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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 September 30, 2009

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 October 27, 2009, 49,814,482 shares of the registrants common stock were outstanding.









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TESSERA TECHNOLOGIES, INC.

FORM 10-Q  QUARTERLY REPORT

FOR THE QUARTER
ENDED SEPTEMBER 30, 2009

TABLE OF CONTENTS



|              |  |                                                                                                                                |  |     
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  | ----
|              |  |                                                                                                                                |  | Page
|              |  | PART I                                                                                                                         |  |     
|Item 1.       |  | Financial Statements (unaudited)                                                                                               |  | 3   
|              |  | Condensed Consolidated Balance Sheets  September 30, 2009 and December 31, 2008                                               |  | 3   
|              |  | Condensed Consolidated Statements of Operations  Three Months and Nine Months Ended September 30, 2009 and September 28, 2008 |  | 4   
|              |  | Condensed Consolidated Statements of Cash Flows  Nine Months Ended September 30, 2009 and September 28, 2008                  |  | 5   
|              |  | Notes to Condensed Consolidated Financial Statements                                                                           |  | 6   
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                          |  | 32  
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                     |  | 42  
|Item 4.       |  | Controls and Procedures                                                                                                        |  | 42  
|              |  |                                                                                                                               
|              |  | PART II                                                                                                                        |  |     
|Item 1.       |  | Legal Proceedings                                                                                                              |  | 43  
|Item 1A.      |  | Risk Factors                                                                                                                   |  | 52  
|Item 2.       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                    |  | 65  
|Item 3.       |  | Defaults Upon Senior Securities                                                                                                |  | 66  
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                                                            |  | 66  
|Item 5.       |  | Other Information                                                                                                              |  | 66  
|Item 6.       |  | Exhibits                                                                                                                       |  | 67  
|              | 
|Signatures    |  | 68                                                                                                                            
|              | 
|Exhibit Index |  | 69                                                                                                                            



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PART IFINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

TESSERA TECHNOLOGIES, INC.

CONDENSED
CONSOLIDATED BALANCE SHEETS

(in thousands, except for par value)

(unaudited)



|                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                 |  | September 30,2009 |         |   | December 31,2008 |  
|ASSETS                                                                                                                                                           |  |                   |         |   |                  |   |         |  
|Current assets:                                                                                                                                                  |  |                   |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                        |  | $                 | 160,412 |   |                  | $ | 87,890  |  
|Short-term investments                                                                                                                                           |  |                   | 217,946 |   |                  |   | 188,610 |  
|Accounts receivable, net of allowance for doubtful accounts $60 and $60                                                                                          |  |                   | 13,651  |   |                  |   | 14,724  |  
|Inventories                                                                                                                                                      |  |                   | 1,341   |   |                  |   | 1,534   |  
|Short-term deferred tax assets                                                                                                                                   |  |                   | 2,836   |   |                  |   | 2,409   |  
|Other current assets                                                                                                                                             |  |                   | 5,131   |   |                  |   | 8,220   |  
|                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Total current assets                                                                                                                                             |  |                   | 401,317 |   |                  |   | 303,387 |  
|                                                                                                                                                                 |  |                  
|Property and equipment, net                                                                                                                                      |  |                   | 42,429  |   |                  |   | 36,984  |  
|Intangible assets, net                                                                                                                                           |  |                   | 75,214  |   |                  |   | 71,312  |  
|Goodwill                                                                                                                                                         |  |                   | 45,150  |   |                  |   | 40,444  |  
|Long-term deferred tax assets                                                                                                                                    |  |                   | 19,227  |   |                  |   | 19,756  |  
|Long-term investments                                                                                                                                            |  |                   | 18,714  |   |                  |   | 22,134  |  
|Other assets                                                                                                                                                     |  |                   | 4,017   |   |                  |   | 7,572   |  
|                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Total assets                                                                                                                                                     |  | $                 | 606,068 |   |                  | $ | 501,589 |  
|                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|                                                                                                                                                                 |  |                  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                             |  |                   |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                 |  | $                 | 3,523   |   |                  | $ | 2,924   |  
|Accrued legal fees                                                                                                                                               |  |                   | 6,526   |   |                  |   | 13,945  |  
|Accrued liabilities                                                                                                                                              |  |                   | 18,416  |   |                  |   | 17,747  |  
|Deferred revenue                                                                                                                                                 |  |                   | 6,639   |   |                  |   | 6,085   |  
|Income tax payable                                                                                                                                               |  |                   | 12      |   |                  |   | 1,385   |  
|                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                        |  |                   | 35,116  |   |                  |   | 42,086  |  
|Long-term deferred tax liabilities                                                                                                                               |  |                   | 8,991   |   |                  |   | 8,991   |  
|Other long-term liabilities                                                                                                                                      |  |                   | 4,208   |   |                  |   | 3,608   |  
|                                                                                                                                                                 |  |                  
|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; 50,384 and 49,132 shares issued, respectively, and 49,739 and 48,487
shares outstanding, respectively |  |                   | 50      |   |                  |   | 49      |  
|Additional paid-in capital                                                                                                                                       |  |                   | 394,229 |   |                  |   | 347,568 |  
|Treasury stock at cost: 645 and 645 shares of common stock, respectively                                                                                         |  |                   | (10,505 | ) |                  |   | (10,505 | )
|Accumulated other comprehensive loss                                                                                                                             |  |                   | (29     | ) |                  |   | (777    | )
|Retained earnings                                                                                                                                                |  |                   | 174,008 |   |                  |   | 110,569 |  
|                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                       |  |                   | 557,753 |   |                  |   | 446,904 |  
|                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|                                                                                                                                                                 |  |                  
|Total liabilities and stockholders equity                                                                                                                       |  | $                 | 606,068 |   |                  | $ | 501,589 |  
|                                                                                                                                                                 |  |                   |         |   |                  |   |         |  

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



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TESSERA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)



|                                                                         |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|------------------------------------------------------------------------ |  | ------------------ | ------ | ----------------- | ----------------- | ------ | ----------------- |  | ----------------- | ------- |  | - | ------- | -
|                                                                         |  | Three Months Ended |        |                   | Nine Months Ended |       
|                                                                         |  | September 30,2009  |        | September 28,2008 |                   |        | September 30,2009 |  | September 28,2008 |        
|Revenues:                                                                |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|Royalty and license fees                                                 |  | $                  | 62,743 |                   | $                 | 57,587 |                   |  | $                 | 234,470 |  | $ | 157,771 |  
|Product and service revenues                                             |  |                    | 3,380  |                   |                   | 5,914  |                   |  |                   | 8,500   |  |   | 21,395  |  
|                                                                         |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|                                                                         |  |                    |        |                  
|Total revenues                                                           |  |                    | 66,123 |                   |                   | 63,501 |                   |  |                   | 242,970 |  |   | 179,166 |  
|                                                                         |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|                                                                         |  |                    |        |                  
|Operating expenses:                                                      |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|Cost of revenues                                                         |  |                    | 3,941  |                   |                   | 4,074  |                   |  |                   | 11,941  |  |   | 12,801  |  
|Research, development and other related costs                            |  |                    | 16,780 |                   |                   | 15,898 |                   |  |                   | 50,259  |  |   | 44,945  |  
|Selling, general and administrative                                      |  |                    | 19,455 |                   |                   | 17,866 |                   |  |                   | 54,233  |  |   | 50,775  |  
|Litigation expense                                                       |  |                    | 6,066  |                   |                   | 29,217 |                   |  |                   | 20,229  |  |   | 66,567  |  
|                                                                         |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|                                                                         |  |                    |        |                  
|Total operating expenses                                                 |  |                    | 46,242 |                   |                   | 67,055 |                   |  |                   | 136,662 |  |   | 175,088 |  
|                                                                         |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|                                                                         |  |                    |        |                  
|Operating income (loss)                                                  |  |                    | 19,881 |                   |                   | (3,554 | )                 |  |                   | 106,308 |  |   | 4,078   |  
|Other income and expense, net                                            |  |                    | 590    |                   |                   | (1,033 | )                 |  |                   | 4,448   |  |   | 3,280   |  
|                                                                         |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|                                                                         |  |                    |        |                  
|Income (loss) before taxes                                               |  |                    | 20,471 |                   |                   | (4,587 | )                 |  |                   | 110,756 |  |   | 7,358   |  
|Provision for income taxes                                               |  |                    | 8,337  |                   |                   | 770    |                   |  |                   | 47,317  |  |   | 10,405  |  
|                                                                         |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|                                                                         |  |                    |        |                  
|Net income (loss)                                                        |  | $                  | 12,134 |                   | $                 | (5,357 | )                 |  | $                 | 63,439  |  | $ | (3,047  | )
|                                                                         |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|                                                                         |  |                    |        |                  
|Basic and diluted net income per share:                                  |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|                                                                         |  |                    |        |                  
|Net income (loss) per share-basic                                        |  | $                  | 0.25   |                   | $                 | (0.11  | )                 |  | $                 | 1.31    |  | $ | (0.06   | )
|                                                                         |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|                                                                         |  |                    |        |                  
|Net income (loss) per share-diluted                                      |  | $                  | 0.24   |                   | $                 | (0.11  | )                 |  | $                 | 1.30    |  | $ | (0.06   | )
|                                                                         |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|                                                                         |  |                    |        |                  
|Weighted average number of shares used in per share calculations-basic   |  |                    | 49,201 |                   |                   | 47,904 |                   |  |                   | 48,598  |  |   | 47,951  |  
|                                                                         |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  
|                                                                         |  |                    |        |                  
|Weighted average number of shares used in per share calculations-diluted |  |                    | 49,862 |                   |                   | 47,904 |                   |  |                   | 48,981  |  |   | 47,951  |  
|                                                                         |  |                    |        |                   |                   |        |                   |  |                   |         |  |   |         |  

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



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TESSERA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                                              |  |                   |          |   |                   |   |          |  
|--------------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ----------------- | - | -------- | -
|                                                                                              |  | Nine Months Ended |         
|                                                                                              |  | September 30,2009 |          |   | September 28,2008 |  
|Cash flows from operating activities:                                                         |  |                   |          |   |                   |   |          |  
|Net income (Loss)                                                                             |  | $                 | 63,439   |   |                   | $ | (3,047   | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:      |  |                   |          |   |                   |   |          |  
|Depreciation and amortization of property and equipment                                       |  |                   | 6,795    |   |                   |   | 5,681    |  
|Amortization of intangible assets                                                             |  |                   | 8,809    |   |                   |   | 8,152    |  
|In-process research and development                                                           |  |                   |         |   |                   |   | 2,500    |  
|Impairment on long-term investments and assets, net of gain                                   |  |                   | 774      |   |                   |   | 2,403    |  
|Loss on disposition of property and equipment                                                 |  |                   | 515      |   |                   |   | 12       |  
|Stock-based compensation                                                                      |  |                   | 20,437   |   |                   |   | 16,882   |  
|Tax benefits from employee stock option plan                                                  |  |                   | 8,476    |   |                   |   | 6,816    |  
|Excess tax benefit from stock-based compensation                                              |  |                   | (4,609   | ) |                   |   | (5,036   | )
|Changes in operating assets and liabilities, net of acquisitions:                             |  |                   |          |   |                   |   |          |  
|Accounts receivable, net                                                                      |  |                   | 1,073    |   |                   |   | 8,023    |  
|Inventories                                                                                   |  |                   | 193      |   |                   |   | (88      | )
|Deferred income tax, net                                                                      |  |                   | 529      |   |                   |   | (5,498   | )
|Other assets                                                                                  |  |                   | 3,009    |   |                   |   | (1,077   | )
|Accounts payable                                                                              |  |                   | 599      |   |                   |   | 1,090    |  
|Accrued legal fees                                                                            |  |                   | (7,419   | ) |                   |   | 9,835    |  
|Accrued liabilities                                                                           |  |                   | (769     | ) |                   |   | 782      |  
|Deferred revenue                                                                              |  |                   | 554      |   |                   |   | 2,207    |  
|Income tax payable                                                                            |  |                   | (1,373   | ) |                   |   | (1,165   | )
|                                                                                              |  |                   |          |   |                   |   |          |  
|                                                                                              |  |                  
|Net cash provided by operating activities                                                     |  |                   | 101,032  |   |                   |   | 48,472   |  
|                                                                                              |  |                   |          |   |                   |   |          |  
|                                                                                              |  |                  
|Cash flows from investing activities:                                                         |  |                   |          |   |                   |   |          |  
|Purchases of property and equipment                                                           |  |                   | (12,327  | ) |                   |   | (6,729   | )
|Proceeds from sale of property and equipment                                                  |  |                   | 17       |   |                   |   | 17       |  
|Purchases of short-term and long-term available-for-sale investments                          |  |                   | (195,366 | ) |                   |   | (393,894 | )
|Proceeds from maturities and sales of short-term and long-term available-for-sale investments |  |                   | 172,147  |   |                   |   | 238,233  |  
|Purchases of equity investments and intangible assets, net                                    |  |                   | (8,706   | ) |                   |   | (7,750   | )
|Acquisitions, net of cash acquired                                                            |  |                   | (6,633   | ) |                   |   | (32,014  | )
|                                                                                              |  |                   |          |   |                   |   |          |  
|                                                                                              |  |                  
|Net cash used in investing activities                                                         |  |                   | (50,868  | ) |                   |   | (202,137 | )
|                                                                                              |  |                   |          |   |                   |   |          |  
|                                                                                              |  |                  
|Cash flows from financing activities:                                                         |  |                   |          |   |                   |   |          |  
|Excess tax benefit from stock-based compensation                                              |  |                   | 4,609    |   |                   |   | 5,036    |  
|Proceeds from exercise of stock options                                                       |  |                   | 15,335   |   |                   |   | 2,213    |  
|Proceeds from employee stock purchase program                                                 |  |                   | 2,414    |   |                   |   | 1,929    |  
|Repurchase of common stock                                                                    |  |                   |         |   |                   |   | (9,961   | )
|                                                                                              |  |                   |          |   |                   |   |          |  
|                                                                                              |  |                  
|Net cash provided by (used in) financing activities                                           |  |                   | 22,358   |   |                   |   | (783     | )
|                                                                                              |  |                   |          |   |                   |   |          |  
|                                                                                              |  |                  
|Net increase (decrease) in cash and cash equivalents                                          |  |                   | 72,522   |   |                   |   | (154,448 | )
|Cash and cash equivalents at beginning of period                                              |  |                   | 87,890   |   |                   |   | 207,158  |  
|                                                                                              |  |                   |          |   |                   |   |          |  
|                                                                                              |  |                  
|Cash and cash equivalents at end of period                                                    |  | $                 | 160,412  |   |                   | $ | 52,710   |  
|                                                                                              |  |                   |          |   |                   |   |          |  

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



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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. 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 September 30, 2009 and September 28, 2008, and for the three and nine months then ended, have been prepared by the Company in accordance with accounting principles generally accepted in the
United States (GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission (SEC). The amounts as of December 31, 2008 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 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, 2008, included in the
Companys Annual Report on Form 10-K, filed on February 27, 2009.

The Company has evaluated subsequent events through the date
the Company filed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2009. The results of operations for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be
expected for the full year ended December 31, 2009 or any future period, and the Company makes no representations related thereto.

The
Companys fiscal year ends on December 31. The Company employs a calendar month-end reporting period for its quarterly reporting. The current three month period ended on Wednesday, September 30, 2009. Prior to December 31, 2008,
the Company employed a four-week, four-week, five-week reporting period for its quarterly reporting. The prior year comparative three month period ended on Sunday, September 28, 2008.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Instruments

Investments consist primarily of money market funds,
commercial paper, corporate bonds and notes, treasury and agency notes and bills, variable rate demand notes, municipal bonds and notes, auction rate municipal bonds (ARS) and asset-backed securities, including mortgage-backed securities
(collectively ABS). Investments with remaining maturities from original purchase date of less than three months are considered to be cash equivalents. Investments with remaining maturities from original purchase date greater than three
months are generally classified as available-for-sale for use in current operations, if required, and are classified as short-term investments. Investments determined to lack an active market for a period greater than 12 months are classified as
long-term investments. ARS covered under put rights are classified as trading securities. The Companys cash equivalents, short-term and long-term investments are classified as available-for-sale, except for ARS which are classified as trading,
and are reported at fair value at period end. Unrealized gains and losses on securities, net of tax, that are deemed to be temporary are recorded in accumulated other comprehensive loss and reported as a separate component of stockholders
equity. The cost of securities sold is based on the specific identification method. Interest and dividend income and realized gains or losses are included in other income and expense, net.

The Company evaluates the investments periodically for possible other-than-temporary impairment. Effective in April 2009, the Financial Accounting Standards
Board (FASB) amended the existing guidance on determining whether an impairment for investments in debt securities is other-than-temporary. Under the guidance, if the debt securitys market value is below amortized cost and the
Company either intends to sell the security or it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the Company records an other-than-temporary impairment charge to other income and
expense, net. If the Company does not have the intent to sell the security and will not be required to sell the security before its anticipated recovery on a more likely than not basis, the revised guidance requires the Company to determine the
portion of the other-than-temporary impairment related to credit factors, or the credit loss portion, and the portion that is not related to credit factors, or the noncredit loss portion. The credit loss portion is the difference between the
amortized cost of the security and the Companys best estimate of the present value of the cash flows expected to be collected from the debt security and is recorded as a charge to other income and



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expense, net. The noncredit loss portion is the difference between the decline in fair value and the credit loss portion of the other-than-temporary impairment and is recorded as a separate
component of other comprehensive loss. At adoption, the noncredit loss portion of the other-than-temporary impairment to date is to be recorded to other comprehensive loss, offset by an entry to the retained earnings as a one-time adjustment. The
Company has determined that it has the intent to sell previously impaired securities and therefore, did not make such an adjustment. Prior to the adoption, the Company reviewed factors such as the length of time and extent to which fair value has
been below cost basis, the quality rating of the investments as investment grade, the financial condition of the issuer and the Companys ability and intent to hold the investment for a period of time which may be sufficient for anticipated
recovery in market value. A loss is recognized in other income and expense, net, when it is determined that an other-than-temporary decline in fair value has occurred.

Revenue Recognition

The Company recognizes revenues when there is persuasive
evidence of an arrangement, delivery has occurred, the fee is fixed or determinable, and collectibility of the resulting receivable is reasonably assured.

Royalty and license fees

Royalty and license fees revenues include revenues from license
fees, royalty payments and royalty payments resulting from compliance audits. Licensees typically pay a non-refundable license fee and revenues from license fees are generally recognized at the time the license agreement is executed by both parties
and technology transfer is completed. In some instances, the Company provides training to its licensees under the terms of the license agreement. The amount of training provided is limited and is incidental to the licensed technology. Accordingly,
in instances where training is provided under the terms of a license agreement, a portion of the license fee is deferred until such training has been provided. The amount of revenues deferred is the estimated fair value of the training, which is
based on the price the Company charges for similar services when they are sold separately. These revenues are reported as service revenues. Semiconductor manufacturers and assemblers pay on-going royalties on their production or shipment of
semiconductors incorporating the Companys intellectual property. Royalties under the Companys royalty-based technology licenses are generally based upon either unit volumes shipped using the Companys technology or a percent of the
net sales price. Licensees generally report shipment information within 30 to 60 days after the end of the quarter in which such activity took place. Since there is no reliable basis on which the Company can estimate its royalty revenues prior to
obtaining these reports from the licensees, the Company recognizes royalty revenues on a one-quarter lag. The Company also completes periodic compliance audits of licensees to independently verify the accuracy of the information contained in the
licensees royalty reports.

While the majority of the Companys revenue transactions contain standard business terms and
conditions, there are certain transactions that contain non-standard business terms and conditions. The non-standard significant business terms and conditions are included in certain software and license agreements and are related to payment terms.
The Company provides payment terms to customers dependent upon their financial strength, credit worthiness and the Companys collection experience with the customer. If the Company provides extended payment terms beyond these standard terms,
revenue is deferred until payment is due and collectibility is probable and/or reasonably assured based on customer credit worthiness and past history of collection. When collectibility is not considered probable, revenue is deferred until
collected.

In addition, the Company may enter into certain sales transactions that involve multiple element arrangements such as software
licenses, design services and technical services with no rights of return. If the Company can objectively determine the fair value of each undelivered element, revenue is allocated based on the residual method where the fair value of any undelivered
elements is deferred, and recognized upon delivery or over the period in which the service is performed. If the Company cannot objectively determine the fair value of any undelivered elements included in a multiple-element arrangement, revenue is
deferred until all elements are delivered and/or services have been performed, or until the Company can objectively determine the fair value of all remaining undelivered elements.

The Company has entered into arrangements to purchase goods and/or services from customers where the Company (i) provides marketing incentives to a customer in exchange for the customers
marketing effort to promote the Companys technologies, (ii) utilizes a customer to perform product development and research services and (iii) purchases goods from customers through standard business operations. If the Company cannot
objectively determine the fair value of the benefits derived from these services and if such services cannot be separated from the underlying technologies licensed, such services are reflected as a reduction of revenue in the Companys
consolidated statement of operations.

Past production payments

Past production payment revenues are royalty payments for the use of the Companys technology or intellectual property in the past by new licensees that make such payments as part of a settlement of
a patent infringement dispute. Past production payment revenues typically relate to previous periods and are based on historical production volumes or sales.



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These revenues are recognized upon execution of the agreement by both parties, provided that the amounts are
fixed or determinable, there are no significant Company obligations and collectibility is reasonably assured. The Company does not recognize any revenues prior to execution of the agreement since there is no reliable basis on which the Company can
estimate the amounts for royalties related to previous periods or assess collectibility.

Product and service revenues

Product and service revenues include sales of micro-optics products and engineering product development services. Product revenue principally consists of
micro-optics products, which include the diffractive optical lens elements sold principally to the semiconductor photolithography industry, as well as refractive, diffractive and integrated optical elements sold for telecommunications and photonic
applications. The Company recognizes revenue from product sales when fundamental criteria are met, such as title, risk and rewards of product ownership are transferred to the customer, price and terms are fixed and the collection of the resulting
receivable is reasonably assured. Shipping terms are generally freight-on-board shipping point. Service revenue principally consists of engineering, assembly and infrastructure services, which the Company believes accelerate the incorporation of the
Companys technology into customers products. For certain service arrangements, the Company utilizes the completed-contract and the percentage-of-completion methods of accounting for commercial and government contracts, dependent upon the
type of the contract. The completed-contract method of accounting is used for fixed-fee contracts with relatively short delivery times. Revenues from fixed-fee and fixed-priced contracts are recognized upon acceptance of deliverables by the customer
or in accordance with the contract specifications, assuming title and risk of loss has transferred to the customer, prices are fixed or determinable, no significant Company obligations remain, and collection of the related receivable is reasonably
assured. If the total estimated costs to complete a project were to exceed the total contract amount, indicating a loss, the entire anticipated loss would be recognized immediately. Revenues from services related to training are recognized when
services are performed.

Changes in judgment on these assumptions and estimates could materially impact the timing or amount of revenue
recognition.

Inventories

Inventories are stated at lower of cost or market using the first-in, first-out method. The Company evaluates inventory levels quarterly against sales forecasts to evaluate its overall inventory risk. Inventory is determined to be saleable
based on a sales forecast within a specific time period, generally not to exceed one year. Inventory in excess of estimated saleable amounts is not valued.

Stock-based Compensation Expense

The Company accounts for stock-based compensation
expense in accordance with the authoritative guidance on share-based payment. Under the provisions of the guidance, stock-based compensation expense is measured at the grant date based on the fair value of the award using a Black-Scholes option
pricing model and is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The fair value of the Companys stock awards for non-employees was estimated based on the fair market
value on each vesting date, accounted for under the variable-accounting method.

The authoritative guidance also requires that the Company
measure and recognize stock-based compensation expense upon modification of the term of stock award. The stock-based compensation expense for such modification is the sum of any unamortized expense of the award before modification and the
modification expense. The modification expense is the incremental amount of the fair value of the award before the modification and the fair value of the award after the modification, measured on the date of modification. In the case when the
modification results in a longer requisite period than in the original award, the Company has elected to apply the pool method where the aggregate of the unamortized expense and the modification expense is amortized over the new requisite period on
a straight-line basis. In addition, any forfeitures will be based on the original requisite period prior to the modification.

Calculating
stock-based compensation expense requires the input of highly subjective assumptions, including the expected term of the stock-based awards, stock price volatility, and the pre-vesting option forfeiture rate. The Company estimates the expected life
of options granted based on historical exercise patterns, which it believes are representative of future behavior. The Company estimates the volatility of the Companys common stock on the date of grant based on a market-based implied
volatility. The assumptions used in calculating the fair value of stock-based awards represent the Companys best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors
change and the Company uses different assumptions, its stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those
shares expected to vest. The Company estimates the forfeiture rate based on historical experience of its stock-based awards that are granted, exercised and cancelled. If the actual forfeiture rate is materially different from the estimate, the
stock-based compensation expense could be significantly different from what was recorded in the current period.

See Note 9 
Stock-based Compensation Expense for additional detail.



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Income Taxes

The Company must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, tax
benefits, tax deductions, and in the calculation of certain deferred taxes and tax liabilities. Significant changes to these estimates may result in an increase or decrease to the Companys tax provision in a subsequent period.

The provision for income taxes comprised of the Companys current tax liability and changes in deferred income tax assets and liabilities. The
calculation of current tax liability involves dealing with uncertainties in the application of complex tax laws and regulations and in determining the liability for tax positions, if any, taken on the Companys tax returns in accordance with
authoritative guidance on accounting for uncertainty in income taxes. Deferred income taxes are determined based on the differences between the financial reporting and tax basis of assets and liabilities. The Company must assess the likelihood that
it will be able to recover the Companys deferred tax assets. If recovery is not likely, the Company must increase its provision for income taxes by recording a valuation allowance against the deferred tax assets that it estimates will not
ultimately be recoverable. The Company believes that a substantial majority of the deferred tax assets recorded on its consolidated balance sheets will ultimately be recovered. However, should there be a change in the Companys ability to
recover its deferred tax assets, the tax provision would increase in the period in which it is determined that the recovery was not more likely than not. See Note 10  Income Taxes for additional details.

NOTE 3  RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB revised the authoritative guidance for business combinations, which requires a company to recognize the assets acquired, liabilities assumed, contractual contingencies and contingent consideration measured at
their fair value at the acquisition date. It further requires that research and development assets acquired in a business combination that have no alternative future use to be measured at their acquisition-date fair value and then monitored for
impairment periodically, and that acquisition-related costs are to be recognized separately from the acquisition and expensed as incurred. Among other changes, this guidance also requires that negative goodwill be recognized in earnings
as a gain attributable to the acquisition, and any deferred tax benefits resulting from a business combination are recognized in income from continuing operations in the period of the combination. The guidance is effective for business combinations
for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. In January 2009, the Company adopted this guidance and expects that this guidance will result in the
recognition of expenses to the Companys results of operations for any future acquisitions which would have been capitalized prior to the adoption of this guidance. The Company cannot predict any acquisition activities and therefore cannot
access the impact to its financial positions, results of operations, or cash flows.

In April 2009, the FASB revised the authoritative
guidance for business combinations. The guidance deals with the initial recognition and measurement of an asset acquired or a liability assumed in a business combination that arises from a contingency provided the asset or liabilitys fair
value on the date of acquisition can be determined. It is effective for assets or liabilities arising from contingencies in business combinations that occur following the start of the first fiscal year that begins on or after December 15, 2008.
In the first quarter of 2009, the Company adopted this guidance, which did not have a significant impact on its consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued authoritative guidance for noncontrolling interests in consolidated financial statements, which requires a company to clearly identify and present ownership interests in
subsidiaries held by parties other than the company in the consolidated financial statements within the equity section but separate from the companys equity. It also requires the amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of operations; changes in ownership interest be accounted for similarly, as equity transactions; and when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. This guidance is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. In January 2009, the Company adopted this guidance, which did not have a significant impact on its consolidated financial position, results of operations or cash flows.

In November 2008, the FASB issued authoritative guidance for defensive intangible assets, which provides guidance for accounting for defensive intangible
assets subsequent to their acquisition in accordance with authoritative guidance for business combinations and on fair value measurements, including the estimated useful life that should be assigned to such assets. This guidance is effective for
intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. In January 2009, the adoption of this guidance did not have a significant impact on the Companys
consolidated financial position, results of operations or cash flows.

In April 2009, the FASB revised the authoritative guidance for fair
value measurements and financial instruments to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. This



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guidance is effective for interim and annual periods ending after June 15, 2009, but entities may early adopt them for interim and annual periods ending after March 15, 2009. In April
2009, the Company adopted this guidance, which did not have a significant impact on its consolidated financial position, results of operations or cash flows.

In May 2009, the FASB issued authoritative guidance for subsequent events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. This guidance is effective for interim and annual reporting periods ending after June 15, 2009. Since this guidance only requires additional disclosures, the adoption in June 2009
did not have a significant impact on the Companys consolidated financial position, results of operations or cash flows.

In June 2009,
the FASB issued the FASB Accounting Standards Codification (Codification). The Codification is the single source for all authoritative GAAP recognized by the FASB to be applied for financial statements issued for periods ending after
September 15, 2009. The Codification supersedes all accounting standards in GAAP, aside from those issued by the SEC. In July 2009, the Company adopted this guidance, which did not have a significant impact on its consolidated financial
position, results of operations or cash flows.

In June 2009, the 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. The Company is currently evaluating the impact that this amendment may have on its consolidated financial position,
results of operations or cash flows.

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 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. The
Company is currently evaluating the effect that 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):



|                |  |                   |       |                  |   |      
|--------------- |  | ----------------- | ----- | ---------------- | - | -----
|                |  | September 30,2009 |       | December 31,2008
|Raw materials   |  | $                 | 314   |                  | $ | 369  
|Work in process |  |                   | 530   |                  |   | 677  
|Finished goods  |  |                   | 497   |                  |   | 488  
|                |  |                   |       |                  |   |      
|                |  | $                 | 1,341 |                  | $ | 1,534
|                |  |                   |       |                  |   |      

Property and equipment consisted of the following (in thousands):



|                                                |  |                   |         |   |                  |   |         |  
|----------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                |  | September 30,2009 |         |   | December 31,2008 |  
|Furniture and equipment                         |  | $                 | 45,648  |   |                  | $ | 39,160  |  
|Land and buildings                              |  |                   | 19,845  |   |                  |   | 15,628  |  
|Leasehold improvements                          |  |                   | 3,958   |   |                  |   | 4,142   |  
|                                                |  |                   |         |   |                  |   |         |  
|                                                |  |                   | 69,451  |   |                  |   | 58,930  |  
|Less: Accumulated depreciation and amortization |  |                   | (27,022 | ) |                  |   | (21,946 | )
|                                                |  |                   |         |   |                  |   |         |  
|                                                |  | $                 | 42,429  |   |                  | $ | 36,984  |  
|                                                |  |                   |         |   |                  |   |         |  



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Accrued liabilities consisted of the following (in thousands):



|                                   |  |                   |        |                  |   |       
|---------------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                                   |  | September 30,2009 |        | December 31,2008
|Employee compensation and benefits |  | $                 | 10,686 |                  | $ | 10,435
|Other                              |  |                   | 7,730  |                  |   | 7,312 
|                                   |  |                   |        |                  |   |       
|                                   |  | $                 | 18,416 |                  | $ | 17,747
|                                   |  |                   |        |                  |   |       

Accumulated other comprehensive loss consisted of the following (in thousands):



|                                                               |  |                   |    |                  |   |    
|-------------------------------------------------------------- |  | ----------------- | -- | ---------------- | - | ---
|                                                               |  | September 30,2009 |    | December 31,2008
|Unrealized losses on available-for-sale securities, net of tax |  | $                 | 29 |                  | $ | 777
|                                                               |  |                   |    |                  |   |    
|                                                               |  |                  
|Accumulated other comprehensive loss                           |  | $                 | 29 |                  | $ | 777
|                                                               |  |                   |    |                  |   |    

NOTE 5  BUSINESS COMBINATIONS

FotoNation, Inc.

In February 2008, Tessera
completed its acquisition of FotoNation, Inc. (FotoNation), a Delaware corporation and a leading provider of embedded imaging solutions for digital still camera and mobile phone applications.

As a result of the acquisition, FotoNation 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. The net purchase consideration of $38.6 million included a cash payment of $38.7 million for all
outstanding shares of capital stock and vested stock options, transaction costs of $1.0 million, net of a repayment of $1.1 million from the shareholders due to non-achievement of certain milestones. Included in the cash payment is $4.7 million paid
to shareholders in June 2009 as part of a $10 million possible payout upon achievement of certain milestones. The purchase price includes $2.9 million of cash acquired. Of the purchase consideration, $8.9 million is held in escrow as of
September 30, 2009, and is subject to forfeiture to satisfy the indemnification obligations, if any, of the former stockholders of FotoNation. The escrow will expire in February 2010. The Company allocated $1.7 million of the purchase price to
acquired net tangible assets consisting of accounts receivable, property and equipment, income tax payable and various assumed assets and liabilities, $25.5 million to amortizable identified intangible assets and $8.9 million to goodwill.

The Company recorded a charge of $2.5 million related to acquired in-process research and development (IPR&D) associated with
the acquisition of FotoNation in the first quarter of 2008. The fair value of IPR&D was expensed because technological feasibility had not been established and no future alternative uses existed as of the date of the acquisition.

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 IDENTIFIED 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. The amounts
and useful lives assigned to intangible assets acquired, other than goodwill, impact the amount and timing of future amortization. Amounts assigned to in-process research and development, if any, are capitalized as an intangible asset and monitored
for impairment periodically until technological feasibility is reached, at which time it is amortized over its estimated useful life. The value of the Companys identified intangible assets and goodwill could be impacted by future adverse
changes such as: (i) any future declines in the Companys operating results, (ii) a decline in the valuation of technology company stocks, including the valuation of the Companys common stock, (iii) significant slowdown in
the worldwide economy or the semiconductor industry, or (iv) any failure to meet the performance projections included in the Companys forecasts of future operating results.

In 2009, the Company changed its reportable segments from Intellectual Property segment and Product and Service segment to Micro-electronics segment and Imaging and Optics segment as a result of a
reorganization of its reporting units. The underlying reporting units did not change. As a result, the carrying value for goodwill at December 31, 2008 of $40.4 million was reallocated to the Imaging and Optics segment. See Note 12
Segment and Geographic Information for additional detail.



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The allocation of goodwill to segments and the changes to the carrying value from January 1, 2009
through September 30, 2009 is reflected below (in thousands):



|                                                                  |  |                    |       
|----------------------------------------------------------------- |  | ------------------ | ------
|                                                                  |  | Imaging and Optics
|Balance at January 1, 2009                                        |  | $                  | 40,444
|Goodwill acquired through the Dblur Technologies Ltd. acquisition |  |                    | 450   
|Adjustment to goodwill related to FotoNation, Inc. acquisition    |  |                    | 4,256 
|                                                                  |  |                    |       
|Balance at September 30, 2009                                     |  | $                  | 45,150
|                                                                  |  |                    |       

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



|                           |                    |      |             |                    |                         |                   |   |         |   |             |   |                         |  |   |        |  |   |         |   |  |   |       
|-------------------------- | ------------------ | ---- | ----------- | ------------------ | ----------------------- | ----------------- | - | ------- | - | ----------- | - | ----------------------- |  | - | ------ |  | - | ------- | - |  | - | ------
|                           |                    |      |             | September 30, 2009 |                         | December 31, 2008
|                           | AverageLife(Years) |      | GrossAssets |                    | AccumulatedAmortization |                   |   | Net     |   | GrossAssets |   | AccumulatedAmortization |  |   | Net   
|Acquired patents           |                    | 3-15 |             | $                  | 36,047                  |                   | $ | (6,588  | ) |             | $ | 29,459                  |  | $ | 24,736 |  | $ | (4,422  | ) |  | $ | 20,314
|Existing technology        |                    | 5-10 |             |                    | 51,161                  |                   |   | (16,633 | ) |             |   | 34,528                  |  |   | 51,161 |  |   | (11,683 | ) |  |   | 39,478
|Trade name                 |                    | 4-10 |             |                    | 3,620                   |                   |   | (1,186  | ) |             |   | 2,434                   |  |   | 3,620  |  |   | (881    | ) |  |   | 2,739 
|Customer contracts         |                    | 3-9  |             |                    | 11,900                  |                   |   | (3,212  | ) |             |   | 8,688                   |  |   | 10,500 |  |   | (1,984  | ) |  |   | 8,516 
|Non-competition agreements |                    | 2    |             |                    | 1,400                   |                   |   | (1,400  | ) |             |   |                        |  |   | 1,400  |  |   | (1,296  | ) |  |   | 104   
|Assembled workforce        |                    | 4    |             |                    | 300                     |                   |   | (195    | ) |             |   | 105                     |  |   | 300    |  |   | (139    | ) |  |   | 161   
|                           |                    |      |             |                    |                         |                   |   |         |   |             |   |                         |  |   |        |  |   |         |   |  |   |       
|                           |                    |      |             | $                  | 104,428                 |                   | $ | (29,214 | ) |             | $ | 75,214                  |  | $ | 91,717 |  | $ | (20,405 | ) |  | $ | 71,312
|                           |                    |      |             |                    |                         |                   |   |         |   |             |   |                         |  |   |        |  |   |         |   |  |   |       

Amortization expense for the three months ended September 30, 2009 and September 28, 2008
amounted to $3.0 million and $2.9 million, respectively. Amortization expense for the nine months ended September 30, 2009 and September 28, 2008 amounted to $8.8 million and $8.2 million, respectively.

As of September 30, 2009, the estimated future amortization expense of purchased identified intangible assets is as follows (in thousands):



|                          |  |   |       
|------------------------- |  | - | ------
|2009 (remaining 3 months) |  | $ | 3,273 
|2010                      |  |   | 12,893
|2011                      |  |   | 12,544
|2012                      |  |   | 11,775
|2013                      |  |   | 10,912
|Thereafter                |  |   | 23,817
|                          |  |   |       
|                          |  | $ | 75,214
|                          |  |   |       

NOTE 7  NET INCOME (LOSS) PER SHARE

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



|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|-------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | ----------------- |  | - | ----------------- | - |  | - | ------ | -
|                                                   |  | Three Months Ended |        |   | Nine Months Ended |  
|                                                   |  | September 30,2009  |        |   | September 28,2008 |   |        | September 30,2009 |  |   | September 28,2008 |  
|                                                   |  |                    |        |  
|Numerator:                                         |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|Net income (loss)                                  |  | $                  | 12,134 |   |                   | $ | (5,357 | )                 |  | $ | 63,439            |   |  | $ | (3,047 | )
|Denominator:                                       |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|Weighted average common shares outstanding         |  |                    | 49,564 |   |                   |   | 48,426 |                   |  |   | 48,992            |   |  |   | 48,267 |  
|Less: Unvested common shares subject to repurchase |  |                    | (363   | ) |                   |   | (522   | )                 |  |   | (394              | ) |  |   | (316   | )
|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|Total shares-basic                                 |  |                    | 49,201 |   |                   |   | 47,904 |                   |  |   | 48,598            |   |  |   | 47,951 |  
|Effect of dilutive securities                      |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|Stock awards and warrants                          |  |                    | 489    |   |                   |   |       |                   |  |   | 236               |   |  |   |       |  
|Restricted stock                                   |  |                    | 172    |   |                   |   |       |                   |  |   | 147               |   |  |   |       |  
|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|Total shares-diluted                               |  |                    | 49,862 |   |                   |   | 47,904 |                   |  |   | 48,981            |   |  |   | 47,951 |  
|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|Net income (loss) per common share-basic           |  | $                  | 0.25   |   |                   | $ | (0.11  | )                 |  | $ | 1.31              |   |  | $ | (0.06  | )
|Net income (loss) per common share-diluted         |  | $                  | 0.24   |   |                   | $ | (0.11  | )                 |  | $ | 1.30              |   |  | $ | (0.06  | )



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Basic common shares are computed using the weighted average number of common shares outstanding during the
period, excluding any unvested restricted shares that are subject to repurchase. Diluted common shares are 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 shares 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 and nine months ended September 30, 2009, options to purchase approximately 2.5 million and 5.9 million shares of common stock,
respectively, were excluded from the computation of diluted net income per share as they were anti-dilutive. For the three and nine months ended September 28, 2008, excluded from the Companys net loss per share calculations were all
potential dilutive common shares because their effect on net loss per share was anti-dilutive.

NOTE 8  STOCKHOLDERS EQUITY

Stock Repurchase Programs

In August 2007, the Companys Board of Directors authorized a plan to repurchase up to a maximum total of $100 million of the Companys outstanding shares of common stock dependent on market conditions, share price and other
factors. As of September 30, 2009, the Company has repurchased a total of 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. 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 September 30, 2009, the total amount available for repurchase was $89.5 million. The Company plans to 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 Company adopted the 1996 Stock
Option Plan (1996 Plan). In February 1999, the Company 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 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 September 30, 2009, there were no shares reserved for grant under these plans. As of September 30,
2009, only the 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 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 and restricted stock awards 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 restricted stock 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. As of September 30, 2009, there were 2,437,000 shares available for grant
under this plan.



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



|                                       |  |                          |   |  |                                                 |      
|-------------------------------------- |  | ------------------------ | - |  | ----------------------------------------------- | -----
|                                       |  | Shares Outstanding      
|                                       |  | Number          ofShares |   |  | Weighted          AverageExercisePrice PerShare
|Balance at December 31, 2008           |  | 6,779                    |   |  | $                                               | 24.25
|Options granted                        |  | 1,890                    |   |  | $                                               | 24.08
|Options exercised                      |  | (932                     | ) |  | $                                               | 16.46
|Options cancelled /forfeited / expired |  | (1,548                   | ) |  | $                                               | 34.71
|                                       |  |                         
|                                       |  |                          |   |  |                                                 |      
|Balance at September 30, 2009          |  | 6,189                    |   |  | $                                               | 22.76
|                                       |  |                          |   |  |                                                 |      

Information with respect to outstanding restricted stock awards and units as of September 30,
2009 was as follows (in thousands, except per share amounts):



|                                       |  |                           |   |  |                                               |      
|-------------------------------------- |  | ------------------------- | - |  | --------------------------------------------- | -----
|                                       |  | Restricted Stock         
|                                       |  | Number          of Shares |   |  | WeightedAverageGrant DateFair Value Per Share
|Balance at December 31, 2008           |  | 925                       |   |  | $                                             | 29.91
|Awards and units granted               |  | 338                       |   |  | $                                             | 24.50
|Awards and units vested                |  | (245                      | ) |  | $                                             | 33.80
|Awards and units cancelled / forfeited |  | (51                       | ) |  | $                                             | 28.54
|                                       |  |                          
|                                       |  |                           |   |  |                                               |      
|Balance at September 30, 2009          |  | 967                       |   |  | $                                             | 27.10
|                                       |  |                           |   |  |                                               |      

Employee Stock Purchase Plan

In August 2003, the Company adopted the 2003 Employee Stock Purchase Plan (ESPP) and the Companys stockholders approved the ESPP in
September 2003. The ESPP is designed to allow eligible employees to purchase shares of common stock, at semi-annual intervals, with their accumulated payroll deductions.

The Company initially reserved 200,000 shares of common stock for issuance under the ESPP. 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.

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 two-year 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



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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 September 30, 2009 and September 28, 2008, there were 568,000 and 624,000 shares,
respectively, available for grant under the ESPP.

NOTE 9  STOCK-BASED COMPENSATION EXPENSE

The effect of recording stock-based compensation expense for the three and nine months ended September 30, 2009 and September 28, 2008 is as
follows (in thousands):



|                                            |  |                    |       |                   |   |                   |  |                   |        |  |   |       
|------------------------------------------- |  | ------------------ | ----- | ----------------- | - | ----------------- |  | ----------------- | ------ |  | - | ------
|                                            |  | Three Months Ended |       | Nine Months Ended
|                                            |  | September 30,2009  |       | September 28,2008 |   | September 30,2009 |  | September 28,2008
|Cost of revenues                            |  | $                  | 199   |                   | $ | 92                |  | $                 | 450    |  | $ | 345   
|Research, development & other related costs |  |                    | 2,379 |                   |   | 2,457             |  |                   | 8,489  |  |   | 5,571 
|Selling, general & administrative           |  |                    | 4,312 |                   |   | 4,046             |  |                   | 11,498 |  |   | 10,966
|                                            |  |                    |       |                   |   |                   |  |                   |        |  |   |       
|Total stock-based compensation expense      |  | $                  | 6,890 |                   | $ | 6,595             |  | $                 | 20,437 |  | $ | 16,882
|                                            |  |                    |       |                   |   |                   |  |                   |        |  |   |       

The stock-based compensation expense categorized by various equity components for the three and nine
months ended September 30, 2009 and September 28, 2008 is summarized in the table below (in thousands):



|                                       |  |                    |       |                   |   |                   |  |                   |        |  |   |       
|-------------------------------------- |  | ------------------ | ----- | ----------------- | - | ----------------- |  | ----------------- | ------ |  | - | ------
|                                       |  | Three Months Ended |       | Nine Months Ended
|                                       |  | September 30,2009  |       | September 28,2008 |   | September 30,2009 |  | September 28,2008
|Employee stock options                 |  | $                  | 4,152 |                   | $ | 3,906             |  | $                 | 12,106 |  | $ | 9,430 
|Restricted stock awards and units      |  |                    | 2,298 |                   |   | 2,480             |  |                   | 7,016  |  |   | 6,479 
|Employee stock purchase plan           |  |                    | 440   |                   |   | 209               |  |                   | 1,315  |  |   | 973   
|                                       |  |                    |       |                   |   |                   |  |                   |        |  |   |       
|Total stock-based compensation expense |  | $                  | 6,890 |                   | $ | 6,595             |  | $                 | 20,437 |  | $ | 16,882
|                                       |  |                    |       |                   |   |                   |  |                   |        |  |   |       

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 amount of time remaining in the 24-month offering period ranging from 0.5
to 2 years.

Volatility  Volatility is calculated using the historical volatility of the Companys common
stock. Historical volatility of the Companys common stock is also utilized for 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 use 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 |   |  | Nine Months Ended |  
|                         |  | September 30,2009  |   |  | September 28,2008 |   |  | September 30,2009 |   |  | September 28,2008 |  
|Expected life (in years) |  | 3.70               |   |  | 4.00              |   |  | 3.70              |   |  | 4.00              |  
|Risk-free interest rate  |  | 1.5                | % |  | 3.0               | % |  | 1.2 - 1.6         | % |  | 2.6 - 3.0         | %
|Dividend yield           |  | 0.0                | % |  | 0.0               | % |  | 0.0               | % |  | 0.0               | %
|Expected volatility      |  | 75.9               | % |  | 60.7              | % |  | 73.5 - 75.9       | % |  | 59.9 - 60.7       | %



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In July 2009, the Company completed an offer to exchange certain employee stock options under the 2003 Plan
(the Exchange). Pursuant to the Exchange, eligible options to purchase an aggregate of 1,137,642 shares of the Companys common stock were tendered and accepted. In exchange for the options tendered, the Company granted replacement
options to purchase an aggregate of 926,548 shares of common stock under the 2003 Plan on July 1, 2009. The exercise price per share of each replacement option granted in the Exchange was $25.78, the closing price of the Companys common
stock as reported by The Nasdaq Global Select Market on July 1, 2009. The replacement options granted will vest over a three-year period where one-third of the shares will vest and become exercisable on the one-year anniversary of the
replacement grant date, with the remaining shares vesting and becoming exercisable in equal monthly increments over the 24 months following the first anniversary of the replacement grant date. The Exchange was accounted for as a modification, which
did not result in any incremental compensation expense. The remaining compensation expense associated with the eligible options exchanged will be recognized over the requisite period of the replacement options which is generally the vesting period.

NOTE 10  INCOME TAXES

The provision for income taxes for the three and nine months ended September 30, 2009 was $8.3 million and $47.3 million, respectively, and was comprised of domestic income tax and foreign income and withholding tax. The income tax
provision for the three and nine months ended September 28, 2008 was $0.8 million and $10.4 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 and nine months ended September 30, 2009 as compared to the three and nine months ended September 28, 2008 is primarily attributable to the increase in pre-tax income for
the period, taxed at the statutory income tax rate.

As of September 30, 2009 and December 31, 2008, unrecognized tax benefits
determined in accordance with the authoritative guidance on accounting for uncertainty in income taxes, approximated $4.3 million and $4.2 million, respectively. There were no significant changes in the unrecognized tax benefits for the period. The
total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate was $2.6 million at September 30, 2009.

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 nine months ended September 30,
2009, interest and penalties related to unrecognized tax benefits were immaterial. The Company does not expect any of its unrecognized tax benefits to expire within the next twelve months.

As of September 30, 2009, the Companys tax returns in one or more jurisdictions are generally not open to examination by tax authorities for
years before 2004. In the United States, the Companys federal and state net operating loss or credit carry-forwards generated prior to 2004 may be subject to examination. The Company is currently under examination by a U.S. state for the tax
years 2006 and 2007. The outcome of such examination is not known, and therefore, the Company is unable to estimate the effect to the Companys financial position, results of operations or cash flows.

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. Rent expense for the three and nine months ended September 30, 2009
and September 28, 2008 amounted to $0.7 million, $2.0 million, $0.8 million, and $1.7 million, respectively. In addition, the Company has agreements containing non-cancelable, nonrefundable payment terms with third parties to purchase services.

As of September 30, 2009, future minimum lease payments and non-cancelable purchase obligations are as follows (in thousands):



|                          |  |                     |     |                   |   |        |  |   |       
|------------------------- |  | ------------------- | --- | ----------------- | - | ------ |  | - | ------
|                          |  | PurchaseObligations |     | Lease Obligations |   | Total 
|2009 (remaining 3 months) |  | $                   | 741 |                   | $ | 567    |  | $ | 1,308 
|2010                      |  |                     | 56  |                   |   | 1,754  |  |   | 1,810 
|2011                      |  |                     |    |                   |   | 1,741  |  |   | 1,741 
|2012                      |  |                     |    |                   |   | 1,795  |  |   | 1,795 
|2013                      |  |                     |    |                   |   | 1,850  |  |   | 1,850 
|Thereafter                |  |                     |    |                   |   | 2,558  |  |   | 2,558 
|                          |  |                     |     |                   |   |        |  |   |       
|                          |  | $                   | 797 |                   | $ | 10,265 |  | $ | 11,062
|                          |  |                     |     |                   |   |        |  |   |       



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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. The Company expects that potential damages will continue to
accrue during the stay period. Upon completion of the ITC actions, 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

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.

Fact discovery in the action is currently closed, and expert discovery is ongoing. 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. Those motions are currently pending. On July 10, 2009, the court granted in part Hynixs motion to continue the trial date, but ruled that all discovery deadlines would
remain as previously scheduled. No new trial date has been set yet.

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. Micronaction 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. A hearing on the coordination petition is scheduled for November 6, 2009.

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



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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.

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



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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.

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 October 30, 2009, the Respondents filed their appellate briefing regarding the merits of the ITCs ruling. Tessera will
have the opportunity to respond.

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 a decision in 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.



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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 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. (collectively
A-DATA) 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 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. (Elpida) failed to prove the affirmative defense of patent exhaustion for certain accused products but had established it for others, and that Elpida



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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 will review, among other things, whether the respondents infringed the Tessera patents asserted in the action. The Commissions Final Determination is currently scheduled to be
issued by December 29, 2009.

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.

In the Matter of Certain Semiconductor Chips with Minimized Chip Package Size and Products Containing Same (IV), ITC No. 337-TA-649

On April 21, 2008, 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 granted
Companys request and instituted the investigation on May 28, 2008. The respondents include Siliconware Precision Industries Co., Ltd., STATS ChipPAC, Ltd., ASE Inc. and ChipMOS Technologies, Inc., as well as several of these
companies affiliates.

Tessera requested that the ITC investigate, among other things, infringement of U.S. Patent Nos. 5,679,977,
5,852,326 and 6,433,419, 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.

This ITC action
was assigned to Judge Essex. On June 13, 2008, Judge Essex issued an order setting the target for completion of the investigation at August 28, 2008, with an initial determination to be issued no later than May 28, 2009. A seven-day
hearing was tentatively scheduled to begin on February 5, 2009. On September 30, 2008, Judge Essex issued an order granting the parties joint



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request to extend the hearing date and rescheduled the hearing to begin on March 16, 2009, with a new target completion date of November 2, 2009. On October 29, 2008, Judge
Essex issued an order granting Tesseras request to add another patent, U.S. Patent No. 5,663,106, to this investigation. The Judge granted an additional extension in the procedural schedule, hearing date and target date to accommodate
additional discovery for the newly added patent. Under the new schedule, the hearing was scheduled to begin on April 27, 2009, the Judges initial determination was due on August 7, 2009, and the target date for completion of the
investigation was December 7, 2009.

On February 2, 2009, after receiving notice that the Commission had determined to review the
Initial Determination in Tesseras co-pending Investigation No. 337-TA-605, Tessera filed a motion to stay the 337-TA-649 investigation pending the issuance of a Final Determination from the ITC in the 337-TA-605 Investigation, which
addresses common issues. On February 10, 2009, Judge Essex issued an Order granting Tesseras motion and staying the action, except as to certain enumerated discovery matters. The February 10, 2009 Order also extended the deadline for
an Initial Determination in Investigation No. 337-TA-649 until October 8, 2009, and the target date for completion of that investigation until February 10, 2010.

On March 12, 2009, Tessera filed a Motion for Termination of the action, noting that it appeared highly unlikely that an effective Trade Alert could be in place materially before the expiration of
certain asserted patents, as well as certain changes in ITC case law since the institution of this case relating to the remedies. Certain of the respondents have consented to termination, and others consented in part and opposed in part. On
July 17, 2009, Judge Essex granted Tesseras motion to terminate the investigation. In a separate order issued on the same date, Judge Essex found that respondent Siliconware Precision Industries, Ltd. had violated certain court orders in
the action.

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.

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.

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.)

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.

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.



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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. (UTAC) alleging breach of contract for failure to pay Tessera the full royalty due under its license agreement. The Company is also alleging 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 denies generally the allegations in UTACs cross-complaint, and asserts various affirmative defenses. Fact discovery in the case is now underway.

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.

Discovery is in progress, and various discovery disputes have been submitted to the Court. Tessera has sought summary adjudication regarding two contract issues, and hearings on those motions are currently set for November 20, 2009 and
December 11, 2009, respectively. Trial in the UTAC action has been set for January 11, 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.

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 Technology,
Inc. (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.



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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.

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 will have an opportunity to respond.

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.

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, 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, 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



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Notice was issued on June 22, 2009. On July 13, 2009, Tessera filed a petition to withdraw the Right of Appeal Notice. Having not yet received a decision on the petition of
July 13, 2009, Tessera filed a Notice of Appeal on July 22, 2009. Tessera timely filed an appeal brief on October 5, 2009.

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. Tessera is currently awaiting issuance of further action by the PTO.

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 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 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. 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 above, 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.

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 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.



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Amkor Technology, Inc. v. Tessera

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. The Company has not yet
answered the request. The Company is scheduled to file its Answer and Counter-Claims to Amkors request for arbitration on November 2, 2009.

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

Prior to 2009, the Company had two reportable segments: Intellectual Property segment and Product and Service segment. As of January 1, 2009, the Company reorganized the reporting units underlying these reportable segments resulting in
two new reportable segments: Micro-electronics segment and Imaging and Optics segment. 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 Companys development efforts and licensing business in its imaging and optics market, such as its wafer level image
sensor packaging and image enhancement solutions. The second is the Companys product and services business. This includes the manufacture of small form factor micro-optics and its Product Launch Services, through which the Company delivers
state-of-the-art imaging solutions such as its 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 its revenue and
operating income (loss) before other income and expense and income taxes. The CODM is not presented with financial information for each division and the CODM does not evaluate each division separately from the reportable segments when evaluating the
operating performance of the business.

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.

The Company
adjusted its historical results to reflect a reorganization from the reportable segments previously reported.



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The following table sets forth the Companys segment revenue, operating expenses and operating income
(loss) (in thousands):



|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|--------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ----------------- | - |  | - | ------- | -
|                                  |  | Three Months Ended |         |   | Nine Months Ended |  
|                                  |  | September 30,2009  |         |   | September 28,2008 |   |         | September 30,2009 |  |   | September 28,2008 |  
|Revenues:                         |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Micro-electronics:                |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Royalty and license fees          |  | $                  | 59,060  |   |                   | $ | 56,035  |                   |  | $ | 221,199           |   |  | $ | 150,858 |  
|Product and service revenues      |  |                    | 3       |   |                   |   | 554     |                   |  |   | 48                |   |  |   | 3,775   |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Total Micro-electronics revenues  |  |                    | 59,063  |   |                   |   | 56,589  |                   |  |   | 221,247           |   |  |   | 154,633 |  
|                                  |  |                    |         |  
|Imaging and Optics:               |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Royalty and license fees          |  |                    | 3,684   |   |                   |   | 1,552   |                   |  |   | 13,271            |   |  |   | 6,913   |  
|Product and service revenues      |  |                    | 3,376   |   |                   |   | 5,360   |                   |  |   | 8,452             |   |  |   | 17,620  |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Total Imaging and Optics revenues |  |                    | 7,060   |   |                   |   | 6,912   |                   |  |   | 21,723            |   |  |   | 24,533  |  
|                                  |  |                    |         |  
|Corporate overhead                |  |                    |        |   |                   |   |        |                   |  |   |                  |   |  |   |        |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|                                  |  |                    |         |  
|Total revenues                    |  |                    | 66,123  |   |                   |   | 63,501  |                   |  |   | 242,970           |   |  |   | 179,166 |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|                                  |  |                    |         |  
|Operating expenses:               |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Micro-electronics Segment         |  |                    | 15,328  |   |                   |   | 39,606  |                   |  |   | 48,808            |   |  |   | 95,774  |  
|Imaging and Optics Segment        |  |                    | 19,311  |   |                   |   | 17,857  |                   |  |   | 55,966            |   |  |   | 50,401  |  
|                                  |  |                    |         |  
|Corporate overhead                |  |                    | 11,603  |   |                   |   | 9,592   |                   |  |   | 31,888            |   |  |   | 28,913  |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|                                  |  |                    |         |  
|Total operating expenses          |  |                    | 46,242  |   |                   |   | 67,055  |                   |  |   | 136,662           |   |  |   | 175,088 |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|                                  |  |                    |         |  
|Operating income (loss)           |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Micro-electronics Segment         |  |                    | 43,735  |   |                   |   | 16,983  |                   |  |   | 172,439           |   |  |   | 58,859  |  
|Imaging and Optics Segment        |  |                    | (12,251 | ) |                   |   | (10,945 | )                 |  |   | (34,243           | ) |  |   | (25,868 | )
|Corporate overhead                |  |                    | (11,603 | ) |                   |   | (9,592  | )                 |  |   | (31,888           | ) |  |   | (28,913 | )
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|                                  |  |                    |         |  
|Total operating income (loss)     |  | $                  | 19,881  |   |                   | $ | (3,554  | )                 |  | $ | 106,308           |   |  | $ | 4,078   |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  

A significant portion of the Companys revenues is derived from licensees headquartered outside
of the United States, 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 regions of the headquarters of
the Companys customers, revenues and the percentage of revenues derived from each region for the periods indicated (in thousands, except for percentages):



|                 |  |                    |        |  |                   |   |  |                   |        |  |                   |   |  |   |         |  |     |   |  |   |         |  |     |  
|---------------- |  | ------------------ | ------ |  | ----------------- | - |  | ----------------- | ------ |  | ----------------- | - |  | - | ------- |  | --- | - |  | - | ------- |  | --- | -
|                 |  | Three Months Ended |        |  | Nine Months Ended |  
|                 |  | September 30,2009  |        |  | September 28,2008 |   |  | September 30,2009 |        |  | September 28,2008 |  
|United States    |  | $                  | 19,229 |  | 29                | % |  | $                 | 7,499  |  | 12                | % |  | $ | 114,896 |  | 47  | % |  | $ | 37,548  |  | 21  | %
|Asia Pacific     |  |                    | 43,227 |  | 65                | % |  |                   | 43,895 |  | 69                | % |  |   | 116,759 |  | 48  | % |  |   | 100,861 |  | 56  | %
|Europe and other |  |                    | 3,667  |  | 6                 | % |  |                   | 12,107 |  | 19                | % |  |   | 11,315  |  | 5   | % |  |   | 40,757  |  | 23  | %
|                 |  |                    |        |  |                   |   |  |                   |        |  |                   |   |  |   |         |  |     |   |  |   |         |  |     |  
|                 |  | $                  | 66,123 |  | 100               | % |  | $                 | 63,501 |  | 100               | % |  | $ | 242,970 |  | 100 | % |  | $ | 179,166 |  | 100 | %
|                 |  |                    |        |  |                   |   |  |                   |        |  |                   |   |  |   |         |  |     |   |  |   |         |  |     |  

For the three and nine months ended September 30, 2009, three customers each accounted for 10%
or more of total revenues. For the three and nine months ended September 28, 2008, two customers each accounted for 10% or more of total revenues.

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



|              |  |                   |       
|------------- |  | ----------------- | ------
|              |  | September 30,2009
|United States |  | $                 | 39,971
|Japan         |  |                   | 1,174 
|Ireland       |  |                   | 980   
|Israel        |  |                   | 299   
|Other         |  |                   | 5     
|              |  |                   |       
|Total         |  | $                 | 42,429
|              |  |                   |       



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NOTE 13  FINANCIAL INSTRUMENTS

The following is a summary of marketable securities at September 30, 2009 and December 31, 2008 (in thousands):



|                                    |  |                    |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|----------------------------------- |  | ------------------ | ------- | -------------------- | - | --------------------- |  | - | ------------------- | - | ------------- | - | ------- |  | - | -------
|                                    |  | September 30, 2009
|                                    |  | Cost               |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFairValues |   | CarryingValue
|Available-for-sale securities       |  |                    |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|Commercial paper                    |  | $                  | 22,994  |                      | $ |                      |  | $ | (6                  | ) |               | $ | 22,988  |  | $ | 22,988 
|Money market funds                  |  |                    | 78,979  |                      |   |                      |  |   |                    |   |               |   | 78,979  |  |   | 78,979 
|Bank deposits                       |  |                    | 5,846   |                      |   |                      |  |   |                    |   |               |   | 5,846   |  |   | 5,846  
|Corporate bonds and notes           |  |                    | 50,521  |                      |   | 375                   |  |   | (50                 | ) |               |   | 50,846  |  |   | 50,846 
|Treasury and agency notes and bills |  |                    | 68,169  |                      |   | 106                   |  |   |                    |   |               |   | 68,275  |  |   | 68,275 
|Variable rate demand notes          |  |                    | 17,790  |                      |   |                      |  |   |                    |   |               |   | 17,790  |  |   | 17,790 
|Municipal bonds and notes           |  |                    | 88,533  |                      |   | 117                   |  |   | (15                 | ) |               |   | 88,635  |  |   | 88,635 
|Asset-backed securities             |  |                    | 2,424   |                      |   |                      |  |   | (556                | ) |               |   | 1,868   |  |   | 1,868  
|                                    |  |                    |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|Total available-for-sale securities |  |                    | 335,256 |                      |   | 598                   |  |   | (627                | ) |               |   | 335,227 |  |   | 335,227
|Trading securities                  |  |                    |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|Auction rate municipal bonds        |  |                    | 16,846  |                      |   |                      |  |   |                    |   |               |   | 16,846  |  |   | 16,846 
|                                    |  |                    |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|Total marketable securities         |  | $                  | 352,102 |                      | $ | 598                   |  | $ | (627                | ) |               | $ | 352,073 |  | $ | 352,073
|                                    |  |                    |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|                                    |  |                    |         |                      |  
|Reported in:                        |  |                    |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|Cash and cash equivalents           |  |                    |         |                      |   |                       |  |   |                     |   |               |   | 115,413 |  |   | 115,413
|Short-term investments              |  |                    |         |                      |   |                       |  |   |                     |   |               |   | 217,946 |  |   | 217,946
|Long-term investments               |  |                    |         |                      |   |                       |  |   |                     |   |               |   | 18,714  |  |   | 18,714 
|                                    |  |                    |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|Total marketable securities         |  |                    |         |                      |   |                       |  |   |                     |   |               | $ | 352,073 |  | $ | 352,073
|                                    |  |                    |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        



|                                    |  |                   |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|----------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------------- |  | - | ------------------- | - | ------------- | - | ------- |  | - | -------
|                                    |  | December 31, 2008
|                                    |  | Cost              |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFairValues |   | CarryingValue
|Available-for-sale securities       |  |                   |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|Commercial paper                    |  | $                 | 25,350  |                      | $ | 33                    |  | $ |                    |   |               | $ | 25,383  |  | $ | 25,383 
|Money market funds                  |  |                   | 41,680  |                      |   |                      |  |   |                    |   |               |   | 41,680  |  |   | 41,680 
|Corporate bonds and notes           |  |                   | 27,247  |                      |   | 60                    |  |   | (660                | ) |               |   | 26,647  |  |   | 26,647 
|Government agency notes             |  |                   | 23,342  |                      |   | 195                   |  |   |                    |   |               |   | 23,537  |  |   | 23,537 
|Variable rate demand notes          |  |                   | 20,825  |                      |   |                      |  |   |                    |   |               |   | 20,825  |  |   | 20,825 
|Municipal bonds and notes           |  |                   | 115,371 |                      |   | 357                   |  |   | (6                  | ) |               |   | 115,722 |  |   | 115,722
|Asset-backed securities             |  |                   | 6,070   |                      |   |                      |  |   | (1,284              | ) |               |   | 4,786   |  |   | 4,786  
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|Total available-for-sale securities |  |                   | 259,885 |                      |   | 645                   |  |   | (1,950              | ) |               |   | 258,580 |  |   | 258,580
|Trading securities                  |  |                   |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|Auction rate municipal bonds        |  |                   | 17,348  |                      |   |                       |  |   |                     |   |               |   | 17,348  |  |   | 17,348 
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|Total marketable securities         |  | $                 | 277,233 |                      | $ | 645                   |  | $ | (1,950              | ) |               | $ | 275,928 |  | $ | 275,928
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|                                    |  |                   |         |                      |  
|Reported in:                        |  |                   |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|Cash and cash equivalents           |  |                   |         |                      |   |                       |  |   |                     |   |               |   | 65,184  |  |   | 65,184 
|Short-term investments              |  |                   |         |                      |   |                       |  |   |                     |   |               |   | 188,610 |  |   | 188,610
|Long-term investments               |  |                   |         |                      |   |                       |  |   |                     |   |               |   | 22,134  |  |   | 22,134 
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        
|Total marketable securities         |  |                   |         |                      |   |                       |  |   |                     |   |               | $ | 275,928 |  | $ | 275,928
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |               |   |         |  |   |        



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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 September 30, 2009 and December 31, 2008, aggregated by investment category and length of time (in thousands):

September 30, 2009



|                                    |  |                     |        |                       |                     |      |            |       |                       |        |  |            |      |                       |  |   |        |  |   |      |  
|----------------------------------- |  | ------------------- | ------ | --------------------- | ------------------- | ---- | ---------- | ----- | --------------------- | ------ |  | ---------- | ---- | --------------------- |  | - | ------ |  | - | ---- | -
|                                    |  | Less Than 12 Months |        |                       | More Than 12 Months |      |            | Total |                      
|                                    |  | Fair Value          |        | GrossUnrealizedLosses |                     |      | Fair Value |       | GrossUnrealizedLosses |        |  | Fair Value |      | GrossUnrealizedLosses | 
|Commercial paper                    |  | $                   | 22,988 |                       | $                   | (6   | )          |       | $                     |       |  | $          |     |                       |  | $ | 22,988 |  | $ | (6   | )
|Corporate bonds and notes           |  |                     | 8,335  |                       |                     | (20  | )          |       |                       | 6,041  |  |            | (30  | )                     |  |   | 14,376 |  |   | (50  | )
|Treasury and agency notes and bills |  |                     | 1,500  |                       |                     |     |            |       |                       |       |  |            |     |                       |  |   | 1,500  |  |   |     |  
|Municipal bonds and notes           |  |                     | 25,000 |                       |                     | (15  | )          |       |                       |       |  |            |     |                       |  |   | 25,000 |  |   | (15  | )
|Asset-backed securities             |  |                     | 88     |                       |                     | (65  | )          |       |                       | 1,780  |  |            | (491 | )                     |  |   | 1,868  |  |   | (556 | )
|Auction rate municipal bonds        |  |                     |       |                       |                     |     |            |       |                       | 16,846 |  |            |     |                       |  |   | 16,846 |  |   |     |  
|                                    |  |                     |        |                       |                     |     
|                                    |  |                     |        |                       |                     |      |            |       |                       |        |  |            |      |                       |  |   |        |  |   |      |  
|Total                               |  | $                   | 57,911 |                       | $                   | (106 | )          |       | $                     | 24,667 |  | $          | (521 | )                     |  | $ | 82,578 |  | $ | (627 | )
|                                    |  |                     |        |                       |                     |      |            |       |                       |        |  |            |      |                       |  |   |        |  |   |      |  

December 31, 2008



|                             |  |                     |        |                       |                     |        |            |       |                       |        |  |            |      |                       |  |   |        |  |   |        |  
|---------------------------- |  | ------------------- | ------ | --------------------- | ------------------- | ------ | ---------- | ----- | --------------------- | ------ |  | ---------- | ---- | --------------------- |  | - | ------ |  | - | ------ | -
|                             |  |                     |       
|                             |  | Less Than 12 Months |        |                       | More Than 12 Months |        |            | Total |                      
|                             |  | Fair Value          |        | GrossUnrealizedLosses |                     |        | Fair Value |       | GrossUnrealizedLosses |        |  | Fair Value |      | GrossUnrealizedLosses | 
|Corporate bonds and notes    |  | $                   | 10,401 |                       | $                   | (623   | )          |       | $                     | 7,645  |  | $          | (37  | )                     |  | $ | 18,046 |  | $ | (660   | )
|Municipal bonds and notes    |  |                     |       |                       |                     |       |            |       |                       | 13,582 |  |            | (6   | )                     |  |   | 13,582 |  |   | (6     | )
|Asset-backed securities      |  |                     | 2,563  |                       |                     | (1,145 | )          |       |                       | 1,273  |  |            | (139 | )                     |  |   | 3,836  |  |   | (1,284 | )
|Auction rate municipal bonds |  |                     |       |                       |                     |       |            |       |                       | 17,348 |  |            |     |                       |  |   | 17,348 |  |   |       |  
|                             |  |                     |        |                       |                     |       
|                             |  |                     |        |                       |                     |        |            |       |                       |        |  |            |      |                       |  |   |        |  |   |        |  
|Total                        |  | $                   | 12,964 |                       | $                   | (1,768 | )          |       | $                     | 39,848 |  | $          | (182 | )                     |  | $ | 52,812 |  | $ | (1,950 | )
|                             |  |                     |        |                       |                     |        |            |       |                       |        |  |            |      |                       |  |   |        |  |   |        |  

The gross realized losses on sales of marketable securities were $1.0 million and $1.0 million during
the three and nine months ended September 30, 2009, respectively. The gross realized gains on sales of marketable securities were not significant during the three and nine months ended September 30, 2009. The gross realized gains and losses on
sales of marketable securities were not significant during the three and nine months ended September 28, 2008. Amounts recognized in earnings for which an other-than-temporary impairment has been recognized are related to investments for which
management has the intent to sell.

The estimated fair value of marketable securities by contractual maturity, excluding asset-backed
securities which do not have a single maturity date, at September 30, 2009, are shown below (in thousands). 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 less than one year    |  | $                   | 229,569
|Due in greater than one year |  |                     | 120,636
|                             | 
|                             |  |                     |        
|Total                        |  | $                   | 350,205
|                             |  |                     |        

NOTE 14  FAIR VALUE

Effective January 1, 2008, the Company adopted 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 below,
at fair value under the provisions of the guidance for the fair value option for financial assets and financial liabilities. In April 2009, the FASB amended the existing guidance on determining whether an impairment for investments in debt
securities is other-than-temporary. The new guidance was effective for the Companys second quarter of fiscal 2009.



29



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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.                                                                                                                                          
|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 listing 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 September 30, 2009 (in thousands):



|                                        |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |       
|--------------------------------------- |  | ---------- | ------- | --------------------------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | ------- |  | - | ------
|                                        |  | Fair Value |         | Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level 3)
|Assets                                  |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |       
|                                        |  |            |         |                                                          
|Money market funds (1)                  |  | $          | 78,979  |                                                           | $ | 78,979                                    |  | $                                      |        |  | $ |      
|Commercial paper (1)                    |  |            | 22,988  |                                                           |   |                                          |  |                                        | 22,988  |  |   |      
|Bank deposits (1)                       |  |            | 5,846   |                                                           |   |                                           |  |                                        | 5,846   |  |   |      
|Corporate bonds and notes (2)           |  |            | 50,846  |                                                           |   |                                          |  |                                        | 50,846  |  |   |      
|Municipal bonds and notes (2)           |  |            | 88,635  |                                                           |   |                                          |  |                                        | 88,635  |  |   |      
|Variable rate demand notes (2)          |  |            | 17,790  |                                                           |   |                                          |  |                                        | 17,790  |  |   |      
|Treasury and agency notes and bills (3) |  |            | 68,275  |                                                           |   |                                          |  |                                        | 68,275  |  |   |      
|Asset-backed securities (4)             |  |            | 1,868   |                                                           |   |                                          |  |                                        |        |  |   | 1,868 
|Auction rate municipal bonds (4)        |  |            | 16,846  |                                                           |   |                                          |  |                                        |        |  |   | 16,846
|Rights related to UBS agreement (5)     |  |            | 1,230   |                                                           |   |                                          |  |                                        |        |  |   | 1,230 
|                                        |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |       
|                                        |  |            |         |                                                          
|Total Assets                            |  | $          | 353,303 |                                                           | $ | 78,979                                    |  | $                                      | 254,380 |  | $ | 19,944
|                                        |  |            |         |                                                           |   |                                           |  |                                        |         |  |   |       



The following footnotes indicate where the noted items are recorded in the Condensed Consolidated Balance Sheet at September 30, 2009:



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

|(2) | Corporate bonds and notes, variable rate demand notes, and municipal bonds and notes are reported as short-term investments.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(3) | Treasury and government agency notes and bills are reported as either cash and cash equivalents or short-term investments.
|--- | --------------------------------------------------------------------------------------------------------------------------

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

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

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 nine months ended September 30, 2009 (in
thousands):



|                                                 |  |                 |        |   |                                                  |   |        |                |  |   |        |  
|------------------------------------------------ |  | --------------- | ------ | - | ------------------------------------------------ | - | ------ | -------------- |  | - | ------ | -
|                                                 |  | Rights(Level 3) |        |   | Available-for-saleand tradingsecurities(Level 3) |   |        | Total(Level 3) | 
|Balance at December 31, 2008                     |  | $               | 3,952  |   |                                                  | $ | 22,134 |                |  | $ | 26,086 |  
|Purchases, sales, issuances and settlements, net |  |                 |       |   |                                                  |   | (5,062 | )              |  |   | (5,062 | )
|Total gains or losses (realized and unrealized): |  |                 |        |   |                                                  |   |        |                |  |   |        |  
|Included in earnings                             |  |                 | (2,722 | ) |                                                  |   | 914    |                |  |   | (1,808 | )
|Included in other comprehensive loss             |  |                 |       |   |                                                  |   | 728    |                |  |   | 728    |  
|Transfers in (out) of Level 3                    |  |                 |       |   |                                                  |   |       |                |  |   |       |  
|                                                 |  |                 |        |   |                                                  |   |        |                |  |   |        |  
|                                                 |  |                 |       
|Balance at September 30, 2009                    |  | $               | 1,230  |   |                                                  | $ | 18,714 |                |  | $ | 19,944 |  
|                                                 |  |                 |        |   |                                                  |   |        |                |  |   |        |  



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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.

In November 2008, the Company entered into an agreement with UBS which granted the Company and UBS various rights (the Rights), including the right to permit the Company to sell the ARS investments to UBS at par value at any
time during a two-year period beginning June 30, 2010 and gave UBS the right to call 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. Additionally, in conjunction with the acceptance of the Rights, 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 to be recorded in current period earnings. For the three and nine month period ended September 30, 2009, the Company
recorded $13,000 and $2.7 million of unrealized gains, respectively, in relation to the change in the fair value of the ARS investment and an offsetting entry of approximately $13,000 and $2.7 million, respectively, related to the change in fair
value of the Rights. 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. This value was discounted
using UBSs credit default swap rate to account for the counterparty risk. The Company expects that future changes in the fair value of the Rights will approximate fair value movements in the related ARS.

NOTE 15  RELATED PARTY TRANSACTION

In September 2007, the Company licensed its OptiML Wafer-Level Camera technology and SHELLCASE Wafer-Level Chip Scale Packaging solutions to NemoTek Technologie S. A. (NemoTek), a supplier of camera solutions for the mobile
phone market. In December 2007, the Company made an investment of $0.5 million in NemoTek. In February 2009, the Company invested an additional $1.4 million in NemoTek. As of September 30, 2009, the total investment by the Company in NemoTek is
approximately $1.9 million and represents less than a 10 percent holding in NemoTek. For the three and nine months ended September 30, 2009, revenue from NemoTek represented zero and $1.1 million, or, less than one percent of total revenue,
respectively. For the three and nine months ended September 28, 2008, revenue from NemoTek represented $0.3 million and $0.8 million, or less than one percent of total revenue, respectively. The amount due from NemoTek as of September 30,
2009 was $0.2 million. As of December 31, 2008, the amount due from NemoTek under the license was $1.5 million.



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##### 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 condensed unaudited consolidated
financial statements and notes thereto, and with our audited financial statements and notes thereto for the fiscal year ended December 31, 2008 found in our Annual Report on Form 10-K, filed on February 27, 2009.

This Quarterly Report (including the following section regarding Managements Discussion and Analysis of Financial Condition and Results of
Operations) 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 (R&D), 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 Company stock pursuant to the authorization of our Board, the levels of customer spending or R&D 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 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 review carefully 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.

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 our affiliated companies in the United States 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.



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##### Table of Contents

Our intellectual property includes approximately 1,700 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. Micro-electronics 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 and miniaturization such as our μPILR platform and thermal management
technology. Imaging and Optics is composed of two elements. The first is our development efforts and licensing business in our imaging and optics market, such as our wafer level image sensor packaging and image enhancement solutions. The second
is our product and services business. This includes the manufacture of small form factor micro-optics and our Product Launch Services, through which we deliver state-of-the-art imaging solutions such as our 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 technology has been widely adopted and is currently 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 that incorporate our packaging technology.

Our Technology

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



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



| |  | Imaging & Opticsincluding wafer-level camera, wafer-level optics, image sensor packaging and image enhancement technologies
| | - | ----------------------------------------------------------------------------------------------------------------------------

Micro-electronics

In the early 1990s,
Tesseras founders invented packaging technology which is now widely used throughout the semiconductor industry. Our innovations include our μBGA solution, the industrys first chip-scale packaging (CSP) technology.
We have licensed many of the worlds leading semiconductor companies to most of our CSP and multi-chip packaging technology under a license agreement that we refer to as Tesseras compliant chip (TCC) technology license. This
technology is widely used today in high volume packaging for a full range of applications, including:



| |  | high performance dynamic random access memory (DRAM) chips, such as Double-Data-Rate two and Double-Data-Rate three (DDR2 and DDR3)
DRAM;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  | Flash memory;
| | - | -------------



| |  | static random access memory (SRAM);
| | - | -------------------------------------



| |  | digital signal processors (DSPs); and
| | - | ---------------------------------------



| |  | application-specific integrated circuits (ASICs).
| | - | ---------------------------------------------------

We continue to expand upon these Micro-electronics technologies.

Imaging & Optics

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 includes:



| |  | SHELLCASE MVP wafer-level chip-scale packaging (WLCSP) technology, used in image sensor packaging;
| | - | ----------------------------------------------------------------------------------------------------



| |  | OptiML WLO technology, which enables the manufacturing and assembly of lens modules;
| | - | ------------------------------------------------------------------------------------



| |  | OptiML WLC technology, which combines OptiML WLO with SHELLCASE MVP technology to manufacture camera modules at the wafer level;
| | - | --------------------------------------------------------------------------------------------------------------------------------



| |  | OptiML image enhancement technology, which improves the quality of captured cell phone images:
| | - | ----------------------------------------------------------------------------------------------



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##### Table of Contents

| |  | OptiML Zoom solution offers 3X zoom capabilities,
| | - | -------------------------------------------------



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



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



| |  | FotoNation image enhancement technology, which provides a portfolio of in-camera image enhancement solutions for digital photos:
| | - | --------------------------------------------------------------------------------------------------------------------------------



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



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

Acquisitions

We have grown our
business partly through acquisitions. The impact of these acquisitions on our financial results has been included in the following discussion. In May 2009, we completed our purchase of certain intellectual property and customer agreements from Dblur
Technologies Ltd., an Israeli company. In February 2008, we completed our acquisition of FotoNation, Inc., a Delaware corporation. In February 2007, we completed our acquisition of Eyesquad GmbH, a private limited liability company organized under
the laws of the Federal Republic of Germany and its subsidiary, which operates in Israel. In February 2007 and May 2005, we purchased from North Corporation all of its patents and patent applications filed in the United States and in foreign
jurisdictions, trademark assets and certain tangible assets. In July 2006, we completed our acquisition of Digital Optics Corporation, a Delaware corporation. In December 2005, we completed our purchase of certain assets of Shellcase, Ltd., an
Israeli company.

Results of Operations

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



|                                              |  |                    |   |  |                   |    |  |                   |   |  |                   |   
|--------------------------------------------- |  | ------------------ | - |  | ----------------- | -- |  | ----------------- | - |  | ----------------- | --
|                                              |  | Three Months Ended |   |  | Nine Months Ended |   
|                                              |  | September 30,2009  |   |  | September 28,2008 |    |  | September 30,2009 |   |  | September 28,2008 |   
|Revenues:                                     |  |                    |   |  |                   |    |  |                   |   |  |                   |   
|Royalty and license fees                      |  | 95                 | % |  | 91                | %  |  | 97                | % |  | 88                | % 
|Product and service revenues                  |  | 5                  |   |  | 9                 |    |  | 3                 |   |  | 12                |   
|                                              |  |                    |   |  |                   |    |  |                   |   |  |                   |   
|                                              |  |                    |   | 
|Total revenues                                |  | 100                |   |  | 100               |    |  | 100               |   |  | 100               |   
|                                              |  |                    |   |  |                   |    |  |                   |   |  |                   |   
|                                              |  |                    |   | 
|Operating expenses:                           |  |                    |   |  |                   |    |  |                   |   |  |                   |   
|Cost of revenues                              |  | 6                  |   |  | 6                 |    |  | 5                 |   |  | 7                 |   
|Research, development and other related costs |  | 26                 |   |  | 25                |    |  | 21                |   |  | 25                |   
|Selling, general and administrative costs     |  | 29                 |   |  | 28                |    |  | 22                |   |  | 29                |   
|Litigation expense                            |  | 9                  |   |  | 46                |    |  | 8                 |   |  | 37                |   
|                                              |  |                    |   |  |                   |    |  |                   |   |  |                   |   
|                                              |  |                    |   | 
|Total operating expenses                      |  | 70                 |   |  | 105               |    |  | 56                |   |  | 98                |   
|Operating income (loss)                       |  | 30                 |   |  | (5                | )  |  | 44                |   |  | 2                 |   
|Other income and expense, net                 |  | 1                  |   |  | (2                | )  |  | 2                 |   |  | 2                 |   
|                                              |  |                    |   |  |                   |    |  |                   |   |  |                   |   
|                                              |  |                    |   | 
|Income (loss) before taxes                    |  | 31                 |   |  | (7                | )  |  | 46                |   |  | 4                 |   
|Provision for income taxes                    |  | 13                 |   |  | 1                 |    |  | 20                |   |  | 6                 |   
|                                              |  |                    |   |  |                   |    |  |                   |   |  |                   |   
|                                              |  |                    |   | 
|Net income (loss)                             |  | 18                 | % |  | (8                | )% |  | 26                | % |  | (2                | )%
|                                              |  |                    |   |  |                   |    |  |                   |   |  |                   |   



34



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##### Table of Contents

Revenues

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



|                             |  |                            |         |  |                   |   |  |                     |         |  |         |   |  |   |         |   |  |     |  
|---------------------------- |  | -------------------------- | ------- |  | ----------------- | - |  | ------------------- | ------- |  | ------- | - |  | - | ------- | - |  | --- | -
|                             |  | For the Three Months Ended |         |  |                   |   |  |                     |        
|                             |  | September 30,2009          |         |  | September 28,2008 |   |  | Increase/(Decrease) |         |  | %Change |  
|Royalty and license fees     |  | $                          | 62,743  |  | 95                | % |  | $                   | 57,587  |  | 91      | % |  | $ | 5,156   |   |  | 9   | %
|Product and service revenues |  |                            | 3,380   |  | 5                 |   |  |                     | 5,914   |  | 9       |   |  |   | (2,534  | ) |  | (43 | )
|                             |  |                            |         |  |                   |   |  |                     |         |  |         |   |  |   |         |   |  |     |  
|Total revenues               |  | $                          | 66,123  |  | 100               | % |  | $                   | 63,501  |  | 100     | % |  | $ | 2,622   |   |  | 4   | %
|                             |  |                            |         |  |                   |   |  |                     |         |  |         |   |  |   |         |   |  |     |  
|                             |  |                            |        
|                             |  | For the Nine Months Ended  |         |  |                   |   |  |                     |        
|                             |  | September 30,2009          |         |  | September 28,2008 |   |  | Increase/(Decrease) |         |  | %Change |  
|Royalty and license fees     |  | $                          | 234,470 |  | 97                | % |  | $                   | 157,771 |  | 88      | % |  | $ | 76,699  |   |  | 49  | %
|Product and service revenues |  |                            | 8,500   |  | 3                 |   |  |                     | 21,395  |  | 12      |   |  |   | (12,895 | ) |  | (60 | )
|                             |  |                            |         |  |                   |   |  |                     |         |  |         |   |  |   |         |   |  |     |  
|Total revenues               |  | $                          | 242,970 |  | 100               | % |  | $                   | 179,166 |  | 100     | % |  | $ | 63,804  |   |  | 36  | %
|                             |  |                            |         |  |                   |   |  |                     |         |  |         |   |  |   |         |   |  |     |  

Revenues for the three months ended September 30, 2009 were $66.1 million as compared to $63.5
million for the three months ended September 28, 2008, an increase of $2.6 million, or 4%. Revenues for the nine months ended September 30, 2009 were $243.0 million as compared to $179.2 million for the nine months ended September 28,
2008, an increase of $63.8 million, or 36%. The overall increase in revenues in the three months ended September 30, 2009 as compared to 2008 is primarily due to royalty and license fees received from a former defendant in an ITC infringement
case, revenue from one-time self audits reported by our licensees, offset by the lower demand in wireless and DRAM markets and continued softness in the photolithography industry, and a reduction in service revenue from government funded projects.
The overall increase in revenues in the nine months ended September 30, 2009 as compared to 2008 is primarily due to royalty revenue of $60.6 million from Amkor Technology, Inc. (Amkor) in February 2009, awarded by an arbitration
panel for Amkors material breach of its license agreement with Tessera, and option and license fees received from a former defendant in an ITC infringement case, offset by the overall lower demand in wireless and DRAM markets and continued
softness 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 was reclassified as a component of cost of revenues from R&D started in the fiscal year of 2009 as revenue was generated from these assets. The amortization of acquired intangible assets as a component of cost of
revenues relates primarily to royalty and license fees revenues derived from our imaging and optics technologies. 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 imaging and optics technologies, the product and service revenues component of total revenues, and on the mix of product sales to
semiconductor optics and communications industries. Cost of revenues for the three months ended September 30, 2009 was $3.9 million, as compared to $4.1 million for the three months ended September 28, 2008, a decrease of $0.2 million, or 5%. Cost
of revenues for the nine months ended September 30, 2009 was $11.9 million, as compared to $12.8 million for the nine months ended September 28, 2008, a decrease of $0.9 million, or 7%. The decrease in each period was primarily attributable to the
transition of our resources from government funded projects into research and development projects and a decrease in personnel expense, partially offset by increases in amortization of acquired intangible assets and depreciation expense.



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Research, Development and Other Related Costs

R&D costs for the three months ended September 30, 2009 were $16.8 million, an increase of $0.9 million, or 6%, as compared to $15.9 million for the
three months ended September 28, 2008. The increase in the three month period was primarily due to increased personnel related and equipment expenses of $1.7 million for increased labor hours spent on various research projects, offset by a
decrease in amortization expense of acquired intangible assets of $1.0 million reclassified to cost of revenues as revenue was generated utilizing these assets. R&D costs for the nine months ended September 30, 2009 were $50.3 million, an
increase of $5.4 million, or 12%, as compared to $44.9 million for the nine months ended September 28, 2008. The increase in the nine month period was primarily due to increased personnel related and equipment expenses of $5.6 million primarily
related to increased labor hours spent on various research projects in line with our research and development strategy, increased stock-based compensation expense of $2.9 million, increased outside services of $1.0 million and increased depreciation
expense of $0.6 million related to capital additions. These increases were offset by the one-time charge of $2.5 million occurring in the first quarter of 2008 related to in-process research and development acquired through an acquisition and also
by a decrease in amortization expense of acquired intangible assets of $2.8 million reclassified to cost of revenues. R&D headcount decreased from 280 at September 28, 2008 to a total of 269 at September 30, 2009.

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 (SG&A) expenses for the three months ended September 30, 2009 were $19.5 million, an increase of $1.6 million, or 9%, as compared to $17.9 million for the three months ended
September 28, 2008. The increase was mainly attributable to increased legal, tax and consulting expenses of $1.1 million related to corporate development activity in pursuit of our ongoing investigations of various businesses and technologies
that we might acquire to further our strategic goals, increased amortization and depreciation expense of $0.5 million from acquired intangible assets and capital additions, and increased stock-based compensation expense of $0.3 million, offset by a
decrease in travel and entertainment spending of $0.3 million. SG&A expenses for the nine months ended September 30, 2009 were $54.2 million, an increase of $3.4 million, or 7%, as compared to $50.8 million for the nine months ended
September 28, 2008. The increase was primarily attributable to an increase of $1.6 million in legal, tax and consulting expenses, $1.2 million in amortization and depreciation expense from acquired intangible assets and capital additions, $0.8
million in facilities expense related to the new corporate headquarters and $0.5 million in stock-based compensation expense.

Litigation
Expense.Litigation expense for the three months ended September 30, 2009 was $6.1 million, a decrease of $23.1 million, or 79%, as compared to $29.2 million for the three months ended September 28, 2008. Litigation expense for
the nine months ended September 30, 2009 was $20.2 million, a decrease of $46.4 million, or 70%, as compared to $66.6 million for the nine months ended September 28, 2008. The decreases were primarily attributable to a decrease in case
activities in our legal proceedings in 2009. Refer to Part II, Item 1Legal Proceedings for additional details.

We expect
that litigation expense 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 following table sets forth our stock-based
compensation expense for the periods indicated (in thousands):



|                                            |  |                    |       |                   |   |                   |  |                   |        |  |   |       
|------------------------------------------- |  | ------------------ | ----- | ----------------- | - | ----------------- |  | ----------------- | ------ |  | - | ------
|                                            |  | Three Months Ended |       | Nine Months Ended
|                                            |  | September 30,2009  |       | September 28,2008 |   | September 30,2009 |  | September 28,2008
|Cost of revenues                            |  | $                  | 199   |                   | $ | 92                |  | $                 | 450    |  | $ | 345   
|Research, development & other related costs |  |                    | 2,379 |                   |   | 2,457             |  |                   | 8,489  |  |   | 5,571 
|Selling, general & administrative           |  |                    | 4,312 |                   |   | 4,046             |  |                   | 11,498 |  |   | 10,966
|                                            |  |                    |       |                   |   |                   |  |                   |        |  |   |       
|Total stock-based compensation expense      |  | $                  | 6,890 |                   | $ | 6,595             |  | $                 | 20,437 |  | $ | 16,882
|                                            |  |                    |       |                   |   |                   |  |                   |        |  |   |       



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The stock-based compensation expense categorized by various equity components for the periods presented is
summarized in the table below (in thousands):



|                                       |  |                    |       |                   |   |                   |  |                   |        |  |   |       
|-------------------------------------- |  | ------------------ | ----- | ----------------- | - | ----------------- |  | ----------------- | ------ |  | - | ------
|                                       |  | Three Months Ended |       | Nine Months Ended
|                                       |  | September 30,2009  |       | September 28,2008 |   | September 30,2009 |  | September 28,2008
|Employee stock options                 |  | $                  | 4,152 |                   | $ | 3,906             |  | $                 | 12,106 |  | $ | 9,430 
|Restricted stock awards and units      |  |                    | 2,298 |                   |   | 2,480             |  |                   | 7,016  |  |   | 6,479 
|Employee stock purchase plan           |  |                    | 440   |                   |   | 209               |  |                   | 1,315  |  |   | 973   
|                                       |  |                    |       |                   |   |                   |  |                   |        |  |   |       
|Total stock-based compensation expense |  | $                  | 6,890 |                   | $ | 6,595             |  | $                 | 20,437 |  | $ | 16,882
|                                       |  |                    |       |                   |   |                   |  |                   |        |  |   |       

Stock-based compensation awards included employee stock options, restricted stock and employee stock
purchases under our 2003 Employee Stock Purchase Plan. Stock-based compensation expense for the three months ended September 30, 2009 and September 28, 2008 was $6.9 million and $6.6 million, respectively. Stock-based compensation expense
for the nine months ended September 30, 2009 and September 28, 2008 was $20.4 million and $16.9 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 resulted 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 expenses, net, for the three and nine months ended September 30, 2009 was income of $0.6 million and $4.4 million, respectively. Other
income and expenses, net, for the three and nine months ended September 28, 2008 was expense of $1.0 million and income of $3.3 million, respectively. Other income and expense, net for the three month period ended September 30, 2009
increased as compared to 2008 primarily due to $2.4 million of other-than-temporary impairment of our asset-backed securities, including our mortgage-backed securities (collectively ABS) and minority equity investment in 2008, offset by
decrease in interest income contributed by lower interest rates on our investments despite increase in our cash balance. Other income and expense, net, for the nine month period ended September 30, 2009 increased as compared to 2008 primarily
due to $3.5 million interest payment from Amkor in February 2009 on the $60.6 million awarded by the arbitration panel for Amkors material breach of its license agreement, offset by a decrease in interest income as a result of lower interest
rates on our investments.

Provision for Income Taxes

The provision for income taxes for the three and nine months ended September 30, 2009 and 2008 was $8.3 million and $47.3 million, respectively, and was comprised of domestic income tax and foreign
income and withholding tax. The provision for income taxes for the three months and nine months ended September 28, 2008 was $0.8 million and $10.4 million, respectively, and was comprised of domestic income tax and foreign income and
withholding tax. Our income tax provision is based on our worldwide estimated annualized effective tax rate except for jurisdictions for which a loss is expected for the year and for which no benefit can be realized for those losses. With respect to
the latter, tax is based on actual withholding taxes for the quarter. The increase in the income tax provision for the three and nine months ended September 30, 2009 as compared to the three and nine months ended September 28, 2008 was
primarily attributable to the increase in pre-tax income for the period, taxed at the statutory income tax rate.

Segment Operating Results

Prior to 2009, we had two reportable segments: Intellectual Property segment and Product and Service segment. As of January 1, 2009,
we reorganized the reporting units underlying these reportable segments resulting in two new reportable segments: Micro- electronics segment and Imaging and Optics segment. 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 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 development efforts and licensing business in our imaging and
optics market, such as our wafer level image sensor packaging and image enhancement solutions. The second is our product and services business. This includes the manufacture of small form factor micro-optics and our Product Launch Services, through
which we will deliver state-of-the-art imaging solutions such as our OptiML single-element VGA lens directly to manufacturers.



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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.

We adjusted our historical results to reflect a reorganization from the reportable segments previously reported.

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



|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|--------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ----------------- | - |  | - | ------- | -
|                                  |  | Three Months Ended |         |   | Nine Months Ended |  
|                                  |  | September 30,2009  |         |   | September 28,2008 |   |         | September 30,2009 |  |   | September 28,2008 |  
|Revenues:                         |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Micro-electronics:                |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Royalty and license fees          |  | $                  | 59,060  |   |                   | $ | 56,035  |                   |  | $ | 221,199           |   |  | $ | 150,858 |  
|Product and service revenues      |  |                    | 3       |   |                   |   | 554     |                   |  |   | 48                |   |  |   | 3,775   |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Total Micro-electronics revenues  |  |                    | 59,063  |   |                   |   | 56,589  |                   |  |   | 221,247           |   |  |   | 154,633 |  
|                                  |  |                    |         |  
|Imaging and Optics:               |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Royalty and license fees          |  |                    | 3,684   |   |                   |   | 1,552   |                   |  |   | 13,271            |   |  |   | 6,913   |  
|Product and service revenues      |  |                    | 3,376   |   |                   |   | 5,360   |                   |  |   | 8,452             |   |  |   | 17,620  |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Total Imaging and Optics revenues |  |                    | 7,060   |   |                   |   | 6,912   |                   |  |   | 21,723            |   |  |   | 24,533  |  
|Corporate overhead                |  |                    |        |   |                   |   |        |                   |  |   |                  |   |  |   |        |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|                                  |  |                    |         |  
|Total revenues                    |  |                    | 66,123  |   |                   |   | 63,501  |                   |  |   | 242,970           |   |  |   | 179,166 |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|                                  |  |                    |         |  
|Operating expenses:               |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Micro-electronics Segment         |  |                    | 15,328  |   |                   |   | 39,606  |                   |  |   | 48,808            |   |  |   | 95,774  |  
|Imaging and Optics Segment        |  |                    | 19,311  |   |                   |   | 17,857  |                   |  |   | 55,966            |   |  |   | 50,401  |  
|Corporate overhead                |  |                    | 11,603  |   |                   |   | 9,592   |                   |  |   | 31,888            |   |  |   | 28,913  |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|                                  |  |                    |         |  
|Total operating expenses          |  |                    | 46,242  |   |                   |   | 67,055  |                   |  |   | 136,662           |   |  |   | 175,088 |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|                                  |  |                    |         |  
|Operating income (loss)           |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Micro-electronics Segment         |  |                    | 43,735  |   |                   |   | 16,983  |                   |  |   | 172,439           |   |  |   | 58,859  |  
|Imaging and Optics Segment        |  |                    | (12,251 | ) |                   |   | (10,945 | )                 |  |   | (34,243           | ) |  |   | (25,868 | )
|Corporate overhead                |  |                    | (11,603 | ) |                   |   | (9,592  | )                 |  |   | (31,888           | ) |  |   | (28,913 | )
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|                                  |  |                    |         |  
|Total operating income (loss)     |  | $                  | 19,881  |   |                   | $ | (3,554  | )                 |  | $ | 106,308           |   |  | $ | 4,078   |  
|                                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  

The revenues and operating income amounts in this section have been presented on a basis consistent
with 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 September 30, 2009, corporate overhead expenses were $11.6 million as compared to $9.6 million for the three months ended September 28, 2008. The increase of $2.0 million was mainly attributable to an increase in legal, tax
and consulting expenses of $1.2 million, of which $1.1 million was primarily related to corporate development activity in pursuit of our ongoing investigations of various businesses and technologies that we might acquire to further our strategic
goals, and personnel and stock-based compensation expense of $0.8 million. For the nine months ended September 30, 2009, corporate overhead expenses were $31.9 million compared to $28.9 million for the nine months ended September 28, 2008.
The increase from the nine months ended September 28, 2008 was mainly attributable to an increase in personnel and stock-based compensation expense of $1.7 million, insurance and facility related expense of $1.5 million, legal, tax and
consulting expenses of $1.1 million related to corporate development activity in pursuit of our ongoing investigations of various businesses and technologies that we might acquire to further our strategic goals, offset by a decrease in outside
services of $1.1 million.

Micro-electronics Segment

Micro-electronics revenues for the three months ended September 30, 2009 were $59.1 million as compared to $56.6 million for the three months ended September 28, 2008, which represented an
increase of $2.5 million, or 4%. The increase was primarily attributed to royalty and license fees received from a former defendant in an ITC infringement case, revenue from one-time self audits reported



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by our licensees, offset by the lower demand in wireless and DRAM markets, offset by a reduction in service revenue from government funded projects. Micro-electronics revenues for the nine months
ended September 30, 2009 were $221.2 million as compared to $154.6 million for the nine months ended September 28, 2008, which represented an increase of $66.6 million, or 43%. The increase was primarily attributed to royalty revenue of
$60.6 million from Amkor, awarded by an arbitration panel for Amkors material breach of its license agreement with Tessera, and option and license fees received from a former defendant in an ITC infringement case, offset by the overall lower
demand in wireless and DRAM markets.

Micro-electronics revenues consist primarily of royalties received from our TCC licensees. Such royalty
revenues are distributed between two primary market segments: DRAM (Dynamic Random Access Memory) 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 be to 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 be to cause, depending on the relative DRAM market share enjoyed by these two DRAM manufacturers in a given calendar quarter and their
royalty payments within a calendar year, some quarter-to-quarter 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 September 30, 2009 were $15.3 million and consisted primarily of cost of revenues of $0.1 million,
R&D costs of $6.7 million, SG&A costs of $2.4 million and $6.1 million in litigation expense. Operating expenses for the three months ended September 30, 2009 of $15.3 million represented a decrease of $24.3 million as compared to $39.6
million for the three months ended September 28, 2008, which was primarily attributable to a decrease in litigation expense of $23.1 million and a decrease in personnel and stock-based compensation expense of $1.5 million.

Operating expenses for the nine months ended September 30, 2009 were $48.8 million and consisted primarily of cost of revenues of $0.4 million, R&D
costs of $21.5 million, SG&A costs of $6.7 million and $20.2 million in litigation expense. Operating expenses for the nine months ended September 30, 2009 of $48.8 million represented a decrease of $47.0 million as compared to $95.8
million for the nine months ended September 28, 2008, which was primarily attributable to a decrease in litigation expense of $46.4 million and a decrease of $3.7 million in personnel and stock-based compensation expense, offset by an increase
in outside consulting expenses of $2.5 million.

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 September 30, 2009 and September 28, 2008 was $43.7 million and $17.0 million, respectively, which represented an increase of $26.7 million, or 157%, for the reasons stated above.
Operating income for the nine months ended September 30, 2009 and September 28, 2008 was $172.4 million and $58.9 million, respectively, which represented an increase of $113.5 million, or 193%, for the reasons stated above.

Imaging and Optics Segment

Imaging and
Optics revenues for the three months ended September 30, 2009 were $7.1 million as compared to $6.9 million for the three months ended September 28, 2008, a decrease of $0.2 million, or 3%. Imaging and optics revenues for the nine months
ended September 30, 2009 were $21.7 million as compared to $24.5 million for the nine months ended September 28, 2008, a decrease of $2.8 million, or 11%. The decreases in Imaging and Optics revenues were primarily attributable to
continued softness in the photolithography industry.

Operating expenses for the three months ended September 30, 2009 were $19.3 million
and consisted of cost of revenues of $3.8 million, R&D costs of $10.1 million and SG&A costs of $5.4 million. Operating expenses for the three months ended September 28, 2008 were $17.9 million. The increase of $1.4 million in total
operating expenses from the three months ended September 28, 2008 was primarily due to increases in personnel related and stock-based compensation expenses of $1.3 million and an increase in facilities and depreciation expense of $0.5 million,
offset by decreased operating material and other expenses of $0.4 million.

Operating expenses for the nine months ended September 30,
2009 were $56.0 million and consisted of cost of revenues of $11.6 million, R&D costs of $28.7 million and SG&A costs of $15.7 million. Operating expenses for the nine months ended September 28, 2008 were $50.4 million. The increase of
$5.6 million in total operating expenses from the nine months ended September 28, 2008 was primarily due to increases in personnel related expenses of $3.7 million, increases in stock-based compensation expense of $3.5 million, and an increase
in facilities and depreciation expense of $0.7 million, offset by the one-time charge of $2.5 million in-process research and development expense from the FotoNation acquisition in the first quarter of 2008.



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Operating loss for the three months ended September 30, 2009 and September 28, 2008 was $12.3
million and $10.9 million, respectively, which represented an increased loss of $1.4 million, or 13%, for the reasons stated above. Operating loss for the nine months ended September 30, 2009 and September 28, 2008 was $34.2 million
and $25.9 million, respectively, which represented an increased loss of $8.3 million, or 32%, for the reasons stated above.

Liquidity and
Capital Resources



|                                                                   |  |                        |         |   |                       |   |          |  
|------------------------------------------------------------------ |  | ---------------------- | ------- | - | --------------------- | - | -------- | -
|(in thousands, except for percentages)                             |  | As ofSeptember 30,2009 |         |   | As ofDecember 31,2008 |  
|Cash and cash equivalents                                          |  | $                      | 160,412 |   |                       | $ | 87,890   |  
|Short-term investments                                             |  |                        | 217,946 |   |                       |   | 188,610  |  
|Long-term investments                                              |  |                        | 18,714  |   |                       |   | 22,134   |  
|                                                                   |  |                        |         |   |                       |   |          |  
|                                                                   |  |                       
|Total cash, cash equivalents, short-term and long-term investments |  | $                      | 397,072 |   |                       | $ | 298,634  |  
|                                                                   |  |                        |         |   |                       |   |          |  
|                                                                   |  |                       
|Percentage of total assets                                         |  |                        | 66      | % |                       |   | 60       | %
|                                                                   |  |                        |         |   |                       |   |          |  
|                                                                   | 
|                                                                   |  | Nine Months Ended      |        
|                                                                   |  | September 30,2009      |         |   | September 28,2008     |  
|Net cash provided by operating activities                          |  | $                      | 101,032 |   |                       | $ | 48,472   |  
|Net cash used in investing activities                              |  | $                      | (50,868 | ) |                       | $ | (202,137 | )
|Net cash provided by (used in) financing activities                |  | $                      | 22,358  |   |                       | $ | (783     | )

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 $397.1 million at September 30, 2009, an increase of $98.5 million from $298.6 million at December 31, 2008. Cash and cash
equivalents were $160.4 million at September 30, 2009, an increase of $72.5 million from $87.9 million at December 31, 2008. The increase in cash and cash equivalents was primarily the result of $101.0 million in cash provided by operating
activities and $22.4 million in cash provided by financing activities, offset by $50.9 million net cash used in investing activities.

Cash
flows provided by operating activities were $101.0 million for the nine months ended September 30, 2009, primarily due to net income of $63.4 million, adjusted for non-cash items of depreciation and amortization of $15.6 million, impairment
charge of long-term investments of $0.8 million, stock-based compensation expense of $20.4 million, offset by a decrease in accrued legal fees of $7.4 million.

Cash flows provided by operating activities were $48.5 million for the nine months ended September 29, 2008, primarily due to non-cash adjustments for depreciation and amortization of $13.8 million,
in-process R&D expense of $2.5 million, and stock-based compensation expense of $16.9 million, a decrease in accounts receivable of $8.0 million and an increase in accrued legal fees of $9.8 million, offset by net loss of $3.0 million.

Net cash used in investing activities was $50.9 million in the nine months ended September 30, 2009, primarily related to purchases of
short-term investments of $195.4 million, purchases of property and equipment of $12.3 million, net cash paid for acquisitions and intangible assets of $15.4 million, offset by proceeds from maturities and sales of investments of $172.1 million.

Net cash used in investing activities was $202.1 million in the nine months ended September 28, 2008, primarily related to purchases of
short-term and long-term investments of $393.9 million, purchases of property and equipment of $6.7 million, net cash paid for the acquisition of FotoNation and certain intangible assets and equity investment of $32.0 million and $7.8 million,
respectively, offset by proceeds from maturities and sales of short-term and long-term investments of $238.2 million.

The primary objective of
our investment activities is to preserve principal and maintain liquidity while at the same time capturing a market rate of return. To achieve this objective, we maintain our portfolio of cash equivalents, short-term and long-term investments in a
variety of securities, including treasury and government agency notes and bills, municipal bonds and notes, corporate bonds and notes, auction rate municipal securities, asset-backed and mortgage-backed securities and money market funds. 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 loss. Unrealized losses and declines in value judged 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.



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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. We also have a small portfolio of investments in auction rate municipal bond securities (ARS) which are classified as trading and are reported at fair value, with unrealized gains and losses recorded in the
other income and expense, net.

In November 2008, we entered into an agreement with UBS which granted us and UBS various rights (the
Rights), including the right to permit us to sell the ARS investments to UBS at par value at any time during a two-year period beginning June 30, 2010 and gave UBS the right to call such securities at par value. The Rights are an
unsecured obligation of UBS and are not transferable by Tessera. We have elected to record the Rights, a free-standing asset aside from the ARS investments, at fair value. Upon acceptance of the Rights, we recorded the change in fair value of the
Rights in other assets with an offsetting entry to other income and expense, net. Additionally, in conjunction with the acceptance of the Rights, we reclassified the ARS investments from available-for-sale to trading classifications to reflect our
intention to exercise the Rights during the relevant two-year period. As a trading security, unrealized gains and losses are to be recorded in current period earnings. For the nine month period ended September 30, 2009, we recorded $2.7 million
of unrealized gains in relation to the increase in the fair value of the ARS investments and an offsetting entry of approximately $2.7 million related to the decrease in fair value of the Rights. The fair value of the Rights was based on our
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. This value was discounted using UBSs credit default swap rate to account for the counterparty risk. We
expect that future changes in the fair value of the Rights will approximate fair value movements in the related ARS.

In connection with the
liquidity issues experienced in the global credit and capital markets, our ABS and ARS investment portfolio has experienced failed auctions or thinly traded markets. However, we continue to earn and receive interest on these investments at the
maximum contractual rate. Due to the lack of observable market quotes on our ARS and ABS 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. We recorded impairment
charges related to the ABS investment portfolio that decreased pre-tax income by $0.8 million in the first nine months of 2009, net of realized loss resulted from sales of these securities. Unrealized loss of $0.03 million, net of tax, related to a
temporary increase in the fair value of the remaining available-for-sale securities were recorded in accumulated other comprehensive loss as an increase in stockholders equity at September 30, 2009.

We continue to monitor the market for ARS and 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 other
comprehensive loss, which could negatively affect our financial condition, statement of operations or cash flow. We have the ability to hold these securities until the market recovers or until they reach maturity. We do not anticipate having to sell
these securities in order to operate our business. We believe that based on our cash, cash equivalents and short-term investment balances of $378.4 million at September 30, 2009 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.

Net cash from financing
activities was $22.4 million for the nine months ended September 30, 2009, due to $17.7 million from the issuance of common stock for exercise of stock options and purchase made under our employee stock purchase plans and $4.6 million of excess
tax benefits from stock compensation expense for the period. Net cash used in financing activities was $0.8 million in the nine months ended September 28, 2008, due to the repurchase of common stock for $10.0 million offset by $4.1 million from
the issuance of common stock under our employee stock option programs and employee stock purchase plans and $5.0 million from excess tax benefits from stock-based compensation expense.

In August 2007, our Board of Directors authorized a plan to repurchase up to a maximum total of $100 million of our outstanding shares of common stock dependent on market conditions, share price and other
factors. Repurchases may take place in the open market or through private transactions. There were no repurchases made during the nine months ended September 30, 2009. As of September 30, 2009, we have repurchased a total of 645,000 shares
of common stock at a total cost of $10.5 million under this plan.

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.



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Contractual Cash Obligations



|                            |  |                        |        |          |   |          |  |            |       |  |   |      
|--------------------------- |  | ---------------------- | ------ | -------- | - | -------- |  | ---------- | ----- |  | - | -----
|                            |  | Payments Due by Period
|                            |  | Total                  |        | 1-3Years |   | 4-5Years |  | Thereafter
|                            |  | (In thousands)        
|Operating lease obligations |  | $                      | 10,265 |          | $ | 4,062    |  | $          | 3,645 |  | $ | 2,558
|Purchase obligations        |  |                        | 797    |          |   | 797      |  |            |      |  |   |     
|                            |  |                        |        |          |   |          |  |            |       |  |   |      
|Total                       |  | $                      | 11,062 |          | $ | 4,859    |  | $          | 3,645 |  | $ | 2,558
|                            |  |                        |        |          |   |          |  |            |       |  |   |      

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

Since the adoption of the authoritative guidance on the accounting for uncertainty in income taxes on January 1, 2007, unrecognized tax benefits, including accrued interest and penalties,
approximated $4.5 million. 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.

Off-Balance Sheet Arrangements and Related Party Transactions

As of September 30, 2009, we did not have any off-balance sheet arrangements as defined in item 303(a)(4)(ii) of Regulation S-K.

In September 2007, the Company licensed its OptiML Wafer-Level Camera technology and SHELLCASE Wafer-Level Chip Scale Packaging solutions to NemoTek Technologie S. A. (NemoTek), a supplier of
camera solutions for the mobile phone market. In December 2007, the Company made an investment of $0.5 million in NemoTek. In February 2009, the Company invested an additional $1.4 million in NemoTek. As of September 30, 2009, the total
investment by the Company in NemoTek is approximately $1.9 million and represents less than a 10 percent holding in NemoTek. For the three and nine months ended September 30, 2009, revenue from NemoTek represented zero and $1.1 million, or,
less than one percent of total revenue, respectively. For the three and nine months ended September 28, 2008, revenue from NemoTek represented $0.3 million and $0.8 million, or less than one percent of the Companys total revenue,
respectively. The amount due from NemoTek as of September 30, 2009 was $0.2 million. As of December 31, 2008, the amount due from NemoTek under the license was $1.5 million.

Critical Accounting Estimates

During the three and nine months ended September 30,
2009 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 2008 Annual Report on Form 10-K, filed February 27, 2009.

Recent Accounting Pronouncements

See Note 3Recent Accounting Pronouncements of Notes to 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 2008 Annual Report on Form 10-K, filed on February 
27, 2009.

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.



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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 has been no change
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.

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 June 30, 2009, 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. The Company expects that potential damages will continue to accrue during the stay period. Upon completion of the ITC actions, 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 June 30, 2009, on December 18, 2006, the Company filed a complaint against Hynix Semiconductor Inc. and Hynix Semiconductor
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(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.

Fact discovery in the action is currently closed, and expert discovery is ongoing. 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. Those motions are currently pending. On July 10, 2009, the court granted in part Hynixs motion to continue the trial
date, but ruled that all discovery deadlines would remain as previously scheduled. No new trial date has been set yet.

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. Micronaction 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. A hearing on the coordination petition is scheduled for November 6, 2009. 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 June 30, 2009, 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.



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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

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, 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



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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 October 30, 2009, the Respondents filed their appellate briefing regarding the merits of the ITCs ruling. Tessera will have the opportunity to
respond.

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
June 30, 2009, 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 a decision in 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)

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, 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



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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. (collectively A-DATA) 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 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. (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 will review, among
other things, whether the respondents infringed the Tessera patents asserted in the action. The Commissions Final Determination is currently scheduled to be issued by December 29, 2009.

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
June 30, 2009, 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



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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.

In the Matter of Certain Semiconductor Chips with
Minimized Chip Package Size and Products Containing Same (IV), ITC No. 337-TA-649

As reported in previous SEC filings, including our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, on April 21, 2008, 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 granted Companys request and instituted the investigation on May 28, 2008. The respondents include Siliconware Precision Industries Co., Ltd., STATS ChipPAC, Ltd., ASE Inc. and ChipMOS Technologies, Inc., as well as
several of these companies affiliates.

Tessera requested that the ITC investigate, among other things, infringement of U.S. Patent Nos.
5,679,977, 5,852,326 and 6,433,419, 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.

This ITC
action was assigned to Judge Essex. On June 13, 2008, Judge Essex issued an order setting the target for completion of the investigation at August 28, 2008, with an initial determination to be issued no later than May 28, 2009. A
seven-day hearing was tentatively scheduled to begin on February 5, 2009. On September 30, 2008, Judge Essex issued an order granting the parties joint request to extend the hearing date and rescheduled the hearing to begin on
March 16, 2009, with a new target completion date of November 2, 2009. On October 29, 2008, Judge Essex issued an order granting Tesseras request to add another patent, U.S. Patent No. 5,663,106, to this investigation.
The Judge granted an additional extension in the procedural schedule, hearing date and target date to accommodate additional discovery for the newly added patent. Under the new schedule, the hearing was scheduled to begin on April 27, 2009, the
Judges initial determination was due on August 7, 2009, and the target date for completion of the investigation was December 7, 2009.

On February 2, 2009, after receiving notice that the Commission had determined to review the Initial Determination in Tesseras co-pending Investigation No. 337-TA-605, Tessera filed a motion to stay the 337-TA-649
investigation pending the issuance of a Final Determination from the ITC in the 337-TA-605 Investigation, which addresses common issues. On February 10, 2009, Judge Essex issued an Order granting Tesseras motion and staying the action,
except as to certain enumerated discovery matters. The February 10, 2009 Order also extended the deadline for an Initial Determination in Investigation No. 337-TA-649 until October 8, 2009, and the target date for completion of that
investigation until February 10, 2010.

On March 12, 2009, Tessera filed a Motion for Termination of the action, noting that it
appeared highly unlikely that an effective Trade Alert could be in place materially before the expiration of certain asserted patents, as well as certain changes in ITC case law since the institution of this case relating to the remedies. Certain of
the respondents have consented to termination, and others consented in part and opposed in part. On July 17, 2009, Judge Essex granted Tesseras motion to terminate the investigation. In a separate order issued on the same date, Judge
Essex found that respondent Siliconware Precision Industries, Ltd. had violated certain court orders in the action.

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 June 30, 2009, 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.

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.



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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 June 30, 2009, 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.

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 June 30, 2009, 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.

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 June 30, 2009, 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. (UTAC) alleging breach of contract for failure to pay Tessera the full royalty due under its license agreement. The Company is also alleging 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 denies generally the allegations in UTACs cross-complaint, and asserts various affirmative defenses. Fact discovery in the case is now underway.

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
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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.

Discovery is in progress, and various discovery disputes have been submitted to the Court. Tessera has sought summary adjudication regarding two contract
issues, and hearings on those motions are currently set for November 20, 2009 and December 11, 2009, respectively. Trial in the UTAC action has been set for January 11, 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.

Reexamination Proceedings

As reported in previous SEC filings, including our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, 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.

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



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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 will have an opportunity to respond.

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.

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, 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, 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. On July 13, 2009, Tessera filed a petition to withdraw the Right of Appeal Notice. Having not yet received a decision on the petition of July 13, 2009, Tessera filed a Notice of Appeal on July 22, 2009. Tessera
timely filed an appeal brief on October 5, 2009.

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. Tessera is currently awaiting issuance of further action by the PTO.

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 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 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



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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. 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 above, 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 June 30, 2009, 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.

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 June 30, 2009, on or about March 1, 2009, Spansion LLC, Spansion, Inc. and Spansion Technology LLC 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.

Amkor Technology, Inc. v. Tessera

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. The Company has not yet answered the request. The Company is
scheduled to file its Answer and Counter-Claims to Amkors request for arbitration on November 2, 2009.

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.

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.



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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 United
States. 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 United States 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



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parties, the ability of the parties to make any 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 intellectual property rights. If we fail to protect our intellectual property rights, our licensees and others may seek to use our technology 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 protection in a timely manner, our ability to
convince third parties of the applicability of our intellectual property 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 intellectual property, 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 claims included in our patent applications, others could use portions of our 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 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 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 proprietary rights to the same extent as do the laws and enforcement regimes of the United States. Therefore, in certain
jurisdictions we may be unable to protect our technology 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 United States 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, and 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, could have a deleterious affect on our licensing program and, therefore, the royalties we can collect.

The market for semiconductors and related products is highly concentrated, and we 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



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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.

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 phones. 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. Moreover,
were such declines to occur, our business could become more cyclical in nature.

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 nine months ended September 30, 2009, there were three customers 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.

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 in respect of royalties due us under their respective TCC licenses based on several factors, including volumes. The effect of the volume pricing adjustments may be to 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 be to cause, depending on the relative DRAM
market share enjoyed by these two DRAM manufacturers in a given calendar quarter and their royalty payments within a calendar year, some quarter-to-quarter fluctuations in growth in our revenues from the DRAM segment.

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 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.

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) 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 could not 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.



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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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------

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 standard terms of our license agreements require our licensees to document the manufacture and sale of products that
incorporate our technology and report this data to us on a quarterly basis. Although our standard license terms give us the right to audit books and records of our licensees to verify this information, audits can be expensive, time consuming, flawed
and potentially detrimental to our ongoing business relationship with our licensees. Our license compliance program randomly audits licensees to independently verify 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 the random audits will be effective to that end.

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, 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 of semiconductor manufacturers, assemblers and electronic and system manufacturers. These internal design groups create their own packaging and optics solutions, and have direct access to their companys technical
information and technology roadmaps, and have capacity, cost and technical advantages over us. 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 provides products with higher performance or additional features. Many of these groups have substantially greater resources, financial or otherwise, than
us and lower cost structures, and the inherent advantage of internal access to corporate strategies. As a result, they may be able to bring alternative solutions to market more easily and quickly. For instance, 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 packages that are also gaining popularity.
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 are the chip-on-board technique to package image sensors and the system-in-package technology that can integrate multiple die without chip-scale packaging.



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In the future, our licensed technologies may also compete with other technologies. 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 us. 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 2009 through 2027. We need to develop or acquire successful innovations and obtain new patents 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 relationship 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------



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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 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 also face financial difficulties and may seek insolvency proceedings such as bankruptcy and restructuring which may result in their inabilities to make payments to us timely 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 acquired technology into our products may not be accepted by
customers.

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

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 licensees, which would in
turn harm our operating results.

Under our services contracts we are required to perform certain services, in some cases including delivering
designs and prototypes. If we fail to deliver as required under our service 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 the semiconductor industry adopts our technologies. For example, we provide modeling, manufacturing process training, equipment and materials characterization and other services to assist licensees in designing,
implementing, upgrading and maintaining their packaging assembly line. We frequently provide these services as a form of training to introduce new licensees to our technology and existing clients to new technologies, with the aim that these services
will help us to generate revenues in the future. We need to monitor these



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services adequately in order to ensure that we do not incur significant expenses without generating corresponding revenues. Our failure to monitor these services or our design and prototype
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 and optics 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 and 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.

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 comparisons of our results of operations as an indication of our future performance. Factors that could cause our operating results to
fluctuate during any period include those listed in this Risk Factors section of this report and the following:



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



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



| |  |  | the amount of our 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 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. Under our typical license agreements, we also receive ongoing royalty payments, and these payments may fluctuate significantly from period to



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period based on manufacture or sales of products incorporating our licensed technology. 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 a quarterly period.

Due to fluctuations in our quarterly operating results, reports from market and security analysts, litigation-related developments, and other factors, the price at which our common stock will trade may 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 September 30, 2009, we held $160.4 million in cash and cash equivalents and $236.7 million in short-term and long-term investments. These sums were invested in various financial securities such as
corporate and municipal bonds, variable rate demand notes, asset-backed obligations, auction rate securities, commercial paper, treasury and agency notes and bills, money market funds, and cash held at bank demand accounts. The ongoing financial
turmoil, originally caused by the sub-prime mortgage crisis in the United States, 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 negative adverse effect on our financial condition, results of operations or cash flows.

Our investments as of September 30, 2009 include $16.8 million in auction rate municipal bond securities (ARS) and $1.9 million in asset-backed securities, including mortgage-backed securities (collectively
ABS). In connection with the liquidity issues experienced in the global credit and capital markets, our ARS and ABS holdings have experienced failed auctions or thinly traded markets. A failed auction results when sell orders exceed buy
orders. For the nine months ended September 30, 2009, we recorded a loss to earnings of $0.8 million due to an other-than-temporary impairment of ABS investments and a gain of $2.7 million on the increase in fair value of our ARS investments,
offset by a loss of $2.7 million to earnings related to the UBS rights discussed in Note 14  Fair Value in the Notes to Condensed Consolidated Financial Statements in this report. In addition, we have recorded net unrealized
losses of $29,000, net of tax, in accumulated other comprehensive loss as a reduction in stockholders equity, reflecting adjustments to the remaining available-for-sale securities with a temporary decline in value. As a result of auction
failures and thinly traded markets, our ability to liquidate and fully recover the carrying value of our ARS and ABS in the near term may be limited or not exist. We may be required to wait until market stability is restored for these instruments or
until the final maturity of the underlying notes to realize our investments recorded value. If uncertainties in these credit and capital markets continue, these markets deteriorate further or we experience any additional deterioration in
underlying collateral on any investments in our portfolio, we may incur impairment charges or additional unrealized losses, and investments may be reclassified as long-term investments in our financial statements in future reporting periods. These
events could negatively affect our financial condition, results of operations or cash flows.

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

Recent worldwide economic and market
conditions have been unprecedented and challenging with a global recession and worsening credit conditions continuing in 2009. Slower economic activity, increased unemployment, the continued crisis in the financial and credit markets, 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 global recession. This
global recession 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
U.S. and foreign 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 crisis in the capital and credit markets limits 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



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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 services business relies at least
in part upon the outsourcing of design and engineering projects by the semiconductor industry. Semiconductor manufacturers and package assembly companies generally sharply curtail their spending during industry downturns, such as in the current
global recession, 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, or interpretations of, financial accounting standards or practices or existing taxation rules or practices may cause adverse
unexpected revenue and expense fluctuations and affect our reported results of operations.

We prepare our condensed consolidated financial
statements in accordance with GAAP. These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles. A change in accounting standards or practices or a change in existing
taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and taxation rules and varying
interpretations of accounting pronouncements and taxation practice have occurred and may occur in the future. Changes to existing rules such as the current Administrations proposals for a new U.S. international tax regime, or the questioning
of current practices, such as may result from any financial or tax audits, 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 the Note 3Recent Accounting Pronouncements of 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 United
States. We have also expanded our operations outside of the United States 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, anti-American sentiment, 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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| |  |  | 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.

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. There are several factors that could cause a restructuring 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 to our customers and other aspects of our business. Employee morale and productivity could also suffer and we may lose employees whom we want to keep. Any restructuring would require substantial
management time and attention and may divert management from other important work. If we undertake employee reductions or other restructuring activities, we may incur restructuring and related expenses that may be material to our company. Moreover,
we could encounter delays in executing any restructuring plans, which could cause further disruption and additional unanticipated expense.

We may dispose of or discontinue product lines or business divisions if our existing product lines do not fit into our strategic vision or meet forecasted results, which may adversely impact our business operations and financial
condition.

As our strategy continues to evolve and the business climate continues to change, we may dispose, discontinue, or divest our
product lines or business divisions. Disposing or discontinuing existing product lines or business divisions provides no assurance that our operating expenses will be reduced or will not cause us to incur material charges associated with such
decision. Furthermore, the disposition or discontinuance of an existing product line or business division entails various risks, including the risk of not being able to obtain a purchaser, or, if obtained, the purchase price may not be equal to at
least the net asset book value for the product line. Other risks include adversely affecting employee morale, managing the expectations of, and maintaining good relations with, our customers of our disposed or discontinued product lines or business
divisions, which could prevent us from selling other products to them. We may also incur other significant liabilities and costs associated with our disposal or discontinuance of product lines or business divisions, including employee severance
costs, relocation expenses, and impairment of lease obligations and long-lived assets.

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



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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 United States 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.

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. As a result of
the fluctuations of our stock price, many of our employees held stock options with exercise prices significantly higher than the market price of our common stock. A one-time stock option exchange program, approved by stockholders at the 2009 annual
meeting, was completed in July 2009. There is no guarantee that the program will provide the incentive to help retain and motivate our employees. 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



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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.

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 has recently declared the possibility of 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, like our employees. In addition, we have operations in the various countries worldwide, including Hungary and Romania, where the countries may be facing financial crisis. For example, the government of
Hungary implemented special taxes on corporations in 2007 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, 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.

In May 2009, we completed our purchase of certain assets and customer agreements from Dblur Technologies Ltd., a company based in Israel. In February 2008, we completed our acquisition of FotoNation, Inc., a company headquartered in
Burlingame, California. In February 2007, we acquired Eyesquad GmbH, a company based in Munich, Germany and certain assets from North Corporation, a company based in Yokohama, Japan. In July 2006, we completed our acquisition of Digital Optics
Corporation, a company based in Charlotte, North Carolina. In December 2005, we completed our acquisition of certain equipment, intellectual property and other intangible assets from Shellcase, Ltd., a company based in Israel. 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 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 and goodwill. Under 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 will likely 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.

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

Not applicable.



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Item 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

Item 5. Other Information

Not applicable.



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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 December 17, 2008 (filed as Exhibit 3.1 to the Registrants Current Report on Form 8-K, filed on December 23, 2008, 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



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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: November 2, 2009   
|                          
|Tessera Technologies, Inc.
|                           | 
|By:                        |  | /s/    Michael Anthofer                             
|                           |  | Michael Anthofer                                    
|                           |  | Executive Vice President and Chief Financial Officer



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 December 17, 2008 (filed as Exhibit 3.1 to the Registrants Current Report on Form 8-K, filed on December 23, 2008, 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



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