 and 6,133,627. The PTO granted the request for reexamination as to
the 5,679,977 patent on August 15, 2007, and the PTO granted the requests for reexamination as to the 6,133,627 patent on August 13, 2007.

A first official action rejecting some claims and confirming other claims as patentable was mailed February 21, 2008 in the reexamination of U.S.
Patent No. 5,852,326. A response to the official action in the reexamination of U.S. Patent No. 5,852,326 was filed on April 21, 2008. A second office action rejecting some claims and confirming other claims as patentable was mailed
on August 1, 2008. Tessera filed a response to the official action on October 1, 2008. A third, final official action rejecting all claims under reexamination was mailed on March 6, 2009. Tessera filed a response to the official
action on April 6, 2009. An advisory action was mailed by the PTO on June 22, 2009, maintaining all of the rejections presented in the Action of March 6, 2009. On July 1, 2009, Tessera filed a petition to withdraw the finality of
the official action mailed on March 6, 2009. The PTO issued a decision on July 10, 2009 dismissing Tesseras petition of July 1, 2009. Tessera filed a Notice of Appeal on August 6, 2009, and timely filed an appeal brief on
October 13, 2009. The PTOs Answer to Tesseras appeal brief was mailed on May 28, 2010. The term for Tessera to file a reply brief to the PTOs Answer expires on or about July 28, 2010.

A first official action was mailed February 22, 2008 in the reexamination of U.S. Patent No. 5,861,666 rejecting those claims which were
subject to reexamination. Such official action was superseded by a substantively identical action mailed March 11, 2008 restarting the period for response. A response to such official action was filed on May 12, 2008. A second official
action was mailed on September 30, 2008 and Tessera filed an amendment to the claims and response to the second official action on October 30, 2008. On March 13, 2009, the PTO issued a Notice of Intent to Issue Ex Parte Reexamination
Certificate, after which a Supplemental Notice of Intent to Issue Ex Parte Reexamination Certificate (Corrected Status) was issued on April 2, 2009, finding certain amended and newly presented claims to be patentable. The Reexamination
Certificate issued on June 30, 2009.

On February 12, 2008, the PTO issued decisions merging the three reexaminations of U.S. Patent
No. 5,679,977 with one another and also merging the two reexaminations of U.S. Patent No. 6,133,627 with one another. A first official action was issued on February 29, 2008 in the merged reexaminations of U.S. Patent
No. 6,133,627, rejecting those claims subject to reexamination. A response to the official action in the merged reexaminations of U.S. Patent No. 6,133,627 was filed on April 29, 2008. On August 10, 2008, the PTO issued a second
official action,



21



---

##### Table of Contents

to which Tessera filed a Request to Vacate the Second Official Action on August 26, 2008 on procedural
grounds. As a result, on September 11, 2008, the PTO issued a third non-final official action. Tessera filed a response to the non-final office action on October 17, 2008.

A first official action was issued on March 28, 2008 in the merged reexaminations of U.S. Patent No. 5,679,977, rejecting those claims subject
to reexamination. On May 28, 2008, a response to the official action in the merged reexaminations of U.S. Patent No. 5,679,977 was filed. On October 10, 2008, the PTO issued a second non-final official action, to which Tessera filed a
response on November 10, 2008. On October 1, 2009, the PTO issued a final official action. Tessera filed a response to the final official action on December 1, 2009. On January 14, 2010, the PTO issued an Advisory Action
indicating that Tesseras response of December 1, 2009 failed to overcome all of the rejections set forth in the final official action mailed October 1, 2009. Tessera filed a Notice of Appeal on February 1, 2010, and timely filed
an appeal brief on April 5, 2010.

On February 19, 2008, the PTO issued a second official action maintaining the rejections in U.S.
Patent No. 6,433,419. On March 10, 2008, Tessera filed a petition to vacate the second official action in the reexamination of U.S. Patent No. 6,433,419 on the ground that the second official action did not properly take account of an
amendment to the specification of U.S. Patent No. 6,433,419. On March 19, 2008, Tessera filed a substantive response to such second official action. On June 3, 2008, Tessera filed a renewed petition to vacate the inter partes
reexamination on the ground that the request for such reexamination did not name the real party in interest. On June 11, 2008, Siliconware filed an opposition to such petition. The petition was denied on September 10, 2008. On
June 13, 2008, the PTO issued a third official action in the inter partes reexamination of U.S. Patent No. 6,433,419 which was denominated as an action closing prosecution. On July 14, 2008, Tessera filed a substantive response to the
action closing prosecution, to which a response was filed by Siliconware on August 8, 2008. A Right of Appeal Notice was issued on September 17, 2008, and Tessera filed a Notice of Appeal on October 17, 2008. On November 3, 2008,
the PTO issued a decision withdrawing the Right of Appeal Notice and returning the case to the examiner for issuance of a further action. On December 23, 2008, the PTO issued a non-final official action, also denominated as an action closing
prosecution, to which Tessera filed a response on January 23, 2009. On February 23, 2009, Siliconware filed a response to Tesseras January 23, 2009 response. A Right of Appeal Notice was issued on June 19, 2009. On
July 1, 2009, Tessera filed a petition to withdraw the Right of Appeal Notice. Having not yet received a decision on the petition of July 1, 2009, Tessera filed a Notice of Appeal on July 20, 2009. On July 30, 2009, the PTO
issued a decision dismissing Tesseras petition of July 1, 2009. Tessera filed a request for reconsideration of this decision on August 7, 2009, upon which a decision from the PTO has not yet been received. Tessera timely filed an
appeal brief on October 5, 2009, to which Siliconware filed a Response Brief on November 5, 2009. Siliconware refiled their Response Brief on March 17, 2010. The PTOs Answer to Tesseras appeal brief was mailed on
July 13, 2010. Tesseras Reply Brief is due on or about August 13, 2010.

On February 15, 2008, the PTO issued a second
official action, also denominated as an action closing prosecution, maintaining the rejections of U.S. Patent No. 6,465,893. On March 28, 2008, Tessera filed a petition to vacate the second official action in the reexamination of U.S.
Patent No. 6,465,893 on the ground that the second official action did not properly take account of an amendment to the specification of U.S. Patent No. 6,465,893. On April 15, 2008, Tessera filed a response to the second official
action in the reexamination of U.S. Patent No. 6,465,893, to which Siliconware filed comments on May 15, 2008. On June 9, 2008, Tessera filed a renewed petition to vacate the inter partes reexamination on the ground that the request
for such reexamination did not name the real party in interest, which petition was denied on September 10, 2008. On August 21, 2008, a non-final office action was issued. Tessera filed a response on October 21, 2008. On
February 5, 2009, the PTO issued a non-final official action, also denominated as the second action closing prosecution. Tessera filed a response on March 5, 2009, to which Siliconware filed a response on April 6, 2009. A Right of
Appeal Notice was issued on June 22, 2009. Tessera filed a Notice of Appeal on July 22, 2009. Tessera timely filed an appeal brief on October 5, 2009, to which Siliconware filed a Response Brief on November 5, 2009, and a
Corrected Response Brief on June 14, 2010.

On March 26, 2008, a request for a third ex parte reexamination of U.S. Patent
No. 6,133,627 patent was filed, ostensibly by PowerChip Semiconductor Corporation (Powerchip). On May 2, 2008, the PTO granted this request. On November 18, 2008, the PTO issued a first non-final official action, to which
Tessera filed a response on December 18, 2008. On February 13, 2009, the PTO issued an order merging all of the reexaminations of U.S. Patent No. 6,133,627. On March 17, 2009, the PTO issued a non-final official action rejecting
all claims under reexamination, to which Tessera filed a response on April 17, 2009. On July 14, 2009, the PTO issued a final official action which held certain claims patentable but rejected other claims to which Tessera filed a response
on August 14, 2009. On December 1, 2009, the PTO issued an Advisory Action indicating that Tesseras response of August 14, 2009 failed to overcome all of the rejections set forth in the final official action mailed July 14,
2009. Tessera filed a Notice of Appeal on December 14, 2009. Tessera timely filed an appeal brief on February 17, 2010. The PTOs Answer to Tesseras appeal brief was mailed on May 28, 2010.

On April 2, 2008, a request for inter partes reexamination of Tesseras U.S. Patent No. 6,458,681 was filed, ostensibly by Powerchip. On
June 6, 2008, the PTO granted this request and issued an official action rejecting certain claims of the 681 patent, to which Tessera filed a response on August 6, 2008, and to which Powerchip filed responsive comments on
October 10, 2008. On September 21, 2009, the PTO issued an Action Closing Prosecution rejecting certain claims and holding one claim patentable, to which Tessera timely filed a response on October 21, 2009. On November 20, 2009,
Powerchip filed comments to Tesseras response of October 21, 2009. A Right of Appeal Notice was issued on February 22, 2010. In response to the Right of Appeal Notice, Tessera has filed an application for reissue of the patent to
further address the matters raised during the reexamination proceedings. On July 20, 2010, the PTO issued a Notice of Intent to Issue Inter Partes Reexamination Certificate, canceling the claims subject to reexamination. The reexamination
certificate has not yet issued. On March 22, 2010, Tessera filed an application for reissue of the 681 patent to pursue additional claims.



22



---

##### Table of Contents

On July 18, 2008, a request for ex parte reexamination of Tesseras U.S. Patent No. 5,663,106
was filed, ostensibly by Powerchip. On September 4, 2008, the PTO granted the request for reexamination. On April 10, 2009, the PTO issued a non-final official action rejecting all claims under reexamination. Tessera filed a response on
June 10, 2009. On November 19, 2009, the PTO issued a final official action finding certain claims patentable and rejecting other claims. Tessera filed a response on January 19, 2010. On April 7, 2010, the PTO issued a non-final
official action withdrawing the rejections previously made but rejecting all claims under reexamination on new grounds. Tessera filed a response on June 7, 2010.

On or about January 3, 2006, Koninklijke Phillips Electronics N.V. and Philips Semiconductors B.V. (Philips), MICRON Semiconductor
Deutschland GmbH (Micron GmbH), Infineon and STMicroelectronics, Inc. (STM) filed oppositions to Tesseras European Patent No. EP1111672 (the EP672 Patent) before the European Patent Office (the
EPO). Micron GmbH and Infineon withdrew their oppositions on July 24, 2006 and November 4, 2006, respectively. On October 10, 2006, Tessera filed its response to the remaining oppositions with the EPO. On December 4,
2006, Phillips withdrew its opposition. On September 16, 2008, the EPO Opposition Division issued a Summons to attend oral proceedings which states preliminary opinions unfavorable to the claims of the EP672 Patent. The
Company filed a written response to the summons on January 5, 2009. STM also filed comments responsive to the summons on December 31, 2008, to which the Company filed a response to STMs comments on January 12, 2009. An oral
hearing before the EPO Opposition Division, was held on June 4, 2009, resulting in a decision to revoke the EP672 Patent. Tessera filed a Notice of Appeal on August 24, 2009. On October 26, 2009, Tessera filed a Statement of Grounds
for Appeal with the EPO. STM filed comments to the Grounds for Appeal on March 8, 2010. The Company cannot predict the outcome of this proceeding. If the opposition results in a limitation or a revocation of the EP672 Patent, this could
significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

The patents that are
subject to these reexamination proceedings include some of the key patents in Tesseras portfolio, and claims that have been preliminarily rejected in the current official actions are being asserted in certain of Tesseras various
litigations. The Company cannot predict the outcome of these proceedings. An adverse decision in any of these proceedings could significantly harm the Companys business and financial condition. An adverse decision could also significantly
affect Tesseras ongoing litigations, as described in this Note 11-Commitments and Contingencies, in which patents are being asserted, which in turn could significantly harm the Companys business and consolidated
financial position, results of operations or cash flows.

Insolvency Proceedings over the Estate of Qimonda AG, Local Court of Munich,
Insolvency Court, File No. 1542 IN 209/09

On January 23, 2009, Qimonda AG filed a bankruptcy petition with the Local Court
of Munich, Insolvency Court. On April 1, 2009, the Court opened insolvency proceedings over the estate of Qimonda AG and appointed Rechtsanwalt Dr. Michael Jaffé as the insolvency administrator. On or about May 27, 2009,
Dr. Jaffé chose non-performance of Tesseras license agreement with Qimonda AG under Section 103 of the German Insolvency Code and purported to terminate the license agreement. On June 12, 2009, Tessera filed a Proof of
Claim in the Qimonda AG bankruptcy alleging amounts due of approximately 15.7 million Euros. On December 2, 2009, Dr. Jaffé preliminarily contested Tesseras claim in full. Tessera is in ongoing discussions with the
insolvency administrator.

In re Spansion, LLC, U.S. Bankruptcy Court (Del.), Case No. 09-1069; In re Spansion, Inc., U.S.
Bankruptcy Court (Del.), Case No. 09-10690; In re Spansion Technology LLC, U.S. Bankruptcy Court (Del.), Case No. 09-10691

On or about March 1, 2009, Spansion LLC, Spansion, Inc. and Spansion Technology LLC (collectively, Spansion) initiated bankruptcy
proceedings in the United States Bankruptcy Court for the District of Delaware. On or about July 17, 2009, Tessera filed a Proof of Claim in each of the above Spansion bankruptcy proceedings alleging amounts due of not less than $25 million. On
July 28, 2009, the Company sought permission under the Bankruptcy rules to serve certain discovery requests in the actions, seeking various documents and testimony regarding potential administrative claims that Tessera may assert in the action.
Tesseras request for such discovery was denied without prejudice on August 11, 2009. The parties thereafter completed certain fact and expert discovery relating to Tesseras administrative expense claim in December and January of
2010.

On January 12, 2010, Spansion filed a motion to determine and estimate the amount of Tesseras administrative expense claim,
for the purpose of demonstrating the feasibility of Spansions Second Amended Joint Plan of Reorganization. Tesseras administrative expense claim at issue relates to the damages that would be owed to Tessera for Spansions
post-petition (post-March 1, 2009) infringement of certain Tessera patents. Tessera filed its objection to Spansions motion on January 22, 2010. On January 29, 2010, the court held a hearing on Spansions motion. The
parties submitted post-hearing letter briefs on February 3, 2010. The Court announced its ruling that a reasonable royalty rate for Spansion products sold in the United States during the administrative period was 56.7 cents per unit. On
April 6, 2010, the Court entered an order estimating the amount of any alleged administrative expensive claim of Tessera for purposes of plan confirmation in the amount of $4,232,986.13 for the period from March 1, 2009 to July 20,
2009.



23



---

##### Table of Contents

On February 5, 2010, Spansion filed a motion for an order estimating the amount of certain
contingent, unliquidated, duplicative and/or overstated claims for purposes of establishing class 5 plan distribution reserves. Tessera filed its objection to the estimation motion on February 17, 2010 and on that same date submitted
three Amended Proofs of Claim based in part on the Courts 56.7 cents per unit royalty rate. On February 18, 2010, Tessera filed a motion for authority to file its Amended Proofs of Claim. On March 23, 2010, the Court entered an order
allowing Tessera to file its Amended Proofs of Claim. Tessera voluntarily withdrew its three prior proofs of claim.

On January 26, 2010,
Tessera filed its objection to Spansions Second Amended Joint Plan of Reorganization, asserting that the plan is not feasible and that it fails to provide for the payout of administrative expense claims on the plan effective date. On
February 2, 2010, Tessera submitted three ballots, one for each previously submitted Proof of Claim. The ballots, among other things, rejected Spansions Second Amended Joint Plan of Reorganization.

On April 1, 2010, the Court issued its Order and Opinion on Confirmation in which, among other things, it denied Spansions request for plan
confirmation due to, among other reasons, the failure to set aside a reserve for Tesseras administrative expense claim in the amount of $4,232,986. 13. The Court overruled certain Tessera objections regarding irregularities in the plan voting
solicitation and tabulation and Spansions failure to properly count Tesseras three plan ballots. On April 7, 2010, Spansion filed an amended plan that included a reserve for the alleged administrative expense claim of Tessera in the
amount of $4,232,986.13. On April 16, 2010, the Court issued its finding of facts, conclusions of law, and Order confirming the plan as amended. On May 10, 2010, the plan became effective.

On February 23, 2010, Tessera filed a motion for allowance and payment of its administrative expense claim in the amount of $96,765,070, as of
January 29, 2010, plus all damages that arise from and after that date, with interest thereon. Spansion filed an objection to the Request for Administrative Expense Claim on March 16, 2010 and the Official Committee of Unsecured Creditors
joined in Spansions objection on March 16, 2010.

On March 25, 2010, the parties reached a stipulation regarding the estimated
amount of Tesseras pre-petition claim. On May 26, 2010, the Court issued its Order approving the stipulation and estimating Tesseras pre-petition claims in the amount of $130 million. In its June 15, 2010 Order, the Court
disallowed two of Tesseras Amended Proofs of Claim, leaving one proof of claim of not less than $219 million. On July 6, 2010, Spansion filed an objection to the remaining proof of claim.

On July 13, 2010, Spansion and Tessera filed joint motions seeking to withdraw the reference from the bankruptcy court insofar as it relates
Tesseras administrative expense claim and remaining proof of claim to the United States District Court for the District of Delaware and to transfer venue of that matter to the United States District Court for the Northern District of
California where a prior matter between Tessera and Spansion is pending. At a hearing held on July 28, 2010, the Court indicated that it would approve an order permitting the parties to submit their joint motion to the United States District
Court for the District of Delaware for determination.

Amkor Technology, Inc. v. Tessera, Inc.

On or about August 7, 2009, Amkor filed a request for arbitration against the Company before the International Chamber of Commerce (ICC).
The request, among other things, accuses the Company of interference with Amkors existing and prospective business relationships, of improperly claiming that Amkor had breached the parties license agreement, and of improperly threatening
to terminate that agreement. Amkor seeks relief including judgment that it is in compliance with the license agreement and is a licensee in good standing under the license agreement; judgment that the license agreement remains in effect and no
breach alleged by the Company against Amkor has terminated the License Agreement; judgment that Amkors method of calculating royalties on a going-forward basis complies with Amkors obligations under the license agreement; an injunction
against the Company forbidding it from making statements to Amkors customers and potential customers inconsistent with the above; an injunction against the Company forbidding it from attempting to terminate the license agreement or threatening
to terminate the license agreement during the arbitration or based on events occurring prior to the conclusion of the arbitration; a damage award against the Company for attorneys fees and costs to Amkor associated with this arbitration, together
with all other damages resulting from the Companys alleged acts of tortious interference and punitive damages; all other relief recoverable under the Rules of Arbitration of the ICC; such other and further relief as the arbitrators deem just
and proper.

On or about November 2, 2009, the Company filed its answer to the request, including counterclaims. The answer, among other
things, denies Amkors accusations and accuses Amkor of failing to pay Tessera full royalties on products Amkor sold to Qualcomm and potentially others that are subject to ITC injunctions, of refusing to allow Tessera to audit in accordance
with the parties license agreement, of interference with Tesseras prospective economic relationships, of failing to pay royalties or full royalties on products that infringe various U.S. and foreign patents owned by Tessera, and of
violating the implied covenant of good faith and fair dealing. The Company seeks relief including judgment that the license agreement has been breached and that Tessera is entitled to terminate the license agreement; judgment that products on which
Amkor has not paid the full contractual royalties to Tessera are not licensed under Tesseras patents; damages for Amkors breaches of the license agreement; damages, including punitive damages, for Amkors interference with
Tesseras prospective business relationships; interest on any damages; attorneys fees and costs incurred by Tessera; denial of Amkors claims against Tessera; an order that awards Tessera all other relief recoverable under the rules
of Arbitration of the ICC; and an order for such other and further relief as the arbitrators deem just and proper.



24



---

##### Table of Contents

On January 15, 2010, Amkor filed its response to Tesseras counterclaims, along with certain new
counterclaims by Amkor and a motion for priority consideration of certain issues. In its responsive pleading, Amkor denied Tesseras counterclaims, arguing in part that Tesseras counterclaims for royalties are barred by the doctrines of
collateral estoppel and res judicata, and sought a declaratory judgment that it has not infringed and that its packages are not made under any of the patents asserted in Tesseras answer and that the patents are invalid and unenforceable.
Tessera filed an answer denying Amkors counterclaims and a response to Amkors motion on February 12, 2010. Amkor also claims a credit for royalties it alleges it overpaid Tessera. On March 28, 2010, the arbitrators ruled on
Amkors motion for priority consideration, holding that certain issuesincluding royalties payable on a going-forward basis for the patents addressed in the previous arbitration, including but not limited to royalties applicable to
packages assembled for Qualcomm, Inc., and Tesseras counterclaim for breach of the audit provisionwould be considered in an early hearing which is currently scheduled to last two days starting on December 9, 2010. The arbitrators
scheduled a two-week hearing on the remaining issues for August 15, 2011.

On May 14, 2010, Amkor filed a motion to bar
Tesseras counterclaims for royalties owed based on Amkors activities prior to December 1, 2008 as barred by the doctrine of res judicata. Tessera filed its opposition on June 11, 2010. A hearing on Amkors motion is
currently scheduled for August 25, 2010.

The Company cannot predict the outcome of this proceeding. An adverse decision in this
proceeding could significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

NOTE 12  SEGMENT AND GEOGRAPHIC INFORMATION

The Company has two reportable segments: Micro-electronics and Imaging and Optics. In addition to these reportable segments, the Corporate Overhead
division includes certain operating amounts that are not allocated to the reportable segments because these operating amounts are not considered in evaluating the operating performance of the Companys business segments.

The Micro-electronics segment is primarily composed of the Companys licensing business in its core markets, including DRAM, Flash, SRAM, DSP, ASIC,
ASSP, micro-controllers, general purpose logic and analog devices, and the Companys development and licensing efforts in emerging areas of packaging, interconnect, miniaturization such as its μPILR platform, and thermal management
technology.

The Imaging and Optics segment is composed of two elements. The first is the licensing business in the imaging and optics
market, such as wafer-level image sensor packaging and image enhancement technologies. The second is the product and service business, which includes manufacturing small form factor micro-optics and non-recurring services such as engineering,
design, assembly and infrastructure improvement. In addition, the product and service business includes the Product Launch Services, a strategic initiative that supports infrastructure licensees with proof of high-volume manufacturability and
provides customers access to the Companys new technologies to accelerate the rate of adoption of the Companys Imaging & Optics technologies in the industry. Through the Product Launch Services, the Company is currently
manufacturing and selling OptiML single-element VGA lens directly to manufacturers.

The Chief Operating Decision Maker (CODM), as
defined by the authoritative guidance on segment reporting, is the Companys President and Chief Executive Officer. The CODM assesses the performance of the reportable segments using information about revenue and operating income (loss) before
other income and expense and income taxes. The CODM is not presented with financial information for each division nor is each division evaluated separately from the reportable segments.

The Company does not identify or allocate assets by reportable segment, nor does the CODM evaluate reportable segments using discrete asset information.
Reportable segments do not record inter-segment revenue and accordingly there is none to report. The Company does not allocate other income and expense to reportable segments. Although the CODM uses operating income to evaluate reportable segments,
operating costs included in one segment may benefit other segments.



25



---

##### Table of Contents

The following table sets forth the Companys segment revenue, operating expenses and operating income
for the three and six months ended June 30, 2010 and 2009 (in thousands):



|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|--------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                  |  | Three Months Ended |         |   | Six Months Ended |  
|                                  |  | June 30,2010       |         |   | June 30,2009     |   |         | June 30,2010 |  |   | June 30,2009 |  
|Revenues:                         |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Micro-electronics:                |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Royalty and license fees          |  | $                  | 65,094  |   |                  | $ | 55,616  |              |  | $ | 120,850      |   |  | $ | 162,139 |  
|Product and service revenues      |  |                    |        |   |                  |   | 9       |              |  |   |             |   |  |   | 45      |  
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Total Micro-electronics revenues  |  |                    | 65,094  |   |                  |   | 55,625  |              |  |   | 120,850      |   |  |   | 162,184 |  
|Imaging and Optics:               |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Royalty and license fees          |  |                    | 3,262   |   |                  |   | 4,253   |              |  |   | 6,359        |   |  |   | 9,587   |  
|Product and service revenues      |  |                    | 6,221   |   |                  |   | 2,393   |              |  |   | 11,630       |   |  |   | 5,076   |  
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Total Imaging and Optics revenues |  |                    | 9,483   |   |                  |   | 6,646   |              |  |   | 17,989       |   |  |   | 14,663  |  
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Total revenues                    |  |                    | 74,577  |   |                  |   | 62,271  |              |  |   | 138,839      |   |  |   | 176,847 |  
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Operating expenses:               |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Micro-electronics Segment         |  |                    | 13,523  |   |                  |   | 15,610  |              |  |   | 29,460       |   |  |   | 33,480  |  
|Imaging and Optics Segment        |  |                    | 23,213  |   |                  |   | 18,015  |              |  |   | 43,121       |   |  |   | 36,655  |  
|Corporate overhead                |  |                    | 11,887  |   |                  |   | 9,946   |              |  |   | 22,903       |   |  |   | 20,285  |  
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Total operating expenses          |  |                    | 48,623  |   |                  |   | 43,571  |              |  |   | 95,484       |   |  |   | 90,420  |  
|Operating income (loss):          |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Micro-electronics Segment         |  |                    | 51,571  |   |                  |   | 40,015  |              |  |   | 91,390       |   |  |   | 128,704 |  
|Imaging and Optics Segment        |  |                    | (13,730 | ) |                  |   | (11,369 | )            |  |   | (25,132      | ) |  |   | (21,992 | )
|Corporate overhead                |  |                    | (11,887 | ) |                  |   | (9,946  | )            |  |   | (22,903      | ) |  |   | (20,285 | )
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Total operating income            |  | $                  | 25,954  |   |                  | $ | 18,700  |              |  | $ | 43,355       |   |  | $ | 86,427  |  
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  

A significant portion of the Companys revenues is derived from licensees headquartered outside of the U.S.,
principally in Asia and Europe, and it is expected that these revenues will continue to account for a significant portion of total revenues in future periods. The table below lists the geographic revenue information for the periods indicated (in
thousands, except for percentages):



|                 |  |                    |        |  |                  |   |  |              |        |  |              |   |  |   |         |  |     |   |  |   |         |  |     |  
|---------------- |  | ------------------ | ------ |  | ---------------- | - |  | ------------ | ------ |  | ------------ | - |  | - | ------- |  | --- | - |  | - | ------- |  | --- | -
|                 |  | Three Months Ended |        |  | Six Months Ended |  
|                 |  | June 30,2010       |        |  | June 30,2009     |   |  | June 30,2010 |        |  | June 30,2009 |  
|Asia Pacific     |  | $                  | 50,027 |  | 67               | % |  | $            | 37,235 |  | 60           | % |  | $ | 88,043  |  | 63  | % |  | $ | 73,532  |  | 42  | %
|U.S.             |  |                    | 19,166 |  | 26               | % |  |              | 21,044 |  | 34           | % |  |   | 40,081  |  | 29  | % |  |   | 95,667  |  | 54  | %
|Europe and other |  |                    | 5,384  |  | 7                | % |  |              | 3,992  |  | 6            | % |  |   | 10,715  |  | 8   | % |  |   | 7,648   |  | 4   | %
|                 |  |                    |        |  |                  |   |  |              |        |  |              |   |  |   |         |  |     |   |  |   |         |  |     |  
|                 |  | $                  | 74,577 |  | 100              | % |  | $            | 62,271 |  | 100          | % |  | $ | 138,839 |  | 100 | % |  | $ | 176,847 |  | 100 | %
|                 |  |                    |        |  |                  |   |  |              |        |  |              |   |  |   |         |  |     |   |  |   |         |  |     |  

For the three months ended June 30, 2010, four customers each accounted for 10% or more of total revenues. For the
three months ended June 30, 2009, three customers each accounted for 10% or more of total revenues. For the six months ended June 30, 2010, three customers each accounted for 10% or more of total revenues. For the six months ended
June 30, 2009, three customers each accounted for 10% or more of total revenues.



26



---

##### Table of Contents

Net property and equipment are presented below by geographical area (in thousands):



|                 |  |                          |        |      |   |       
|---------------- |  | ------------------------ | ------ | ---- | - | ------
|                 |  | Six Months EndedJune 30,
|                 |  | 2010                     |        | 2009
|U.S.             |  | $                        | 47,144 |      | $ | 38,996
|Japan            |  |                          | 656    |      |   | 1,340 
|Romania          |  |                          | 588    |      |   | 463   
|Ireland          |  |                          | 391    |      |   | 523   
|Israel and other |  |                          | 262    |      |   | 333   
|                 |  |                          |        |      |   |       
|Total            |  | $                        | 49,041 |      | $ | 41,655
|                 |  |                          |        |      |   |       



27



---

##### Table of Contents

NOTE 13  FINANCIAL INSTRUMENTS

The following is a summary of marketable securities at June 30, 2010 and December 31, 2009 (in thousands):



|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|----------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | -------
|                                    |  | June 30, 2010    
|                                    |  | Cost              |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFairValues
|Available-for-sale securities       |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Commercial paper                    |  | $                 | 101,914 |                      | $ | 6                     |  | $ | (12                 | ) |  | $ | 101,908
|Money market funds                  |  |                   | 4,971   |                      |   |                      |  |   |                    |   |  |   | 4,971  
|Bank deposits                       |  |                   | 2,188   |                      |   |                      |  |   |                    |   |  |   | 2,188  
|Corporate bonds and notes           |  |                   | 100,776 |                      |   | 243                   |  |   | (133                | ) |  |   | 100,886
|Treasury and agency notes and bills |  |                   | 91,691  |                      |   | 262                   |  |   |                    |   |  |   | 91,953 
|Municipal bonds and notes           |  |                   | 91,039  |                      |   | 136                   |  |   | (37                 | ) |  |   | 91,138 
|Asset-backed securities             |  |                   | 515     |                      |   |                      |  |   | (7                  | ) |  |   | 508    
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total available-for-sale securities |  |                   | 393,094 |                      |   | 647                   |  |   | (189                | ) |  |   | 393,552
|Trading securities                  |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Auction rate municipal bonds        |  |                   | 3,874   |                      |   |                      |  |   |                    |   |  |   | 3,874  
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total marketable securities         |  | $                 | 396,968 |                      | $ | 647                   |  | $ | (189                | ) |  | $ | 397,426
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Reported in:                        |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Cash and cash equivalents           |  |                   |         |                      |   |                       |  |   |                     |   |  | $ | 76,465 
|Short-term investments              |  |                   |         |                      |   |                       |  |   |                     |   |  |   | 320,453
|Long-term investments               |  |                   |         |                      |   |                       |  |   |                     |   |  |   | 508    
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total marketable securities         |  |                   |         |                      |   |                       |  |   |                     |   |  | $ | 397,426
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|                                    | 
|                                    |  | December 31, 2009
|                                    |  | Cost              |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFairValues
|Available-for-sale securities       |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Commercial paper                    |  | $                 | 82,347  |                      | $ | 7                     |  | $ | (6                  | ) |  | $ | 82,348 
|Money market funds                  |  |                   | 13,971  |                      |   |                      |  |   |                    |   |  | $ | 13,971 
|Bank deposits                       |  |                   | 5,808   |                      |   |                      |  |   |                    |   |  | $ | 5,808  
|Corporate bonds and notes           |  |                   | 84,245  |                      |   | 452                   |  |   | (142                | ) |  | $ | 84,555 
|Treasury and agency notes and bills |  |                   | 59,680  |                      |   | 62                    |  |   | (78                 | ) |  | $ | 59,664 
|Municipal bonds and notes           |  |                   | 119,886 |                      |   | 168                   |  |   | (69                 | ) |  | $ | 119,985
|Asset-backed securities             |  |                   | 1,642   |                      |   |                      |  |   | (449                | ) |  | $ | 1,193  
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total available-for-sale securities |  |                   | 367,579 |                      |   | 689                   |  |   | (744                | ) |  |   | 367,524
|Trading securities                  |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Auction rate municipal bonds        |  |                   | 14,498  |                      |   |                      |  |   |                    |   |  |   | 14,498 
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total marketable securities         |  | $                 | 382,077 |                      | $ | 689                   |  | $ | (744                | ) |  | $ | 382,022
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Reported in:                        |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Cash and cash equivalents           |  |                   |         |                      |   |                       |  |   |                     |   |  | $ | 86,246 
|Short-term investments              |  |                   |         |                      |   |                       |  |   |                     |   |  |   | 280,085
|Long-term investments               |  |                   |         |                      |   |                       |  |   |                     |   |  |   | 15,691 
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total marketable securities         |  |                   |         |                      |   |                       |  |   |                     |   |  | $ | 382,022
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        



28



---

##### Table of Contents

At June 30, 2010 and December 31, 2009, the Company held $437.8 million and $403.6 million in
cash, cash equivalents, short-term and long-term investments, respectively. Of these amounts, the majority are held in marketable securities, as shown above. The remaining balances are generally cash held in operating accounts.

At June 30, 2010 and December 31, 2009, the Company had $4.4 million and $15.7 million, respectively, of auction rate municipal bonds
securities (ARS) and asset-backed securities, including mortgage-backed securities (collectively, ABS) recorded at fair value. The original cost for these securities was $5.7 million and $18.5 million, respectively. Based
upon an analysis of market and other factors, ABS with an original par value of $1.5 million were written-down in prior periods to an estimated fair value of $0.5 million as of June 30, 2010 as the decline in value of certain investments were
determined to be other-than-temporary. The Company did not record any impairment charges in the three and six months ended June 30, 2010. The Company recorded impairment charges that decreased pre-tax income by $1.7 million for the three and
six months ended June 30, 2009.

Net unrealized gains of $0.5 million, net of tax, as of June 30, 2010, related to a temporary
increase in value of the remaining available-for-sale securities and were due primarily to changes in interest rates and market and credit conditions of the underlying securities. For certain investments with a temporary decline in value, because
the Company has the ability to hold these investments to allow for recovery, does not anticipate having to sell these securities with unrealized losses and continues to receive interest at the maximum contractual rate, these investments are not
considered to be other-than-temporarily impaired as of June 30, 2010.

The gross realized losses on sales of marketable securities were
$0.1 million and $0.5 million, respectively, for the three and six months ended June 30, 2010, almost all of which were previously recorded as impairment. The gross realized gains on sales of marketable securities were not significant during
the three and six months ended June 30, 2010 and 2009.

Prior to the first quarter of 2008, ARS and ABS investments were presented as
current assets under short-term investments based on their expected maturities. Beginning with the first quarter of 2008, given the lack of active markets for these investments, the entire amount of the Companys ARS and ABS holdings were
classified as long-term investments. On June 30, 2010, the Companys ARS investments were reclassified as current assets under short-term investments, as the Company was subsequently able to sell these securities for cash to UBS, as described
below. Due to the lack of observable market quotes on the Companys ARS and ABS investments, the Company utilizes valuation models that rely exclusively on unobservable inputs including those that are based on a discounted cash flow model and
assessments of counterparty credit quality, default risk underlying the security, discount rates and overall capital market liquidity.

In
November 2008, the Company entered into an agreement with UBS which granted the Company and UBS various rights, including a right of the Company to sell the Companys ARS investments to UBS at par value at any time during a two-year period
beginning June 30, 2010 (the Rights) and a right of UBS to purchase such securities at par value. The Rights are an unsecured obligation of UBS and are not transferable by the Company. The Company has elected to record the Rights, a
free-standing asset aside from the ARS investments, under the provisions of the guidance for the fair value option for financial assets and financial liabilities. Upon acceptance of the Rights, the Company recorded the fair value of the Rights in
other assets with an offsetting entry to other income and expense, net. As of June 30, 2010, the Rights were reclassified as other current assets as the Company was subsequently able to exercise its right to sell the ARS investments to UBS at par
value. In conjunction with the acceptance of the Rights in November 2008, the Company reclassified the ARS investments from available-for-sale to trading to reflect its intention to exercise the Rights during the relevant two-year period. As a
trading security, unrealized gains and losses are recorded in current period earnings. For the six months ended June 30, 2010, the Company recorded $0.8 million of unrealized gains in relation to the change in the fair value of the ARS investment
and an offsetting entry of $0.8 million related to the change in fair value of the Rights to other current assets. For the year ended December 31, 2009, the Company recorded $2.8 million of unrealized gains in relation to the change in the fair
value of the ARS investment and an offsetting entry of approximately $2.8 million related to the change in fair value of the Rights to other assets. The fair value of the Rights was based on the Companys expected value to be received from UBS,
which was the difference between par and fair value of the ARS at the end of the current period. The fair value was discounted using UBSs credit default swap rate to account for the counterparty risk. Subsequent to June 30, 2010, the Company
exercised the Rights and received cash in an amount that approximates the combined fair value of the ARS investments and Rights at June 30, 2010.



29



---

##### Table of Contents

The following table summarizes the fair value and gross unrealized losses related to individual
available-for-sale and trading securities which have been in a continuous unrealized loss position, at June 30, 2010 and December 31, 2009, aggregated by investment category and length of time (in thousands):



|                             |  |                     |         |                       |                   |      |           |       |                       |       |  |            |    |                       |  |   |         |  |   |      |  
|---------------------------- |  | ------------------- | ------- | --------------------- | ----------------- | ---- | --------- | ----- | --------------------- | ----- |  | ---------- | -- | --------------------- |  | - | ------- |  | - | ---- | -
|June 30, 2010                |  | Less Than 12 Months |         |                       | 12 Months or More |      |           | Total |                      
|                             |  | Fair Value          |         | GrossUnrealizedLosses |                   |      | FairValue |       | GrossUnrealizedLosses |       |  | Fair Value |    | GrossUnrealizedLosses | 
|Commercial Paper             |  | $                   | 78,305  |                       | $                 | (12  | )         |       | $                     |      |  | $          |   |                       |  | $ | 78,305  |  | $ | (12  | )
|Corporate bonds and notes    |  |                     | 50,533  |                       |                   | (128 | )         |       |                       | 1,346 |  |            | (5 | )                     |  |   | 51,879  |  |   | (133 | )
|Municipal bonds and notes    |  |                     | 29,122  |                       |                   | (37  | )         |       |                       |      |  |            |   |                       |  |   | 29,122  |  |   | (37  | )
|Asset-backed securities      |  |                     | 123     |                       |                   | (7   | )         |       |                       | 385   |  |            |   |                       |  |   | 508     |  |   | (7   | )
|Auction rate municipal bonds |  |                     |        |                       |                   |     |           |       |                       | 3,874 |  |            |   |                       |  |   | 3,874   |  |   |     |  
|                             |  |                     |         |                       |                   |      |           |       |                       |       |  |            |    |                       |  |   |         |  |   |      |  
|Total                        |  | $                   | 158,083 |                       | $                 | (184 | )         |       | $                     | 5,605 |  | $          | (5 | )                     |  | $ | 163,688 |  | $ | (189 | )
|                             |  |                     |         |                       |                   |      |           |       |                       |       |  |            |    |                       |  |   |         |  |   |      |  



|                                    |  |                     |         |                       |                   |      |           |       |                       |        |  |            |      |                       |  |   |         |  |   |      |  
|----------------------------------- |  | ------------------- | ------- | --------------------- | ----------------- | ---- | --------- | ----- | --------------------- | ------ |  | ---------- | ---- | --------------------- |  | - | ------- |  | - | ---- | -
|December 31, 2009                   |  | Less Than 12 Months |         |                       | 12 Months or More |      |           | Total |                      
|                                    |  | Fair Value          |         | GrossUnrealizedLosses |                   |      | FairValue |       | GrossUnrealizedLosses |        |  | Fair Value |      | GrossUnrealizedLosses | 
|Commercial Paper                    |  | $                   | 29,024  |                       | $                 | (6   | )         |       | $                     |       |  | $          |     |                       |  | $ | 29,024  |  |   | (6   | )
|Corporate bonds and notes           |  |                     | 27,158  |                       |                   | (124 | )         |       |                       | 3,285  |  |            | (18  | )                     |  |   | 30,443  |  |   | (142 | )
|Treasury and agency notes and bills |  |                     | 21,454  |                       |                   | (78  | )         |       |                       |       |  |            |     |                       |  |   | 21,454  |  |   | (78  | )
|Municipal bonds and notes           |  |                     | 45,380  |                       |                   | (69  | )         |       |                       |       |  |            |     |                       |  |   | 45,380  |  |   | (69  | )
|Asset-backed securities             |  |                     | 90      |                       |                   | (50  | )         |       |                       | 1,103  |  |            | (399 | )                     |  |   | 1,193   |  |   | (449 | )
|Auction rate municipal bonds        |  |                     |        |                       |                   |     |           |       |                       | 14,498 |  |            |     |                       |  |   | 14,498  |  |   |     |  
|                                    |  |                     |         |                       |                   |      |           |       |                       |        |  |            |      |                       |  |   |         |  |   |      |  
|Total                               |  | $                   | 123,106 |                       | $                 | (327 | )         |       | $                     | 18,886 |  | $          | (417 | )                     |  | $ | 141,992 |  | $ | (744 | )
|                                    |  |                     |         |                       |                   |      |           |       |                       |        |  |            |      |                       |  |   |         |  |   |      |  

The estimated fair value of marketable securities by contractual maturity at June 30, 2010 is shown below (in
thousands). Asset-backed securities are excluded as they do not have a single maturity date. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment
penalties.



|                        |  |                     |        
|----------------------- |  | ------------------- | -------
|                        |  | EstimatedFair Value
|Due in one year or less |  | $                   | 253,125
|Due in one to two years |  |                     | 143,793
|                        |  |                     |        
|Total                   |  | $                   | 396,918
|                        |  |                     |        

NOTE 14  FAIR VALUE

The Company follows the authoritative guidance for fair value measurements and the fair value option for financial assets and financial liabilities. The
guidance for fair value measurements establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. The guidance for the fair value option for financial assets and financial liabilities
provides companies the irrevocable option to measure many financial assets and liabilities at fair value with changes in fair value recognized in earnings. The Company has elected to record the Rights related to the ARS invested with UBS, as
discussed above, at fair value under the provisions of the guidance for the fair value option for financial assets and financial liabilities.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:



|        |  |                                                                                                                                                                                                                                                                                                       
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1 |  | Quoted prices in active markets for identical assets or liabilities.                                                                                                                                                                                                                                  
|Level 2 |  | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.



30



---

##### Table of Contents

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 3 |  | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities
include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or
estimation.

The following is a list of the Companys assets and liabilities required to be measured at fair value on a
recurring basis and where they are classified within the hierarchy as of June 30, 2010 (in thousands):



|                                        |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |      
|--------------------------------------- |  | ---------- | ------- | --------------------------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | ------- |  | - | -----
|                                        |  | Fair Value |         | Quoted Pricesin ActiveMarkets
forIdenticalAssets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level 3)
|Assets                                  |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |      
|Money market funds (1)                  |  | $          | 4,971   |                                                           | $ | 4,971                                     |  | $                                      |        |  | $ |     
|Bank deposits (1)                       |  |            | 2,188   |                                                           |   | 2,188                                     |  |                                        |        |  |   |     
|Commercial paper (2)                    |  |            | 101,908 |                                                           |   |                                          |  |                                        | 101,908 |  |   |     
|Municipal bonds and notes (2)           |  |            | 91,138  |                                                           |   |                                          |  |                                        | 91,138  |  |   |     
|Corporate bonds and notes (3)           |  |            | 100,886 |                                                           |   |                                          |  |                                        | 100,886 |  |   |     
|Treasury and agency notes and bills (3) |  |            | 91,953  |                                                           |   |                                          |  |                                        | 91,953  |  |   |     
|Auction rate municipal bonds (3)        |  |            | 3,874   |                                                           |   |                                          |  |                                        |        |  |   | 3,874
|Asset-backed securities (4)             |  |            | 508     |                                                           |   |                                          |  |                                        |        |  |   | 508  
|                                        |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |      
|Total marketable securities             |  |            | 397,426 |                                                           |   | 7,159                                     |  |                                        | 385,885 |  |   | 4,382
|Rights related to the UBS agreement (5) |  |            | 301     |                                                           |   |                                          |  |                                        |        |  |   | 301  
|                                        |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |      
|Total Assets                            |  | $          | 397,727 |                                                           | $ | 7,159                                     |  | $                                      | 385,885 |  | $ | 4,683
|                                        |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |      



The following footnotes indicate where the noted items are recorded in the Condensed Consolidated Balance Sheet at June 30, 2010:



|(1) | Money market funds and bank deposits are reported as cash and cash equivalents.
|--- | -------------------------------------------------------------------------------

|(2) | Commercial paper and municipal bonds and notes are reported as either cash and cash equivalents or short-term investments.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(3) | Corporate bonds and notes, treasury and government agency notes and bills and auction rate municipal bond securities are reported as short-term investments.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Asset-backed securities are reported as long-term investments.
|--- | --------------------------------------------------------------

|(5) | Rights related to the UBS agreement are reported as other current assets.
|--- | -------------------------------------------------------------------------



31



---

##### Table of Contents

The following is a list of the Companys assets and liabilities required to be measured at fair value
on a recurring basis and where they are classified within the hierarchy as of December 31, 2009 (in thousands):



|                                        |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |       
|--------------------------------------- |  | ---------- | ------- | --------------------------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | ------- |  | - | ------
|                                        |  | Fair Value |         | Quoted Pricesin ActiveMarkets
forIdenticalAssets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level 3)
|Assets                                  |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |       
|Money market funds (1)                  |  | $          | 13,971  |                                                           | $ | 13,971                                    |  | $                                      |        |  | $ |      
|Bank deposits (1)                       |  |            | 5,808   |                                                           |   | 5,808                                     |  |                                        |        |  |   |      
|Commercial paper (2)                    |  |            | 82,348  |                                                           |   |                                          |  |                                        | 82,348  |  |   |      
|Corporate bonds and notes (2)           |  |            | 84,555  |                                                           |   |                                          |  |                                        | 84,555  |  |   |      
|Municipal bonds and notes (3)           |  |            | 119,985 |                                                           |   |                                          |  |                                        | 119,985 |  |   |      
|Treasury and agency notes and bills (3) |  |            | 59,664  |                                                           |   |                                          |  |                                        | 59,664  |  |   |      
|Asset-backed securities (4)             |  |            | 1,193   |                                                           |   |                                          |  |                                        |        |  |   | 1,193 
|Auction rate municipal bonds (4)        |  |            | 14,498  |                                                           |   |                                          |  |                                        |        |  |   | 14,498
|                                        |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |       
|Total marketable securities             |  |            | 382,022 |                                                           |   | 19,779                                    |  |                                        | 346,552 |  |   | 15,691
|Rights related to the UBS agreement (5) |  |            | 1,127   |                                                           |   |                                          |  |                                        |        |  |   | 1,127 
|                                        |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |       
|Total Assets                            |  | $          | 383,149 |                                                           | $ | 19,779                                    |  | $                                      | 346,552 |  | $ | 16,818
|                                        |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |       



The following footnotes indicate where the noted items are recorded in the Condensed Consolidated Balance Sheet at December 31, 2009:



|(1) | Money market funds and bank deposits are reported as cash and cash equivalents.
|--- | -------------------------------------------------------------------------------

|(2) | Commercial paper and corporate bond and notes are reported as either cash and cash equivalents or short-term investments.
|--- | -------------------------------------------------------------------------------------------------------------------------

|(3) | Municipal bonds and notes and treasury and government agency notes and bills are reported as short-term investments.
|--- | --------------------------------------------------------------------------------------------------------------------

|(4) | Asset-backed securities and auction rate municipal bond securities are reported as long-term investments.
|--- | ---------------------------------------------------------------------------------------------------------

|(5) | Rights related to the UBS agreement are reported as other assets.
|--- | -----------------------------------------------------------------

The Companys ARS and ABS holdings have been classified as Level 3 long-term investments due to the lack of active markets for these investments.
For the valuation of the Companys ARS and ABS investments, the Company utilizes valuation models that rely exclusively on unobservable inputs including those that are based on a discounted cash flow model and assessments of counterparty credit
quality, default risk underlying the security, discount rates and overall capital market liquidity. Also included in the Level 3 classification is the fair value of the Rights related to UBS agreement. See Note 13  Financial
Instruments above for further information.

The table below presents a reconciliation for all assets measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2010 (in thousands):



|                                                 |  |                 |       |   |                                                  |   |         |                |  |   |         |  
|------------------------------------------------ |  | --------------- | ----- | - | ------------------------------------------------ | - | ------- | -------------- |  | - | ------- | -
|                                                 |  | Rights(Level 3) |       |   | Available-for-saleand
tradingsecurities(Level 3) |   |         | Total(Level 3) | 
|Balance at December 31, 2009                     |  | $               | 1,127 |   |                                                  | $ | 15,691  |                |  | $ | 16,818  |  
|Purchases, sales, issuances and settlements, net |  |                 |      |   |                                                  |   | (12,461 | )              |  |   | (12,461 | )
|Total gains or losses (realized and unrealized): |  |                 |       |   |                                                  |   |         |                |  |   |         |  
|Included in earnings                             |  |                 | (826  | ) |                                                  |   | 568     |                |  |   | (258    | )
|Included in other comprehensive income           |  |                 |      |   |                                                  |   | 584     |                |  |   | 584     |  
|Transfers in/(out) of Level 3                    |  |                 |      |   |                                                  |   |        |                |  |   |        |  
|                                                 |  |                 |       |   |                                                  |   |         |                |  |   |         |  
|Balance at June 30, 2010                         |  | $               | 301   |   |                                                  | $ | 4,382   |                |  | $ | 4,683   |  
|                                                 |  |                 |       |   |                                                  |   |         |                |  |   |         |  



32



---

##### Table of Contents

NOTE 15  RELATED PARTY TRANSACTION

In September 2007, the Company licensed its OptiML Wafer-Level Camera technology and SHELLCASE Wafer-Level Packaging solutions to NemoTek Technologie S.
A. (NemoTek), a supplier of camera solutions for the cell phone market. As of June 30, 2010 and December 31, 2009, the Company had invested a total of $2.0 million and $1.9 million in NemoTek, which represented less than a 10
percent holding in NemoTek, respectively. No revenues from NemoTek were recognized in the three and six months ended June 30, 2010. Revenues from NemoTek were $1.1 million and $1.1 million, or less than 1 percent of total revenue, for the three
and six months ended June 30, 2009, respectively. The account receivable from NemoTek was $0.3 million and $0.3 million as of June 30, 2010 and December 31, 2009, respectively.

NOTE 16  SUBSEQUENT EVENT

As
described in Note 13  Financial Instruments, the Company entered into an agreement with UBS in November 2008 which permits the Company to sell the ARS investments to UBS at par value at any time during a two-year period
beginning June 30, 2010. In July 2010, the Company exercised the Rights and received cash of $4.2 million, which approximates the combined fair value of the ARS investments and the Rights as of June 30, 2010.



33



---

##### Table of Contents

GLOSSARY OF TERMS

The following select abbreviations or acronyms are used within Part I, Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations and Part II, Item 1A Risk Factors in this Quarterly Report on Form 10-Q:



|                        |  |            |  |                                                     
|----------------------- |  | ---------- |  | ----------------------------------------------------
|Abbreviation or Acronym |  | Definition
|                        |  | 3D         |  | 3 dimensional                                       
|                        |  | ASIC       |  | Application-specific integrated circuits            
|                        |  | ASSP       |  | Application-specific standard product semiconductors
|                        |  | CSP        |  | Chip-scale packaging                                
|                        |  | DDR2       |  | Double-data-rate two                                
|                        |  | DDR3       |  | Double-data-rate three                              
|                        |  | DDR4       |  | Double-data-rate four                               
|                        |  | DRAM       |  | Dynamic random access memory                        
|                        |  | DSP        |  | Digital signal processors                           
|                        |  | EDOF       |  | Extended depth of field                             
|                        |  | IC         |  | Integrated circuits                                 
|                        |  | IP         |  | Intellectual property                               
|                        |  | MEMS       |  | Micro electro mechanical systems                    
|                        |  | NAND       |  | Not And Flash memory                                
|                        |  | NOR        |  | Not Or Flash memory                                 
|                        |  | RTL        |  | Register transfer level                             
|                        |  | SRAM       |  | Static random access memory                         
|                        |  | TCC        |  | Tessera Compliant Chip                              
|                        |  | VGA        |  | Video graphics array                                



34



---

##### Table of Contents

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

The following discussion should be read in conjunction with the attached unaudited condensed consolidated
financial statements and notes thereto, and with our audited financial statements and notes thereto for the fiscal year ended December 31, 2009 found in our Annual Report on Form 10-K, filed on February 25, 2010.

This Quarterly Report contains forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities
Litigation Reform Act of 1995. Certain, but not all, of the forward-looking statements in this report are specifically identified. The identification of certain statements as forward-looking is not intended to mean that other statements
not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future
revenue, product development, demand, acceptance and market share, growth rate, competitiveness, gross margins, levels of research, development and other related costs, expenditures, the outcome or effects of and expenses related to litigation and
administrative proceedings related to our patents, our intent to enforce our intellectual property, our ability to license our intellectual property, tax expenses, cash flows, our ability to liquidate and recover the carrying value of our
investments, our managements plans and objectives for our current and future operations, managements plans for repurchasing our common stock pursuant to the authorization of our Board of Directors, the levels of customer spending or
research and development activities, general economic conditions, the sufficiency of financial resources to support future operations and capital expenditures. Words such as expects, anticipates, plans,
believes, seeks, estimates, could, would, may, intends, targets and similar expressions or variations of such words are intended to identify
forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report.

Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on
facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks, uncertainties, and changes in condition, significance, value and effect, including those discussed below under the heading Risk
Factors within Part II, Item 1A of this Quarterly Report and other documents we file from time to time with the Securities and Exchange Commission (the SEC), such as our annual reports on Form 10-K, our quarterly reports on
Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable.
Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report and are based on information currently and reasonably known to us. We undertake no obligation to revise or
update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report,
which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.



35



---

##### Table of Contents

Corporate Information

Our principal executive offices are located at 3025 Orchard Parkway, San Jose, California 95134. We also have offices, research and development and
manufacturing facilities in other locations. Our telephone number is (408) 321-6000. We maintain a website at www.tessera.com. The reference to our website address does not constitute incorporation by reference of the information contained on
this website.

Tessera, the Tessera logo, μBGA, μPILR, OptiML, DigitalOptics, SHELLCASE and FotoNation are trademarks or
registered trademarks of Tessera or its affiliated companies in the United States (U.S.) and other countries. All other company, brand and product names may be trademarks or registered trademarks of their respective companies.

In this Quarterly Report, the Company, Tessera, we, us and our refer to Tessera
Technologies, Inc. and its subsidiaries on a consolidated basis.

Business Overview

Tessera is a technology innovator that invests in, licenses and delivers innovative miniaturization technologies for next-generation electronic devices.
Our Micro-electronics solutions enable smaller, higher-functionality devices through chip-scale, 3 dimensional (3D) and wafer-level packaging technology, as well as high-density substrate and thermal management technology. Our
Imaging & Optics solutions provide low-cost, high-quality camera functionality in electronic products and include image sensor packaging, wafer-level optics, and image enhancement intellectual property. We also offer customized micro-optic
lenses, from diffractive and refractive optical elements to integrated micro-optical subassemblies. We license our technologies worldwide, as well as deliver products based on these technologies, some of which is done to promote the development of
supply chain infrastructure.

Our patent portfolio includes more than 2,000 domestic and internationally issued patents and patent
applications, covering a range of advanced semiconductor packaging, substrate, interconnect, imaging and optics, and thermal management technologies.

We have two reportable segments: Micro-electronics and Imaging and Optics. The Micro-electronics segment is primarily composed of our licensing business
in our core markets, including DRAM, Flash, SRAM, DSP, ASIC, ASSP, micro-controllers, general purpose logic and analog devices, and our development and licensing efforts in emerging areas of packaging, interconnect, miniaturization such as our
μPILR platform, and thermal management technology.

The Imaging and Optics segment is composed of two elements. The first is our
licensing business in the imaging and optics market, such as our wafer-level image sensor packaging and image enhancement technologies. The second is our product and service business, which includes manufacturing small form factor micro-optics,
MEMS-based products and non-recurring services such as engineering, design, assembly and infrastructure improvement. In addition, our product and service business includes our Product Launch Services, a strategic initiative that supports our
infrastructure licensees with proof of high-volume manufacturability and provides our customers access to our new technologies to accelerate the rate of adoption of our Imaging & Optics technologies in the industry. Through our Product
Launch Services, we are currently manufacturing and selling OptiML single-element VGA lens directly to manufacturers.

We derive the majority
of our revenues from license fees and royalties associated with our Micro-electronics technology, with a growing contribution from our Imaging & Optics technologies. Our Micro-electronics packaging technologies have been widely adopted and
aspects of our technologies have been licensed to more than 70 companies, including Motorola, Inc., Intel Corporation, Hynix Semiconductor, Inc., Renesas Technology Co., Samsung Electronics Co., Ltd., Sharp Corporation, Powertech Technology, Inc.,
Texas Instruments, Inc. and Toshiba Corporation. We believe that more than 100 companies across the semiconductor supply chain have invested in the materials, equipment and assembly infrastructure needed to manufacture products incorporating our
packaging technology.

Our Technologies

We develop, license and manufacture technologies in two key areas:



| |  | Micro-electronics including semiconductor packaging technologies encompassing interconnect and substrates, and thermal management technology; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Imaging & Optics including wafer-level packaging, wafer-level optics, image enhancement technologies, including MEMS-based products, and micro-optics
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------

Micro-electronics Technologies

In the early 1990s, Tesseras founders invented packaging technology which is now widely used throughout the semiconductor industry. Our innovations
include the industrys first chip-scale packaging technology. Our chip scale packaging technology also supports a variety of multi-chip packaging implementations, which satisfy the diverse requirements for stacked, Package-on-Package and
System-in-Package designs. Our packaging technologies are widely used today in high volume packaging for a full range of integrated circuits (ICs). A few examples are listed below.



| |  | High performance dynamic random access memory (DRAM) chips, such as:
| | - | ----------------------------------------------------------------------



36



---

##### Table of Contents

| |  | Double-Data-Rate two (DDR2); and
| | - | ----------------------------------



| |  | Double-Data-Rate three (DDR3)
| | - | -------------------------------



| |  | Other memory chips, such as:
| | - | ----------------------------



| |  | Not Or (NOR) and Not And (NAND) Flash memory; and
| | - | -----------------------------------------------------



| |  | Static random access memory (SRAM)
| | - | ------------------------------------



| |  | Application-specific integrated circuits (ASICs) and application-specific standard product semiconductors (ASSPs), such as:
| | - | -------------------------------------------------------------------------------------------------------------------------------



| |  | Baseband processors;
| | - | --------------------



| |  | Radio Frequency transceivers;
| | - | -----------------------------



| |  | Audio/video/image processors;
| | - | -----------------------------



| |  | Power management; and
| | - | ---------------------



| |  | Connectivity (Bluetooth, Wi-Fi, Global Positioning System among others)
| | - | -----------------------------------------------------------------------



| |  | General purpose ICs, such as:
| | - | -----------------------------



| |  | Microcontrollers;
| | - | -----------------



| |  | Digital Signal Processors (DSPs); and
| | - | ---------------------------------------



| |  | Analog
| | - | ------

In interconnect and substrates, we are
focused on applying our μPILR technology to achieve dense interconnection of components for chip scale Package-on-Package stacking and advanced flip chip package substrate technologies. We continue to invest in our relationships with leading
substrate vendors, materials and equipment suppliers as well as subcontract assemblers to make sure the right mix of supporting materials and services are available.

We are also applying our industry-leading miniaturization expertise to thermal management solutions. We are developing a unique silent air cooling
technology that we believe enables more efficient heat dissipation than what is currently provided by traditional fans or other air cooling methods.

Imaging & Optics Technologies

Advancements in Imaging & Optics technologies are enabling higher quality images in considerably smaller digital still cameras and other
camera-enabled devices including cell phones, security systems and personal computers. Our portfolio of imaging and optics technologies include the following:



| |  | Wafer-level Packaging technologies used in image sensor packaging:
| | - | ------------------------------------------------------------------



| |  | SHELLCASE MVP is one of the industrys first available through silicon via technology. It uses a glass-silicon sandwich structure, which enables image-sensing
capabilities through the actual packaging structure;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Wafer-level Optics technology, which enables the manufacturing and assembly of lens modules:
| | - | --------------------------------------------------------------------------------------------



| |  | Offered either as an Intellectual Property license or products such as the OptiML single-element VGA lens we manufacture in our Product Launch Services;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Wafer-level Camera technology, which combines OptiML Wafer-Level Optics with SHELLCASE MVP technology to manufacture camera modules at the wafer level;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Optical Image Enhancement technologies, which improve the quality of captured cell phone images:
| | - | ------------------------------------------------------------------------------------------------



| |  | OptiML Focus enables a high-quality image to be simultaneously brought into focus;
| | - | ----------------------------------------------------------------------------------



| |  | OptiML UFL improves low-light performance;
| | - | ------------------------------------------



| |  | OptiML Zoom, our first combination Optical and Embedded Image Enhancement technology, which offers 3X zoom capabilities; and
| | - | ----------------------------------------------------------------------------------------------------------------------------



37



---

##### Table of Contents

| |  | MEMS-based single-chip solutions that enable auto focus functionality and image quality comparable with digital still cameras.
| | - | ------------------------------------------------------------------------------------------------------------------------------



| |  | Embedded Image Enhancement technologies, which provide a portfolio of in-camera image enhancement solutions for digital photos:
| | - | -------------------------------------------------------------------------------------------------------------------------------



| |  | FotoNation Red automatically detects and removes red- and golden-eye defects;
| | - | -----------------------------------------------------------------------------



| |  | FotoNation FaceTracker, which includes the SmileCheck, BlinkCheck and Face Beautification extension modules, detects the presence of human faces in pictures to ensure
optimal focus, exposure, and color balance, while also reducing the appearance of wrinkles or other skin imperfections for optimal image quality;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | FotoNation FaceRecognition performs automatic identification of specific human faces in camera equipped mobile devices; and
| | - | ---------------------------------------------------------------------------------------------------------------------------



| |  | FotoNation Video Tools, which provide video image stabilization and video face beautification capabilities for mobile devices such as camera phones, pocket camcorders
and digital still cameras;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Micro-optics, which are small form factor optics developed and delivered on a variety of substrates, on one or both surfaces of a wafer and in multi-wafer forms:
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Digital Optics solutions include diffractive optical elements, such as the lenses used in off-axis illumination for lithography; refractive optical elements, such as
lens arrays; and integrated micro-optical subassemblies, such as optical and electro-optic modules.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Products and
Solutions

Within our Imaging and Optics segment, we develop and manufacture imaging and optics solutions as well as provide
services to our licensees to shorten their development effort and time to market. We manufacture small form factor micro-optics solutions using our wafer-level processes and equipment, targeted at three main markets: lithography, communications and
barcode scanners. Our Product Launch Services is a strategic initiative to support our infrastructure licensees with proof of high-volume manufacturability and enables customer access to our new technology. We are currently manufacturing OptiML
single-element VGA lens directly to manufacturers. We also provide our customers and partners with engineering, assembly and infrastructure services.

Acquisitions

We have grown our
business partly through acquisitions. On May 5, 2010, we completed the acquisition of Siimpel Corporation (Siimpel), a developer and manufacturer of MEMS-based camera solutions for mobile imaging applications for $15.0 million.
Siimpels MEMS-based auto focus and auto focus shutter solutions complement our EDOF technology and enables us to offer a wider range of high-value IP-based imaging and optics solutions. We expect the acquisition will have modest impact on our
operating expenses and we do not anticipate revenue from MEMS-based products in this fiscal year. The impact of the acquisition on our financial results has been included in the following discussion.



38



---

##### Table of Contents

Results of Operations

The following table sets forth our operating results for the periods indicated as a percentage of revenues:



|                                              |  |                    |   |  |                  |   |  |              |   |  |              |  
|--------------------------------------------- |  | ------------------ | - |  | ---------------- | - |  | ------------ | - |  | ------------ | -
|                                              |  | Three Months Ended |   |  | Six Months Ended |  
|                                              |  | June 30,2010       |   |  | June 30,2009     |   |  | June 30,2010 |   |  | June 30,2009 |  
|Revenues:                                     |  |                    |   |  |                  |   |  |              |   |  |              |  
|Royalty and license fees                      |  | 92                 | % |  | 96               | % |  | 92           | % |  | 97           | %
|Product and service revenues                  |  | 8                  |   |  | 4                |   |  | 8            |   |  | 3            |  
|                                              |  |                    |   |  |                  |   |  |              |   |  |              |  
|                                              |  |                    |   | 
|Total revenues                                |  | 100                |   |  | 100              |   |  | 100          |   |  | 100          |  
|                                              |  |                    |   | 
|Operating expenses:                           |  |                    |   |  |                  |   |  |              |   |  |              |  
|Cost of revenues                              |  | 8                  |   |  | 6                |   |  | 8            |   |  | 4            |  
|Research, development and other related costs |  | 24                 |   |  | 27               |   |  | 25           |   |  | 19           |  
|Selling, general and administrative costs     |  | 27                 |   |  | 28               |   |  | 28           |   |  | 20           |  
|Litigation expense                            |  | 6                  |   |  | 9                |   |  | 8            |   |  | 8            |  
|                                              |  |                    |   |  |                  |   |  |              |   |  |              |  
|                                              |  |                    |   | 
|Total operating expenses                      |  | 65                 |   |  | 70               |   |  | 69           |   |  | 51           |  
|                                              |  |                    |   | 
|Operating income                              |  | 35                 |   |  | 30               |   |  | 31           |   |  | 49           |  
|Other income and expense, net                 |  |                   |   |  | 2                |   |  | 1            |   |  | 2            |  
|                                              |  |                    |   |  |                  |   |  |              |   |  |              |  
|                                              |  |                    |   | 
|Income before taxes                           |  | 35                 |   |  | 32               |   |  | 32           |   |  | 51           |  
|Provision for income taxes                    |  | 15                 |   |  | 13               |   |  | 14           |   |  | 22           |  
|                                              |  |                    |   |  |                  |   |  |              |   |  |              |  
|                                              |  |                    |   | 
|Net income                                    |  | 20                 | % |  | 19               | % |  | 18           | % |  | 29           | %
|                                              |  |                    |   |  |                  |   |  |              |   |  |              |  

Revenues

The following table sets forth our revenues by type (in thousands, except for percentages):



|                             |  |                            |         |  |               |   |  |                      |         |  |         |   |  |   |         |   |  |     |   
|---------------------------- |  | -------------------------- | ------- |  | ------------- | - |  | -------------------- | ------- |  | ------- | - |  | - | ------- | - |  | --- | --
|                             |  | For the Three Months Ended |         |  |               |   |  |                      |        
|                             |  | June 30, 2010              |         |  | June 30, 2009 |   |  | Increase /(Decrease) |         |  | %Change |  
|Royalty and license fees     |  | $                          | 68,356  |  | 92            | % |  | $                    | 59,870  |  | 96      | % |  | $ | 8,486   |   |  | 14  | % 
|Product and service revenues |  |                            | 6,221   |  | 8             |   |  |                      | 2,401   |  | 4       |   |  |   | 3,820   |   |  | 159 |   
|                             |  |                            |         |  |               |   |  |                      |         |  |         |   |  |   |         |   |  |     |   
|Total revenues               |  | $                          | 74,577  |  | 100           | % |  | $                    | 62,271  |  | 100     | % |  | $ | 12,306  |   |  | 20  | % 
|                             |  |                            |         |  |               |   |  |                      |         |  |         |   |  |   |         |   |  |     |   
|                             |  |                            |        
|                             |  | For the Six Months Ended   |         |  |               |   |  |                      |        
|                             |  | June 30, 2010              |         |  | June 30, 2009 |   |  | Increase /(Decrease) |         |  | %Change |  
|Royalty and license fees     |  | $                          | 127,209 |  | 92            | % |  | $                    | 171,727 |  | 97      | % |  | $ | (44,518 | ) |  | (26 | )%
|Product and service revenues |  |                            | 11,630  |  | 8             |   |  |                      | 5,120   |  | 3       |   |  |   | 6,510   |   |  | 127 |   
|                             |  |                            |         |  |               |   |  |                      |         |  |         |   |  |   |         |   |  |     |   
|Total revenues               |  | $                          | 138,839 |  | 100           | % |  | $                    | 176,847 |  | 100     | % |  | $ | (38,008 | ) |  | (21 | )%
|                             |  |                            |         |  |               |   |  |                      |         |  |         |   |  |   |         |   |  |     |   

Revenues for the three months ended June 30, 2010 were $74.6 million as compared to $62.3 million for the three months
ended June 30, 2009, an increase of $12.3 million, or 20%. The overall increase in revenues in the three months ended June 30, 2010 as compared to the same period in 2009 was primarily due to strong royalties reported from licensees in the
DRAM market and in the semiconductor market and increased demand in the photolithography industry, offset in part by non-recurring option and license fees received from Motorola, a former defendant in an ITC infringement case, in the three months
ended June 30, 2009.

Revenues for the six months ended June 30, 2010 were $138.8 million as compared to $176.8 million for the six
months ended June 30, 2009, a decrease of $38.0 million, or 21%. The overall decrease in revenues in the six months ended June 30, 2010 as compared to the same period in 2009 was primarily due to non-recurring royalty revenue of $60.6
million from Amkor Technology, Inc. in February 2009, awarded by an arbitration panel for Amkors material breach of its license agreement with Tessera. Excluding this award, revenues for the six months ended June 30, 2010 were up $22.6
million as compared to the six months ended June 30, 2009. The increase was due to strong royalties reported



39



---

##### Table of Contents

from our TCC licensees, a $3.0 million payment for past royalties under a $15.0 million litigation
settlement with United Test Assembly Center Ltd. (UTAC), the remainder of which UTAC is required to pay in the second half of 2010, and increased demand in the photolithography industry.

Cost of Revenues

Cost of revenues
primarily consists of direct compensation, materials, amortization of intangible assets related to acquired technologies, supplies and depreciation expense. Amortization of certain acquired intangible assets and depreciation expense of property and
equipment are generally classified as a component of cost of revenues from research, development and other related costs when an in-process development project reaches commercialization. Excluding amortization of acquired intangible assets, cost of
revenues relates primarily to product and service revenues. For each associated period, cost of revenues as a percentage of total revenues varies based on the rate of adoption of our technologies, the product and service revenues component of total
revenues, on the mix of product sales to semiconductor, optics and communications industries and timing of property and equipment being placed in service.

Cost of revenues for the three months ended June 30, 2010 was $5.8 million, as compared to $3.9 million for the three months ended June 30,
2009, an increase of $1.9 million, or 48%. Cost of revenues for the six months ended June 30, 2010 was $11.0 million, as compared to $8.0 million for the six months ended June 30, 2009, an increase of $3.0 million, or 37%. The increase was
primarily attributable to the increase in production expenses related to increased Micro-optics sales such as personnel related expenses and material costs.

Research, Development and Other Related Costs

Research, development and other related costs consist primarily of compensation and related costs for personnel as well as costs related to patent
applications and examinations, amortization of intangible assets, materials, supplies and equipment depreciation. Research and development is conducted primarily in-house and targets development of chip-scale, 3 dimensional and wafer-level packaging
technology, high-density substrate, thermal management technology, image sensor packaging, wafer-level optics, image enhancement technology, and micro-optic lenses solutions including diffractive and refractive optical elements to integrated
micro-optical subassemblies. All research, development and other related costs are expensed as incurred.

Research, development and other
related costs for the three months ended June 30, 2010 were $18.3 million, an increase of $1.5 million, or 9%, as compared to $16.8 million for the three months ended June 30, 2009. The increase was primarily due to $1.6 million of
expenses incurred by Siimpel, acquired in May 2010. Research, development and other related costs for the six months ended June 30, 2010 were $34.2 million, an increase of $0.7 million, or 2%, as compared to $33.5 million for the six months
ended June 30, 2009. The increase was primarily due to $1.6 million of expenses incurred by Siimpel, acquired in May 2010, offset by a reduction in stock-based compensation expense of $0.9 million.

We believe that a significant level of research and development expenses will be required for us to remain competitive in the future.

Selling, General and Administrative

Selling expenses consist primarily of compensation and related costs for sales and marketing personnel, marketing programs, public relations, promotional
materials, travel, trade show expenses, and stock-based compensation expense. General and administrative expenses consist primarily of compensation and related costs for general management, information technology, finance and accounting personnel,
legal expenses, facilities costs, stock-based compensation expense, and professional services. Our general and administrative expenses, other than facilities related expenses, are not allocated to other expense line items.

Selling, general and administrative expenses for the three months ended June 30, 2010 were $20.2 million, an increase of $2.9 million, or 17%, as
compared to $17.3 million for the three months ended June 30, 2009. The increase was primarily attributable to increases in stock-based compensation expense of $1.1 million and amortization of acquired intangible assets of $0.6 million.
Selling, general and administrative expenses for the six months ended June 30, 2010 were $39.4 million, an increase of $4.6 million, or 13%, as compared to $34.8 million for the six months ended June 30, 2009. The increase was primarily
attributable to increases in stock-based compensation expense of $1.5 million, amortization of acquired intangible assets of $1.3 million, and personnel related expenses of $0.7 million.

Litigation Expense.Litigation expense for the three months ended June 30, 2010 was $4.3 million, as compared to $5.5 million for the
three months ended June 30, 2009, a decrease of $1.2 million, or 22%. The decrease was primarily attributable to a decrease in case activities in our legal proceedings related to the International Trade Commission, offset in part by legal
proceedings related to our arbitration with Amkor. Litigation expense for the six months ended June 30, 2010 was $10.9 million, as compared to $14.2 million for the six months ended June 30, 2009, a decrease of $3.3 million, or 23%. The
decrease was primarily attributable to a decrease in case activities in our legal proceedings related to the International Trade Commission, offset in part by an increase in legal proceedings related to the UTAC litigation and legal proceedings
related to our arbitration with Amkor. Refer to Part II, Item 1Legal Proceedings for additional details.



40



---

##### Table of Contents

We expect that litigation expenses will continue to be a material portion of our operating expenses in
future periods, and may fluctuate significantly in some periods, because of our ongoing litigation, as described in Part II, Item 1 Legal Proceedings and because we expect that we will become involved in other litigation from time
to time in the future in order to enforce and protect our intellectual property rights.

Stock-based Compensation Expense

The effect of recording stock-based compensation expense for the three and six months ended June 30, 2010 and 2009 is as follows (in thousands):



|                                              |  |                    |       |                  |   |              |  |              |        |  |   |       
|--------------------------------------------- |  | ------------------ | ----- | ---------------- | - | ------------ |  | ------------ | ------ |  | - | ------
|                                              |  | Three Months Ended |       | Six Months Ended
|                                              |  | June 30,2010       |       | June 30,2009     |   | June 30,2010 |  | June 30,2009
|Cost of revenues                              |  | $                  | 121   |                  | $ | 140          |  | $            | 296    |  | $ | 251   
|Research, development and other related costs |  |                    | 2,573 |                  |   | 3,443        |  |              | 5,250  |  |   | 6,110 
|Selling, general and administrative           |  |                    | 4,717 |                  |   | 3,648        |  |              | 8,731  |  |   | 7,186 
|                                              |  |                    |       |                  |   |              |  |              |        |  |   |       
|Total stock-based compensation expense        |  | $                  | 7,411 |                  | $ | 7,231        |  | $            | 14,277 |  | $ | 13,547
|                                              |  |                    |       |                  |   |              |  |              |        |  |   |       

Stock-based compensation expense categorized by various equity
components for the three and six months ended June 30, 2010 and 2009 is summarized in the table below (in thousands):



|                                       |  |                    |       |                  |   |              |  |              |        |  |   |       
|-------------------------------------- |  | ------------------ | ----- | ---------------- | - | ------------ |  | ------------ | ------ |  | - | ------
|                                       |  | Three Months Ended |       | Six Months Ended
|                                       |  | June 30,2010       |       | June 30,2009     |   | June 30,2010 |  | June 30,2009
|Employee stock options                 |  | $                  | 4,051 |                  | $ | 4,510        |  | $            | 7,802  |  | $ | 7,954 
|Restricted stock awards and units      |  |                    | 2,772 |                  |   | 2,264        |  |              | 5,381  |  |   | 4,718 
|Employee stock purchase plan           |  |                    | 588   |                  |   | 457          |  |              | 1,094  |  |   | 875   
|                                       |  |                    |       |                  |   |              |  |              |        |  |   |       
|Total stock-based compensation expense |  | $                  | 7,411 |                  | $ | 7,231        |  | $            | 14,277 |  | $ | 13,547
|                                       |  |                    |       |                  |   |              |  |              |        |  |   |       

Stock-based compensation awards included employee stock options,
restricted stock awards and units and employee stock purchases under our 2003 Employee Stock Purchase Plan. Stock-based compensation expense for the three months ended June 30, 2010 and 2009 was $7.4 million and $7.2 million, respectively.
Stock-based compensation expense for the six months ended June 30, 2010 and 2009 was $14.3 million and $13.5 million, respectively. The overall increase was primarily related to an increase in grants of stock awards to employees based on our
compensation incentive program and additional stock-based compensation expense resulting from modification of stock awards to employees terminated from the company. Future stock-based compensation expense and unrecognized stock-based compensation
expense will increase as we grant additional stock awards.

Other Income and Expense, Net

Other income and expense, net, for the three months ended June 30, 2010 was $0.4 million, as compared to $1.1 million, for the three months ended
June 30, 2009. Other income and expense, net, for the six months ended June 30, 2010 was $1.0 million, as compared to $3.9 million, for the six months ended June 30, 2009. The decrease was due to a reduction in interest income on our
investments, as a result of lower prevailing interest rates as compared to the same periods in 2009. The decrease from the six months ended June 30, 2009 was also attributable to a non-recurring $3.5 million interest payment from Amkor received in
February 2009 as part of the $64.1 million awarded by an arbitration panel for Amkors breach of its license agreement, offset by a $1.6 million other-than-temporary write-down of our asset-backed securities in the first quarter of 2009.

Provision for Income Taxes

The income tax provision for the three and six months ended June 30, 2010 was $11.4 million and $19.5 million, respectively, and was comprised of
domestic income tax and foreign income and withholding tax. The income tax provision for the three and six months ended June 30, 2009 was $8.0 million and $39.0 million, respectively, and was comprised of domestic income tax and foreign income
and withholding tax. The increase in the income tax provision from the three months ended June 30, 2009 was primarily attributable to the increase in domestic pre-tax income for the period offset by the effect of the reduced benefit for
domestic research and foreign tax credits. The decrease in the income tax provision from the six months ended June 30, 2009 was primarily attributable to the decrease in domestic pre-tax income for the period due to the $64.1 million settlement
received from Amkor in February.



41



---

##### Table of Contents

Segment Operating Results

We have two reportable segments: Micro-electronics and Imaging and Optics. In addition to these reportable segments, the Corporate Overhead division
includes certain operating amounts that are not allocated to the reportable segments because these operating amounts are not considered in evaluating the operating performance of our business segments.

The Micro-electronics segment is primarily composed of the licensing business in our core markets, including DRAM, Flash, SRAM, DSP, ASIC, ASSP,
micro-controllers, general purpose logic and analog devices, and our development and licensing efforts in emerging areas of packaging, interconnect, miniaturization such as our μPILR platform, and thermal management technology.

The Imaging and Optics segment is composed of two elements. The first is our licensing business in the imaging and optics market, such as our
wafer-level image sensor packaging and image enhancement technologies. The second is our product and service business, which includes manufacturing small form factor micro-optics and non-recurring services such as engineering, design, assembly and
infrastructure improvement. In addition, our product and service business includes our Product Launch Services, a strategic initiative that supports our infrastructure licensees with proof of high-volume manufacturability and provides our customers
access to our new technologies to accelerate the rate of adoption of our Imaging & Optics technologies in the industry. Through our Product Launch Services, we are currently manufacturing and selling OptiML single-element VGA lens directly
to manufacturers.

Our reportable segments were determined based upon the manner in which our management views and evaluates our operations.
Segment information below and in Note 12 of the Notes to Condensed Consolidated Financial Statements is presented in accordance with the authoritative guidance on segment reporting. We do not present financial data to our Chief Operating Decision
Maker (CODM) for each of our divisions, and our CODM does not evaluate each division separately from our segments when measuring the operating performance of our business.

The following table sets forth our segments revenues, operating expenses and operating income (loss) (in thousands):



|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|--------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                  |  | Three Months Ended |         |   | Six Months Ended |  
|                                  |  | June 30,2010       |         |   | June 30,2009     |   |         | June 30,2010 |  |   | June 30,2009 |  
|Revenues:                         |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Micro-electronics:                |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Royalty and license fees          |  | $                  | 65,094  |   |                  | $ | 55,616  |              |  | $ | 120,850      |   |  | $ | 162,139 |  
|Product and service revenues      |  |                    |        |   |                  |   | 9       |              |  |   |             |   |  |   | 45      |  
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Total Micro-electronics revenues  |  |                    | 65,094  |   |                  |   | 55,625  |              |  |   | 120,850      |   |  |   | 162,184 |  
|Imaging and Optics:               |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Royalty and license fees          |  |                    | 3,262   |   |                  |   | 4,253   |              |  |   | 6,359        |   |  |   | 9,587   |  
|Product and service revenues      |  |                    | 6,221   |   |                  |   | 2,393   |              |  |   | 11,630       |   |  |   | 5,076   |  
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Total Imaging and Optics revenues |  |                    | 9,483   |   |                  |   | 6,646   |              |  |   | 17,989       |   |  |   | 14,663  |  
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Total revenues                    |  |                    | 74,577  |   |                  |   | 62,271  |              |  |   | 138,839      |   |  |   | 176,847 |  
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Operating expenses:               |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Micro-electronics Segment         |  |                    | 13,523  |   |                  |   | 15,610  |              |  |   | 29,460       |   |  |   | 33,480  |  
|Imaging and Optics Segment        |  |                    | 23,213  |   |                  |   | 18,015  |              |  |   | 43,121       |   |  |   | 36,655  |  
|Corporate overhead                |  |                    | 11,887  |   |                  |   | 9,946   |              |  |   | 22,903       |   |  |   | 20,285  |  
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Total operating expenses          |  |                    | 48,623  |   |                  |   | 43,571  |              |  |   | 95,484       |   |  |   | 90,420  |  
|Operating income (loss):          |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Micro-electronics Segment         |  |                    | 51,571  |   |                  |   | 40,015  |              |  |   | 91,390       |   |  |   | 128,704 |  
|Imaging and Optics Segment        |  |                    | (13,730 | ) |                  |   | (11,369 | )            |  |   | (25,132      | ) |  |   | (21,992 | )
|Corporate overhead                |  |                    | (11,887 | ) |                  |   | (9,946  | )            |  |   | (22,903      | ) |  |   | (20,285 | )
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Total operating income            |  | $                  | 25,954  |   |                  | $ | 18,700  |              |  | $ | 43,355       |   |  | $ | 86,427  |  
|                                  |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  



42



---

##### Table of Contents

The revenues and operating income amounts in this section have been presented on a basis consistent with
U.S. GAAP applied at the segment level. Corporate overhead expenses which have been excluded are primarily support services, human resources, legal, finance, IT, corporate development, procurement activities, and insurance expenses. For the three
months ended June 30, 2010, corporate overhead expenses were $11.9 million compared to $9.9 million for the three months ended June 30, 2009. The increase of $2.0 million from the three months ended June 30, 2009 was mainly
attributable to an increase of $1.1 million in stock-based compensation expense and $0.3 million in legal and consulting expenses. For the six months ended June 30, 2010, corporate overhead expenses were $22.9 million compared to $20.3 million
for the six months ended June 30, 2009. The increase of $2.6 million from the six months ended June 30, 2009 was mainly attributable to an increase of $1.8 million in stock-based compensation expense and $0.7 million in legal and
consulting expenses, offset by a decrease in marketing-related expenses of $0.7 million.

Micro-electronics Segment



|                                              |  |                    |        |                  |   |              |  |              |         |  |   |        
|--------------------------------------------- |  | ------------------ | ------ | ---------------- | - | ------------ |  | ------------ | ------- |  | - | -------
|                                              |  | Three Months Ended |        | Six Months Ended
|                                              |  | June 30,2010       |        | June 30,2009     |   | June 30,2010 |  | June 30,2009
|Micro-electronics:                            |  |                    |        |                  |   |              |  |              |         |  |   |        
|Revenues:                                     |  |                    |        |                  |   |              |  |              |         |  |   |        
|Royalty and license fees                      |  | $                  | 65,094 |                  | $ | 55,616       |  | $            | 120,850 |  | $ | 162,139
|Product and service revenues                  |  |                    |       |                  |   | 9            |  |              |        |  |   | 45     
|                                              |  |                    |        |                  |   |              |  |              |         |  |   |        
|Total Micro-electronics revenues              |  |                    | 65,094 |                  |   | 55,625       |  |              | 120,850 |  |   | 162,184
|Operating expenses:                           |  |                    |        |                  |   |              |  |              |         |  |   |        
|Cost of revenues                              |  |                    | 4      |                  |   | 115          |  |              | 4       |  |   | 278    
|Research, development and other related costs |  |                    | 6,781  |                  |   | 7,830        |  |              | 13,356  |  |   | 14,823 
|Selling, general and administrative           |  |                    | 2,698  |                  |   | 2,127        |  |              | 5,463   |  |   | 4,216  
|Litigation expense                            |  |                    | 4,040  |                  |   | 5,538        |  |              | 10,637  |  |   | 14,163 
|                                              |  |                    |        |                  |   |              |  |              |         |  |   |        
|Total operating expenses                      |  |                    | 13,523 |                  |   | 15,610       |  |              | 29,460  |  |   | 33,480 
|                                              |  |                    |        |                  |   |              |  |              |         |  |   |        
|Total operating income                        |  | $                  | 51,571 |                  | $ | 40,015       |  | $            | 91,390  |  | $ | 128,704
|                                              |  |                    |        |                  |   |              |  |              |         |  |   |        

Micro-electronics revenues for the three months ended June 30,
2010 were $65.1 million as compared to $55.6 million for the three months ended June 30, 2009, which represented an increase of $9.5 million, or 17%. The increase was primarily attributed to strong royalties reported from licensees in the DRAM
market and unit growth in the semiconductor market, offset in part by non-recurring option and license fees received from Motorola, a former defendant in an ITC infringement case, in the three months ended June 30, 2009.

Micro-electronics revenues for the six months ended June 30, 2010 were $120.9 million as compared to $162.1 million for the six months ended
June 30, 2009, which represented a decrease of $41.2 million, or 25%. The decrease was primarily attributed to non-recurring royalty revenue of $60.6 million from Amkor, awarded by an arbitration panel for Amkors breach of its license
agreement with our Company in February 2009. Excluding this award, revenues for the six months ended June 30, 2010 were up $19.4 million as compared to the six months ended June 30, 2009. The increase was due to strong royalties reported
from our TCC licensees and a $3.0 million payment for past royalties under a $15.0 million litigation settlement with UTAC, the remainder of which UTAC is required to pay in the second half of 2010.

Micro-electronics revenues consist primarily of royalties received from our TCC licensees. Such royalty revenues are distributed between two primary
market segments: DRAM and Wireless. In 2005, we provided two major DRAM manufacturers with first-mover pricing advantages in respect of royalties due to us under their respective TCC licenses, based on several factors including volumes. The effect
of the volume pricing adjustments may cause, at certain high shipment volumes and for these two DRAM manufacturers only, our aggregate annual DRAM royalty revenue to grow less rapidly than annual growth in overall unit shipments in the DRAM segment.
An additional effect may include, depending on the relative DRAM market share enjoyed by these two DRAM manufacturers in a given calendar quarter as well as the timing of when they reach the volume pricing incentive, some quarter-to-quarter and
year-to-year fluctuations in the growth in our revenues from the DRAM segment. We have no other contracts that provide volume-based pricing adjustments.

Operating expenses for the three months ended June 30, 2010 were $13.5 million and consisted primarily of research, development and other related
costs of $6.8 million, SG&A costs of $2.7 million and $4.0 million in litigation expenses. Operating expenses for the three months ended June 30, 2010 of $13.5 million represented a decrease of $2.1 million as compared to $15.6 million for
the three months ended June 30, 2009, which was primarily attributable to a decrease of $1.5 million in litigation expenses and a reduction of $1.0 million in stock-based compensation expense, offset by an increase of $0.6 million in
amortization expense.



43



---

##### Table of Contents

Operating expenses for the six months ended June 30, 2010 were $29.5 million and consisted primarily of
research, development and other related costs of $13.4 million, SG&A costs of $5.5 million and $10.6 million in litigation expenses. Operating expenses for the six months ended June 30, 2010 of $29.5 million represented a decrease of $4.0
million as compared to $33.5 million for the six months ended June 30, 2009, which was primarily attributable to a decrease in litigation expenses of $3.5 million, $1.4 million in stock-based compensation expense, and $0.2 million in personnel
and related expenses, offset by an increase of $1.1 million in amortization expense.

We expect that litigation expense will
continue to be a material portion of the Micro-electronics segments operating expenses in future periods, and may fluctuate significantly in some periods, because of our ongoing legal actions, as described in Part II, Item 1Legal
Proceedings, and because we expect that we will become involved in other litigation from time to time in the future in order to enforce and protect our intellectual property rights.

Operating income for the three months ended June 30, 2010 and 2009 was $51.6 million and $40.0 million, respectively, which represented an increase
of $11.6 million, or 29%, for the reasons stated above. Operating income for the six months ended June 30, 2010 and 2009 was $91.4 million and $128.7 million, respectively, which represented a decrease of $37.3 million, or 29%, for the reasons
stated above.

Imaging and Optics Segment



|                                              |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|--------------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                              |  | Three Months Ended |         |   | Six Months Ended |  
|                                              |  | June 30,2010       |         |   | June 30,2009     |   |         | June 30,2010 |  |   | June 30,2009 |  
|Imaging and Optics:                           |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Revenues:                                     |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Royalty and license fees                      |  | $                  | 3,262   |   |                  | $ | 4,253   |              |  | $ | 6,359        |   |  | $ | 9,587   |  
|Product and service revenues                  |  |                    | 6,221   |   |                  |   | 2,393   |              |  |   | 11,630       |   |  |   | 5,076   |  
|                                              |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Total Imaging and Optics revenues             |  |                    | 9,483   |   |                  |   | 6,646   |              |  |   | 17,989       |   |  |   | 14,663  |  
|Operating expenses:                           |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Cost of revenues                              |  |                    | 5,782   |   |                  |   | 3,787   |              |  |   | 10,977       |   |  |   | 7,722   |  
|Research, development and other related costs |  |                    | 11,561  |   |                  |   | 9,019   |              |  |   | 20,797       |   |  |   | 18,656  |  
|Selling, general and administrative           |  |                    | 5,870   |   |                  |   | 5,209   |              |  |   | 11,347       |   |  |   | 10,277  |  
|Litigation expense                            |  |                    |        |   |                  |   |        |              |  |   |             |   |  |   |        |  
|                                              |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Total operating expenses                      |  |                    | 23,213  |   |                  |   | 18,015  |              |  |   | 43,121       |   |  |   | 36,655  |  
|                                              |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  
|Total operating loss                          |  | $                  | (13,730 | ) |                  | $ | (11,369 | )            |  | $ | (25,132      | ) |  | $ | (21,992 | )
|                                              |  |                    |         |   |                  |   |         |              |  |   |              |   |  |   |         |  

Imaging and Optics revenues for the three months ended June 30, 2010 were $9.5 million as compared to $6.6 million for
the three months ended June 30, 2009, an increase of $2.9 million, or 44%. Imaging and Optics revenues for the six months ended June 30, 2010 were $18.0 million as compared to $14.7 million for the six months ended June 30, 2009, an
increase of $3.3 million, or 22%. The increases in both periods in Imaging and Optics revenues were primarily attributable to increased demand in the photolithography industry.

Operating expenses for the three months ended June 30, 2010 were $23.2 million and consisted of cost of revenues of $5.8 million, research,
development and other related costs of $11.6 million and SG&A costs of $5.8 million. Operating expenses for the three months ended June 30, 2009 were $18.0 million. The increase of $5.2 million in total operating expenses from the three
months ended June 30, 2009 was primarily due to $1.9 million of expenses incurred by Siimpel, acquired in May 2010, and increases of $1.3 million in personnel related expenses, $0.7 million in materials and supplies, $0.5 million in
depreciation and facility related expenses, and $0.4 million in legal and outside services expense.

Operating expenses for the six months
ended June 30, 2010 were $43.1 million and consisted of cost of revenues of $11.0 million, research, development and other related costs of $20.8 million and SG&A costs of $11.3 million. Operating expenses for the six months ended
June 30, 2009 were $36.7 million. The increase of $6.4 million in total operating expenses from the six months ended June 30, 2009 was primarily due to $1.9 million of expenses incurred by Siimpel, acquired in May 2010, and increases of
$2.1 million in personnel related expenses, $1.0 million in materials and supplies, $0.5 million in depreciation and facility related expenses, $0.4 million in stock-based compensation expense, and $0.2 million in legal and outside services expense.

Operating loss for the three months ended June 30, 2010 and 2009 was $13.7 million and $11.4 million, respectively, which represented an
increased loss of $2.3 million, or 20%, for the reasons stated above. Operating loss for the six months ended June 30, 2010 and 2009 was $25.1 million and $22.0 million, respectively, which represented an increased loss of $3.1 million, or 14%,
for the reasons stated above.



44



---

##### Table of Contents

Liquidity and Capital Resources



|                                                                   |  |                   |         |   |                       |   |         |  
|------------------------------------------------------------------ |  | ----------------- | ------- | - | --------------------- | - | ------- | -
|(in thousands , except for percentages)                            |  | As ofJune 30,2010 |         |   | As
ofDecember 31,2009 |  
|Cash and cash equivalents                                          |  | $                 | 116,878 |   |                       | $ | 107,873 |  
|Short-term investments                                             |  |                   | 320,453 |   |                       |   | 280,085 |  
|Long-term investments                                              |  |                   | 508     |   |                       |   | 15,691  |  
|                                                                   |  |                   |         |   |                       |   |         |  
|Total cash, cash equivalents, short-term and long-term investments |  | $                 | 437,839 |   |                       | $ | 403,649 |  
|                                                                   |  |                   |         |   |                       |   |         |  
|Percentage of total assets                                         |  |                   | 66      | % |                       |   | 65      | %
|                                                                   | 
|                                                                   |  | Six Months Ended  |        
|                                                                   |  | June 30,2010      |         |   | June 30,2009          |  
|Net cash provided by operating activities                          |  | $                 | 53,350  |   |                       | $ | 80,272  |  
|Net cash used in investing activities                              |  | $                 | (47,664 | ) |                       | $ | (68,104 | )
|Net cash provided by financing activities                          |  | $                 | 3,319   |   |                       | $ | 15,617  |  

Cash generated from operations is our
primary source of liquidity and capital resources. Our investment portfolio is also available for future cash requirements. Cash, cash equivalents and investments were $437.8 million at June 30, 2010, an increase of $34.2 million from $403.6
million at December 31, 2009. Cash and cash equivalents were $116.9 million at June 30, 2010, an increase of $9.0 million from $107.9 million at December 31, 2009. The increase in cash and cash equivalents was primarily the result of
$53.4 million in cash provided by operating activities and $3.3 million in cash provided by financing activities, offset by $47.7 million net cash used in investing activities.

Cash flows provided by operating activities were $53.4 million for the six months ended June 30, 2010, primarily due to net income of $24.8 million,
adjusted for non-cash items of depreciation and amortization of $12.8 million, stock-based compensation expense of $14.3 million and net tax benefits from stock options of $1.3 million, and a net increase in the changes in operating assets and
liabilities of $0.2 million.

Cash flows provided by operating activities were $80.3 million for the six months ended June 30, 2009,
primarily due to net income of $51.3 million, adjusted for non-cash items of depreciation and amortization of $10.1 million, impairment charge of long-term investments of $1.7 million, stock-based compensation expense of $13.5 million, and an
increase in income tax payable of $7.0 million.

Net cash used in investing activities was $47.7 million for the six months ended
June 30, 2010, primarily related to purchases of short-term investments of $235.1 million, net consideration paid for the acquisition of Siimpel of $15.0 million, purchases of property and equipment of $7.2 million, purchases of intangible
assets of $1.7 million, offset by proceeds from maturities and sales of investments of $211.3 million.

Net cash used in investing activities
was $68.1 million for the six months ended June 30, 2009, primarily related to purchases of short-term investments of $122.7 million, purchases of property and equipment of $8.8 million, net consideration paid for acquisitions of $6.6 million,
offset by proceeds from maturities and sales of investments of $72.8 million.

The primary objectives of our investment activities are to
preserve principal and to maintain liquidity while at the same time capturing a market rate of return. To achieve these objectives, we maintain a diversified portfolio of securities including cash equivalents, short-term and long-term investments in
a variety of securities, including municipal bonds and notes, corporate bonds and notes, commercial paper, treasury and agency notes and bills, money market funds, bank demand accounts, and asset-backed obligations. We invest excess cash
predominantly in marketable debt securities that are of high-quality investment grade and the majority of which have maturities of less than one year. The majority of our marketable debt and equity securities are classified as available-for-sale and
are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). Unrealized losses and declines in value determined to be other-than-temporary, if any, on available-for-sale
securities are generally reported in other income and expense, net. The fair values for our securities are determined based on quoted market prices as of the valuation date, observable prices for similar assets and externally provided pricing
models.

We evaluate all of our investments periodically for possible other-than-temporary impairment and review factors such as the length of
time and extent to which fair value has been below cost basis, the financial condition of the issuer, our intent to hold and whether we will not be required to sell the security before its anticipated recovery, on a more likely than not basis.



45



---

##### Table of Contents

In connection with the liquidity issues experienced in the global credit and capital markets, our
asset-backed securities, including mortgage-backed securities (collectively ABS) have experienced thinly traded markets. However, we continue to earn and receive interest on these investments at the maximum contractual rate. Prior to
July 2010, we also had holdings of auction rate municipal bonds securities (ARS), which have similarly experienced thinly traded markets. In November 2008, we entered into an agreement with UBS which granted the parties various rights,
including the right for us to sell our ARS investments to UBS at par value at any time during a two-year period beginning June 30, 2010 (the Rights). In July 2010, we exercised the Rights and received cash of $4.2 million, which
approximates the combined fair value of the ARS investments and the Rights as of June 30, 2010. Due to the lack of an observable market on our ABS and ARS investment portfolio, we utilize valuation models that rely on Level 3 unobservable inputs
including those that are based on a discounted cash flow model and assessments of counterparty credit quality, default risk underlying the security, discount rates and overall capital market liquidity. The valuation of our investments is subject to
uncertainties that are difficult to predict. Net unrealized gain of $0.5 million, net of tax, related to a temporary increase in the fair value of the remaining available-for-sale securities was recorded in accumulated other comprehensive income
(loss) as an increase in stockholders equity at June 30, 2010.

We continue to monitor the market for ABS and consider its impact, if
any, on the fair value of our investments. If uncertainties in these credit and capital markets continue, these markets deteriorate further or we experience any additional ratings downgrades on any investments in our portfolio, we may incur
impairment charges to net income or additional unrealized losses in accumulated other comprehensive income (loss), which could negatively affect our financial condition, statement of operations or cash flow. For certain investments with a temporary
decline in value, because we have the ability to hold these investments until the market recovers or until they reach maturity, do not anticipate having to sell these securities with unrealized losses in order to operate our business and continue to
receive interest at the maximum contractual rate, these investments are not considered to be other-than-temporarily impaired. We believe that based on our cash, cash equivalents and short-term investment balances of $437.3 million at June 30,
2010 and expected operating cash flows, the current lack of an active market in the credit and capital markets will not have a material impact on our ability to fund our operations.

In August 2007, our Board of Directors authorized a plan to repurchase up to a maximum total of $100.0 million of our outstanding shares of common stock
dependent on market conditions, share price and other factors. No expiration has been specified for this plan. Repurchases may take place in the open market or through private transactions. As of June 30, 2010, we have repurchased a total of
645,000 shares of common stock at a total cost of $10.5 million under this plan at an average price of $16.26. As of June 30, 2010, the total amount available for repurchase was $89.5 million. We may continue to execute authorized repurchases
from time to time under the plan.

Net cash from financing activities was $3.3 million for the six months ended June 30, 2010, due to
$2.5 million from the issuance of common stock under our employee stock option programs and employee stock purchase plans and $0.8 million of excess tax benefits from stock-based compensation for the period. Net cash from financing activities was
$15.6 million for the six months ended June 30, 2009, due to $12.2 million from the issuance of common stock for exercise of stock options and purchase made under our employee stock purchase plans and $3.4 million of excess tax benefits from
stock-based compensation for the period.

We believe that based on current levels of operations and anticipated growth, our cash from
operations, together with cash, cash equivalents and short-term investments currently available, will be sufficient to fund our operations, anticipated growth and acquisition funding needs for at least the next twelve months. Poor financial results,
unanticipated expenses, unanticipated acquisitions of technologies or businesses or unanticipated strategic investments could give rise to additional financing requirements sooner than we expect. There can be no assurance that equity or debt
financing will be available when needed or, if available, that such financing will be on terms satisfactory to us and not dilutive to our then-current stockholders.

Contractual Cash Obligations



|                            |  |                        |        |          |   |        |  |        |       |            |   |       |  |   |  
|--------------------------- |  | ---------------------- | ------ | -------- | - | ------ |  | ------ | ----- | ---------- | - | ----- |  | - | -
|                            |  | Payments Due by Period
|                            |  | Total                  |        | 1-3Years |   | 4Years |  | 5Years |       | Thereafter
|                            |  | (In thousands )       
|Operating lease obligations |  | $                      | 11,448 |          |   | 7,986  |  |        | 1,807 |            |   | 1,655 |  | $ | 
|Purchase obligations        |  |                        | 134    |          |   | 134    |  |        |      |            |   |      |  |   | 
|                            |  |                        |        |          |   |        |  |        |       |            |   |       |  |   |  
|Total                       |  | $                      | 11,582 |          | $ | 8,120  |  | $      | 1,807 |            | $ | 1,655 |  | $ | 
|                            |  |                        |        |          |   |        |  |        |       |            |   |       |  |   |  

The amounts reflected in the table above for obligations represent
aggregate future minimum lease payments under non-cancellable facility and equipment operating leases. In addition, we have agreements containing non-cancelable, nonrefundable payment terms with third parties to provide services. For our facilities
leases, rent expense charged to operations differs from rent paid because of scheduled rent increases. Rent expense is calculated by amortizing total rental payments on a straight-line basis over the lease term.

We have recognized approximately $4.8 million in the liability for unrecognized tax benefits, including accrued interest and penalties. At this time, we
are unable to reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease over time. As a result, this amount is not included in the table above.

See Note 11Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements for additional detail.



46



---

##### Table of Contents

Off-Balance Sheet Arrangements and Related Party Transactions

As of June 30, 2010, we did not have any off-balance sheet arrangements as defined in item 303(a)(4)(ii) of Regulation S-K.

In September 2007, we licensed our OptiML Wafer-Level Camera technology and SHELLCASE Wafer-Level Packaging solutions to NemoTek Technologie S. A.
(NemoTek), a supplier of camera solutions for the cell phone market. As of June 30, 2010 and December 31, 2009, we had invested a total of $2.0 million and $1.9 million in NemoTek, which represented less than a 10 percent
holding in NemoTek, respectively. No revenues from NemoTek were recognized in the three and six months ended June 30, 2010. Revenues from NemoTek were $1.1 million and $1.1 million, or less than 1 percent of total revenue, for the three and six
months ended June 30, 2009, respectively. The account receivable from NemoTek was $0.3 million and $0.3 million as of June 30, 2010 and December 31, 2009, respectively.

Critical Accounting Estimates

During
the three and six months ended June 30, 2010 there were no significant changes in our critical accounting estimates. For a discussion of our critical accounting policies, see Item 7Managements Discussion and Analysis of
Financial Condition and Results of Operations in our 2009 Annual Report on Form 10-K, filed February 25, 2010.

Recent Accounting
Pronouncements

See Note 3Recent Accounting Pronouncements of the Notes to the Condensed Consolidated
Financial Statements for a full description of recent accounting pronouncements including the respective expected dates of adoption.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For a discussion of the Companys market risk, see
Item 7AQuantitative and Qualitative Disclosures About Market Risk in the Companys 2009 Annual Report on Form 10-K, filed on February 25, 2010.

Item 4. Controls and Procedures

Attached as exhibits to this Form 10-Q are certifications of Tesseras Chief Executive Officer and Chief Financial Officer, which are required in
accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the Exchange Act). This Controls and Procedures section includes information concerning the controls and controls evaluation referred to in the
certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Evaluation of Controls and Procedures. Tessera maintains disclosure controls and procedures that are designed to ensure that information required
to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes
that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the
end of the period covered by this report (the evaluation date). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective
to provide reasonable assurance that the information relating to Tessera, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms, and (ii) is accumulated and communicated to Tesseras management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Change in Internal Control over Financial Reporting. There have been no changes in Tesseras internal control over financial
reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), during Tesseras most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Tesseras internal control over financial
reporting.



47



---

##### Table of Contents

PART IIOTHER INFORMATION

Item 1. Legal Proceedings

Tessera, Inc. v. Advanced Micro Devices, Inc. et al., Civil Action No. 05-04063 (N.D. Cal.)

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, on October 7, 2005, the
Company filed a complaint for patent infringement against Advanced Micro Devices, Inc. (AMD) and Spansion LLC in the United States District Court for the Northern District of California, alleging infringement of Tesseras U.S.
Patent Nos. 5,679,977, 5,852,326, 6,433,419 and 6,465,893 arising from AMDs and Spansion LLCs respective manufacture, use, sale, offer to sell and/or importation of certain packaged semiconductor components and assemblies thereof.
Tessera seeks to recover damages, up to treble the amount of actual damages, together with attorneys fees, interest and costs. The Company also seeks other relief, including enjoining AMD and Spansion LLC from continuing to infringe these
patents.

On December 16, 2005, Tessera filed a first amended complaint to add Spansion Inc. and Spansion Technology, Inc. to the
lawsuit.

On January 31, 2006, the Company filed a second amended complaint to add claims for breach of contract and/or patent
infringement against several new defendants, including Advanced Semiconductor Engineering, Inc., ASE (U.S.) Inc., ChipMOS Technologies, Inc., ChipMOS U.S.A., Inc., Siliconware Precision Industries Co. Ltd, Siliconware USA Inc., STMicroelectronics
N.V., STMicroelectronics, Inc., STATS ChipPAC Ltd., STATS ChipPAC, Inc. and STATS ChipPAC Ltd. (BVI). The defendants in this action have asserted affirmative defenses to the Companys claims, and some of them have brought related counterclaims
alleging that the Tessera patents at issue are invalid, unenforceable and not infringed, and/or that Tessera is not the owner of the patents.

On May 24, 2007, the parties stipulated to temporarily stay this action pending completion of Investigation No. 337-TA-605, including appeals,
before the International Trade Commission (ITC). On August 5, 2008, the court ordered that this action be further stayed pending completion, including appeals, of Investigation No. 337-TA-649 before the ITC, which Investigation
was terminated in July 2009. The matter currently remains stayed, with a Case Management Conference currently set for December 14, 2010. The Company expects that potential damages will continue to accrue during the stay period through the
anticipated expiration of the asserted patents in September of 2010. Upon completion of Investigation No. 337-TA-605, including any appeals, the proceeding may continue, with Tessera seeking to recover its damages attributable to the alleged
infringement.

The Company cannot predict the outcome of these proceedings. An adverse decision in any of these proceedings could
significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

Tessera
Technologies, Inc. v. Hynix Semiconductor Inc. et. al, Case No. 106CV-076688

As reported in previous SEC filings, including our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, on December 18, 2006, the Company filed a complaint against Hynix Semiconductor Inc. and Hynix Semiconductor America, Inc. (collectively, Hynix) in the
Superior Court of the State of California, for the County of Santa Clara, alleging violations of California antitrust law and California common law based on Hynixs alleged anticompetitive actions in markets related to synchronous DRAM. The
Company also seeks other relief, including enjoining Hynix from continuing their alleged anticompetitive actions. On June 1, 2007, the Superior Court overruled the demurrer to Tesseras Cartwright Act claims against Hynix, thus allowing
the claims to proceed. On September 14, 2007, the court overruled another demurrer to Tesseras claim for interference with contract and business relations, allowing those claims to proceed as well.

On September 17, 2009, the judge to whom the case previously had been assigned filed a petition with the Judicial Council to coordinate the Tessera
v. Hynix action with the Rambus v. Micron action pending before Judge Kramer in the San Francisco County Superior Court (Case No. 04-0431105). On October 15, 2009, the Judicial Council issued an order appointing Judge Kramer as the
coordination motion judge. In December 2009, the action was formally coordinated with the Rambus v. Micron action.

Fact and expert discovery
in the action are closed. On June 12, 2009, Hynix filed three motions for summary adjudication, addressing among other things Tesseras standing to bring antitrust claims, its permitted damages, and the propriety of its causes of action
for violation of certain California state laws. Tesseras oppositions to the summary adjudication motions were filed on August 14, 2009. The hearing on Hynixs motions took place on February 22, 2010 and February 24, 2010.
The court denied Hynixs motion for summary adjudication for alleged lack of standing and Hynixs motion for summary adjudication regarding Tesseras claims for damages. The court granted Hynixs motion to dismiss Tesseras
intentional interference claim. At present, no trial date has been set. The parties are proceeding with trial preparation activities and are scheduled to appear for pretrial motion hearings on August 24, 2010, August 25,
2010, September 9, 2010 and September 24, 2010.



48



---

##### Table of Contents

The Company cannot predict the outcome of this proceeding. An adverse decision in this proceeding could
significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

In re Certain
Semiconductor Chips With Minimized Chip Package Size and Products Containing Same, ITC No. 337-TA-605

As reported in previous SEC
filings, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, on April 17, 2007, the Company filed a complaint with the ITC, requesting that the ITC commence an investigation under Section 337 of the
Tariff Act of 1930, as amended. The ITC officially instituted an investigation as requested by Tessera on May 21, 2007. The respondents are ATI Technologies, Inc., Freescale Semiconductor, Inc., Motorola, Inc., Qualcomm, Inc., Spansion, Inc.,
Spansion, LLC and ST Microelectronics N.V. The ITC, among other things, investigated infringement of U.S. Patent Nos. 5,852,326 and 6,433,419, and considered Tesseras request for issuance of an order excluding from entry into the United States
infringing packaged semiconductor components, assemblies thereof, and products containing the same, as well as cease and desist orders directing the respondents with domestic inventories to desist from activities with respect to infringing products.

On September 19, 2007, the ITC issued an order setting key dates for the investigation, including for the ITC hearing which was
scheduled to run from February 25, 2008 to February 29, 2008. On October 17, 2007, the investigation was assigned to Administrative Law Judge Theodore Essex.

On June 11, 2007, the respondents filed a motion to stay the investigation pending the completion of reexamination proceedings relating to the
asserted Tessera patents. Tessera opposed the motion on June 21, 2007; Judge Essex did not rule on the motion. On February 22, 2008, the respondents filed a renewed motion to stay the ITC action pending completion of reexamination
proceedings relating to the patents at issue, in view of office actions issued by the United States Patent and Trademark Office (PTO) in the reexamination of these patents described below in Reexamination Proceedings. An initial hearing
of the matter was held on February 25, 2008, and Tessera further opposed the motion in writing on that date. On February 26, 2008, Judge Essex ruled that the action would be stayed in view of the pending reexamination proceedings relating
to the patents at issue.

On March 4, 2008, Tessera filed a Request for Emergency Review with the ITC, seeking reversal of the order
staying the case, and seeking reinstatement of the hearing date. On March 27, 2008, the ITC issued an order reversing the stay, and requiring that the hearing proceedings be rescheduled for the earliest practicable date. On April 29, 2008,
the ITC issued its confidential written opinion regarding reversal of the stay.

The five-day hearing began on July 14, 2008, and was
completed on July 18, 2008. On October 16, 2008, Judge Essex issued an order extending the target date for completion of the investigation by the ITC from February 20, 2009 to April 3, 2009, and extended the target date for
issuance of the initial determination regarding violation from October 20, 2008 to December 1, 2008.

On December 1, 2008,
Judge Essex issued the Initial Determination on Violation of Section 337 and Recommended Determination on Remedy and Bond. He found, among other things, that Tessera had established a domestic industry in the United States due to Tesseras
licensing program, that the asserted patents are valid, but that Tessera had failed to prove infringement of the asserted claims of the patents-in-suit.

On December 15, 2008, Tessera, certain respondents, and the Staff filed petitions for review of the Initial Determination. The parties filed replies
to each others petitions for review on December 23, 2008.

On January 29, 2009, the Commission announced that it had decided
to review the Initial Determination in part. Specifically, the Commission determined to review, among other issues, Judge Essexs findings that the respondents accused devices do not infringe the asserted claims and that a particular
prior art device does not anticipate the asserted patents under 35 U.S.C. §§ 102(b) or (g). The Commission originally set a deadline of February 13, 2009 for the parties to submit responses to particular questions posed by the
Commission, with February 23, 2009 set as the deadline for reply submissions. The Commission later extended those deadlines to February 23, 2009 and March 5, 2009, respectively.

On March 12, 2009, respondents Spansion, Inc. and Spansion LLC (collectively, Spansion) filed a Notice of Commencement of Bankruptcy
Proceedings and Automatic Stay, notifying the Commission of Spansions recent filings for bankruptcy and asserting that certain administrative claims against Spansion must be stayed pursuant to Section 362 of the Bankruptcy Code. On
March 18, 2009, Tessera filed a response to Spansions filing, noting that Spansion did not expressly claim that the bankruptcy filing required a stay of this action. On March 23, 2009, the ITC staff submitted a response to
Spansions filing, asserting that Spansions bankruptcy filing does not require any stay of the investigation against Spansion. On May 20, 2009, the ITC denied Spansions request to stay the investigation against Spansion.

On March 26, 2009, the Commission issued a Notice of Commission Decision to Request Additional Briefing on Remedy and to Extend the
Target Date. Pursuant to the notice, the Commission requested additional briefing from the parties, or from any interested third parties, addressing three issues specified in the notice regarding the appropriateness of Tesseras proposed
remedy. The Commission also determined that the target date for issuance of its final determination would be extended from April 14, 2009 until May 20, 2009. Initial written submissions in response to the Commissions notice were
filed by Tessera, certain respondents, the ITC staff, and by certain third parties on April 10, 2009. Reply submissions were filed by Tessera, certain respondents, the ITC staff and certain third parties on April 20, 2009. On
April 20, 2009, the Commission also issued an order permitting interested third parties to have an extra nine days, until April 29, 2009, to file additional reply submissions.



49



---

##### Table of Contents

On May 20, 2009, the Commission issued its Final Determination in the action. The Commission, among
other things, reversed Judge Essexs ruling that Tessera had not proven infringement by the respondents, and ruled that Tessera had established infringement. The Commission affirmed Judge Essexs ruling that the patents are not invalid.
The Commission denied Tesseras request for a General Exclusion Order, but granted a Limited Exclusion Order against all respondents (and certain related entities) and Cease and Desist Orders against certain respondents (and certain related
entities).

On or about July 19, 2009, the Presidential Review period expired, and no alterations were made to the ITCs orders in
the investigation. The Investigation by the ITC is now being appealed, as discussed immediately below.

On or about June 2, 2009,
Motorola, Inc. and Tessera entered into a settlement and license agreement regarding certain Tessera technology, including the patents at issue in the ITC investigation.

The Company cannot predict the outcome of this proceeding, which may be impacted by appellate proceedings, as discussed immediately below. An adverse
decision in proceedings regarding this action could significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

Spansion, Inc. et al., v. International Trade Commission and Tessera, Inc., U.S. Court of Appeals for the Federal Circuit Case Nos. 2009-1460,
2009-1461, 2009-1462, and 2009-1465

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2010, on or about July 20, 2009, respondents ATI Technologies, Inc., Freescale Semiconductor, Inc., Qualcomm, Inc., Spansion, Inc., Spansion LLC and ST Microelectronics N.V. filed appeals of the ITCs Final
Determination in Investigation No. 337-TA-605 with the United States Court of Appeals for the Federal Circuit. The appellants also filed certain emergency motions seeking a stay of the ITCs limited exclusion order and cease
and desist orders during the pendency of the appeal proceedings, as well as an immediate stay of those ITC orders while the Federal Circuit considered briefing as to whether to grant a stay during the appeal.

On July 22, 2009, the Federal Circuit issued an order consolidating appeals from the ITCs 337-TA-605 investigation, and ordering Tessera and
the ITC to file responses to the appellants motion to stay no later than July 29, 2009. On July 29, 2009, Tessera and the ITC each filed their briefing in opposition to a stay of the ITCs orders during the appeal. On
August 3, 2009, the respondents filed a reply brief in support of their motion. On August 4, 2009, Tessera filed a supplemental response to the respondents reply brief. Also on August 4, 2009, the Federal Circuit issued an order
denying Tesseras request for leave to file a brief in excess of the usual page limits, and ordered Tessera to file a corrected version of its July 29, 2009 brief consisting of no more than 20 pages. Tessera filed its corrected brief on
August 6, 2009. On September 8, 2009, the Federal Circuit denied the motions for a stay.

On September 22, 2009, respondents
ATI Technologies, Inc. and Freescale Semiconductor, Inc. filed a Combined Motion for Reconsideration and Suggestion for Rehearing En Banc of the Federal Circuits denial of their stay motion. Tessera opposed the motion on October 5, 2009.
The ITC also opposed the motion on October 5, 2009. On October 23, 2009, the Federal Circuit ruled in the Companys favor, denying the respondents request to stay the limited exclusion order and cease and desist orders during
the appeal. The Federal Circuit also notified the parties that it had circulated the petition for rehearing en banc to the court. On November 5, 2009, the petition for rehearing en banc was denied.

On October 30, 2009, the respondents filed their appellate briefing regarding the merits of the ITCs ruling. Tessera filed its response brief
in the appeal on January 15, 2010, and the respondents reply briefs were filed on February 19, 2010. Oral argument occurred on June 9, 2010, and the parties now await a decision from the Federal Circuit.

The Company cannot predict the outcome of this proceeding. An adverse decision in this proceeding could significantly harm the Companys business
and consolidated financial position, results of operations or cash flows.

Tessera, Inc. v. Motorola, Inc., et. al, Case
No. 2:07cv143 (E.D. Tex.)

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010, on April 17, 2007, the Company filed a complaint against Motorola, Inc., Qualcomm, Inc., Freescale Semiconductor, Inc., and ATI Technologies, Inc. in the United States District Court for the Eastern District of Texas,
alleging infringement of Tesseras U.S. Patent Nos. 5,852,326 and 6,433,419, arising from, among other things, the defendants respective manufacture, use, sale, offer to sell and/or importation of certain packaged semiconductor components
and assemblies thereof. The Company seeks to recover damages, up to treble the amount of actual damages, together with attorneys fees, interest and costs. The Company also seeks other relief, including enjoining the defendants from continuing
to infringe these patents. The defendants have not yet answered Tesseras complaint. The parties have agreed that the case will be temporarily stayed pending completion, including appeals, of ITC Investigation No. 337-TA-605 titled In
re Certain Semiconductor Chips With Minimized Chip Package Size and Products Containing Same.



50



---

##### Table of Contents

On or about June 2, 2009, Motorola, Inc. and Tessera entered into a settlement and license agreement
regarding certain Tessera technology, including the patents at issue in this action. Tesseras request to dismiss Motorola, Inc. from the action was granted by the Court on June 8, 2009.

The Company cannot predict the outcome of these proceedings. An adverse decision in any of these proceedings could significantly harm the Companys
business and consolidated financial position, results of operations or cash flows.

In the Matter of Certain Semiconductor Chips with
Minimized Chip Package Size and Products Containing Same (III), ITC No. 337-TA-630 (the 630 ITC Action)

As
reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, on December 7, 2007, the Company filed a complaint with the ITC, requesting that the ITC commence an investigation under
Section 337 of the Tariff Act of 1930, as amended. The ITC officially instituted an investigation as requested by Tessera on January 3, 2008. The respondents named in the complaint were A-Data Technology Co., Ltd., A-Data Technology
(U.S.A.) Co., Ltd., Acer, Inc., Acer America Corp., Centon Electronics, Inc., Elpida Memory, Inc., Elpida Memory (USA) Inc., International Products Sourcing Group, Inc., Kingston Technology Co., Inc., Nanya Technology Corporation, Nanya Technology
Corp., U.S.A., Peripheral Devices & Products Systems, Inc. d/b/a Patriot Memory, Powerchip Semiconductor Corp., ProMOS Technologies Inc., Ramaxel Technology Ltd., Smart Modular Technologies, Inc., TwinMOS Technologies, Inc., and TwinMOS
Technologies USA Inc. In the Notice of Institution, the ITC stated that it would, among other things, investigate infringement of U.S. Patent Nos. 5,679,977, 6,133,627, 5,663,106, and 6,458,681, and consider Tesseras request for issuance of an
order excluding from entry into the United States infringing packaged semiconductor components, assemblies thereof, and products containing the same, as well as cease and desist orders directing parties with domestic inventories to desist from
activities with respect to infringing products.

The action was assigned to Administrative Law Judge Bullock. On January 14, 2008, Judge
Bullock issued a protective order in the action, and ground rules setting case procedures. On January 23, 2008, Judge Bullock issued an order setting the target date for completion of the investigation at April 14, 2009. On
February 27, 2008, Judge Bullock ordered the hearing date to be set for September 22, 2008.

With the exception of the TwinMOS
respondents, all of the respondents answered Tesseras complaint. On February 19, 2008, Tessera filed a motion for an order to show cause why the TwinMOS respondents should not be found to be in default. Tesseras motion was granted.
The TwinMOS respondents have not responded to the order to show cause.

On May 15, 2008, Company filed a motion to withdraw U.S. Patent
No. 6,458,681 from the ITC action. The respondents did not oppose the motion, and the motion was granted. In July 2008, the action was assigned to Judge Essex.

On May 21, 2008, Company settled its dispute with one of the respondents, International Products Sourcing Group (IPSG), and entered into
a settlement and license agreement with IPSG and its parent, Micro Electronics, Inc. As part of the settlement, IPSG and Micro Electronics acknowledged the validity and enforceability of the asserted patents, and further acknowledged that their
accused products infringe those patents. IPSG has been dismissed from the ITC action. On August 14, 2008, Company settled its dispute with another respondent, Peripheral Devices & Products Systems, Inc. (PDP), and entered
into a settlement and license agreement with PDP. As part of the settlement, PDP, on behalf of itself and its parents, affiliates and subsidiaries, acknowledged the validity and enforceability of the asserted patents, and further acknowledged that
its accused products infringe those patents. On September 22, 2008, Judge Essex granted the motion of A-DATA Technology Co., Ltd. and A-DATA Technology (USA) Co., Ltd. to dismiss those respondents from the ITC action based on their stipulation
to a consent order pursuant to which they agreed not to import or sell for importation into the United States any products infringing Tesseras asserted patents.

A nine-day hearing in this action began on September 22, 2008 and was completed on October 3, 2008. The parties completed their initial
post-hearing briefing on October 31, 2008. On January 2, 2009, Judge Essex issued an order extending the date for issuance of his initial determination regarding violation from January 14, 2009 until March 6, 2009. On
February 10, 2009, Judge Essex again extended the date for issuance of his initial determination regarding violation until May 22, 2009, and extended the target date for completion of the Commissions investigation until
September 22, 2009. On April 2, 2009, Judge Essex again extended the date for issuance of his initial determination regarding violation until July 17, 2009, and extended the target date for completion of the Commissions
investigation until November 17, 2009. On June 12, 2009, Judge Essex again extended the date for issuance of his initial determination until August 28, 2009. The June 12, 2009 order also extended the target date for completion of
the Commissions investigation until December 29, 2009.

In a separate June 12, 2009 order, Judge Essex requested briefing from
the parties as to the effect, if any, of the Commissions opinion in the 337-TA-605 investigation on the infringement analysis that Judge Essex should undertake in the 377-TA-630 investigation. The parties submitted their initial briefing on
this issue on June 26, 2009, and their reply briefing on July 6, 2009.

On August 28, 2009, Judge Essex issued an Initial
Determination on Violation of Section 337 and Recommended Determination on Remedy and Bond, in which he found that no violation of Section 337 of the Tariff Act of 1930 had occurred. The Administrative Law Judge (ALJ) held,
among other things, that the Commission had subject matter jurisdiction over the parties and products, that the importation or sale requirement of Section 337 was satisfied, that the accused products do not infringe the asserted claims, that
the asserted claims are not invalid



51



---

##### Table of Contents

for anticipation, obviousness or indefiniteness, that a domestic industry exists, that the respondents
failed to approve the affirmative defense of licensing, that respondents except for Elpida Memory, Inc. and Elpida Memory (USA) Inc. (collectively, Elpida) failed to prove the affirmative defense of patent exhaustion for certain accused
products but had established it for others, and that Elpida proved that all of its accused products are subject to patent exhaustion. The section addressing the recommended remedy and bond provisionally recommended among other things that, if a
violation of Section 337 had been found, Tessera had not demonstrated entitlement to a general exclusion order or an order extending to downstream products, and that a bond could have been set at a reasonable royalty rate as determined by
Tesseras license agreements.

On September 17, 2009, Tessera and the ITC Staff filed petitions for review of portions of the
Initial Determination. Certain respondents also conditionally sought review of portions of the Initial Determination. The parties filed replies to each others petitions for review on October 1, 2009. On October 30, 2009, the ITC
announced that it will review portions of the Initial Determination. The Commission stated that it would review, among other things, whether the respondents infringed the Tessera patents asserted in the action.

On December 29, 2009, the ITC issued a Notice of Final Determination holding, among other things, that it would (1) modify the ALJs
construction of the claim terms top layer and thereon recited in claim 1 of U.S. Patent No. 5,663,106 (the 106 patent); (2) reverse the ALJs finding that the accused μBGA products do not meet
all of the limitations of the asserted claims of the 106 patent but affirm his finding that there is no infringement due to patent exhaustion; (3) affirm the ALJs finding that the accused wBGA products do not infringe the asserted
claims of the 106 patent; (4) affirm the ALJs validity and domestic industry analyses pertaining to the asserted claims of the 106 patent; (5) affirm the ALJs finding that the Direct Loading testing methodology
employed by Tesseras expert fails to prove infringement; and (6) affirm the ALJs finding that the 1989 Motorola OMPAC 68-pin chip package fails to anticipate claims 17 and 18 of U.S. Patent No. 5,679,977 (the 977
patent) under the on-sale bar provision of 35 U.S.C. § 102(b), but modify a portion of the Initial Determination. A public version of the ITCs full opinion was issued on February 24, 2010. The ruling by the ITC is now being
appealed, as discussed immediately below.

The Company cannot predict the outcome of this proceeding, which may be impacted by appellate
proceedings, as discussed immediately below. An adverse decision in proceedings regarding this action could significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

Tessera, Inc. et al., v. International Trade Commission., U.S. Court of Appeals for the Federal Circuit Case No. 2010-1176

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, on January 28, 2010, the
Company filed a Notice of Appeal of the ITCs Final Determination in Investigation No. 337-TA-630 with the United States Court of Appeals for the Federal Circuit. On May 27, 2010, Tessera filed its opening appellate brief. The
respondents filed their response brief in the appeal on July 20, 2010. Tesseras reply brief currently is due to be filed on or about August 6, 2010. Oral argument in the case has not yet been scheduled.

The Company cannot predict the outcome of this proceeding. An adverse decision in this proceeding could significantly harm the Companys business
and consolidated financial position, results of operations or cash flows.

Tessera, Inc. v. A-DATA Technology Co., Ltd., et al., Civil
Action No. 2:07-cv-534 (E.D. Tex.)

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2010, on December 7, 2007, the Company filed a complaint against A-Data Technology Co., Ltd., A-Data Technology (U.S.A.) Co., Ltd., Acer, Inc., Acer America Corp., Centon Electronics, Inc., Elpida Memory, Inc.,
Elpida Memory (USA) Inc., International Products Sourcing Group, Inc., Kingston Technology Co., Inc., Nanya Technology Corporation, Nanya Technology Corp., U.S.A., Peripheral Devices & Products Systems, Inc. d/b/a Patriot Memory, Powerchip
Semiconductor Corp., ProMOS Technologies Inc., Ramaxel Technology Ltd., Smart Modular Technologies, Inc., TwinMOS Technologies, Inc., and TwinMOS Technologies USA Inc. in the United States District Court for the Eastern District of Texas, alleging
infringement of Tesseras U.S. Patent Nos. 5,679,977, 6,133,627, 5,663,106 and 6,458,681, arising from, among other things, the defendants respective manufacture, use, sale, offer to sell and/or importation of certain packaged
semiconductor components and assemblies thereof. The Company seeks to recover damages, up to treble the amount of actual damages, together with attorneys fees, interest and costs. The Company also seeks other relief, including enjoining the
defendants from continuing to infringe these patents.

The defendants have not yet answered Tesseras complaint, but, with the exception
of the TwinMOS defendants and Ramaxel, filed motions to stay the case pursuant to 28 U.S.C. § 1659 pending final resolution of the 630 ITC action. Tessera did not oppose the motions to stay. Tessera filed a motion seeking to find TwinMOS
Technologies U.S.A. Inc. in default, and the clerk has entered the default. On February 25, 2008, the district court granted the defendants motion to stay the action.

As noted above, on May 21, 2008, the Company settled its dispute with one of the defendants, International Products Sourcing Group
(IPSG), and entered into a settlement and license agreement with IPSG and its parent, Micro Electronics, Inc. As part of the settlement, IPSG and Micro Electronics acknowledged the validity and enforceability of the asserted patents, and
further acknowledged that their accused



52



---

##### Table of Contents

products infringe those patents. IPSG was dismissed from the Texas district court action on June 30,
2008. On August 14, 2008, Company settled its dispute with another defendant, Peripheral Devices & Products Systems, Inc. (PDP), and entered into a settlement and license agreement with PDP. As part of the settlement, PDP,
on behalf of itself and its parents, affiliates and subsidiaries, acknowledged the validity and enforceability of the asserted patents, and further acknowledged that its accused products infringe those patents. On September 9, 2008, PDP was
dismissed from the Texas district court action.

The Company cannot predict the outcome of this proceeding. An adverse decision in this
proceeding could significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

Siliconware Precision Industries Co., Ltd. and Siliconware U.S.A., Inc. v. Tessera, Inc., Civil Action No. 08-03667 (N.D. Cal.)

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, on
July 31, 2008, Siliconware Precision Industries Co., Ltd. and Siliconware U.S.A., Inc. (collectively, Siliconware) filed a complaint against the Company in the United States District Court for the Northern District of California
seeking a declaratory judgment of noninfringement, invalidity, and unenforceability of Tesseras U.S. Patent No. 5,663,106. The Company filed its Answer and Counterclaims on September 5, 2008, asserting infringement of the patent at
issue by Siliconware. On September 11, 2008, the case was related to Tessera, Inc. v. Advanced Micro Devices, Inc. et al., Civil Action No. 05-04063 (N.D. Cal) and assigned to the same judge. On December 19, 2008, the court ordered
this action be stayed pending completion of Investigation No. 337-TA-649 before the ITC, which Investigation was terminated in July 2009. The matter currently remains stayed, with a Case Management Conference currently set for December 14,
2010.

The Company cannot predict the outcome of this proceeding. An adverse decision in this proceeding could significantly harm the
Companys business and consolidated financial position, results of operations or cash flows.

Advanced Semiconductor Engineering
Inc., ASE Test Limited, and ASE (U.S.) Inc. v. Tessera, Inc., Civil Action No. 08-03726 (N.D. Cal.)

As reported in previous SEC
filings, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, on August 4, 2008, Advanced Semiconductor Engineering Inc., ASE Test Limited, and ASE (U.S.) Inc. (collectively, ASE) filed a complaint
against the Company in the United States District Court for the Northern District of California seeking a declaratory judgment of noninfringement and invalidity of Tesseras U.S. Patent No. 5,663,106. On September 11, 2008, the case
was related to Tessera, Inc. v. Advanced Micro Devices, Inc. et al., Civil Action No. 05-04063 (N.D. Cal) and assigned to the same judge. The Company filed its Answer and Counterclaims on December 1, 2008, asserting infringement of the
patent at issue by ASE. On December 19, 2008, the court ordered this action be stayed pending completion of Investigation No. 337-TA-649 before the ITC, which Investigation was terminated in July 2009. The matter currently remains stayed,
with a Case Management Conference currently set for December 14, 2010.

The Company cannot predict the outcome of this proceeding. An
adverse decision in this proceeding could significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

ChipMOS Technologies Inc., ChipMOS U.S.A. Inc. and ChipMOS Technologies (Bermuda) Ltd. v. Tessera, Inc., Civil Action No. 08-04063 (N.D. Cal.)

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, on
August 11, 2008, ChipMOS Technologies Inc., ChipMOS U.S.A. Inc. and ChipMOS Technologies (Bermuda) Ltd. (collectively, ChipMOS) filed a complaint against the Company in the United States District Court for the Northern District of
California seeking a declaratory judgment of noninfringement and invalidity of Tesseras U.S. Patent No. 5,663,106. On September 11, 2008, the case was related to Tessera, Inc. v. Advanced Micro Devices, Inc. et al., Civil Action
No. 05-04063 (N.D. Cal) and assigned to the same judge. The Company filed its Answer and Counterclaims on September 12, 2008, asserting infringement of the patent at issue by ChipMOS. On December 19, 2008, the court ordered this
action be stayed pending completion of Investigation No. 337-TA-649 before the ITC, which Investigation was terminated in July 2009. The matter currently remains stayed, with a Case Management Conference currently set for December 14,
2010.

The Company cannot predict the outcome of this proceeding. An adverse decision in this proceeding could significantly harm the
Companys business and consolidated financial position, results of operations or cash flows.

Powertech Technology Inc. v. Tessera,
Inc., Civil Action No. 10-00945 (N.D. Cal.)

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2010, on March 5, 2010, Powertech Technology Inc. (PTI) filed a complaint against the Company in the United States District Court for the Northern District of California seeking a declaratory
judgment of noninfringement and invalidity of Tesseras U.S. Patent No. 5,663,106. On March 22, 2010, the case was related to Siliconware Precision Industries Co., Ltd. v. Tessera, Inc., Civil Action No. 08-03667 (N.D.
Cal.), and assigned to the judge presiding over the action.

On April 1, 2010, the Company filed a motion to dismiss the complaint for
lack of subject matter jurisdiction. The hearing on Tesseras motion occurred on May 13, 2010. On June 1, 2010, the judge granted Tesseras motion, and dismissed the action.



53



---

##### Table of Contents

On June 29, 2010, PTI filed a motion seeking reconsideration of the July 1, 2010 order dismissing
the action. Tesseras opposition to PTIs motion for reconsideration was filed on July 15, 2010. Oral argument on the motion for reconsideration is currently scheduled for August 5, 2010.

The Company cannot predict the outcome of this proceeding. An adverse decision in this proceeding could significantly harm the Companys business
and consolidated financial position, results of operations or cash flows.

Tessera, Inc. v. United Test and Assembly Center Limited, et
al., Case No. RG08410327

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010, on September 18, 2008, the Company filed a complaint in the Superior Court for the State of California against United Test and Assembly Center, Ltd. and UTAC America, Inc. (collectively, UTAC) alleging breach of
contract for failure to pay Tessera the full royalty due under its license agreement. The Company also alleged violations of California unfair competition laws and seeking compensatory and punitive damages.

On October 20, 2008, UTAC removed the action to the U.S. District Court for the Northern District of California. On October 31, 2008, Judge
Claudia Wilken issued an order that Tesseras case against UTAC was related to Tessera, Inc. v. Advanced Micro Devices, Inc. et al., Civil Action No. 05-04063 (N.D. Cal.) and that the UTAC case should be reassigned to her.

On November 19, 2008, Tessera filed a motion to remand the case to state court. On January 6, 2009, Judge Wilken granted Tesseras motion,
and remanded the case to state court.

On January 16, 2009, UTAC filed a cross-complaint against Tessera, asserting claims for
declaratory judgment, breach of contract, breach of the implied covenant of good faith and fair dealing and violation of California unfair competition law. Tesseras response to UTACs cross-complaint was filed on February 18, 2009.
Tesseras answer denied generally the allegations in UTACs cross-complaint, and asserted various affirmative defenses.

On
March 25, 2009, UTAC filed a motion to designate the action as complex, and have the case reassigned to a judge on the State Courts complex panel. Tessera opposed the motion. On April 17, 2009, the Court granted UTACs motion,
and the case was reassigned to Judge Robert Freedman.

On March 19, 2009, Tessera filed a Special Motion to Strike Cross-Complaint under
California Code of Civil Procedure Section 425.16, asserting that UTACs claims for breach of contract, breach of implied covenant of good faith and fair dealing, and violation of the unfair competition law were barred by Californias
anti- SLAPP statute. On April 16, 2009, UTAC voluntarily moved to dismiss with prejudice its causes of action for breach of contract and breach of implied covenant of good faith and fair dealing. Tessera did not oppose UTACs
motion to voluntarily dismiss with prejudice, and the dismissal was entered by the Court. On April 22, 2009, a hearing was held before Judge Freedman and Tesseras motion was taken under submission. On May 4, 2009, Judge Freedman
issued an order granting Tesseras motion, and striking UTACs causes of action for breach of contract, breach of implied covenant of good faith and fair dealing, and violation of the unfair competition law. On June 25, 2009, Tessera
filed a motion seeking recovery from UTAC of its costs and attorneys fees incurred in connection with the successful motion. Tesseras motion for costs and attorneys fees was heard by the Court on October 23, 2009, and the
Court took the matter under submission. On January 21, 2010, the Court granted Tesseras motion in part and ordered UTAC to pay Tesseras attorneys fees in the amount of $110,812.50, and costs in the amount of $1,957.00.

Tessera sought summary adjudication regarding certain contract issues, and hearings on those motions took place on November 20, 2009 and
December 11, 2009, respectively. On December 10, 2009, the Court denied summary adjudication regarding interpretation of UTACs royalty obligations under the contract. On December 14, 2009, the Court granted summary adjudication
to Tessera regarding UTACs cause of action and asserted affirmative defenses of patent misuse, finding that UTAC had presented no evidence of patent misuse by Tessera. In addition, the Court denied summary adjudication regarding whether
certain UTAC products meet certain parameters set forth in the parties agreement.

On December 11, 2009, the Court reset the trial
date from January 11, 2010 to February 1, 2010. On January 15, 2010, the Court again reset the trial date for March 1, 2010. On February 18, 2010 and February 23, 2010, the Court held the Pretrial Management Conference,
including hearing the parties motions in limine.

On March 1, 2010, the parties entered into a settlement agreement, agreed to a
mutual dismissal of the action, and entered into an updated license agreement. The initial term of the updated license agreement runs through the end of 2016. UTAC has the option to renew the license for an additional five year term. Among other
consideration to Tessera, under the terms of the agreement UTAC is required to pay $15.0 million in cash to address past royalties owed under the initial license, of which $3.0 million has been received from UTAC.



54



---

##### Table of Contents

Reexamination Proceedings

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, on February 9, 2007 and
February 15, 2007, Silicon Precision Industries Co., Ltd. and Siliconware USA, Inc. (collectively, Siliconware) filed with the PTO requests for inter partes reexamination relating to U.S. Patent Nos. 6,433,419 and 6,465,893, and ex
parte reexamination relating to U.S. Patent Nos. 5,679,977, 6,133,627 and 5,852,326. On April 19, 2007, the PTO granted the requests for ex parte reexamination. On May 4, 2007, the PTO granted the requests for inter partes reexamination.
The PTO denied the Companys petition to vacate the inter partes reexamination proceeding on the ground that the request did not name the real party in interest, and a related request for reconsideration of that decision.

The PTO issued a non-final Official Action in connection with the inter partes reexamination of U.S. Patent No. 6,465,893 initially rejecting a
number of patent claims on May 4, 2007, to which a response was filed on July 5, 2007. The PTO issued a non-final Official Action in connection with the inter partes reexamination of U.S. Patent No. 6,433,419 initially rejecting a
number of the patent claims on June 5, 2007, to which a response was filed by Tessera on August 6, 2007. On September 5, 2007, Siliconware filed comments in response to the Companys August 6, 2007 response. On
March 14, 2007, Siliconware filed a second request for ex parte reexamination of U.S. Patent No. 5,679,977. The PTO granted this request on June 12, 2007.

On May 21, 2007, Amkor filed a request for ex parte reexamination of U.S. Patent No. 5,861,666. On July 26, 2007, the PTO granted this
request. On June 11, 2007, Amkor filed additional requests for reexamination regarding U.S. Patent Nos. 5,679,977 and 6,133,627. The PTO granted the request for reexamination as to the 5,679,977 patent on August 15, 2007, and the PTO
granted the requests for reexamination as to the 6,133,627 patent on August 13, 2007.

A first official action rejecting some claims and
confirming other claims as patentable was mailed February 21, 2008 in the reexamination of U.S. Patent No. 5,852,326. A response to the official action in the reexamination of U.S. Patent No. 5,852,326 was filed on April 21,
2008. A second office action rejecting some claims and confirming other claims as patentable was mailed on August 1, 2008. Tessera filed a response to the official action on October 1, 2008. A third, final official action rejecting all
claims under reexamination was mailed on March 6, 2009. Tessera filed a response to the official action on April 6, 2009. An advisory action was mailed by the PTO on June 22, 2009, maintaining all of the rejections presented in the
Action of March 6, 2009. On July 1, 2009, Tessera filed a petition to withdraw the finality of the official action mailed on March 6, 2009. The PTO issued a decision on July 10, 2009 dismissing Tesseras petition of
July 1, 2009. Tessera filed a Notice of Appeal on August 6, 2009, and timely filed an appeal brief on October 13, 2009. The PTOs Answer to Tesseras appeal brief was mailed on May 28, 2010. The term for Tessera to file
a reply brief to the PTOs Answer expires on or about July 28, 2010.

A first official action was mailed February 22, 2008 in
the reexamination of U.S. Patent No. 5,861,666 rejecting those claims which were subject to reexamination. Such official action was superseded by a substantively identical action mailed March 11, 2008 restarting the period for response. A
response to such official action was filed on May 12, 2008. A second official action was mailed on September 30, 2008 and Tessera filed an amendment to the claims and response to the second official action on October 30, 2008. On
March 13, 2009, the PTO issued a Notice of Intent to Issue Ex Parte Reexamination Certificate, after which a Supplemental Notice of Intent to Issue Ex Parte Reexamination Certificate (Corrected Status) was issued on April 2, 2009, finding
certain amended and newly presented claims to be patentable. The Reexamination Certificate issued on June 30, 2009.

On February 12,
2008, the PTO issued decisions merging the three reexaminations of U.S. Patent No. 5,679,977 with one another and also merging the two reexaminations of U.S. Patent No. 6,133,627 with one another. A first official action was issued on
February 29, 2008 in the merged reexaminations of U.S. Patent No. 6,133,627, rejecting those claims subject to reexamination. A response to the official action in the merged reexaminations of U.S. Patent No. 6,133,627 was filed on
April 29, 2008. On August 10, 2008, the PTO issued a second official action, to which Tessera filed a Request to Vacate the Second Official Action on August 26, 2008 on procedural grounds. As a result, on September 11, 2008, the
PTO issued a third non-final official action. Tessera filed a response to the non-final office action on October 17, 2008.

A first
official action was issued on March 28, 2008 in the merged reexaminations of U.S. Patent No. 5,679,977, rejecting those claims subject to reexamination. On May 28, 2008, a response to the official action in the merged reexaminations
of U.S. Patent No. 5,679,977 was filed. On October 10, 2008, the PTO issued a second non-final official action, to which Tessera filed a response on November 10, 2008. On October 1, 2009, the PTO issued a final official action.
Tessera filed a response to the final official action on December 1, 2009. On January 14, 2010, the PTO issued an Advisory Action indicating that Tesseras response of December 1, 2009 failed to overcome all of the rejections set
forth in the final official action mailed October 1, 2009. Tessera filed a Notice of Appeal on February 1, 2010, and timely filed an appeal brief on April 5, 2010.

On February 19, 2008, the PTO issued a second official action maintaining the rejections in U.S. Patent No. 6,433,419. On March 10, 2008,
Tessera filed a petition to vacate the second official action in the reexamination of U.S. Patent No. 6,433,419 on the ground that the second official action did not properly take account of an amendment to the specification of U.S. Patent
No. 6,433,419. On March 19, 2008, Tessera filed a substantive response to such second official action. On June 3, 2008, Tessera filed a renewed petition to vacate the inter partes reexamination on the ground that the request for such
reexamination did not name the real party in interest. On June 11, 2008, Siliconware filed an opposition to such petition. The petition was denied on September 10, 2008. On June 13, 2008, the PTO issued a third official action in the
inter partes reexamination of U.S. Patent No. 6,433,419 which was denominated as an action closing prosecution. On July 14, 2008, Tessera filed a substantive response to the action closing prosecution, to which a response was filed by
Siliconware on August 8, 2008. A Right of Appeal Notice was issued on September 17, 2008, and Tessera filed a Notice of Appeal on October 17, 2008. On November 3, 2008, the PTO



55



---

##### Table of Contents

issued a decision withdrawing the Right of Appeal Notice and returning the case to the examiner for issuance
of a further action. On December 23, 2008, the PTO issued a non-final official action, also denominated as an action closing prosecution, to which Tessera filed a response on January 23, 2009. On February 23, 2009, Siliconware filed a
response to Tesseras January 23, 2009 response. A Right of Appeal Notice was issued on June 19, 2009. On July 1, 2009, Tessera filed a petition to withdraw the Right of Appeal Notice. Having not yet received a decision on the
petition of July 1, 2009, Tessera filed a Notice of Appeal on July 20, 2009. On July 30, 2009, the PTO issued a decision dismissing Tesseras petition of July 1, 2009. Tessera filed a request for reconsideration of this
decision on August 7, 2009, upon which a decision from the PTO has not yet been received. Tessera timely filed an appeal brief on October 5, 2009, to which Siliconware filed a Response Brief on November 5, 2009. Siliconware refiled
their Response Brief on March 17, 2010. The PTOs Answer to Tesseras appeal brief was mailed on July 13, 2010. Tesseras Reply Brief is due on or about August 13, 2010.

On February 15, 2008, the PTO issued a second official action, also denominated as an action closing prosecution, maintaining the rejections of U.S.
Patent No. 6,465,893. On March 28, 2008, Tessera filed a petition to vacate the second official action in the reexamination of U.S. Patent No. 6,465,893 on the ground that the second official action did not properly take account of an
amendment to the specification of U.S. Patent No. 6,465,893. On April 15, 2008, Tessera filed a response to the second official action in the reexamination of U.S. Patent No. 6,465,893, to which Siliconware filed comments on
May 15, 2008. On June 9, 2008, Tessera filed a renewed petition to vacate the inter partes reexamination on the ground that the request for such reexamination did not name the real party in interest, which petition was denied on
September 10, 2008. On August 21, 2008, a non-final office action was issued. Tessera filed a response on October 21, 2008. On February 5, 2009, the PTO issued a non-final official action, also denominated as the second action
closing prosecution. Tessera filed a response on March 5, 2009, to which Siliconware filed a response on April 6, 2009. A Right of Appeal Notice was issued on June 22, 2009. Tessera filed a Notice of Appeal on July 22, 2009.
Tessera timely filed an appeal brief on October 5, 2009, to which Siliconware filed a Response Brief on November 5, 2009, and a Corrected Response Brief on June 14, 2010.

On March 26, 2008, a request for a third ex parte reexamination of U.S. Patent No. 6,133,627 patent was filed, ostensibly by PowerChip
Semiconductor Corporation (Powerchip). On May 2, 2008, the PTO granted this request. On November 18, 2008, the PTO issued a first non-final official action, to which Tessera filed a response on December 18, 2008. On
February 13, 2009, the PTO issued an order merging all of the reexaminations of U.S. Patent No. 6,133,627. On March 17, 2009, the PTO issued a non-final official action rejecting all claims under reexamination, to which Tessera filed
a response on April 17, 2009. On July 14, 2009, the PTO issued a final official action which held certain claims patentable but rejected other claims to which Tessera filed a response on August 14, 2009. On December 1, 2009, the
PTO issued an Advisory Action indicating that Tesseras response of August 14, 2009 failed to overcome all of the rejections set forth in the final official action mailed July 14, 2009. Tessera filed a Notice of Appeal on
December 14, 2009. Tessera timely filed an appeal brief on February 17, 2010. The PTOs Answer to Tesseras appeal brief was mailed on May 28, 2010.

On April 2, 2008, a request for inter partes reexamination of Tesseras U.S. Patent No. 6,458,681 was filed, ostensibly by Powerchip. On
June 6, 2008, the PTO granted this request and issued an official action rejecting certain claims of the 681 patent, to which Tessera filed a response on August 6, 2008, and to which Powerchip filed responsive comments on
October 10, 2008. On September 21, 2009, the PTO issued an Action Closing Prosecution rejecting certain claims and holding one claim patentable, to which Tessera timely filed a response on October 21, 2009. On November 20, 2009,
Powerchip filed comments to Tesseras response of October 21, 2009. A Right of Appeal Notice was issued on February 22, 2010. In response to the Right of Appeal Notice, Tessera has filed an application for reissue of the patent to
further address the matters raised during the reexamination proceedings. On July 20, 2010, the PTO issued a Notice of Intent to Issue Inter Partes Reexamination Certificate, canceling the claims subject to reexamination. The reexamination
certificate has not yet issued. On March 22, 2010, Tessera filed an application for reissue of the 681 patent to pursue additional claims.

On July 18, 2008, a request for ex parte reexamination of Tesseras U.S. Patent No. 5,663,106 was filed, ostensibly by Powerchip. On
September 4, 2008, the PTO granted the request for reexamination. On April 10, 2009, the PTO issued a non-final official action rejecting all claims under reexamination. Tessera filed a response on June 10, 2009. On November 19,
2009, the PTO issued a final official action finding certain claims patentable and rejecting other claims. Tessera filed a response on January 19, 2010. On April 7, 2010, the PTO issued a non-final official action withdrawing the
rejections previously made but rejecting all claims under reexamination on new grounds. Tessera filed a response on June 7, 2010.

On or
about January 3, 2006, Koninklijke Phillips Electronics N.V. and Philips Semiconductors B.V. (Philips), MICRON Semiconductor Deutschland GmbH (Micron GmbH), Infineon and STMicroelectronics, Inc. (STM) filed
oppositions to Tesseras European Patent No. EP1111672 (the EP672 Patent) before the European Patent Office (the EPO). Micron GmbH and Infineon withdrew their oppositions on July 24, 2006 and November 4, 2006,
respectively. On October 10, 2006, Tessera filed its response to the remaining oppositions with the EPO. On December 4, 2006, Phillips withdrew its opposition. On September 16, 2008, the EPO Opposition Division issued a Summons
to attend oral proceedings which states preliminary opinions unfavorable to the claims of the EP672 Patent. The Company filed a written response to the summons on January 5, 2009. STM also filed comments responsive to the
summons on December 31, 2008, to which the Company filed a response to STMs comments on January 12, 2009. An oral hearing before the EPO Opposition Division, was held on June 4, 2009, resulting in a decision to revoke the EP672
Patent. Tessera filed a Notice of Appeal on August 24, 2009. On October 26, 2009, Tessera filed a Statement of Grounds for Appeal with the EPO. STM filed comments to the Grounds for Appeal on March 8, 2010. The Company cannot predict
the outcome of this proceeding. If the opposition results in a limitation or a revocation of the EP672 Patent, this could significantly harm the Companys business and consolidated financial position, results of operations or cash flows.



56



---

##### Table of Contents

The patents that are subject to these reexamination proceedings include some of the key patents in
Tesseras portfolio, and claims that have been preliminarily rejected in the current official actions are being asserted in certain of Tesseras various litigations. The Company cannot predict the outcome of these proceedings. An adverse
decision in any of these proceedings could significantly harm the Companys business and financial condition. An adverse decision could also significantly affect Tesseras ongoing litigations, as described in this Part II,
Item 1Legal Proceedings, in which patents are being asserted, which in turn could significantly harm the Companys business and consolidated financial position, results of operations or cash flows.

Insolvency Proceedings over the Estate of Qimonda AG, Local Court of Munich, Insolvency Court, File No. 1542 IN 209/09

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, on January 23, 2009,
Qimonda AG filed a bankruptcy petition with the Local Court of Munich, Insolvency Court. On April 1, 2009, the Court opened insolvency proceedings over the estate of Qimonda AG and appointed Rechtsanwalt Dr. Michael Jaffé as the
insolvency administrator. On or about May 27, 2009, Dr. Jaffé chose non-performance of Tesseras license agreement with Qimonda AG under Section 103 of the German Insolvency Code and purported to terminate the license
agreement. On June 12, 2009, Tessera filed a Proof of Claim in the Qimonda AG bankruptcy alleging amounts due of approximately 15.7 million Euros. On December 2, 2009, Dr. Jaffé preliminarily contested Tesseras claim
in full. Tessera is in ongoing discussions with the insolvency administrator.

In re Spansion, LLC, U.S. Bankruptcy Court (Del.), Case
No. 09-1069; In re Spansion, Inc., U.S. Bankruptcy Court (Del.), Case No. 09-10690; In re Spansion Technology LLC, U.S. Bankruptcy Court (Del.), Case No. 09-10691

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, on or about March 1,
2009, Spansion LLC, Spansion, Inc. and Spansion Technology LLC (collectively, Spansion) initiated bankruptcy proceedings in the United States Bankruptcy Court for the District of Delaware. On or about July 17, 2009, Tessera filed a
Proof of Claim in each of the above Spansion bankruptcy proceedings alleging amounts due of not less than $25 million. On July 28, 2009, the Company sought permission under the Bankruptcy rules to serve certain discovery requests in the
actions, seeking various documents and testimony regarding potential administrative claims that Tessera may assert in the action. Tesseras request for such discovery was denied without prejudice on August 11, 2009. The parties thereafter
completed certain fact and expert discovery relating to Tesseras administrative expense claim in December and January of 2010.

On
January 12, 2010, Spansion filed a motion to determine and estimate the amount of Tesseras administrative expense claim, for the purpose of demonstrating the feasibility of Spansions Second Amended Joint Plan of Reorganization.
Tesseras administrative expense claim at issue relates to the damages that would be owed to Tessera for Spansions post-petition (post-March 1, 2009) infringement of certain Tessera patents. Tessera filed its objection to
Spansions motion on January 22, 2010. On January 29, 2010, the court held a hearing on Spansions motion. The parties submitted post-hearing letter briefs on February 3, 2010. The Court announced its ruling that a
reasonable royalty rate for Spansion products sold in the United States during the administrative period was 56.7 cents per unit. On April 6, 2010, the Court entered an order estimating the amount of any alleged administrative expensive claim
of Tessera for purposes of plan confirmation in the amount of $4,232,986.13 for the period from March 1, 2009 to July 20, 2009.

On
February 5, 2010, Spansion filed a motion for an order estimating the amount of certain contingent, unliquidated, duplicative and/or overstated claims for purposes of establishing class 5 plan distribution reserves. Tessera filed
its objection to the estimation motion on February 17, 2010 and on that same date submitted three Amended Proofs of Claim based in part on the Courts 56.7 cents per unit royalty rate. On February 18, 2010, Tessera filed a motion for
authority to file its Amended Proofs of Claim. On March 23, 2010, the Court entered an order allowing Tessera to file its Amended Proofs of Claim. Tessera voluntarily withdrew its three prior proofs of claim.

On January 26, 2010, Tessera filed its objection to Spansions Second Amended Joint Plan of Reorganization, asserting that the plan is not
feasible and that it fails to provide for the payout of administrative expense claims on the plan effective date. On February 2, 2010, Tessera submitted three ballots, one for each previously submitted Proof of Claim. The ballots, among other
things, rejected Spansions Second Amended Joint Plan of Reorganization.

On April 1, 2010, the Court issued its Order and Opinion
on Confirmation in which, among other things, it denied Spansions request for plan confirmation due to, among other reasons, the failure to set aside a reserve for Tesseras administrative expense claim in the amount of $4,232,986. 13.
The Court overruled certain Tessera objections regarding irregularities in the plan voting solicitation and tabulation and Spansions failure to properly count Tesseras three plan ballots. On April 7, 2010, Spansion filed an amended
plan that included a reserve for the alleged administrative expense claim of Tessera in the amount of $4,232,986.13. On April 16, 2010, the Court issued its finding of facts, conclusions of law, and Order confirming the plan as amended. On
May 10, 2010, the plan became effective.

On February 23, 2010, Tessera filed a motion for allowance and payment of its
administrative expense claim in the amount of $96,765,070, as of January 29, 2010, plus all damages that arise from and after that date, with interest thereon. Spansion filed an objection to the Request for Administrative Expense Claim on
March 16, 2010 and the Official Committee of Unsecured Creditors joined in Spansions objection on March 16, 2010.



57



---

##### Table of Contents

On March 25, 2010, the parties reached a stipulation regarding the estimated amount of Tesseras
pre-petition claim. On May 26, 2010, the Court issued its Order approving the stipulation and estimating Tesseras pre-petition claims in the amount of $130 million. In its June 15, 2010 Order, the Court disallowed two of
Tesseras Amended Proofs of Claim, leaving one proof of claim of not less than $219 million. On July 6, 2010, Spansion filed an objection to the remaining proof of claim.

On July 13, 2010, Spansion and Tessera filed joint motions seeking to withdraw the reference from the bankruptcy court insofar as it relates
Tesseras administrative expense claim and remaining proof of claim to the United States District Court for the District of Delaware and to transfer venue of that matter to the United States District Court for the Northern District of
California where a prior matter between Tessera and Spansion is pending. At a hearing held on July 28, 2010, the Court indicated that it would approve an order permitting the parties to submit their joint motion to the United States District
Court for the District of Delaware for determination.

Amkor Technology, Inc. v. Tessera, Inc.

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, on or about August 7,
2009, Amkor filed a request for arbitration against the Company before the International Chamber of Commerce (ICC). The request, among other things, accuses the Company of interference with Amkors existing and prospective business
relationships, of improperly claiming that Amkor had breached the parties license agreement, and of improperly threatening to terminate that agreement. Amkor seeks relief including judgment that it is in compliance with the license agreement
and is a licensee in good standing under the license agreement; judgment that the license agreement remains in effect and no breach alleged by the Company against Amkor has terminated the License Agreement; judgment that Amkors method of
calculating royalties on a going-forward basis complies with Amkors obligations under the license agreement; an injunction against the Company forbidding it from making statements to Amkors customers and potential customers inconsistent
with the above; an injunction against the Company forbidding it from attempting to terminate the license agreement or threatening to terminate the license agreement during the arbitration or based on events occurring prior to the conclusion of the
arbitration; a damage award against the Company for attorneys fees and costs to Amkor associated with this arbitration, together with all other damages resulting from the Companys alleged acts of tortious interference and punitive damages; all
other relief recoverable under the Rules of Arbitration of the ICC; such other and further relief as the arbitrators deem just and proper.

On
or about November 2, 2009, the Company filed its answer to the request, including counterclaims. The answer, among other things, denies Amkors accusations and accuses Amkor of failing to pay Tessera full royalties on products Amkor sold
to Qualcomm and potentially others that are subject to ITC injunctions, of refusing to allow Tessera to audit in accordance with the parties license agreement, of interference with Tesseras prospective economic relationships, of failing
to pay royalties or full royalties on products that infringe various U.S. and foreign patents owned by Tessera, and of violating the implied covenant of good faith and fair dealing. The Company seeks relief including judgment that the license
agreement has been breached and that Tessera is entitled to terminate the license agreement; judgment that products on which Amkor has not paid the full contractual royalties to Tessera are not licensed under Tesseras patents; damages for
Amkors breaches of the license agreement; damages, including punitive damages, for Amkors interference with Tesseras prospective business relationships; interest on any damages; attorneys fees and costs incurred by Tessera;
denial of Amkors claims against Tessera; an order that awards Tessera all other relief recoverable under the rules of Arbitration of the ICC; and an order for such other and further relief as the arbitrators deem just and proper.

On January 15, 2010, Amkor filed its response to Tesseras counterclaims, along with certain new counterclaims by Amkor and a motion for
priority consideration of certain issues. In its responsive pleading, Amkor denied Tesseras counterclaims, arguing in part that Tesseras counterclaims for royalties are barred by the doctrines of collateral estoppel and res judicata, and
sought a declaratory judgment that it has not infringed and that its packages are not made under any of the patents asserted in Tesseras answer and that the patents are invalid and unenforceable. Tessera filed an answer denying Amkors
counterclaims and a response to Amkors motion on February 12, 2010. Amkor also claims a credit for royalties it alleges it overpaid Tessera. On March 28, 2010, the arbitrators ruled on Amkors motion for priority consideration,
holding that certain issuesincluding royalties payable on a going-forward basis for the patents addressed in the previous arbitration, including but not limited to royalties applicable to packages assembled for Qualcomm, Inc., and
Tesseras counterclaim for breach of the audit provisionwould be considered in an early hearing which is currently scheduled to last two days starting on December 9, 2010. The arbitrators scheduled a two-week hearing on the remaining
issues for August 15, 2011.

On May 14, 2010, Amkor filed a motion to bar Tesseras counterclaims for royalties owed based on
Amkors activities prior to December 1, 2008 as barred by the doctrine of res judicata. Tessera filed its opposition on June 11, 2010. A hearing on Amkors motion is currently scheduled for August 25, 2010.

The Company cannot predict the outcome of this proceeding. An adverse decision in this proceeding could significantly harm the Companys business
and consolidated financial position, results of operations or cash flows.



58



---

##### Table of Contents

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our
business, financial condition, results of operations, cash flows, and the trading price of our common stock.

We are currently involved in
litigation and administrative proceedings involving some of our key patents; any invalidation or limitation of the scope of our key patents could significantly harm our business.

Our patent portfolio contains some patents that are particularly significant to our ongoing revenues and business. As more fully described in Part II,
Item 1 Legal Proceedings, we are currently involved in litigation involving some of these key patents in the U.S. The parties in these legal actions have challenged the validity, scope, enforceability and ownership of key patents
that we license to generate a substantial portion of our revenues. In addition, reexamination requests have been filed against us in the U.S. Patent and Trademark Office (PTO) with respect to certain key patent claims at issue in one or
more of our litigation proceedings, and oppositions have been filed against us with respect to key patents in the European Patent Office. Under a reexamination proceeding and upon completion of the proceeding, the PTO may leave a patent in its
present form, narrow the scope of the patent or cancel some or all of the claims of the patent. As further described in Part II, Item 1 Legal Proceedings, the PTO issued several Official Actions rejecting or maintaining earlier
rejections of many of the claims in certain of our key patents. We are currently asserting these key patents and patent claims in certain of our ongoing litigation and administrative proceedings. If the PTOs adverse rulings are upheld on
appeal and some or all of the claims of the key patents that are subject to reexamination are canceled, our business may be significantly harmed. In addition, counterparties to our litigation and administrative proceedings may seek and obtain
motions to stay these proceedings based on rejections of claims in the PTO reexaminations, and other courts or tribunals reviewing our legal actions could make findings adverse to our interests, even if the PTO actions are not final.

We cannot predict the outcome of any of these proceedings or the myriad procedural and substantive motions in these proceedings. In the event that there
is an adverse ruling in any legal or administrative proceeding relating to the infringement, validity, enforceability or ownership of any of our key patents, or if a court or an administrative body such as the PTO limits the scope of the claims of
any of our key patents, we could be prevented from enforcing or earning future revenues from such key patents, and the likelihood that companies will take new licenses and that current licensees will continue to agree to pay under their existing
licenses could be significantly reduced. The resulting reduction in license fees and royalties could significantly harm our business, consolidated financial position, results of operations or cash flows, or the trading price of our common stock.
Furthermore, regardless of the merits of any claim, the continued maintenance of these legal and administrative proceedings may result in substantial legal expenses and could divert our managements time and attention away from our other
business operations, which could significantly harm our business. Our enforcement proceedings historically have been protracted and complex, and we have experienced significant delays in certain of these proceedings. The complexity of our
litigations, their disproportionate importance to our business compared to other companies, the propensity for delay in patent litigations, and the potential that we may lose particular motions as well as the overall litigations all could cause
significant volatility in our stock price and could materially adversely affect our business and consolidated financial position, results of operations or cash flows.

We expect to continue to be involved in material legal proceedings in the future to enforce or protect our intellectual property rights, including
material litigation with existing licensees or strategic partners, which could harm our business.

In the past, we have found it necessary
to litigate to enforce our patents and other intellectual property rights, to enforce the terms of our existing license agreements, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend
against claims of infringement or invalidity. Our current legal actions, as described in Part II, Item 1 Legal Proceedings, are examples of significant disputes and litigation that impact our business. We expect to be involved in
similar legal proceedings in the future, including proceedings to ensure proper and full payment of royalties by current licensees under the terms of their license agreements. These existing and any future legal actions could cause an existing
licensee or strategic partner to cease making royalty or other payments to us, or to challenge the validity and enforceability of our patents or the scope of our license agreements, and could significantly damage our relationship with such licensee
or strategic partner. Litigation could also severely disrupt or shut down the business operations of our licensees or strategic partners, which in turn would significantly harm our ongoing relations with them and cause us to lose royalty revenues.
In addition, many semiconductor and package assembly companies maintain their own internal design groups and have their own package design and manufacturing capabilities. If we believe these groups have designed technologies that infringe upon our
intellectual property, and if they subsequently fail to enter into a license agreement with us or pay for licensed technology, then it may become necessary for us to commence legal proceedings against them. Litigation stemming from these or other
disputes could also harm our relationships with other licensees or our ability to gain new customers, who may postpone licensing decisions pending the outcome of the litigation or dispute. In addition, these legal proceedings could be very expensive
and may reduce or eliminate our profits. The costs associated with legal proceedings are typically high, relatively unpredictable and not completely within our control. While we do our best to forecast and control such costs, the costs may be
materially higher than expected, which could adversely affect our operating results. Whether or not determined in our favor or ultimately settled, litigation diverts our managerial, technical, legal and financial resources from our business
operations. Furthermore, an adverse decision in any of these legal actions could result in a loss of our proprietary rights, subject us to significant liabilities, require us to seek licenses from others, limit the value of our licensed technology
or otherwise negatively impact our stock price or our business and consolidated financial position, results of operations or cash flows. Even if we prevail in our legal actions, significant contingencies will exist to their settlement and final
resolution, including the scope of the liability of each party, our ability to enforce judgments against the parties, the ability and willingness of the parties to make any



59



---

##### Table of Contents

payments owed or agreed upon and the dismissal of the legal action by the relevant court, none of which are
completely within our control. Parties that may be obligated to pay us royalties could also decide to alter their business activities or corporate structure, which could affect our ability to collect royalties from such parties.

If we fail to protect and enforce our intellectual property rights and our confidential information, our business will suffer.

We rely primarily on a combination of license, development and nondisclosure agreements and other contractual provisions and patent, trademark, trade
secret and copyright laws to protect our technology and intellectual property. If we fail to protect our technology and intellectual property, our licensees and others may seek to use our technology and intellectual property without the payment of
license fees and royalties, which could weaken our competitive position, reduce our operating results and increase the likelihood of costly litigation. The growth of our business depends in large part on our ability to obtain intellectual property
rights in a timely manner, our ability to convince third parties of the applicability of our intellectual property rights to their products, and our ability to enforce our intellectual property rights against them.

In certain instances, we attempt to obtain patent protection for portions of our technology, and our license agreements typically include both issued
patents and pending patent applications. If we fail to obtain patents in a timely manner or if the patents issued to us do not cover all of the inventions disclosed in our patent applications, others could use portions of our technology and
intellectual property without the payment of license fees and royalties. For example, our business may suffer if we are unable to obtain patent protection in a timely manner from the PTO due to processing delays resulting from examiner turnover and
a continuing backlog of patent applications.

We also rely on trade secret laws rather than patent laws to protect other portions of our
proprietary technology. However, trade secrets can be difficult to protect. The misappropriation of our trade secrets or other proprietary information could seriously harm our business. We protect our proprietary technology and processes, in part,
through confidentiality agreements with our employees, consultants, suppliers and customers. We cannot be certain that these contracts have not been and will not be breached, that we will be able to timely detect unauthorized use or transfer of our
technology and intellectual property, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by competitors. If we fail to use these mechanisms to protect our
technology and intellectual property, or if a court fails to enforce our intellectual property rights, our business will suffer. We cannot be certain that these protection mechanisms can be successfully asserted in the future or will not be
invalidated or challenged.

Further, the laws and enforcement regimes of certain countries do not protect our technology and intellectual
property to the same extent as do the laws and enforcement regimes of the U.S. Therefore, in certain jurisdictions we may be unable to protect our technology and intellectual property adequately against unauthorized third-party use, which could
adversely affect our business.

Our business may suffer if third parties assert that we violate their intellectual property rights.

Third parties may claim that we or our customers are infringing upon their intellectual property rights. Even if we believe that such claims
are without merit, they can be time-consuming and costly to defend against and will divert managements attention and resources away from our business. Claims of intellectual property infringement also might require us to enter into costly
settlement or license agreements or pay costly damage awards. Even if we have an agreement that provides for a third party to indemnify us against such costs, the indemnifying party may be unable to perform its contractual obligations under the
agreement. If we cannot or do not license the infringed intellectual property at all or on reasonable terms, or substitute similar technology from another source, our business, financial position, results of operations or cash flows could suffer.

If the U.S. patent laws and regulations are changed, we could be adversely impacted.

Our business relies in part on the uniform and historically consistent application of U.S. patent laws and regulations. Changes to these laws and
regulations may occur as a result of decisions and actions of Congress, the PTO, and the courts, including the U.S. Supreme Court. In recent years, certain proposals have been made to change some aspects of the patent laws and PTO rules, the courts
have interpreted U.S. patent laws and regulations differently, and in particular the U.S. Supreme Court has decided a number of patent cases and continues to actively review more patent cases than it has in the past. Some of these changes or
potential changes may not be advantageous for us, and may make it more difficult to obtain adequate patent protection or to enforce our patents against parties using them without a license or payment of royalties. These changes or potential changes,
if passed by Congress or implemented by the Administration, or required by the courts, could have a deleterious effect on our licensing program and, therefore, the royalties we can collect.

Some of our license agreements have fixed terms and will need to be renewed or relicensed in the future in order to extend those terms. If we are
unable to renew or relicense these license agreements on terms favorable to us, our results of operations could be harmed.

Some of our
license agreements have fixed terms. We will need to renew or relicense our license agreements with fixed terms prior to the expiration of such license agreements in order to extend those terms. Based on various factors including the technology and
business needs of our licensees, we may not be able to renew or relicense such license agreements on terms favorable to us, or at all. We have expanded our licensable technology portfolio through internal development and acquisitions from third
parties, but there is no guarantee that these measures will meet the technology and business needs of our licensees. In order to maintain existing relationships with some of our licensees, we may be



60



---

##### Table of Contents

forced to renew or relicense our license agreements on terms that are more favorable to such licensees,
which could harm our results of operations. If we fail to renew or relicense our license agreements, we would lose existing licensees and our business would be materially adversely affected.

Volume pricing incentives in our TCC licenses with two DRAM manufacturers may slow our DRAM royalty growth.

In 2005, we provided two major DRAM manufacturers with first-mover pricing advantages with respect to royalties due to us under their respective TCC
licenses based on several factors, including volumes. The effect of the volume pricing adjustments may cause, at certain high shipment volumes and for these two DRAM manufacturers only, our aggregate annual DRAM royalty revenue to grow less rapidly
than annual growth in overall unit shipments in the DRAM segment. An additional effect may include some quarter-to-quarter fluctuations in growth in our revenues from the DRAM segment, depending on the relative DRAM market share enjoyed by these two
DRAM manufacturers as well as the timing of when they reach the volume pricing incentive in a given calendar quarter and their royalty payments within a calendar year.

Some of our license agreements may convert to fully paid-up licenses at the expiration of their terms, and we may not receive royalties after that
time.

We currently have one license agreement that automatically converts to a fully paid-up license after the expiration of its current
term on December 31, 2013, provided that the licensee (Texas Instruments, Inc.) complies with all terms and conditions of the license agreement up through its expiration. We also have certain other license agreements that each provide the
licensee with the option to extend the current term of their agreement for an additional five years with royalty payments throughout the expiration of the extended term, whereupon such a license automatically converts to a fully paid-up license
after the expiration of its extended term. We may not receive further royalties from licensees for any licensed technology under those agreements if they convert to fully paid-up licenses because such licensees will be entitled to continue using
some, if not all, of our relevant intellectual property under the terms of the license agreements, even if relevant patents are still in effect. If we cannot find another source of revenue to replace the revenue from these license agreements
converting to fully paid-up licenses, our results of operations following such conversion could be materially adversely affected.

A
significant amount of our royalty revenues comes from a few market segments and products, and our business could be harmed if these market segments or products decline.

A significant portion of our royalty revenues comes from the manufacture and sale of packaged semiconductor chips for DSP, ASSP, ASIC and memory. In
addition, we derive substantial revenues from the incorporation of our technology into mobile devices. If demand for semiconductors in any one or a combination of these market segments or products declines, our royalty revenues may be reduced
significantly and our business could be harmed.

Our revenue is concentrated in a few customers and if we lose any of these customers our
revenues may decrease substantially.

We earn a significant amount of our revenues from a limited number of customers. For the three and
six months ended June 30, 2010, there were four and three customers, respectively, that each accounted for 10% or more of total revenue. We expect that a significant portion of our revenues will continue to come from a limited number of
customers for the foreseeable future. If we lose any of these customers, our revenues may decrease substantially.

We have a royalty-based
business model, which is inherently risky.

Our long-term success depends on future royalties paid to us by licensees. Royalty payments
under our TCC licenses are primarily based upon the number of electrical connections to the semiconductor chip in a package covered by our licensed technology. We also have royalty arrangements for TCC and other technologies in which royalties are
paid based upon a percent of the net sales price or based upon a per package, or a per unit sold basis. We are dependent upon our ability to structure, negotiate and enforce agreements for the determination and payment of royalties, as well as upon
our licensees compliance with their agreements. We face risks inherent in a royalty-based business model, many of which are outside of our control, such as the following:



| |  |  | the rate of adoption and incorporation of our technology by semiconductor manufacturers and assemblers;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | the extent to which large equipment vendors and materials providers develop and supply tools and materials to enable manufacturing using our packaging
technology;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the demand for products incorporating semiconductors that use our licensed technology;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | the cyclicality of supply and demand for products using our licensed technology;
| | - |  | --------------------------------------------------------------------------------



| |  |  | the impact of economic downturns; and
| | - |  | -------------------------------------



| |  |  | the timing of receipt of royalty reports may not meet our revenue recognition criteria resulting in fluctuation in our results of operations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



61



---

##### Table of Contents

It is difficult for us to verify royalty amounts owed to us under our licensing agreements, and this may
cause us to lose revenues.

The terms of our license agreements generally require our licensees to document their use of Tesseras
technology and report related data to us on a quarterly basis. Although our license terms generally give us the right to audit books and records of our licensees to verify this information, audits can be expensive, time consuming, and may not be
cost justified based on our understanding of our licensees businesses. Our license compliance program audits certain licensees to review the accuracy of the information contained in their royalty reports in an effort to decrease the likelihood
that we will not receive the royalty revenues to which we are entitled under the terms of our license agreements, but we cannot give assurances that such audits will be effective to that end.

The markets for semiconductors and related products and camera modules are highly concentrated, and we may have limited opportunities to license our
technologies or sell our products.

The semiconductor industry is highly concentrated in that a small number of semiconductor designers and
manufacturers account for a substantial portion of the purchases of semiconductor products generally, including our products and products incorporating technologies that we may acquire. Consolidation in the semiconductor industry may increase this
concentration. Accordingly, we expect that licenses of our technologies and sales of our products, including sales of products and technologies that we acquire, will be concentrated with a limited number of customers for the foreseeable future. As
we acquire new technologies and integrate them into our product line, we will need to establish new relationships to sell these products. Our financial results depend in significant part on our success in establishing and maintaining relationships
with, and effecting substantial sales to, these customers. Even if we are successful in establishing and maintaining such relationships, our financial results will be dependent in large part on these customers sales and business results. This
is also true for the camera module market which is the target market for our imaging and optics business. In this market, a small number of original equipment manufacturers (OEMs) account for a substantial portion of purchases of camera-enabled cell
phones and other mobile devices. We have been promoting the adoption of our technologies in this market through the supply chain infrastructure by signing licenses with the sensor, lens and camera manufacturers and assemblers. Consolidation of the
OEMs may affect our licensees ability to maintain or establish relationships with these OEMs through which they sell products incorporating our imaging and optics technologies. As a result, our financial results could be materially adversely
affected.

We make significant investments in new products and services that may not achieve technological feasibility or profitability or
that may limit our revenue growth.

We have made and will continue to make significant investments in research, development, and marketing
of new technologies, products and services, including wafer-level packaging, wafer-level camera and other image quality enhancement technologies, μPILR packaging technology, and thermal management technology (also referred to as silent air
cooling). Investments in new technologies are speculative and technological feasibility may not be achieved. Commercial success depends on many factors including innovativeness and demand for the technology, availability of materials and equipment,
selling price the market is willing to bear, competition and effective licensing or product sales. We may not achieve significant revenue from new product and service investments for a number of years, if at all. Moreover, new technologies, products
and services may not be profitable, and even if they are profitable, operating margins for new products and businesses may not be as high as the margins we have experienced historically.

Competing technologies may harm our business.

We expect that our technologies will continue to compete with technologies of internal design groups at semiconductor manufacturers, assemblers,
electronic component and system manufacturers, image sensor and lens manufacturers and camera module companies. These internal design groups create their own packaging, imaging and optics solutions. If these internal design groups design around our
patents or introduce unique solutions superior to our technology, they may not need to license our technology. These groups may design technology that is less expensive to implement than ours or that enables products with higher performance or
additional features. Many of these groups have substantially greater resources, greater financial strength and lower cost structures which may allow them to undercut our price. They also have the inherent advantage of internal access to corporate
strategies, technology roadmaps and technical information. As a result, they may be able to bring alternative solutions to market more easily and quickly. For instance, for our Micro-electronics technologies, certain flip chip technologies are being
used by large semiconductor manufacturers and assemblers for a variety of semiconductors, including processors and memory. Another example of a competitive technology is the small format lead frame package that is also getting market traction. The
companies using these technologies are utilizing their current lead frame infrastructure to achieve cost-effective results. Wafer-level packaging is an emerging competitive technology that could also erode chip-scale packaging market share as the
technology and infrastructure matures. Other examples of competitive technologies that could erode chip-scale packaging market share include the chip-on-board technique to package image sensors and certain system-in-package technologies that can
integrate multiple die.

For our imaging and optics technologies, our OptiML Focus technology enables camera modules to automatically focus
without any moving parts by employing extended depth of field technology. Our MEMS-based auto focus technology enables high-precision control of a moving lens for auto focus functionality with a small form factor. These technologies compete with
auto focus technologies including traditional lens-motion-type auto focus, emerging lens-modification-type auto focus, solutions using voice coil motor technology, and also other computational-type auto focus solutions and other solutions and
technologies provided by companies such as DxO Labs. Our wafer-level



62



---

##### Table of Contents

camera solution competes with both the traditional lens vendors who enjoy an established supply chain, as
well as other wafer-level optics technologies offered by companies such as Heptagon Oy and Anteryon B.V. For the embedded image enhancement technologies such as Face Detection and our other Face Tools products, our offerings compete with other image
processing software vendors such as ArcSoft, Inc. as well as internal design groups of our customers providing similar technologies by employing different approaches. We also expect to see other competing technologies emerge.

In the future, our licensed technologies may also compete with other technologies that emerge. These technologies may be less expensive than ours and
provide higher or additional performance. Companies with these competing technologies may also have greater resources than we have. Technological change could render our technologies obsolete, and new, competitive technologies could emerge that
achieve broad adoption and adversely affect the use of our technologies and intellectual property.

If we do not create and implement new
technologies or expand our licensable technology portfolio, our competitive position could be harmed and our operating results adversely affected.

We derive a significant portion of our revenues from licenses and royalties from a relatively small number of key technologies. We devote significant
engineering resources to develop new packaging and imaging technologies to address the evolving needs of the semiconductor and the consumer and communication electronics industries. To remain competitive, we must introduce new technologies in a
timely manner and the market must adopt them. Developments in our technologies are inherently complex, and require long development cycles and a substantial investment before we can determine their commercial viability. We may not be able to develop
and market new technologies in a timely or commercially acceptable fashion. Moreover, our patents will expire in the future. Our current U.S. issued patents expire at various times from 2010 through 2029. We need to develop or acquire successful
innovations and obtain patents on those innovations before our current patents expire, and our failure to do so could significantly harm our business, financial position, results of operations or cash flows.

If we do not successfully further develop and commercialize the technologies we acquire, or cultivate strategic relationships that expand our
licensable technology portfolio, our competitive position could be harmed and our operating results adversely affected.

We also attempt to
expand our licensable technology portfolio and technical expertise by acquiring and further developing new technologies or developing strategic relationships with others. These strategic relationships may include the right for us to sublicense
technology and intellectual property to others. However, we may not be able to acquire or obtain rights to licensable technology and intellectual property in a timely manner or upon commercially reasonable terms. Even if we do acquire such rights,
some of the technologies we invest in may be commercially unproven and may not be adopted or accepted by the industry. Moreover, our research and development efforts, and acquisitions and strategic relationships, may be futile if we do not
accurately predict the future needs of the semiconductor, consumer and communication electronics, and consumer imaging industries. Our failure to acquire new technologies that are commercially viable in the semiconductor, consumer and communication
electronics, and consumer imaging industries could significantly harm our business, financial position, results of operations or cash flows.

Failure by our licensees to sell products using our technology could limit our royalty revenue growth.

Because we expect a portion of our future revenues to be derived from licenses and royalties from semiconductors that use our licensed technology, our
future success depends upon our licensees developing and selling commercially successful products. Any of the following factors could limit our licensees ability to sell products that incorporate our technology:



| |  |  | the willingness and ability of materials and equipment suppliers to produce materials and equipment that support our licensed technology, in a quantity
sufficient to enable volume manufacturing;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability of our licensees to purchase such materials and equipment on a cost-effective and timely basis;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the willingness of our licensees and others to make investments in the manufacturing process that supports our licensed technology, and the amount and
timing of those investments; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our licensees ability to design and assemble packages incorporating our technology that are acceptable to their customers.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------

Because we expect a portion of our future growth to be derived from licenses and royalties from our imaging and optics
technology in consumer electronics, such as digital still cameras, wireless devices, personal computers and other consumer electronics, our future success depends upon our licensees developing and selling products that incorporate our technology.
Any of the following factors could limit the growth of our imaging and optics technology:



| |  |  | our ability to innovate and provide solutions at lower costs, with improved performance, or with more enhanced features than our competitors;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the relevant markets rate of adoption of our imaging and optics technologies;
| | - |  | ------------------------------------------------------------------------------



| |  |  | our ability to license our technologies to significant customers in imaging and optics fields; and
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | our competitors who may have superior products or solutions which take away market shares or design wins from us.
| | - |  | -----------------------------------------------------------------------------------------------------------------



63



---

##### Table of Contents

Failure by the semiconductor industry to adopt our packaging technology for the next generation high
performance DRAM chips would significantly harm our business.

To date, our packaging technology has been used by several companies for
high performance DRAM chips. For example, packaging using our technology is used for DDR2 and DDR3 DRAM and we currently have licensees, including Hynix Semiconductor Inc., Micron Technology, Inc., and Samsung Electronics, Co., Ltd., who are paying
royalties for DRAM chips in advanced packages.

DRAM manufacturers are also currently developing next generation high performance DRAM chips,
including next generation of DDR referred to as DDR4, to meet increasing speed and performance requirements of electronic products. We believe that these next-generation, high performance DRAM chips will require advanced packaging technologies such
as CSP.

We anticipate that royalties from shipments of these next-generation, high performance DRAM chips packaged using our technology may
account for a significant percentage of our future revenues. If semiconductor manufacturers do not continue to use packages employing our technology for the next generation of high performance DRAM and find a viable alternative packaging technology
for use with next generation high performance DRAM chips, or if we do not receive royalties from next generation, high performance DRAM chips that use our technology, our future revenues could be adversely affected.

Our technology may be too expensive for certain next generation high performance DRAM manufacturers, which could significantly reduce the adoption rate
of our packaging technology in next generation high performance DRAM chips. Even if our package technology is selected for at least some of these next generation high performance DRAM chips, there could be delays in the introduction of products
utilizing these chips that could materially affect the amount and timing of any royalty payments that we receive. Other factors that could affect adoption of our technology for next generation high performance DRAM products include delays or
shortages of materials and equipment and the availability of testing services.

If our licensees delay or are unable to make payments to us
due to financial difficulties, or shift their licensed products to other companies to lower their royalties to us, our operating results and cash flows could be adversely affected.

A number of companies in the semiconductor and consumer electronics industries are facing severe financial difficulties. As a result, there have been
recent bankruptcies and restructuring of companies in these industries. Our licensees may face similar financial difficulties which may result in their inability to make payments to us in a timely manner or if at all. In addition, our licensees may
merge with or may shift the manufacture of licensed products to companies that are not currently licensees to us. This could make the collection process complex and difficult which could adversely impact our business, financial condition, results of
operations and cash flows.

The way we integrate internally developed and acquired technologies into our products and licensing programs
may not be accepted by customers.

We have devoted, and expect to continue to devote, considerable time and resources to developing,
acquiring and integrating new and existing technologies into our products and licensing programs. However, if customers do not accept the way we have integrated our technologies, they may adopt competing solutions. In addition, as we introduce new
products or licensing programs, we cannot predict with certainty if and when our customers will transition to those new products or licensing programs. If customers fail to accept new or upgraded products or licensing programs incorporating our
technologies, our financial position, results of operations or cash flows could be adversely impacted.

As a larger portion of our revenues
is generated from product sales, we may rely on outsourced high volume manufacturing which is inherently risky.

As we integrate internally
developed technologies into products, we may rely on outsourced high volume manufacturing by utilizing third party foundry, packaging, assembly and test capabilities. Doing so could present risks to our operations, including:



| |  |  | reduced control over delivery schedules, yields, capacity, and quality assurance;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | limited number of vendors capable of manufacturing our high technology products;
| | - |  | --------------------------------------------------------------------------------



| |  |  | limited availability of vendor capacity for our products which may delay time to market;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | failure of vendors to meet our technical requirements;
| | - |  | ------------------------------------------------------



| |  |  | difficulty in determining target inventory levels based on forecasted demand, which may not be reliable;
| | - |  | --------------------------------------------------------------------------------------------------------



64



---

##### Table of Contents

| |  |  | infringement or misappropriation of other third parties or our intellectual property;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | limited warranties on products and services supplied to us; and
| | - |  | ---------------------------------------------------------------



| |  |  | overhead costs of developing and maintaining a global supply chain.
| | - |  | -------------------------------------------------------------------

If any vendor in the supply chain materially fails to perform, or if we are required to find an alternate vendor and are not able to do so on a timely
basis, or if these vendors materially increase their prices, our business strategy could be harmed and our results of operations could be adversely affected.

Our services business, including customization services, may subject us to specific costs and risks that we may fail to manage adequately and could
harm our business.

We derive a portion of our revenues from engineering and design services. Among the engineering services that we offer
are customized package design and prototyping, modeling, simulation, failure analysis and reliability testing and related training services. We also offer our customers design services to customize our technologies to incorporate into their products
and production processes, enabling our customers to shorten the development effort and time to market. A number of factors, including, among others, the perceived value of our intellectual property portfolio, our ability to convince customers of the
value of our engineering services and our reputation for performance under our service contracts, could cause our revenues from engineering services to decline, damage our reputation, and harm our ability to attract future customers, which would in
turn harm our operating results.

Under certain contracts, we are required to perform certain services, in some cases including design
services for lens, register transfer level (RTL), high performance optical and optical components and tooling services. If we fail to deliver as required under these contracts, we could lose revenues and become subject to liability for breach of
contract. We also provide certain services at or below cost in an effort to increase the speed and breadth with which our customers adopt our technologies. For example, we provide modeling, manufacturing process training, equipment and materials
characterization and other services to assist customers in designing, implementing, upgrading and maintaining their assembly lines. We frequently provide these services as a form of training to introduce new customers to our technology and existing
customers to new technologies, with the aim that these services will generate revenues in the future. Our failure to manage these services adequately may harm our business, financial position, results of operations or cash flows.

Our imaging and optics solutions rely on the use of certain materials from a single supplier or a limited number of suppliers. The lack of
availability of these materials could delay the execution of our business strategy and adversely affect our revenue.

We rely on the use of
certain materials available from a single supplier or a limited number of suppliers for the manufacturing of our small form factor micro-optics and for our development in wafer-level optics and wafer-level camera solutions. If any or some of these
materials become unavailable, or, if any of these suppliers cease operations and we cannot find an alternative source, our development effort for our wafer-level optics and camera solutions could be delayed and our revenue from Imaging &
Optics business could be adversely affected.

Our licensing cycle is lengthy and costly, and our marketing and sales efforts may be
unsuccessful.

We generally incur significant marketing and sales expenses prior to entering into our license agreements, generating a
license fee and establishing a royalty stream from each licensee. The length of time it takes to establish a new licensing relationship can range from six to 18 months or longer for a TCC license and 18 to 24 months or longer for an
Imaging & Optics license. As such, we may incur significant losses in any particular period before any associated revenue stream begins.

We employ intensive marketing and sales efforts to educate materials suppliers, equipment vendors, licensees, potential licensees and original equipment
manufacturers about the benefits of our technologies. In addition, even if these companies adopt our technologies, they must devote significant resources to integrate fully our technologies into their operations. If our marketing and sales efforts
are unsuccessful, then we will not be able to achieve widespread acceptance of our technology. In addition, ongoing litigation could impact our ability to gain new licensees which could have an adverse effect on our financial condition, results of
operations or cash flows.

Our financial and operating results may vary, which may cause the price of our common stock to decline.

We currently provide guidance on revenue and expenses on a quarterly basis. Our quarterly operating results have fluctuated in the past and
are likely to do so in the future. Because our operating results are difficult to predict, you should not rely on quarterly or annual comparisons of our results of operations as an indication of our future performance. We have also stated a revenue
goal for our Imaging and Optics segment in 2011 based on certain assumptions about the market and our ability to achieve a series of strategic objectives. Factors that could cause our operating results to fluctuate during any period or that could
adversely affect our ability to achieve our Imaging and Optics revenue goal include those listed in this Risk Factors section of this report and the following:



| |  |  | the timing of and compliance with license or service agreements and the terms and conditions for payment to us of license or service fees under these
agreements;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



65



---

##### Table of Contents

| |  |  | changes in our royalties caused by changes in demand for products incorporating semiconductors that use our licensed technology;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | decrease in our revenues caused by price erosion on high performance camera modules incorporating our imaging and optics technologies;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the amount of our product and service revenues;
| | - |  | -----------------------------------------------



| |  |  | changes in the level of our operating expenses;
| | - |  | -----------------------------------------------



| |  |  | delays in our introduction of new technologies or market acceptance of these new technologies through new license agreements;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to protect or enforce our intellectual property rights or the terms of our agreements;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | legal proceedings affecting our patents, patent applications or license agreements;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the timing of the introduction by others of competing technologies;
| | - |  | -------------------------------------------------------------------



| |  |  | changes in demand for semiconductor chips in the specific markets in which we concentrateDSP, ASIC, ASSP semiconductors and memory;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in demand for semiconductor capital equipment, digital still cameras and other camera-enabled devices including cell phones, security systems
and personal computers;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in accounting principles; and
| | - |  | -------------------------------------



| |  |  | cyclical fluctuations in semiconductor markets generally.
| | - |  | ---------------------------------------------------------

It is difficult to predict when we will enter into additional license agreements. The time it takes to establish a new licensing arrangement can be
lengthy. Delays or deferrals in the execution of license agreements may also increase as we develop new technologies. Because the recognition period of our license revenue is dependent on meeting the requirements for revenue recognition, the timing
of revenue being recognized may significantly impact our quarterly or annual operating results. Generally we also receive ongoing royalty payments under our license agreements, and these payments may fluctuate significantly from period to period
based on manufacture or sales of products incorporating our licensed technology. In addition, some of these payments may decline if the price of camera modules declines. We expect to continue to expand our business, which will require us to increase
our operating expenses. We may not be able to increase revenues in an amount sufficient to offset these increased expenditures, which may lead to a loss for any period.

Due to fluctuations in our operating results, reports from market and security analysts, litigation-related developments, our ability to achieve our
Imaging and Optics revenue goal, and other factors, the price at which our common stock will trade is likely to continue to be highly volatile. In future periods, if our revenues or operating results are below our estimates or the estimates or
expectations of public market analysts and investors, our stock price could decline. In the past, securities class action litigation has often been brought against companies following a decline in the market price of their securities. If our stock
price is volatile, we may become involved in this type of litigation in the future. Any litigation could result in substantial costs and a diversion of managements attention and resources that are needed to successfully run our business.

The investment of our cash, cash equivalents and investments in marketable debt securities are subject to risks which may cause losses and
affect the liquidity of these investments.

At June 30, 2010, we held approximately $116.9 million in cash and cash equivalents and
$320.9 million in short-term and long-term investments. These investments include various financial securities such as municipal bonds and notes, corporate bonds and notes, commercial paper, treasury and agency notes and bills, money market funds,
auction rate municipal bond securities, bank demand accounts, and asset-backed obligations. In July 2010, our auction rate municipal bond securities were sold at par. The weakened financial markets, originally caused by the sub-prime mortgage crisis
in the U. S., has at times adversely impacted the general credit, liquidity, market and interest rates for these and other types of debt securities. The financial market risks associated with our investment portfolio may have a material adverse
effect on our financial condition, results of operations or cash flows.

The economic downturn and weakened financial markets could
negatively affect our businesses, results of operations and financial condition.

Slow economic activity, increased unemployment, concerns
about inflation and energy costs, decreased business and consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns have contributed to and continue to contribute to a challenging economic
environment. This environment has led to reduced customer spending in the wireless communications and semiconductor markets, made it difficult for our customers, our vendors and us to accurately forecast and plan future business activities and has
caused businesses to slow spending on our products and services. Our major licensees have experienced reductions in semiconductor sales which could materially and adversely affect our revenues, results of operations and financial condition.
Furthermore, the constraints in the



66



---

##### Table of Contents

capital and credit markets may limit the ability of our customers to timely borrow and access the capital
and credit markets to meet their liquidity needs, which could result in an impairment of their ability to make timely payments to us and reduce their demand for our products and services, which could materially and adversely impact our results of
operations or cash flows.

We operate in a highly cyclical semiconductor industry, which is subject to significant downturns.

The semiconductor industry has historically been cyclical and is characterized by wide fluctuations in product supply and demand. From
time to time, this industry has experienced significant downturns, often in connection with, or in anticipation of, declining economic conditions, maturing product and technology cycles, and excess inventories. This cyclicality could cause our
operating results to decline dramatically from one period to the next. Our business depends heavily upon the volume of production by our licensees, which, in turn, depends upon the current and anticipated market demand for semiconductors and
products that use semiconductors. Similarly, our product revenue relies at least in part upon the demand of the semiconductor equipment market. Semiconductor manufacturers and package assembly companies generally sharply curtail their spending
during industry downturns, such as in the current global economic downturn, and historically have lowered their spending more than the decline in their revenues. As a result, the impact of the current global economic downturn on our businesses is
exacerbated by the cyclicality of the semiconductor industry. If we are unable to control our expenses adequately in response to lower revenues from our licensees and service customers in the current or any future economic downturn, our operating
results may suffer and we may experience operating losses.

We are subject to laws and regulations governing government contracts, and
failure to address these laws and regulations or comply with government contracts could harm our business by a reduction in revenue associated with these customers.

Even though we are no longer pursuing government or government agency business, we are still subject to various statutes and regulations related to this
business. The laws governing government contracts differ from the laws governing private contracts. For example, many government contracts contain pricing terms and conditions such as audit provisions that may not be applicable to private contracts.
Although we have performed our obligations under these government contracts, we are subject to audits relating to compliance with the regulations governing these government contracts. A failure to comply with these regulations or an adverse audit
finding might result in an adjustment to our revenue previously recorded, debarment from future government contracts, and possible civil and criminal penalties. In addition, the government may acquire certain intellectual property rights in data
produced or delivered under such contracts and inventions made under such contracts.

Future changes in financial accounting or existing
taxation standards, rules, practices or interpretation may cause adverse unexpected revenue and expense fluctuations which may impact our reported results of operations.

We prepare our consolidated financial statements in accordance with U.S. GAAP. These principles are subject to interpretations by the SEC and various
accounting bodies. In addition, we are subject to various taxation rules in many jurisdictions. The existing taxation rules are generally complex, voluminous and often ambiguous. Changes to existing taxation rules such as the current Presidential
Administrations proposals for reforming U.S. international tax rules, or changes to the financial accounting standards such as the proposed convergence to international financial reporting standards, or any changes to the interpretations of
these standards or rules may adversely affect our reported financial results or the way we conduct our business. Recent accounting pronouncements and their estimated potential impact on our business are addressed in Note 3Recent
Accounting Pronouncements in the Notes to the Condensed Consolidated Financial Statements.

The international nature of our
business exposes us to financial and regulatory risks that may have a negative impact on our consolidated financial position, results of operations or cash flow, and we may have difficulty protecting our intellectual property in some foreign
countries.

We derive a significant portion of our revenues from licensees headquartered outside of the U.S. We have also expanded our
operations outside of the U.S. such as research and development facilities in Japan, Israel, Ireland and Romania to design, develop, test or market certain technologies. International operations are subject to a number of risks, including but not
limited to the following:



| |  |  | Fluctuations in exchange rates between the U.S. dollar and foreign currencies as our revenues are denominated principally in U.S. dollars and a portion
of our costs are based in non U.S. dollars;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Security concerns, including crime, political instability, terrorist activity, armed conflict and civil or military unrest;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in trade protection laws, policies and measures, and other regulatory requirements affecting trade and investment;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | Regulatory requirements and prohibitions that differ between jurisdictions;
| | - |  | ---------------------------------------------------------------------------



| |  |  | Laws and business practices favoring local companies;
| | - |  | -----------------------------------------------------



| |  |  | Withholding tax obligations on license revenues that we may not be able to offset fully against our U.S. tax obligations, including the further risk
that foreign tax authorities may re-characterize license fees or increase tax rates, which could result in increased tax withholdings and penalties;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



67



---

##### Table of Contents

| |  |  | Differing employment practices, labor issues and business and cultural factors;
| | - |  | -------------------------------------------------------------------------------



| |  |  | Less effective protection of intellectual property than is afforded to us in the U.S. or other developed countries; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | Limited infrastructure and disruptions, such as large-scale outages or interruptions of service from utilities or telecommunications providers.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

Our intellectual property is also used in a large number of foreign countries. There are many countries in which we
currently have no issued patents. In addition, effective intellectual property enforcement may be unavailable or limited in some foreign countries. It may be difficult for us to protect our intellectual property from misuse or infringement by other
companies in these countries. We expect this to become a greater problem for us as our licensees increase their manufacturing in countries which provide less protection for intellectual property. Our inability to enforce our intellectual property
rights in some countries may harm our business, financial position, results of operations or cash flows.

Our business and operating
results may be harmed if we are unable to manage growth in our business or if we undertake any restructuring activities or disposition of any product lines.

We plan to continue the expansion of our operations, domestically and internationally, and may continue to do so through both internal growth and
acquisitions. This expansion may strain our systems and management, operational and financial controls and resources. In addition, we are likely to incur higher operating costs. To manage our growth effectively, we must continue to improve and
expand our management, systems and financial controls. We also need to continue to expand, train and manage our employee base. We cannot ensure that we will be able to timely and effectively meet demand and maintain the quality standards required by
our existing and potential customers and licensees. If we are unable to effectively manage our growth or we are unsuccessful in recruiting and retaining personnel, our business and operating results will be harmed.

From time to time, we may undertake to restructure our business, including disposition of a business division, or disposition of a products line. There
are several factors that could cause a restructuring or a disposition to have an adverse effect on our business, financial position, results of operations or cash flows. These include potential disruption of our operations, the timing of development
of our technology, the deliveries of products or services to our customers and other aspects of our business. In the case of a disposition of a product line, there may be a risk of not identifying a purchaser, or, if identified, the purchase price
may be less than the net asset book value for the product line. Employee morale and productivity could also suffer and we may lose employees whom we want to keep. Any restructuring or disposition would require substantial management time and
attention and may divert management from other important work. We may also incur other significant liabilities and costs including employee severance costs, relocation expenses, and impairment of lease obligations and long-lived assets. Moreover, we
could encounter delays in executing any restructuring plans, which could cause further disruption and additional unanticipated expense.

Certain disputes regarding our intellectual property may require us to indemnify certain licensees, the cost of which could adversely affect our
business operations and financial condition.

While we generally do not indemnify our licensees, some of our license agreements in imaging
and optics provide limited indemnities for certain actions brought by third parties against our licensees, and some require us to provide technical support and information to a licensee that is involved in litigation for using our technology. We
expect to agree to provide similar indemnity or support obligations to future licensees. Our indemnity and support obligations could result in substantial expenses. In addition to the time and expense required for us to indemnify or supply such
support to our licensees, a licensees development, marketing and sales of licensed imaging and optics products could be severely disrupted or shut down as a result of litigation, which in turn could have a material adverse affect on our
business operations, consolidated financial position, results of operations or cash flows.

We could experience losses due to product
liability claims or may be subject to claims of intellectual property infringement, either of which could result in substantial costs to us.

We sell products and provide services that may subject us to product liability claims in the future. Although we carry liability insurance in amounts that
we believe are appropriate, product liability claims can be costly and any future product liability claim made against us may exceed the coverage limits of our insurance policies, be excluded from coverage under the terms of our policies or cause us
to record a self-insured loss. A product liability claim in excess of our insurance policies could have a material adverse effect on our business, financial condition and results of operations. Even if a product liability loss is covered by our
insurance policies, such policies contain substantial retentions and deductibles that we would be required to pay. Our existing insurance may not be renewed at a cost and level of coverage comparable to that presently in effect, or at all. The
payment of retentions or deductibles for a significant amount of claims could have a material adverse effect on our business, financial position, results of operations or cash flow.

Third parties could assert patent or other intellectual property infringement claims against us based on the products and services that we sell. It may
be time consuming and costly to defend ourselves against any of these claims, regardless of their validity, and we may not prevail. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief that could block
our ability to further develop or commercialize some or all of our products or services in the U.S. and abroad. In the event of a claim of infringement, we may be required to obtain one or more licenses from or pay royalties to third parties. We may
be unable to obtain any such licenses at a reasonable cost, if at all. Defense of any lawsuit or failure to obtain such license could harm our business.



68



---

##### Table of Contents

If we lose any of our key personnel or are unable to attract, train and retain qualified personnel, we
may not be able to execute our business strategy effectively.

Our success depends, in large part, on the continued contributions of our
key management, engineering, sales and marketing, legal and finance personnel, many of whom are highly skilled and would be difficult to replace. None of our senior management, key technical personnel or key sales personnel are bound by written
employment contracts to remain with us for a specified period. In addition, we do not currently maintain key person life insurance covering our key personnel. The loss of any of our senior management or other key personnel could harm our ability to
implement our business strategy and respond to the rapidly changing market conditions in which we operate. Moreover, some of the individuals on our management team have been in their current positions for a relatively short period of time. Our
future success will depend to a significant extent on the ability of our management team to work together effectively.

Our success also
depends on our ability to attract, train and retain highly skilled managerial, engineering, sales, marketing, legal and finance personnel and on the abilities of new personnel to function effectively, both individually and as a group. Competition
for qualified senior employees can be intense. For example, we have experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled engineers with appropriate qualifications to support our growth and
expansion. Further, we must train our new personnel, especially our technical support personnel, to respond to and support our licensees and customers. If we fail to do this, it could lead to dissatisfaction among our licensees or customers, which
could slow our growth or result in a loss of business.

Our business operations could suffer in the event of information technology
systems failures or security breaches.

Despite system redundancy and the implementation of security measures within our internal and
external information technology and networking systems, our information technology systems may be subject to security breaches, damages from computer viruses, natural disasters, terrorism, and telecommunication failures. Any system failure or
security breach could cause interruptions in our operations in addition to the possibility of losing proprietary information and trade secrets. To the extent that any disruption or security breach results in inappropriate disclosure of our
confidential information, we may incur liability or additional costs to remedy the damages caused by these disruptions or security breaches.

Decreased effectiveness of share-based compensation could adversely affect our ability to attract and retain employees.

We have historically used stock options and other forms of stock-based compensation as key components of our employee compensation program in order to
align employees interests with the interests of our stockholders, encourage employee retention and provide competitive compensation and benefit packages. Since the adoption of the authoritative guidance on share-based payment, we have recorded
increased compensation costs associated with our stock-based compensation programs. Difficulties relating to obtaining stockholder approval of equity compensation plans or changes to the plans could make it harder or more expensive for us to grant
stock-based compensation to employees in the future. As a result, we may find it difficult to attract, retain and motivate employees, and any such difficulty could materially adversely affect our business.

Failure to comply with environmental regulations could harm our business.

We use hazardous substances in the manufacturing and testing of prototype products and in the development of our technologies in our research and
development laboratories. We are subject to a variety of local, state, federal and foreign governmental regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances.
Our past, present or future failure to comply with environmental regulations could result in the imposition of substantial fines on us, suspension of production, and alteration of our manufacturing processes or cessation of operations. Compliance
with such regulations could require us to acquire expensive remediation equipment or to incur other substantial expenses. Any failure by us to control the use, disposal, removal or storage of, or to adequately restrict the discharge of, or assist in
the cleanup of, hazardous or toxic substances, could subject us to significant liabilities, including joint and several liabilities under certain statutes. The imposition of such liabilities could significantly harm our business, financial position,
results of operations or cash flows.

We have business operations located globally in places that are subject to natural disasters.

Our business operations depend on our ability to maintain and protect our facilities, computer systems and personnel. Our locations may be
subject to earthquakes, hurricanes and other natural disasters. Should a hurricane, earthquake or other catastrophe, such a fire, flood, power loss, communication failure or similar event disable our facilities, we do not have readily available
alternative facilities from which we could conduct our business.



69



---

##### Table of Contents

Some of our offices are located in states or countries where the local governments may be in financial
crisis which may interrupt our business operations and adversely impact our results of operations.

We operate our business globally in
many jurisdictions worldwide. Our corporate headquarters are located in the state of California which is facing significant budgetary challenges and the possibility of financial insolvency. As a result, the state has stopped certain improvement
projects and disrupted certain services to its residents, and future state actions are uncertain. Our results of operations could be adversely impacted if the state proposes additional taxation or other measures to increase its revenue through tax
levies on corporations like us or on its residents, including some of our employees. In addition, we have operations in the various countries worldwide, including Ireland, Romania and Hungary, where the countries may be facing financial distress.
For example, the government of Hungary implemented many significant tax regulations that are unfavorable to corporations and has notably increased its tax examination activities. If the governments of these states or countries where we have business
operations cannot provide public services, impose additional tax regulations or levies, or increase their tax examination activities, our business operations may be interrupted and our results of operations may be adversely impacted.

We have made and may continue to make or to pursue acquisitions which could divert managements attention, cause ownership dilution to our
stockholders, or be difficult to integrate, which may adversely affect our financial results.

We have made several acquisitions, and it is
our current plan to continue to acquire companies and technologies that we believe are strategic to our future business. Investigating businesses or technologies and integrating newly acquired businesses or technologies could put a strain on our
resources, could be costly and time consuming, and might not be successful. Such activities could divert our managements attention from other business concerns. In addition, we might lose key employees while integrating new organizations.
Acquisitions could also result in customer dissatisfaction, performance problems with an acquired company or technology, potentially dilutive issuances of equity securities or the incurrence of debt, the assumption or incurrence of contingent
liabilities, possible impairment charges related to goodwill or other intangible assets or other unanticipated events or circumstances, any of which could harm our business. Our plans to integrate and expand upon research and development programs
and technologies initiated at each of our operating locations, including image sensor packaging, wafer-level optics and camera technology from our operation in Charlotte, North Carolina, image enhancement technology for digital auto focus and
optical zoom from our operation in Tel Aviv, Israel, MEMS-based auto focus and shutter solutions from our operation in Arcadia, California, and in-camera image capture for digital photos from our operations in Galway, Ireland, and microelectronics
packaging and system integration from our operation in San Jose, California, may result in products or technologies that are not adopted by the market. The market may adopt competitive solutions to our products or technologies. Consequently, we
might not be successful in integrating any acquired businesses, products or technologies, and might not achieve anticipated revenues and cost benefits.

There are numerous risks associated with our acquisitions of businesses and technologies.

We have made a number of acquisitions in the recent years. These acquisitions are subject to a number of risks, including but not limited to the
following:



| |  |  | These acquisitions could fail to produce anticipated benefits, or could have other adverse effects that we currently do not foresee. As a result, these
acquisitions could result in a reduction of net income per share as compared to the net income per share we would have achieved if these acquisitions had not occurred.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Following completion of these acquisitions, we may uncover additional liabilities or unforeseen expenses not discovered during our diligence process.
Any such additional liabilities or expenses could result in significant unanticipated costs not originally estimated, such as impairment charges of acquired assets and goodwill, and may harm our financial results.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The integration of technologies and personnel, if any, will be a time consuming and expensive process that may disrupt our operations if it is not
completed in a timely and efficient manner. If our integration efforts are not successful, our results of operations could be harmed, employee morale could decline, key employees could leave, and customer relations could be damaged. In addition, we
may not achieve anticipated synergies or other benefits from any of these acquisitions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have incurred substantial direct transaction costs as a result of these acquisitions and anticipate incurring substantial additional costs to
support the integration of these businesses and technologies. The total cost of the integration may exceed our expectations.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sales by the acquired businesses may be subject to different accounting treatment than our existing businesses, especially related to the recognition
of revenue. This may lead to potential deferral of revenue due to new multiple-element revenue arrangements.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are required to estimate and record fair values of contingent assets, liabilities, deferred tax assets and liabilities at the time of an
acquisition. Even though these estimates are based on managements best effort, the actual results may differ. Under the current accounting guidance, differences between actual results and managements estimate could cause our operating
results to fluctuate or could adversely affect our results of operations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If our goodwill, amortizable intangible assets
(such as acquired patents), or equity investments become impaired we may be required to record a significant charge to earnings.

In
addition to internal development, we intend to broaden our intellectual property portfolio through strategic relationships and acquisitions. We believe this will enhance the competitiveness and size of our current businesses and diversify into
markets and technologies that



70



---

##### Table of Contents

complement our current businesses. These acquisitions could be in the form of asset purchases, equity
investments, or business combinations. As a result, we may have intangible assets which are amortized over their estimated useful lives, equity investments, in-process research and development, and goodwill. Under U.S. GAAP, we are required to
review our amortizable intangible assets such as patent portfolio and equity investments for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at
least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill, amortizable intangible assets or equity investments may not be recoverable include a decline in future cash flows, slower
growth rates in our industry or slower than anticipated adoption of our products by our customers. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill,
amortizable intangible assets or equity investments is determined, resulting in an adverse impact on our business, financial position, results of operations or cash flows.

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, new SEC regulations and Nasdaq Stock Market rules, have
created uncertainty for companies. These laws, regulations and standards are often subject to varying interpretations. As a result, their application in practice may evolve as new guidance is provided by regulatory and governing bodies, which could
result in higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result of our efforts to comply with evolving laws, regulations and standards, we have increased and may continue to increase general and
administrative expenses and diversion of management time and attention from revenue-generating activities to compliance activities.

Provisions of our certificate of incorporation and bylaws or Delaware law might delay or prevent a change of control transaction and depress the
market price of our stock.

Various provisions of our certificate of incorporation and bylaws might have the effect of making it more
difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of our company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common
stock. Certain of these provisions eliminate cumulative voting in the election of directors, authorize the board to issue blank check preferred stock, prohibit stockholder action by written consent, eliminate the right of stockholders to
call special meetings, limit the ability of stockholders to remove directors, and establish advance notice procedures for director nominations by stockholders and the submission of other proposals for consideration at stockholder meetings. We are
also subject to provisions of Delaware law which could delay or make more difficult a merger, tender offer or proxy contest involving our company. In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware
corporation from engaging in any business combination with any interested stockholder for a period of three years unless specific conditions are met. Any of these provisions could have the effect of delaying, deferring or preventing a change in
control, including without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock.



71



---

##### Table of Contents

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. [Removed and Reserved]

Item 5. Other Information

Not applicable.



72



---

##### Table of Contents

Item 6. Exhibits



|              |  |                                                                                                                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Title                                                                                                                                                                                                                              
|3.1           |  | Restated Certificate of Incorporation (filed as an exhibit to registrants Registration Statement on Form S-1 (SEC File No. 333-108518), effective November 12, 2003, and
incorporated herein by reference)                                
|              | 
|3.2           |  | Amended and Restated Bylaws, as amended on May 12, 2010 (filed as Exhibit 3.1 to the Registrants Current Report on Form 8-K, filed on May 13, 2010 (SEC File
No. 000-50460), and incorporated herein by reference)                        
|              | 
|31.1          |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934                                                                                                                             
|              | 
|31.2          |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934                                                                                                                             
|              | 
|32.1          |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





73



---

##### Table of Contents

SIGNATURES

Pursuant to the requirements 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.



|                           |  |                                                     
|-------------------------- |  | ----------------------------------------------------
|Dated: August 4, 2010     
|                          
|Tessera Technologies, Inc.
|                           | 
|By:                        |  | /s/    Michael Anthofer                             
|                           |  |                                                     
|                           |  | Michael Anthofer                                    
|                           |  | Executive Vice President and Chief Financial Officer



74



---

##### Table of Contents

EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                            
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Exhibit Title                                                                                                                                                                                                                              
|               | 
|3.1            |  | Restated Certificate of Incorporation (filed as an exhibit to registrants Registration Statement on Form S-1 (SEC File No. 333-108518), effective November 12, 2003,
and incorporated herein by reference)                                
|               | 
|3.2            |  | Amended and Restated Bylaws, as amended on May 12, 2010 (filed as Exhibit 3.1 to the Registrants Current Report on Form 8-K , filed on May 13, 2010 (SEC File
No. 000-50460), and incorporated herein by reference)                       
|               | 
|31.1           |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934                                                                                                                             
|               | 
|31.2           |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934                                                                                                                             
|               | 
|32.1           |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





75